resulting trust n. a trust implied by law (as
determined by a court) that a person who holds title or possession was
intended by agreement (implied by the circumstances) with the intended
owner to hold the property for the intended owner. Thus, the holder is
considered a trustee of a resulting trust for the proper owner as
beneficiary. Although a legal fiction, the resulting trust forces the
holder to honor the intention and prevents unjust enrichment. Example:
Mahalia leaves $100,000 with her friend, Albert, while she is on a trip
to Europe, asking him "to buy the old Barsallo place if it comes on the
market." Albert buys the property, but has title put in his own name,
which the court will find is held in a resulting trust for Mahalia.
Distinguish a resulting trust from a constructive trust
A
resulting trust differs from a "constructive trust" which comes about
when someone comes into possession by accident, misunderstanding or
dishonesty of property belonging to another
What is a resulting trust? Give an example
Resulting Trust
An arrangement whereby one
person holds property for the benefit of another, which is implied by a
court in certain cases where a person transfers property to another and
gives him or her legal title to it but does not intend him or her to
have an equitable or beneficial interest in the property.
Since this beneficial interest is not given to anyone else, it is said to "result" to the person who transferred the property.
A
resulting trust arises when an express trust fails. A settlor, one who
creates a trust, transfers his property to a trustee, one appointed, or
required by law, to execute a trust, to hold in trust for a beneficiary,
one who profits from the act of another. If, without the settlor's
knowledge, the beneficiary died before the trust was created, the
express trust would fail for want of a beneficiary. The trustee holds
the property in resulting trust for the settlor.
When an express
trust does not use or exhaust all the trust property, a resulting trust
arises. For example, the settlor transfers $200,000 in trust to pay the
beneficiary during her lifetime $2,000 a month from principal, trust
property, as opposed to income generated by investment of the principal.
No other disposition is specified. The beneficiary dies after having
received $20,000. The trustee holds the unexpended funds in a resulting
trust for the settlor.
A purchase money resulting trust arises
when one person purchases and pays for property and the name of another
person is on the title. For example, a person purchases a farm for
$100,000 and directs the seller to make the deed out to a third person.
Nothing further appears concerning the purchaser's intention, and no
relationship exists between the purchaser and the third person. In this
situation, a resulting trust is created. The purchaser's intention is
inferred from the absence of expressed intention that she intends the
third person to have an interest in the farm. This occurs because a
person usually does not intend to dispose of property without receiving
something in return for it, unless she makes an express statement to the
contrary, such as announcing an intention to make a gift or loan. If
the purchaser is the spouse or parent of the third person, which is not
the case here, it is presumed that a gift is intended. In this case, the
third person holds a purchase money resulting trust for the purchaser.
A
purchase money resulting trust does not arise, however, if the person
who pays the purchase price manifests an intention that no resulting
trust should arise. Purchase money resulting trusts have been abolished
or restricted in a number of states.
The resulting trust attempts
to dispose of the property in the manner the person who transferred it
would have wanted if he had anticipated the situation. The court will
order that the person with legal title to the trust property hold it in a
resulting trust for the person who transferred it. When a charitable
trust—a trust designed for the benefit of a class or the public
generally—fails, a resulting trust will be invoked only if the doctrine
of Cy Pres
is deemed not to apply. This doctrine implements the intention of a
person as nearly as possible when giving the intent literal effect would
be illegal or impossible.
WHAT IS A CONSTRUCTIVE TRUST?
A constructive trust is an equitable remedy resembling a trust imposed by a court
to benefit a party that has been wrongfully deprived of its rights due
to either a person obtaining or holding legal right to property which
they should not possess due to unjust enrichment or interference
In a constructive trust the defendant breaches a duty owed to the plaintiff. The most common such breach is a breach of fiduciary duty. A controversial example is the case of Attorney-General for Hong Kong v Reid,[3] in which a senior prosecutor took bribes not to prosecute certain offenders. With the bribe money, he purchased property in New Zealand. His employer, the Attorney-General, sought a declaration that the property was held on constructive trust for it, on the basis of breach of fiduciary duty. The Privy Council awarded a constructive trust. The case is different from Regal (Hastings) because there was no interference with a profit-making opportunity that properly belonged to the prosecutor.
This area is highly controversial and may not represent the law in England because of the previous Court of Appeal case of Lister v Stubbs[4]
which held the opposite, partially because a trust is a very strong
remedy that gives proprietary rights to the claimant not enjoyed by the
defendant's other creditors. In the event of the defendant's insolvency,
the trust assets are untouchable by the general creditors. Supporters
of Lister v Stubbs suggest that there is no good reason to put
the victim of wrongdoing ahead of other creditors of the estate.
However, being a Privy Council decision Reid's case did not overrule the
decision in Lister v Stubbs, which is still good law in England and
Wales, but not in some of its former colonies, such as Australia. There
is a tension in English law between Lister and Reid which has been
highlighted in the recent cases such as Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd.[5]
Unjust enrichment
In Chase Manhattan Bank NA v Israel-British Bank (London) Ltd[7]
one bank paid another bank a large sum of money by mistake (note that
the recipient Bank did not do anything wrong - it just received money
not owed to it). Goulding J held that the money was held on
(constructive) trust for the first bank. The reasoning in this case has
been doubted, and in Westdeutsche Landesbank Girozentrale v Islington London Borough Council
the House of Lords distanced itself from the idea that unjust
enrichment raises trusts in the claimant's favour. This remains an area
of intense controversy.
These type of trusts are called '"institutional" constructive
trusts'. They arise the moment the relevant conduct (breach of duty,
unjust enrichment etc.) occurs. They can be contrasted with '"remedial"
constructive trusts', which arise on the date of judgment as a remedy
awarded by the court to do justice in the particular case.
An example is the Australian case Muschinski v Dodds.[8] A de facto
couple lived in a house owned by the man. They agreed to make
improvements to the property by building a pottery shed for the woman to
do arts and crafts work in. The woman paid for part of this. They then
broke up. The High Court
held that the man held the property on constructive trust for himself
and the woman in the proportions in which they had contributed to the
improvements to the land. This trust did not arise the moment the woman
commenced improvements - that conduct did not involve a breach of duty
or an unjust enrichment etc. The trust arose at the date of judgment, to
do justice in the case.
Remedial constructive trusts do not exist in England and Wales, and the High Court of Australia has also distanced itself from Muschinski v Dodds in the later case of Bathurst City Council v PWC Properties.[9]
Usefulness of constructive trusts
For example, if the defendant steals $100,000 from the plaintiff and
uses that money to buy a house, the court can trace the house back to
the plaintiff's money and deem the house to be held in trust for the
plaintiff. The defendant must then convey title to the house to the
plaintiff, even if rising property values had appreciated the value of
the house to $120,000 by the time the transaction occurred. If the value
of the house had instead depreciated to $80,000, the plaintiff
could demand a remedy at law (money damages equal to the amount stolen)
instead of an equitable remedy.
The situation would be different if the defendant had mixed his own
property with that of the plaintiff, for example, adding $50,000 of his
own money to the $100,000 stolen from the plaintiff and buying a
$150,000 house or using plaintiff's $100,000 to add a room to
defendant's existing house. The constructive trust would still be
available but in proportion to the contributions, not wholly in the
claimant's favour. Alternatively, the claimant could elect for an
equitable lien instead, which is like a mortgage over the asset to
secure repayment.
Because a constructive trust is an equitable device, the defendant can raise all of the available equitable defenses against it, including unclean hands, laches, detrimental reliance, and undue hardship.
