Constructive trusts

evolvedlegal
July 12, 2012

What is a Constructive Trust?

A constructive trust is a trust that can be imposed on parties by the court at equity, if it is just and reasonable to do so.

This prevents certain parties from being unjustly enriched, particularly where the other party cannot claim an interest because of legal technicalities.

This form of implied trust does not need to be evidenced in writing.

The Requirements for a Constructive Trust

In order for the court to consider whether a constructive trust exists, they will need to first consider whether the legal title to the property is held by both parties, or by just one.

Where the Legal Title to the Property is Held in both Parties Names

The trust instrument/conveyance needs to have been evidenced by signed writing in order to be valid. If this is the case, and the trust instrument specifies that the parties should hold the property as joint tenants, each party will have 100% ownership. This is completely equal ownership between the parties. This is the case irrespective of whether the parties have contributed unequally to the purchase price. The above situation offers a compelling example of why it is so important to carefully consider co-ownership options when a property is purchased.

Where the trust instrument does not mention what form the legal title should be held as between the parties, ‘equity is presumed to follow the law’. This means that the parties will hold the legal title as joint tenants as well.

Where the Legal Title to the Property is Held in Just One Party’s Name

Where both parties have made direct purchase price contributions to the property a resulting trust may arise rather than a constructive one. This is another form of implied trust. This may arise where the purchase price contribution one party has made (the party who does not hold the legal title) was not a gift or a loan. If it can be proved that the contribution was in fact a gift or a loan, then a resulting trust cannot arise, and the party will not be able to gain an interest in the property.

Where it can be proved that there was a common intention to share the property, and as a result of this common intention, the party who did not hold the legal title acted to their detriment in relation to the property, a constructive trust might arise. This is a common issue which arise with family law disputes, particularly with an unmarried couple.

Evidence of common intention may include an express statement to this effect, or through one party’s conduct. Mortgage payments or purchase price contributions are the only form of conduct which are acceptable to evidence common intention. However, an additional form is where one party has paid all the household expenses so that the other party can pay the mortgage. Childcare and household work will not be sufficient.

Evidence of a party acting to their detriment involves the examples above.

Quantifying the Interest Owed

Once the court has established that an interest exists, this interest needs to then be quantified. This is not a mathematical equation, but is based on the share of purchase price contributions.

When attempting to quantify the interest, the court will look at the whole course of dealings between the parties. If there is evidence that the size of the share was agreed at the time the common intention was evidenced then these shares will be binding. If there is no evidence, the court will reconstruct their intended shares in light of the whole course of dealings.

As the court takes into account the whole course of dealings between the parties, they will also take into account non-financial contributions by the parties. This could include the nature of the parties’ relationship, financial arrangements and even personal character.