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TRUSTS | Formation

Constructive Trusts:
Overview
Revision Note | Degree
21 FEBRUARY 2014

Introduction
constructive trusts arise by operation of law: imposed on trustee (T) because his conscience is affected

PARAGON FINANCE V DB THAKERER [1999] 1 ALL ER 400


Lord Millett: '.. constructive trust arises by operation of law whenever the
circumstances are such that it would be unconscionable for the owner of property
(usually but not necessarily the legal estate) to assert his beneficial interest in the
property...'

Trusts of the family home


constructive trusts important in family property disputes
after marriage breakdowns: ownership of beneficial interest has to be established & courts have wide
powers to make property adjustment orders under divorce/annulment legislation
unmarried couples entitlement determined by trust law
X & Y are unmarried couple & Y holds legal title to property
Y does not necessarily own entire beneficial interest
X may have equitable interest (due to contributions to family)

LAW OF PROPERTY ACT 1925


s.53(1)(b): declaration of trust in respect of land must be evidenced in writing

Legal ownership: joint names


parties have purchased home in joint names & hold legal title as joint tenants
beneficial interest: if parties hold as tenant in common respective proportions will inevitably be stated
(conclusive in absence of fraud or mistake)
if trusts not expressly stated

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STACK V DOWDEN [2007] 2 AC 432


domestic property conveyed into joint names of cohabitants without declaration of trust:
prime facie both legal & beneficial interests joint & equal
onus of proof on party seeking to establish otherwise: prove common intention beneficial
interests different legal
to discern common intention court consider: whole course of conduct, factors other than
financial contributions might be relevant
such cases unusual

JONES V KERNOTT [2011] 3 WLR 1121


Supreme Court: purchase of property in joint names for joint occupation by married or
unmarried couple:
presumption: parties intended joint tenancy in law & equity
rebuttable by evidence of contrary intention (more readily shown where financial resources
not shared)

Legal ownership: estate in name of one party only


in absence of an express declaration of trust that owner holds on trust for C a resulting or constructive
trust may be found

Resulting trusts: capital contributions


home in D's name (defendant) & C (claimant) contributed to purchase price
traditionally C obtained interest proportionate to contribution by resulting trust
since Stack v Dowden role of resulting trust less clear

STACK V DOWDEN [2007] 2 AC 432


Lord Neuberger found resulting trust had role to play, other judges disagreed
direct contribution likely to indicate common intention as required for constructive trusts

Constructive trusts: common intention


two stages to determine whether C has beneficial interest, C must show:
common intention between parties that both have an interest
& C acted to detriment as result of common intention
questions arise as to whether common intention can be inferred & what amounts to detriment

LLOYDS BANK V ROSSET [1991] 1 AC 107


FACTS:
house in sole name of husband (D)
wife (C) claimed beneficial interest under constructive trust
D charged house to bank as security for an overdraft
C attempting to prevent sale of house under charge by showing she had beneficial interest

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ISSUE:
was there a constructive trust?
HELD:
no constructive trust: no common intention
common intention: can be shown by express agreement or inferred from conduct
insufficient: C had supervised builders renovation of property & decorated
Lord Bridge: '.. where the court must rely entirely on the conduct of the parties both as
the basis from which to infer a common intention... direct contributions to the
purchase price by the partner who is not the legal owner, whether initially or by
payment of mortgage instalments, will readily justify the inference necessary to the
creation of a constructive trust. But... it is at least extremely doubtful whether anything
less will do...'

CURLEY V PARKES [2004] ALL ER (D) 344


only payments at the time of acquisition give rise to a resulting trust

LE FOE V LE FOE & WOOLWICH [2001] 2 FLR 970


common intention inferred: express agreement that one party pays mortgage & certain
outgoings & other meet all the other (substantial) household expenses
Lord Walker: trend moved on from Stack v Dowden, court should look at whole of course of
dealings & not solely direct contributions to purchase price

common intention may be inferred: if agreement to share mortgage & other outgoings, if other outgoings
substantial also suffice for detriment
if interest claim successful question arises how quantified

MIDLAND BANK V COOKE [1995] 4 ALL ER 562


Court of Appeal: mathematical calculation based on proportion of purchase price incorrect
approach
correct approach: whole course of dealing between parties (including indirect contributions) to
ascertain shares intended

STACK V DOWDEN [2007] 2 AC 432


Baroness Hale found factors include: discussion at time of purchase
nature of parties' relationship
how parties' arranged their finances
how discharged outgoings on property
& whether parties had were responsible for housing children

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JONES V KERNOTT [2011] UKSC 53


Supreme Court correct approach:
determine if equitable interest arose under constructive trust
quantify interest: if not possible to ascertain shares parties intended by direct evidence or
inference, court consider what fair having regard to whole course of dealing (financial & nonfinancial contributions)

Proprietary estoppel
doctrine of proprietary estoppel: method person may be entitled to equitable interest in property without
appropriate formalities

PASCOE V TURNER [1979] 1 WLR 431


FACTS:
legal owner of property (D) repeatedly told unmarried partner (C) house was hers
C paid repairs & decorated property in reliance on D's assurances
D allowed C spend money to do so
ISSUE:
was D estopped from denying C equitable interest?
HELD:
D estopped: unable to deny assurances when C had acted in reliance
despite no written evidence of declaration of trust (contrary to s.53(1)(b) LPA 1925)

proprietary estoppel may be used as cause of action: not remedy in itself but raises 'estoppel equity' &
court decides remedy which will satisfy that equity

Proprietary estoppel: establishing the equity


equity may assist if:
legal owner has acted in way that claimant believes he has or will get rights in relation to property
('expectation')
& C has acted to his detriment as a result such that would be unconscionable for legal owner to insist on
strict legal ownership
may be active assurance (Pascoe v Turner) or passive

INWARDS V BAKER [1965] 2 QB 29


FACTS:
father persuaded son to build bungalow on his land
ISSUE:
does doctrine of proprietary estoppel apply?

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HELD:
father estopped from claiming bungalow belonged to him
passive assurance: legal owner stands back & lets C act to his detriment in belief that he is
entitled to interest in the property

assurance may relate to future rights

GILLETT V HOLT [2001] CH 210


FACTS:
G worked for H for 40yrs: G was paid very little & incurred expense
H promised he would leave his estate to G
ISSUE:
is future assurance valid?
HELD:
Walker LJ: '.. Mr G and his wife devoted the best years of their lives working for Mr H...
They went far beyond the usual extent of an employee's duties. G refused offers of
alternative employment. Why? Because H repeatedly assured G that he would leave
his entire estate to him...'

THORNER V MAJOR [2009] 3 ALL ER 945


FACTS:
T worked for M as a framer for many years for no pay
M made oblique comments which at first led T to hope he would inherit the farm & later to
expect
ISSUE:
was there sufficient assurance?
HELD:
Lord Walker: '.. to establish a proprietary estoppel the relevant assurance must be clear
enough. What amounts to sufficient clarity, in a case of this sort, is hugely dependent
on context...'
Lord Neuberger: '.. at least normally, it is sufficient for the person invoking the estoppel
to establish that he reasonably understood the statement or action to be an assurance
on which he could rely...'

C must act to his detriment in reliance on the assurance (causal connection between assurance &
detriment) but does not have to be sole reason
onus on C to show causal connection as matter of fact

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detriment may be: personal & financial (Gillett v Holt) or improving land (Inwards v Baker) & can be in
relation to care provided

RE BASHAM [1986] 1 WLR 1498


FACTS:
C looked after her stepfather (S)
S promised that C would inherit the house he lived in paid for by C's mother
ISSUE:
was there sufficient detriemnt?
HELD:
'.. acts went well beyond what was called for by natural love and affection... [C] and her
husband made it very clear in their evidence that there was no great love and affection
between her husband and the deceased, and that he was only willing to pay for
meals... [C] provided for the deceased and to work as he did in the garden of the
cottage because of the expectation that the deceased's estate would in due course
pass...'

GREASLEY V COOKE [1980] 1 WLR 1306


C established sufficient detriment by evidence that she had looked after the family including a
mentally ill member

Proprietary estoppel: satisfying the equity


principle: remedy should be minimum to satisfy equity & depends on facts of each case

JENNINGS V RICE [2003] 1 FCR 501


mutual bargain: A says to B 'if you move into my house and look after me, then I will
leave you my house in my will'
A & B regard expectation as roughly equivalent
court may well fulfil expectation & order A's estate to transfer house to B
if expectations less certain: court may take C's expectation as starting point but also consider
factors such as:
extent of detrimental reliance
unconscionability, including misconduct by C & D
alterations in D's finances
financial obligations owed by D to others
effect of taxation
any benefits C derived from situation, such as rent-free accommodation
whether proposed remedy is practical
proportionality: is the remedy proportional to the detriment suffered?

awarded: transfer of freehold

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PASCOE V TURNER [1979] 1 WLR 431


transfer of freehold to C who expected home for life: licence would not guarantee home for
life because no protection against sale

awarded: compensation

JENNINGS V RICE [2003] 1 FCR 501


expectation was generous legacy: court valued detriment
awarded compensation equivalent to cost of full-time nursing care for time C looked after
deceased

transfer of whole state in both Gillett v Holt & Thorner v Major or an equitable interest in property under
a constructive trust

Proprietary estoppel: constructive trusts


overlap between proprietary estoppel & constructive trusts

YAXLEY V GOTTS [2000] 1 ALL ER 711


FACTS:
C refurbished & converted house into flats on basis of oral agreement with owner that he
would acquire ground floor flats
ISSUE:
which approach should be adopted?
HELD:
Court of Appeal same outcome: C entitled to an interest by proprietary estoppel &
alternatively interest under common intention constructive trust

however, there is difference between approaches

STACK V DOWDEN [2007] 2 AC 432


Lord Walker: 'Proprietary estoppel typically consists of asserting an equitable claim
against the conscience of the 'true' owner. The claim is a 'mere equity'. It is to be
satisfied by the minimum award necessary to do justice... which may sometimes lead
to no more than a monetary award...'
'A common intention constructive trust, by contrast, is identifying the true beneficial
owner or owners, and the size of their beneficial interests...'

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Secret trusts
owner of property dies: property passes to those entitled under law of succession:
testator may have left will defining chosen beneficiaries for certain benefits
or statutory intestacy rules
executors must 'prove' will (show validly executed) through Grant of Probate at this stage will becomes
public document
secret trusts: device to keep details of gift out of public domain (ultimate recipient kept off face of will
thereby gift is secret)
secret trusts can be viewed as conflicting with s.9 Wills Act 1837 (testamentary dispositions should be in
writing, signed & witnessed):
T makes will leaving legacy 10 000 to L
after will but before T's death, L agrees to hold money on trust for B
gift to B taking effect on testator's death which is not in writing or witnessed
testator can make dispositions of property differing from will without observing s. 9
secret trusts originally allowed due to maxim 'equity will not allow a statute to be used as an
instrument of fraud' (if L argued lack of writing invalidated holding money on trust for B, using statute to
further fraudulent claim)
modern explanation: secret trusts operate entirely outside ('dehors') will & law relating to trust contained
in wills is irrelevant
fully secret trust: no indication money will be held on trust to be decided in future & half secret trust:
clause leaving legacy 'to be dealt with as agreed'
rules for communication of obligation from testator to legatee are more restrictive for half-secret trusts

Fully secret trusts: requirements


three main elements

OTTAWAY V NORMAN [1972] CH 698


intention to impose trust on secret trustee
communication of obligation to secret trustee
acceptance of obligation by secret trustee

Fully secret trust: intention


intention of T to subject secret trustee (ST) to trust in favour of secret beneficiary (SB)
certainty of intention to create a trust

RE SNOWDEN [1979] CH 528


imposition of moral or family obligation is insufficient to impose trust obligation
establish secret trust where no question of fraud on part of ST arises: ordinary civil standard
of proof
ordinary civil standard of proof: balance of probabilities T intended to impose trust on ST
if deliberate fraud on part of ST: higher standard of proof of fraud may be necessary

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MCCORMICK V GROGAN (1876) IR 1 EQ 313


T's intention must be that there would be sanction for ST not executing trust must be recourse
to courts & not merely relying on ST's conscience

Fully secret trust: communication & acceptance


T must communicate terms of obligation to ST & ST must accept

WALLGRAVE V TEBBS (1885) 25 LJ CH 241


obligation must be communicated to intended ST before T's death
if not ST takes benefit of property

RE BOYES (1884) 26 CH D 531


details could be included in sealed envelope handed to ST provided he agreed to hold
property on those terms
if ST agreed to be ST but terms of trust never communicated: ST cannot take benefit of
property & resulting trust take property instead

acceptance may be presumed by silence on part of ST

Half secret trust: requirements


same three requirements as fully secret trust but interpreted differently

BLACKWELL V BLACKWELL [1929] AC 318


Viscount Sumner: necessary elements are 'intention, communication and acquiescence'
communication & acceptance of obligation must take place before or at time will is signed
'.. to hold otherwise would indeed be to enable the testator to 'give the go-by' to the
requirements of the Wills Act, because he chose not to comply with them...'

Secret trusts: proving existence


with fully secret trust there is a danger ST will deny
no legal requirement but good practice: T to ask ST to confirm acceptance in writing
solictor's notes may also be used as evidence (Re Snowden)

Secret trusts: express or constructive?


theory that secret trusts are declared outside the will: suggests they are express rather than constructive
trusts

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PARAGON FINANCE V DB THAKERER [1999] 1 ALL ER 400


FACTS:
Lord Millett: '.. constructive trust arises by operation of law whenever the
circumstances are such that it would be unconscionable for the owner of property
(usually but not necessarily the legal estate) to assert his beneficial interest in the
property...'

practical implication: express trusts of land are subject to the requirements of s.53 (1)(b) Law of
Property Act 1925

LAW OF PROPERTY ACT 1925


s.53(1)(b):declaration of trust respecting land must be written, signed & witnessed

LPA 1925 seems consistent with older case law

RE BAILLE (1886) 2 TLR 660


half secret trust unenforceable due to lack of written evidence

however more recently

OTTAWAY V NORMAN [1972] CH 698


enforceable: fully secret trust of land orally communicated to ST

argument that secret trust is a constructive trust:


secret trust involves element of unconscionablity, despite the dehors the will theory
departure from requirements of Wills Act 1837 justified by maxim 'equity will not allow a statute to be
used as an instrument of fraud'
ST would be attempting to set up lack of formal signed, witnessed written document as justification for
fraud (this type of trusts usually constructive trust)
unclear as to correct characterisation of secret trusts

Mutual wills
doctrine of mutual wills allows: survivor access to property inherited from first to die & effectively prevents
survivor from leaving any remaining property away from an agreed beneficiary
for doctrine to apply:
must be agreement between two testators as to how they will dispose of their property by will
mutual wills are made in pursuance of the agreement
wills need not be identical in their terms, but often will mirror each other

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RE DALE [1994] CH 31
wills are made pursuant to an agreement as to the disposition of the parties' property
property which is subject-matter of agreement is specified & held on trust for beneficiary from
death of first testator (T1)
survivor (T2) may make a new will, but on T2's death property which is subject to the trust is
held by T2's personal representatives on trust for agreed beneficiary

Mutual wills: agreement between two testators


mutual wills come into existence only if there is contract between two testators not to revoke their wills

RE GOODCHILD [1997] 1 WLR 1216


contract between T1 & T2 required before there can be any finding of mutual wills

s.2 Law of Property (Miscellaneous Provisions) Act 1989 requires an enforceable contract relating to
land: to be writing & incorporate all terms of the agreement

HEALEY V BROWN (2002) 19 EG 147 (CS)


FACTS:
Mr & Mrs B intended to make mutual wills
orally agreed each would leave their share of London flat to C (Mrs B's niece)
Mrs B died & Mr B gave his share to X & subsequently died
ISSUE:
could the doctrine of mutual wills be relied upon by C?
HELD:
High Court: absence of enforceable contract not fatal to the application
unconscionable that Mr B should be able to avoid obligation taken on when he agreed to
leave flat to C by will
constructive trust imposed in favour of C: Mr B failed to give effect to common intention upon
which Mrs B had relied (by not altering her will)

Mutual wills: consideration


an enforceable contract requires valid consideration
in prevoius cases doctrine of mutual wills held to apply, T2 has benefited from T1's will :
T1 may have given T2 an absolute gift, with a gift over in default to agreed beneficiary in the event of T2
dying before T1
T1 may have given T2 a life interest, with remainder to the agreed beneficiary (contract would stipulate T2
would by will give T2's own property to agreed beneficiary & T1's estate would pass on T2's death by
virtue of the remainder) as T2 receiving benefit from T1's will in return is bound by the agreement
underlying basis for enforcement of contract is to prevent fraud on part of T2
novel issue arose in Re Dale

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RE DALE [1994] CH 31
FACTS:
T1 gave nothing in his will to T2
T1 left all his estate to their children. & T2's will was identical
ISSUE:
what consideration had been provided by T2 to justify a finding of a legally-binding contract?
HELD:
T2 received nothing under T1's will so could not personally benefit from fraud
wider fraud found: T1 performed his side of bargain by not revoking his will & leaving will in
agreed form, if T2 were subsequently to attempt to dispose of estate in departure from
agreement, a fraud on T1 (allows T1 to die in the belief that agreement will be given effect to
by T2)
consideration: T1 having acted to his detriment in that he dies having not revoked the will (as
was his right) leaving will in agreed form

Mutual wills: proof of agreement


very few wills held to be mutual wills

RE GOODCHILD [1997] 1 WLR 1216


mutual will requires: 'clear agreement that the testators must have undertaken not to
change their intentions after the death of T1, and that T2 should be bound to leave the
combined estates to the agreed beneficiary...'

FRY V DENSHAM-SMITH [2010] EWCA CIV 1410


reviewed case law on issue

RE OLDHAM [1925] CH 7
evidence required for an express agreement not to revoke the wills 'must be certain and
unequivocal'

RE CLEAVER [1981] 1 WLR 939


evidence must be 'clear and satisfactory'

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OLINS V WALTERS [2009] CH 212


sufficient: wills contained a statement that they were intended to be mutual wills & solicitor's
attendance note supported this

CHARLES V FRASER [2010] EWHC 2154 (CH)


mutual will found despite no written evidence: two sisters ('peas in a pod')

onus of proof on those alleging that the wills are mutual wills (person who claims to be agreed beneficiary
under the contract)
signing identical or mirror insufficient to show intention for mutual wills (there must be clear evidence in
addition to dispositions in wills that there was mutual intention that T2 be bound by the agreement

Trust in favour of the agreed beneficiary


remedy: imposition of a constructive trust on the property which is the subject matter of the contract
testator can change his will at any time prior to death but if constructive trust has already arisen, he is not
free to divert affected property away from agreed beneficiary by ew will
trust arises on death of T1

RE HAGGER [1930] 2 CH 190


T1 and T2 left mutual wills leaving everything to each other & on death of the survivor, to X
T1 died & then X died before T2
normally X would not take anything but court decided X's interest did not fail & his estate took
under the constructive trust
trust must have arisen prior to T2's death

CARVEL FOUNDATION V CARVEL [2008] CH 395


Lewison LJ: '.. trust arises out of the agreement between the two testators not to revoke
their wills, and the trust arises when the first of the two dies without having revoked
his will...'

property subject to the trust will depend on terms of agreement if unclear may be evidence no contract
intended between Ts

This article can be found online at www.bitsoflaw.org/trusts/formation/revision-note/degree/constructive-trusts where links to further


resources are available.

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