MISTAKEN PAYMENT CONSTRUCTIVE TRUSTS

In trust law, a mistaken payment happens when money or assets are sent by accident to someone
who is not supposed to get them. This can happen if a person makes a mistake when moving
money or assets from one place to another. Mistaken payment represents a scenario where
money is mistakenly transmitted to a person who now becomes a beneficiary and so a trust is
created for that mistaken payment. Under trust law a constructive trust can be formed as a result
of a mistaken payment. This form of trust is created under law and not because of the intentions
of the parties involved.
The leading case which deals with this aspect of trust law is the case of Chase Manhattan Bank
NA vs Israel British bank. In this case Giudliong J said that if an individual mistakenly transfers
funds or any money to another person then the recipient comes under an obligation who then has
to respect the equitable property right of the sender. In the important case of Angove Pty Ltd vs
bailey it was stated that funds which are mistakenly paid form a constructive trust. Chambers and
Lord Millet had different viewpoints in relation to the use of resulting trusts in those situations
which involved mistaken payment. chambers said for the adoption of resulting trusts in such
situations but Lord Millet had said that resulting trusts may only be formed when payer did not
have any intention of bestowing a benefit upon the payee.
A trust arising from a mistaken payment has some conditions which need to be fulfilled. The
payment which is mistakenly paid should have resulted from a error at the beginning and
Secondly the recipient should have had awareness that the payment was being made incorrectly.
thirdly it is important to know that the recipient has no legal claim to the funds in question or any
assets which have been transferred him or her.
Professors birks and chambers say that resulting trusts can be only made under three different
conditions. A situation may arise where a individual transfer the ownership of a property to the
recipient with no intention or consideration on his part to convey beneficial ownership. In second
situation a individual will transfer ownership of property or provides monetary compensation to
the recipient in form of money or cash. Furthermore the payment which has been provided to
beneficiary is said to be void because of failure to satisfy the terms which are agreed by the
parties. The parties involved mutually recognize a resulting trust as that form of trust which falls
under the particular category of restitutionary trust. The argument says that it is justifiable to
create a resulting trust in those situations where individual who made the transfer had no
intention to do that. This thesis by Birks and chambers has extended scope of the concept of
resulting trust particularly especially in commercial situations. In some situations an individual
may unintentionally pay extra money in their electricity bill and then according to law the person
can only try and get that extra money which he paid back to him. Birks and Chambers presented
a theoretical framework which suggests to us the possibility of a proprietary right for claimant in
situation when a resulting trust is proved. The theory tells us a different between express trusts
which are created for the purpose of giving benefit to the beneficiary and resulting trusts which
emerge in the absence of such purpose.
As per Lord Millet's perspective, the utilisation of resulting trusts ought to be limited to
particular instances wherein there exists an absolute lack of intention to bestow benefits upon the
other party. Furthermore, he has given his endorsement to the proposition presented by Birks and
Chambers regarding the Air Jamaica and Twinsectra cases. Birks and Chambers' theory presents
the advantage of unifying the notions of presumed intentional resulting trusts and automatic
resulting trusts. Furthermore, it functions to prevent any occurrences of unfair gain by creating a
resulting trust in those situations.
The theory of birks and chambers has been criticized by swaddling who says that if the transferor
had no intention to create a trust when he was transferring property then resulting trust will not
be created as there was no intention involved. As can be seen from the scenario when extra
payment had been made to the electric company the responsibility does not lie on the recipient to
prove the transfer of property and so one could easily say that a resulting trust is not created in
such a situation. In the case of Westdeutsche landesbank girozentrale vs islington the theory
presented by birks and chambers was rejected by the courts and swaddling’s view had been
agreed upon. In particular lord Brown Wilkinson who was a judge of the House of Lords
disagreed with the restitutionary approach because according to him birks and chamber had no
taken into account the trust law principles as well as the remedies which were on hand. He
further said that if the recipient did not know about the terms of the trust which was created after
the mistaken payment then he could not be considered a trustee under law and that is because the
trustee should have complete understanding of all the relevant factors which are present before
they take any responsibility. Lord Wilkinson said that it is important to establish a fiduciary
relationship between the recipient and the payer so that a trust can be established. All his
arguments were used to reject the theory which was produced by birks and chambers and he kept
on saying that birks and chambers both had disregarded important principles of trust law.
In another case of Shalson vs Russon a plaintiff had mistakenly sent payment to the defendant in
order to clear a debt which he owed to another third party. The court said that a constructive trust
had been created in such a situation because the defendant had admitted that he received
payment although he had complete knowledge that the payment was mistakenly send to him by
the plaintiff.
In the case of Angove’s v Bailey, the UKSC held that a person who had received a mistaken
payment which was made in error is bound under law to hold the payment under constructive
trust for the other person. In this case the clients of Angove had transferred payment to their
representative but they didn’t knew that their representatives now had no authority to receive the
payments under law. According to lord sumption when the transferor has the intention to
completely transfer the beneficial interest to the transferee then a constructive trust is important
to create as it shows the intention of the transferor. In another instance when any monetary
resources have been transferred to the beneficiary without any intention then a constructive trust
is deemed to be created case of Black v Freedom and Co. It is important to note that when there
is a situation of a theft or fraud then intention of the transferor would hold no significance.
This complex legal framework which governs the creation of a constructive trust which is made
as a result of any mistaken payments has been a subject of discussion by many people. It is
possible that a constructive trust has been created such a situation where unintentional payment
has been made to a person and so then a constructive trust is created.

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