Anaya Nolan
A constructive trust is a legal tool used to resolve disputes and remedy situations where a person has been unfairly deprived of property or wronged through misconduct. It is a duty by one person or company to hold some property for another person or company, imposed by a court or by operation of the law. Constructive trusts are often used to change ownership of property and address several types of wrongdoing, including fraud, misrepresentation, or breach of fiduciary duty. They are distinct from resulting trusts, which are based on a person's intentions and the intention to create a trust relationship.
| Characteristics | Values |
|---|---|
| Purpose | To right a wrong relating to a person's property |
| Property ownership | The person holding the property is no longer the legal owner and is holding it for the actual owner |
| Property benefits | All benefits of the property belong to the real owner |
| Nature | Imposed by the courts or by operation of law |
| Consent | Does not require the consent of the owner of the property or assets |
| Common intention constructive trust | Occurs when two people share a common intention that one should have a beneficial interest in an asset, and that person has acted to their detriment on the basis of that intention |
| Proprietary estoppel | Requires the elements of representation, reliance, and detriment |
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What You'll Learn
Constructive trusts and property interests
The purpose of a constructive trust is to restore beneficial ownership of the trust property to the person who created the trust or the 'settlor'. This occurs when the settlor of an express trust fails to provide instructions to the trustees about what to do with the trust property. For instance, if A sets up a discretionary trust for their siblings but does not specify what should happen to the trust fund after their siblings' deaths. In such a case, the trust assets will be held on a resulting trust for A as the settlor.
Constructive trusts are often invoked to prevent unjust enrichment, where one party benefits at the expense of another. For example, if Maria gives Tom $1000 to buy her a painting at an auction, but Tom buys the painting in his name, a resulting trust occurs where Tom holds the painting for Maria. However, if Tom stole the money from Maria and then bought the painting, a constructive trust would be the result.
In the context of property interests, a constructive trust can be used to change ownership of the property and rectify a wrong that has been done. This means that the person currently holding the property is no longer the legal owner and is instead holding it for the actual owner, who was wronged by their actions. For example, if Larry stole $5000 from Ahmed and used the money to buy a used car, a judge may place the car in a constructive trust so that Larry is no longer the owner and holds the car for Ahmed, protecting the property for him.
Common intention constructive trusts are a particular type of constructive trust that addresses family property disputes. In such cases, cohabitants may claim a beneficial ownership interest through their contributions to the family or improvement of the property, despite not holding the title. For example, in a cohabiting couple scenario, the courts may deem that each party is entitled to a share in the property according to their contributions, as they acted with the assumption that the other party intended them to have a share.
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![A Selection of Cases on Resulting and Constructive Trusts / by Austin Wakeman Scott (1915) [Leather Bound]](https://m.media-amazon.com/images/I/61FbOFgXaEL._AC_UY218_.jpg)
Common intention constructive trusts
A constructive trust is a duty by one person or company to hold some property for another person or company. It is set up by a court as an "equitable remedy" to right a wrong relating to a person's property.
A common intention constructive trust can arise where two parties have legal ownership of a property but have an agreement in place for one party to have an increased beneficial equitable interest in the asset. The intention can be either expressed or inferred, but if there is no express intention, the common intention can only be inferred from the financial contribution.
In the recent Court of Appeal case of Hudson v Hathway [2022], the court had to determine whether a former cohabitant had to show detriment or a change in position when claiming a Common Intention Constructive Trust. Mr Hudson and Ms Hathway, an unmarried couple with two children, jointly purchased 'The Picnic House' in 2007. They separated in 2009, and Mr Hudson moved out of the house, but continued to pay the mortgage and upkeep of the property. Ms Hathway and their two sons continued to live in the house. After their separation, the couple agreed that their assets must be divided, but the house was not put on the market due to an unresolved insurance claim. By 2015, the children had moved out, leaving Ms Hathaway in the 10-bedroom Georgian house that Mr Hudson was still maintaining. Mr Hudson became frustrated by the lack of progress on the sale and stopped making mortgage payments. He sought an Order for Sale with a 50/50 split of the proceeds, but Ms Hathaway disputed that Mr Hudson was entitled to any proceeds, arguing that a constructive trust had been created, under which she was entitled to the entire proceeds.
The Court of Appeal found that a Constructive Trust was in place, and that Ms Hathaway had shown four separate types of detrimental reliance. This decision was surprising as it went against previous legal precedent and the equitable maxim that "Equity does not protect a volunteer".
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Resulting trusts
A resulting trust is an implied trust that arises by operation of law when property is transferred to someone who has not paid for it, and they are implied to hold the property for the benefit of another person. The beneficial ownership of the property "results" or reverts to the transferor (as an implied settlor).
In common law jurisdictions, a resulting trust is an equitable creation, rather than a common-law concept. As such, equitable defences like laches, unclean hands, and the duty to do equity may be recognised in some jurisdictions. For example, if a transferor conveys property for an unlawful purpose and benefits from it, a court might rule that the transferor has waived their right to claim a resulting trust.
In English law, there are two types of resulting trusts, as outlined by Megarry J in Re Vandervell's Trusts (No. 2) [1974]:
- A voluntary conveyance of property by A to B
- A monetary contribution by A to purchase property for B
These presumptions are rebuttable. For example, in Fowkes v Pascoe, evidence was presented that a woman had purchased stock in the names of herself and her grandson. The grandson and granddaughter-in-law's evidence that this was a gift was admissible, and the presumption of a resulting trust did not apply.
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Imposed by law
A constructive trust is a powerful and flexible legal tool imposed by law or by the courts to remedy a situation in which someone has been unfairly deprived of property or wronged through misconduct. It is a duty by one person or company to hold some property for another person or company.
Constructive trusts are institutional rather than remedial. They arise by operation of the law where it would be unconscionable for a person who holds an asset to deny the beneficial interest of another person in the asset. For example, a constructive trust may arise when a person holds funds that they know have been paid to them by mistake, or they hold an asset obtained by fraud.
The court may set aside the presumption of "equity follows the law" if it can be shown that there was a "'common intention' for the beneficial ownership to differ from the legal ownership. Common intention constructive trusts are a particular type of constructive trust, often argued in disputes about the ownership of property occupied by cohabitees. For example, a couple moves into a property together which is held in only one of their names, but the other person also contributes financially.
A constructive trust can be a temporary measure to protect the property until it is transferred back to the real owner, or it can be ongoing. For instance, in the case of Knowles v. LeBlanc (2021), a constructive trust was imposed over life insurance proceeds to prevent the unjust enrichment of the designated beneficiary (the estranged wife) at the expense of the common-law spouse who had contributed to the payments.
In conclusion, constructive trusts imposed by law serve to uphold equitable property interests and ensure that individuals or entities act with integrity and good conscience, regardless of whether a trust relationship was intended.
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Imposed by courts
A constructive trust is a legal tool imposed by courts to remedy a situation in which someone has been unfairly deprived of property or wronged through misconduct, such as fraud, misrepresentation, or a breach of fiduciary duty. It is a flexible mechanism that can be used to resolve disputes, uphold equitable interests, and protect assets.
When a court imposes a constructive trust, it establishes that the person currently holding the property is no longer the legal owner and is instead holding it for the actual owner, who has been wronged. This type of trust can address various types of wrongdoing and can be temporary or ongoing. For example, if Larry stole $5,000 from Ahmed and used the money to buy a car, a constructive trust could be imposed, making Larry the trustee of the car for Ahmed.
Constructive trusts are particularly relevant in situations involving property interests and ownership disputes. For instance, in the case of Berkley v Earl Poulett (1977), a sub-purchaser was treated as the owner in equity, and the vendor held the property on a constructive trust for the purchaser. Similarly, in Lysaght v Edwards (1876), the vendor of land became a trustee of the land for the purchaser upon the conclusion of the sale contract.
The courts consider various factors when determining the existence of a constructive trust, including the parties' conduct, their financial arrangements, and any contributions made towards the purchase or maintenance of the property. The principle underlying constructive trusts is that it would be inequitable or unconscionable for the holder of an asset to deny the beneficial interest of another person with a legitimate claim.
Constructive trusts are distinct from express trusts, which are intentionally created by the owner of the property or assets through a written trust deed. In contrast, constructive trusts are imposed by courts to address wrongdoing or unfair deprivation of property. They do not require the consent of the owner and can be imposed as an "equitable remedy".
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Frequently asked questions
A constructive trust is a legal tool imposed by the courts or by operation of the law to remedy a situation in which someone has been unfairly deprived of property or wronged through misconduct such as fraud, misrepresentation, or a breach of fiduciary duty.
A resulting trust occurs when one party gives another party assets with specific instructions, and the recipient fails to follow through with those instructions. A constructive trust, on the other hand, is imposed by law when it would be unjust for the legal owner to deny another party's beneficial interest in the asset.
A constructive trust might be imposed if a vendor enters a contract to sell land or property to a purchaser, and the purchaser is treated as the owner in equity. Another example is if a couple moves into a property together, but only one person's name is on the title. If they separate, a constructive trust could be imposed to protect the non-legal owner's interest in the property.
