EQUITY AND TRUST: RESULTING VERSUS CONSTRUCTIVE TRUSTS
Prompt: Discuss, “Resulting trusts arise from the implied intentions of the parties. In sharp contrast, constructive trusts are imposed by the courts in response to a wrongdoer’s unconscionable conduct.”
Introduction
According to Watt (2012), trust is a relationship whose existence arises where a person, commonly called a trustee, is compelled to hold property in equity in the form of a legal or equitable title for the benefit of another person usually called a beneficiary. Typically, courts apply the resulting and constructive trust terminologies in solving issues relating to trust and equity holding, which often tends to be confusing. It is empirical to understand, as Watt (2012) establishes, the two types of trust conflict in some extents, although, in other ends, their meanings are interlinked. Holding conflicts are predominant in the UK; therefore, courts apply the two terms to arrive at a just decision in determining whether someone has a property share, especially when the legal title is under another person’s name. The two concepts also form a further basis for the solution of future cases of the same genre. In this light, there is a need to expound on the distinction between the resulting and constructive trusts while basing on previous case laws.
Resulting Trusts
Watt (2018) highlights that resulting trusts occur when a party makes a direct contribution to the purchase of a property registered to another party’s name. It is worth noting that such a grant is not intended to be a gift or a loan, so the contributing parties are expected to hold the payment as evidence (Sloan 2010). The contributions unduly translate that one party may wholly or partially own the property on behalf of the other under a beneficial perception (Watt 2018). Additionally, resulting trusts reflect on the leftover interests, especially when the equitable benefits of a property are not wholly disposed off. At the same time, the resulting trusts usually define what happens to a property in question where, in such a case, the property belongs to the transferor (Watt 2018). Commonly, the term reflects an implied trust incident where beneficial interests fall on the transferor’s hands.
Additionally, Leung (2019) spotlights that resulting trusts are imposed where there is no gift intended during the gratuitous transfer of property from the transferor to the transferee. Often, the presumption is held in favor of transferors that transferee should own the property on his/her behalf under a trust (Sloan 2010). Watt (2018) notes that resulting trusts are applied in solving unjust enrichment a situation that often arises primarily in family ownership and businesses. On the same note, a constructive trust may as well happen where there is an agreement between two parties through an express agreement which determines the intentions of both of the parties (Watt 2018). In the absence of express agreement, the court considers both parties’ conduct towards the property held. For instance, the Stack v Dowden (2007) case law expounds more on resulting trust that concerned the sharing of property interests after a family breakdown in the case of a cohabitation relationship (Leung 2019). The House of Lords established a resulting trust where Mrs. Dowden, one of the partners, had made a more significant contribution to the purchase than Mr. Stack. The fact that Mr. Stack had made a 35% contribution as well did not render him to equally share the property with his partner since, as per the court, there was no gift which was agreed on by the two (Leung 2019).
Constructive Trusts
On the other hand, Mitchell (2010) indicates that constructive trusts arise as a result of a court imposition where a transferee has to surrender the property to the transferor in the case of unjust enrichment. According to the law, constructive trust exists where the law perceives a situation as unconscionable, especially for a trustee to deny the beneficiaries their legitimate interests, for example, in fraud cases. A constructive trust is a tool dependent on the law, mainly in which properties are wrongfully acquired by parties who are not entitled to them (Watt 2012). It reflects on an instance where a person is unjustly enriched after holding property on behalf of another under a trust. Therefore, a court has to impose it to cure such wrongdoing (Sloan 2010).
Further, Watt (2012) notes that constructive trusts provide means by which owners can hold properties under a trust on behalf of beneficiaries. Usually, the trust is under a proprietary interest regardless of the lack of an express intention (Mitchell 2010). At the same time, a constructive trust encompasses instances where the aim to create a trust has been ineffective due to failure of compliance with the set formalities (Watt 2018). More so, the trusts exist to safeguard the interests of the beneficiaries of a prevailing trust in the case where the legal title of a property is wrongfully transferred by a trustee (Sloan 2010). Usually, beneficiaries’ rights are a priority in the case of constructive trusts, especially in the case of business creditors. For instance, in the Jones v Kernott (2011) case law, the court ruled that despite the notion that the couple owned the property equally, Mr. Jones was only entitled to a 10% benefit (Leung 2019). The judgment reflected on the fact that Mr. Jones held the property in constructive trust for Mrs. Kernott, who had a more significant share in the property held. Therefore, due to the claim put across by Mr. Jones for equal sharing of the property, the court established the existence of a constructive trust. Also, the court noted that the claimant was seeking for unjust enrichment.
Conclusion
From the above arguments, a clear distinction exists between the resulting and constructive trusts. Firstly, a resulting trust differs from a constructive trust where there is an expressed intention of a transferee to hold property on behalf of a transferor in a trust. The constructive trust exists where it is imposed by the law to solve cases of wrongful ownership of property by the trustees. Resulting trusts are often reversionary interests that arise when the equitable interest in a property is not completely transferred. A constructive trust, on the other hand, occurs when the law needs to correct the wrongdoing and prevent unjust enrichment, especially if trustees deny beneficiaries their legitimate interests. The resulting trust exists where a transferor commits a property gratuitously to a transferee under a trust with no intended gift. In contrast, the constructive trust entails confiding parties’ intentions of sharing beneficial interests on a property where a collective contribution satisfies the interest burden. Additionally, resulting trusts focus on the mutual benefits to both parties, while constructive trust prioritizes the interests of the beneficiaries.
References
Jones v Kernott [2011] UKSC 53
Leung, Y.C., 2019. Rethinking the Common Intention Constructive Trusts in Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53-Should the Resulting Trusts Be Preferred. ISLRev, 6, p.26.
Mitchell, C. ed., 2010. Constructive and Resulting Trusts. Bloomsbury Publishing.
Sloan, B., 2010. Constructive and Resulting Trusts. Edited by Charles Mitchell. [Oxford: Hart Publishing. 2010. xxxii, and 368 pp. Hardback£ 65.00. ISBN: 9781841139272.]. The Cambridge Law Journal, 69(3), pp.680-682.
Stack v Dowden [2007] UKHL 17
Watt, G., 2018. Trusts and equity. Oxford University Press.
Watt, G., 2012. Equity and Trusts Law Directions. Oxford University Press.