Constructive trusts

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Question A – constructive trusts Constructive trusts are Trusts that Arise By Operation of the Law (TABOLs). This means that the law has imposed these trusts under certain circumstances. The law automatically creates an equitable title for beneficiaries in the property of the legal owner.

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They, are then, distinct from intentional trusts (which the settlor creates himself by using his power of ownership to create a trust). Constructive trusts may be imposed by the law in three circumstances; where a vendor of property fails or refuses to execute the necessary documents to transfer legal title to the recipient, equity states that the vendor holds the property on constructive trust for the recipient from the moment the contract of sale is signed. Secondly, where legal title to property is transferred to a third party in breach of an existing trust, the recipient can be described as a constructive trustee so that the original beneficiary can still claim his equitable interest. Finally, a constructive trust arises where individuals acquire an interest in another’s property because of their “past dealings or relationship with the owner.”[1] This is the category which is relevant in this instance, and the most common one of its type is the constructive trust of the family home. In basic terms, a constructive trust of the family home arises where two people (usually spouses) cohabit, and although the legal title to the property is in the name of only one, the other relies on an informal agreement of joint ownership to his or her detriment. This party will acquire an equitable interest in the property under a constructive trust. The individual must show, however, that she has “altered her position in reliance upon the agreement … thereby acquiring an enforceable interest … by way either of a constructive trust or a proprietary estoppel” (Lloyds Bank plc v Rossett). The law alters the legal owner’s property rights in what is usually the most significant asset owned. Oakley’s comment (above) reflects an ambivalence within the legal profession towards the constructive trust as a whole, and in particular those of the family home. This is based upon the fact that it is a largely arbitrary device, imposed or withheld in each case on the merits of that case, based on a consideration of what is just and equitable. The constructive trust, then, is a creature of equity which seeks to bring justice where the strict letter of the law would deliver an unjust solution. By its nature, then, it is unpredictable, which accounts for the suspicion surrounding it. Added to this is the fact that the power of equity in this case has not been informed by entirely coherent principles. A constructive trust may be imposed subject to proof of three elements.

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