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Constructive Trusts Notes

Law Notes > Property, Equity and Trusts 1 Notes

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Constructive Trusts

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Often one may acquire an equitable interest in the property of another even where the result wasn't intended - e.g. where the donor has done 'everything necessary to be done' to effectuate a gift. In such situation the interest arises under a constructive trust. o

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Alternative to Lord Denning's view in Hine v Hine was that constructive trusts could be imposed independent of the parties' intention, whenever it was necessary to achieve a distribution of property between spouses or de facto couples o

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Other circumstances in which a constructive trust may be imposed include to prevent a person with a legal interest in land from behaving unconscionably - e.g. in informal family arrangements or where a holder of a legal interest purports to transfer an interest in property in return for contributions made by the other party

The court of appeal in Burns v Burns resiled from this approach - courts don't have power to do what is fair and reasonable in all the circumstances - 'the resolution of these disputes must depend on the ascertainment according to normal principles of the respective property rights between the man and woman'

But in Oglivie v Ryan the judgement of Lord Diplock in Gissing v Gissing was found to provide the basis for the imposition of a constructive trust based on the 'common intention' of the parties

Oglivie v Ryan (1976) 2 NSWLR 504 Facts: Oglivie was the MD of a company that owned a theatre and cottages. After his wife's death in 1955 he lived with Mrs Ryan - their relationship being 'very close terms of friendship and affection' with her looking after him 'as any devoted wife might have done'. In 1969 the company sold the theatre and cottages and O told R she would have to leave and she said she would try to find another house. O proposed he buy a house and she live with him to look after him for the rest of his life. R gave evidence that O told her that if she looked after him the house would be hers so long as she lived and that she agreed to these terms. O bought the house and R lived there with him till his death in '72. O's will didn't mention her - O's executor commenced proceedings to recover possession.

Holland J: In his judgement his honour referred to a number of cases: Bannister v Bannister - plaintiff orally agrees to sell house she lives in to defendant for price lower than market value if she was permitted to live there rent free. Held: that the defendant was to hold the property on trust during the plaintiff's life to permit her to occupy it until she desired. There was no fraud on conveyance but his oral agreement, in the face of his attempt to set up absolute beneficial title would be met with a constructive trust to prevent this

Binions v Evans - where A&B had an agreement for B to live in A's cottage for life rent free on certain conditions and A sell the cottage to C on terms subject to A's agreement with B and C attempts to get rid of B by applying for an order of possession on the ground that B only had a tenancy at will with C terminated - a constructive trust for B arose on sale from A to C since it would be inequitable

for C to turn B out.

Hussey v Palmer - plaintiff pays for extension to defendant's home on promise by defendant she could live there as long as she liked. She left, later claiming to be entitled to recover the amount she had paid as her loan. Held: There was no intention nor promise to repay and hence no loan but the defendant held the property on constructive trust for the plaintiff of a beneficial interest proportionate to the amount of payment

Eves v Eves - unmarried couple with child agreed that dilapidated house should be purchased to serve as a joint home for them. Father bought house in his own name with his money saying he couldn't put it in her name since she was underage. She did a lot of physical work on the land (setting up a garden etc.). He deserts her and puts her out. Held: She was entitled to a declaration that she held the property on trust for her as to a beneficial share of it - the basis being that he led her to believe she was to have an interest in the property either 'for their joint benefit' (Denning) or 'by inference, it was part of their bargain that she should contribute her labour to the improvement of the house (Browne). Denning, referring to Diplock in Gissing - A constructive/implied/resulting trust arises where a trustee conducts themselves such that it'd be inequitable to allow him to deny the cestui que trust a beneficial interest in the land; he will be held to have conducted himself as such if by words or conduct he induced the cestui que trust to act to his own benefit in the reasonable belief that by acting so he was acquiring a beneficial interest to land

Last v Rosenfield - A agreed to sell and transfer to B half his interest in a house owned for the price that he originally paid for it on an oral agreement that if B didn't live in it within 12 months he would retransfer it to A at the same price. B failed to perform but when A sought to enforce the title, B relied on the Statute of Frauds to say it was unenforceable Held: A trust arose from the basis on which the property required. The Statute can't be used since it would be used as an instrument of fraud and hence parol evidence is admissible to establish that the transfer of property was done as a trustee for another party.

From these cases his honour identified 2 categories of case:

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Where the constructive trustee obtains his legal title from the cestui que trust, and obtained it only by having agreed that the cestui que trust would have a beneficial interest in the property. Binions is an extension of this where the constructive trustee obtains their legal title from the transferor on terms that the interest of the cestui que trust is recognized - thus binding him

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Where, although the constructive trustee didn't obtain the legal title form the cestui que trust or on terms that he would recognize the cestui que trust's interest - he acquired it in his own name and its value increased by direct/indirect financial contributions or work or labour provided by the cestui que trust on a common understanding, express or imputed, that the

cestui que trust would have a beneficial interest in the property

His honour thought that the only distinguishing factor between this case and the second category was that rather than the benefits obtained being directed to the property, the benefits were to be directed to him. He thought there was no reason why their arrangement and common intention couldn't give rise to a trust where the benefits were merely of a different character.

He explained the second category of case as such: an appropriate constructive trust will be declared in equity to defeat a species of fraud, namely, that in which a defendant seeks to make an unconscionable use of his legal title by asserting it to defeat a beneficial interest in the property which he has agreed to or promised; or which it was the common intention of the parties that the plaintiff should have, in return for benefits to be provided by, and in fact obtained from, the plaintiff in connection with their joint use or occupation of the property.

The facts here established such a trust which the defendant can rely on as a defence to the claim of possession.

His honour then dealt with the question of whether the alternative basis of part performance could be established - he said it could not because of the absence of writing. The submission that followed was that, where the court finds a contract but finds it to be unenforceable by reason of the Statute of Frauds that the very same contract couldn't give rise to a constructive trust since this would do in effect what the statute prohibits - enforce the contract.
? He disagreed with this submission - the enforceability of constructive trusts of beneficial interests in land isn't inhibited by the presence of an unenforceable oral contract; this would make the statute of fraud an instrument of the fraud which the constructive trust is designed to prevent. This submission was also found to be inconsistent with the case law.

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