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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
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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...'
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
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Proprietary estoppel
doctrine of proprietary estoppel: method person may be entitled to equitable interest in property without
appropriate formalities
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
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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
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
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awarded: compensation
transfer of whole state in both Gillett v Holt & Thorner v Major or an equitable interest in property under
a constructive trust
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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
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practical implication: express trusts of land are subject to the requirements of s.53 (1)(b) Law of
Property Act 1925
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
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
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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
RE OLDHAM [1925] CH 7
evidence required for an express agreement not to revoke the wills 'must be certain and
unequivocal'
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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
property subject to the trust will depend on terms of agreement if unclear may be evidence no contract
intended between Ts
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