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Ways to get round the formality requirements Constructive Trusts Needs the acceptance of an obligation
An oral promise by a transferee to hold on trust for the transferor o An express oral trust in favour of B cannot be enforced under LPA 1925 s.53(1)(b) o Bannister v Bannister : D sold two cottages to C on the oral undertaking by C to let her stay in one of the cottages as long as she liked rent free. The price of PS250 paid by C was at least PS150 below the contemporary value of the cottages. D had been living in one of the cottages rent free since the date of sale. C gave D notice to quit, with which she refused to comply.
? But it can be enforced as a constructive trust -
The equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself o for the purpose of defeating a beneficial interest, which, according to the true bargain, was to belong to another,
? is not confined to cases in which the conveyance itself was fraudulently obtained.
The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest, o and that is the fraud to cover which the Statute of Frauds or the LPA 1925, cannot be called in aid in cases in which no written evidence of the bargain is available.
Because failure to enforce the trust would have led to a windfall profit on the part of T - who had the benefit of a reduced price in return for letting D stay
Where A agrees with B to hold a right for X o Binions v Evans: X allowed D to remain in house rent free for life if kept garden tidy. X then sold the land to C, but expressly gave notice of the agreement in favour of D and lowered the price accordingly. C then gave notice to quit and attempted to take possession
? Lord Denning: Bad for A to be able to get out of this.
Whenever the owner sells the land to a purchaser, and also stipulates that he shall take it "subject to" a contractual licence o Court of equity will impose on the purchaser a constructive trust in favour of beneficiary. o Lyus v Prowsa : C contracted with V for option to buy. V became insolvent, plot sold to D1 and then D2 with notice and promise to respect C's interest. D2 tried to avoid giving effect to C's interest.
? Dillon LJ:
LRA does not affect the constructive trust - it can't be used as a tool for fraud o Can't allow D to plead that an interest he has agreed to respect and has notice of
? cannot be given effect because it is not on the register.
? Smith: Prowsa = narrower than Binions
o Peffer v Rigg:
? Graham J:
3. New constructive trust should be imposed b/c D2's fraudulent conduct - this approach avoids the general importation of good faith into LRA
Where A agrees a transfer with B "subject to" a right of C o Two possible interpretations of "subject to"
? Either arse covering on the part of B
McFarlane: Could mean that term exists to stop A suing B if a right of C is discovered o Meaning there was no intention to respect C's right so no constructive trust arises
? Or that A was indeed agreeing to respect C's rights
Only here will a constructive trust arise o And this depends greatly on the facts of the case.
OR Actual notice of something which affects the conscience of a purchaser
Ashburn Anstalt v Arnold : o Fox LJ:
? The test is whether the owner of the property has so conducted himself
that it would be inequitable to allow him to deny the claimant an interest in the property.
However the court will not impose a constructive trust unless it is satisfied that the conscience of the estate owner is affected.
? McFarlane: explanation = A ought to be made to enforce promise to respect X's right where A has received some benefit in return for this. Effect =
Lyus v Prowsa o Where obligation has been accepted by the purchaser then seems only sensible to give effect to it
? Whether in contract or in trust Debate
Results stand in opposition to Land Registration Principles o McFarlane: Means that purchasers can't be entirely sure of what they're getting if courts follow Binions or Ashburn
? If a judge decides, rather subjectively, that you've acted badly, then you find rights you thought were okay to ignore being imposed on you
? Equally, undermines the certainty of the Land Register o Battersby:
? At the moment Land Registration has no ethical dimension - present rule provides temptation for judges to try and get round it
Clear that the problem arises from the unconscionable conduct of the person relying on the non-registration defence
But while we should avoid constructive notice being inserted into LRA 2002, the system would be just as efficient if proof of actual notice led to Lack of Registration Defence being withdrawn.
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