Implied Trusts Notes

Equity & Trusts : Implied Trusts

‘Implied’ trusts—covers (a) resulting and (b) constructive trusts

• Underhill and Hayton divde trusts into:

  • Express trusts

  • Implied trusts (imposed by implication of a court of equity).

    • Resulting trusts

    • Constructive trusts

Resulting Trusts

• Automatic

• Presumed

• No express declaration, so different rules: eg no requirements as to writing in LPA 1925 s53(1) for resulting trusts (s53(2))

Why RTs arise:

• They arise in miscellaneous sets of circumstances where equity treats a person as holding property on trust for the settlor.

• Particular in following situations (not an exhaustive list):

  • (a) Transfer to another to hold on trust but the transferor has failed to create equitable interests that dispose of the whole of his beneficial interest;

  • (b) gratuitous transfer of property into another’s name;

  • (c) a purchaser has property conveyed into the name of another (sometimes jointly with himself) where no gift was intended: Lavelle v Lavelle (2004).

• NB; while the transferor is legal owner of the property that they transfer, they have no equitable interest in that property unless and until they acquire such an interest under an expressly created trust or a RT as Lord Browne-Wilkinson pointed out in Westdeutsche Landesbank v Islington LBC (1996)).

How are RTs categorised?

• Megarry J, Re Vandervell (No 2) (1974)

  • (1) Automatic RT (ART):

  • The RT is the automatic consequence of a failure to dispose of all the beneficial interest, as in Vandervell v IRC.

  • Doesn’t depend on intentions or presumptions.

  • So arises automatically irrespective of intention.

  • (2) Presumed RT (PRT)

  • Donee presumed to hold on trust for donor.

  • Arises because it is clear the donor does not wish to part with the benefit of the property.

  • There is a rebuttable presumption of RT because property is put in the name of another.

• Megarry J: whilst presumed RTs depend on the presumed intention of the settlor, ARTs do not depend on intention.

• VS

• Lord Browne-Wilkinson, Westdeutsche v Islington BC

  • Just one type of RT: ALWAYS based on settlor’s intentions, always responds to the common intention of the parties.

  • [i.e. always presumed, automatic RTs]--

• BUT, re Westdeutcshe Browne-Wilkinson:

  • This contradicts the case law.

  • ARTs imposed despite contrary intention.

  • Leads to absurd results.

  • Only the settlor’s intention is relevant.

• So we follow the automatic/presumed distinction in Re Vandervell’s Trusts (no 2)

• Presumed RTs:

  • Rebuttable presumption: can be displaced by suitable evidence.

• Automatic RT:

  • In ARTs there is bound to be a RT as there is no alternative (whereas in presumed RTs, there will only be a RT if there is no evidence to suggest a contrary intention).

AUTOMATIC Resulting Trusts

• Lord Upjohn, Vandervell v IRC (1967): ‘…the so-called presumption of a RT is no more than a long stop to provide the answer when the relevant facts & circumstances fail to yield a solution’.

• This was an eg of ‘where the transfer to B leaves some or all of the beneficial interest undisposed of’.

• Three categories in this area: (a) no valid declaration of trust; (b) valid declaration but the trust fails; (c) beneficial interests not completely disposed of (includes Quistclose trusts and unused surpluses).

(a) No valid declaration of trust:

• Can arise for a number of reasons:

  • (1) no trusts declared, as in Vandervell v IRC

  • (2) lack of proper formalities---LPA 1925, s53(1).

  • (3) lack of certainty (particularly certainty of objects and their shares).

  • (4) breach of the rule against perpetuities.

  • (5) failure to create an intended charitable trust, which will then generally be void as a private ‘purpose’ trust (eg Morice v Bishop of Durham; Chichester Diocesan Fund v Simpson).

• Vandervell:

  • Because the trust was void for certainty of objective—the property went back to Vandervell on RT.

  • It was automatic because: his intention was to give it away, but despite his intention, it went back to him. Because English law doesn’t allow property to hang around attached to no one—it goes back to the person who gave it away.

(b)Valid declaration, but Trust fails

• Can aries because, eg:

  • (1) before the trust takes place, the intended beneficiary dies, or the body intended to benefit ceases to exist (eg Re Recher’s WT).;

  • (2) or a trust or purpose becomes impossible;

  • (3) a pre-condition is not met—often these cases concern marriage settlements. Eg, Essery v Cowlard (1884)—trusts failed as the marriage never took place, so trustees held on RT for settlor.

  • Eg To X for life. X dies. You haven’t made provision for the remainder.

(c) Incomplete disposal of beneficial interests—4 subcategories, can arise because:

• (1) a failure to provide for a situation: eg a gift for life, with no gift over.

• (2) a failure to foresee a possible situation:

  • eg Re Cochrane’s ST (1955):

  • A settlement in 1898 gave a wife a life interest for ‘so long as she shall continue to live with [the husband]’ and her interest was followed by a life interest for the husband.

  • The trust then provided that, after the death of the survivor, it would go to such of their children as the survivor should appoint and, in default of appointment, to the children equally on attaining 21.

  • The wife ceased to live with the husband, so her interest ceased. The husband later died but was survived by the wife.

  • The document did not cover the situation of both life interests ending during the life of the survivor, so, until the wife’s death, there was a RT of the income to the settlor. The ‘gap’ could not be filled by imposing a trust of the income for the children.

• (3) the creation of a Quistclose trust

  • Quistclose trust = generally used as a means by which a lender of money can obtain security for its loan by specifying that the borrower may only use those loan moneys for a particular purpose.

  • Protects lender against borrower’s insolvency because the loan moneys are treated as being held on trust for the lender, and, thus, not part of borrower’s estate.

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