Equity & Trust 1 Topic 7 – Constructive trust’ 7.1 What is Constructive Trust Its existence is not dependent on the parties' intention, either be actual, inferred, or presumed. Arise by operation of law. Constructive trusts may be viewed as a device to make an inequitable situation equitable. Arise in situations “in which it would be unconscionable for one party to deny the other’s beneficial proprietary interest in a particular and identified property.” Used as a residual category when court has no other appropriate category. 7.2 Constructive trust vs Resulting trust The constructive trusts overlap with resulting trusts, as both are not expressly stated in trust document but rather implied from circumstances. With both, there is no need to comply with formalities. Difference: Resulting Trust Constructive Trust Resulting trusts involve a claim of an equitable owner to assert a continuing property interest in own property Constructive trusts are often imposed where a breach of fiduciary obligation has given rise to an inequity between the parties 7.3 Circumstances of constructive trusteeship 1) Breach of fiduciary duty 2) Stranger as constructive trustee 3) Secret Trust 4) Mutual wills 5) Other instances 7.3.1 Breach of fiduciary duty Trustee is under a duty to act for the benefit of the cestui que trust (cestui que trust = beneficiary of a trust) Equity demands that trustee not abuse position of trust and confidence to own advantage. What is fiduciary duty Reading v The King “A fiduciary relation exists “whenever the plaintiff entrusts to the defendant property … and relies on the defendant to deal with such property for the benefit of the plaintiff or purposes authorized by him, and not otherwise, and the plaintiff entrusts to the defendant a job to be performed… and relies on the defendant to procure for the plaintiff the best terms available…” The other common categories of fiduciary relationships include those between principal & agent, solicitor & client, director & company. A person under a fiduciary duty is under a duty to avoid a conflict of interest and to avoid making an unauthorized profit.
Re Thompson It was held that an executor was not permitted to start business competing with testator’s yacht broker business. If a person in a fiduciary relationship makes a profit for himself by virtue of his position as a fiduciary, equity imposes a constructive trust to make him accountable for it. Keech v Sandford Facts: Trustee required to hold lease and profits for infant beneficiary when lessor refused to renew lease and trustee renewed for self Held: The trustee was held to be a constructive trustee and as such was accountable to the trust in respect of the profits received.
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- Fall '16
- Trust law, Constructive Trust, Constructive Trustee