Constructive Trust

Constructive Trust meaning

The court creates constructive trusts whether necessary in the interests of justice and conscience. For instance, whether the trustee makes a profit derived due to his position, abusing his role, that profit is held on constructive trust for the beneficiaries. These trusts are normally imposed by the courts in order to remedy fraudulent or unconscionable conduct.  A constructive trust thus is remedial in effect and might arise where the trustees in breach of trust sell the property to another who, for some reason or another, is not a bona fide purchaser for value without notice ~ he or she may have knowingly received or assisted in disposing of trust property in breach of trust.  In such circumstances the courts may impose a constructive trust on the third party, who then holds the property on a constructive trust for the person from whom it was obtained. Equity says that in certain circumstances the legal owner of property must hold it on trust for others.  Constructive trusts are imposed by the law irrespective of the intention of the trustee and in fact may be the very last thing the new constructive trustee wants. 

What is a Constructive Trust?

There is an academic argument as to the exact status of constructive trusts in this country.  Some think of it as simply another form of an institutional trust in much the same way as other trusts in that they are imposed only within the limits described by precedent.  Others, particularly the late Lord Denning, favour the American idea of using the constructive trust as a remedy.  In Hussey v. Palmer [1972] 3 All ER 744 Lord Denning said that constructive trusts can be imposed “whenever justice and good conscience require it.” The views of Denning have been attacked on the basis that it would create uncertainty in the law. No one would know in what circumstances a constructive trust might be imposed and that imposing a constructive trust might be accompanied by unforeseen and unconsidered consequences. However, it could be argued that the whole controversy is really rather sterile since historically all trusts were remedies.

LAW BOOKS

Use our Equity and Trusts law textbooks from the Core Series, to read more about constructive trust. We offer example answers, the books in our Equity and Trusts Q&A Series will help you prepare for exam question on constructive trusts.