Controversies Surrounding Constructive Trusts - Case Study Example

Controversies Surrounding Constructive Trusts An overview Constructive trusts can be grouped in the category of implied trusts, as they are established by the effect of a court ruling or the law, pertaining to any transfer of assets. Hence, they are different from express trusts where the settlor is the sole creator of the trust, with an implicit authority to appoint a trustee for the said express trust. However, constructive trusts have been created in Canadian courts, more than anywhere else, while many courts in other countries are now frequently resorting to formation of constructive trusts. In the legal jargon, the constructive trust is an equity-based legal tool which can find remedies to the disputes relating to property rights. As a particular constructive trust would relate only to the specific property, the legal professionals also call it as a “proprietary” remedial method of solving the particular disputes….(Duhaime , 2009) Trusts are frequently established in a will, which could be called as a trust instrument, where the settlor is referred to as a testator. Hence an express trust implies that the settler has expressed a wish to establish the will. However, there is no explicit intention on the part of the settlor to establish a constructive trust. The establishment of such trusts is the consequences of legal responses to the events that might have been encountered during any property transactions. Accordingly, the purpose of constructive trusts should revolve about its binding effect on the issues of law in developing the major issues like honoring commitments, disgorging gains and repairing losses. Hence, the rationale behind the constructive trusts should consider these three main themes, while discussing the obligations and rights under the property law. As no firm and agreed list of rules is available under the English law, which could govern the constructive trusts, their rationale and guidance comes from various court cases, where the concerned judges have suggested rules for the constructive trust, pertaining to specific case. Accordingly, five rules on constructive trusts are briefly summarized below: Any seller, who has contracted to sell his or her estate, will be a trustee of the estate for the purchaser, beginning from the time of contracting. Constructive trusts should be bound by the rules that compel a stranger who has negligently assisted in a breach of trust to repair the loss, caused by such breach. Anyone who receives the money, by unfair means, with suppression of facts or under the mistake of revealing facts, should be forced to hold the money in trust for the payer. In case of any lease renewal of the trust property, by an honest trustee, he or she should be compelled to surrender his/her profits to the trust, meant for particular estate. Constructive trust rules should be well-defined However, these and other rules that bind the foundation of constructive trusts being heterogeneous in nature, there have been a fair amount of confusion about the concepts of such trusts and the liabilities involved in referring to the same. Accordingly, the above rules remain debatable, when judged under different circumstances. For example, it may be a mild punishment for an honest trustee to surrender his term, after he has renewed the lease of the trust estate. Similarly, it may result in undermining the settled judicial authority, if a stranger is honest but negligently assists in breach of trust and is thus required to repair the loss caused by such action. Therefore, it is essential that the rules governing the constructive trusts are rationalized, in a direction that can reduce the confusion in conceptuality and liabilities, caused thereby. Accordingly, rationalizing would mean formation of few basic criteria, which can address to the identification of the suspicion and the reforms needed to remove the suspicion, when the same is well-founded. However, the issue of rationalizing these rules is as compound as the issue of providing a general definition of “constructive trusts”. If the general definition could have the conceptual orderliness with justifiable practical results, then there would not be any need to rationalize the definition or the rules pertaining to it. ….(Elias, 2005) Therefore it can be said that formation of constructive trusts are the result of wrong doings and illegal actions. Thus the controversy surrounding such actions is part of the trust formation. As such trusts are established to resolve the disputes; they are often formed as a result of wrong actions of the management of an express trust. Since the trustees of an express trust owe responsibility towards the beneficiaries of the trust, it requires that they should not place their own interests above those of the trust beneficiaries. However, the controversy arises when the members of the express trust do not perform their duty, in this regard, properly. Hence the constructive trust is formed to resolve the breach thus caused. Accordingly, it is established that a constructive trust would arise if the trustee of an express trust makes a personal profit, exploiting his position, at the expense of the trust. Hence, the profit thus made by the trust management would be placed in the newly formed constructive trust. Controversies arise The main controversy arises when the constructive trust regulations are seen within the perspective of judicial or legal authority. For example, if any individual or an organization commits a financial error in favor of another individual or company, then the benefited party is required to hold the respective assets in the constructive trust, which, ultimately, should benefit the party that made the error. However, this remains a debatable point, when discussed within the judicial perspectives, as many legal professional have rejected this law that relates to the constructive trusts. In any case, the establishment of constructive trusts is not similar to the formation of any other trust. Constructive trusts arise only, after some wrong doings have been noticed, in a transaction that involves property, home or real estate. Accordingly, the formation of such trust is usually demanded by the plaintiffs in court, for the purpose of suitable remedial action to the wrongdoing. For example, if any person has bought a property with money accumulated by him, through illegal means like theft, then victim of such theft could demand formation of constructive trust for holding the said property in that trust. However, since, other legal jargons would be involved in such cases; the controversies are bound to arise, while establishing a constructive trust for such purposes, as the plaintiff in this case would like to recover his money, using this remedial method of action………..(What is a trust constructive?.) While on the subject, there have been many diverse viewpoints on the regulations and limitations of the constructive trusts. As can be seen, the formation of such trust is the result of an illegal action, while transacting any property; the ways of remedial action that could come out of establishing the constructive trust are debatable. With reference to such issues, in a book on constructive trusts, Charles Mitchell (Mitchell,2009) has given the views of many authoritative persons on such and other resulting trusts. For example, according to Mitchell, Paul Matthews has given a historical account of these trusts, while describing the relation ship between a common intention constructive trust and doctrine of proprietary estoppel. Mitchell further refers to the views of Ben McFarlane, who is of the opinion that many constructive and resulting trusts do not fit into the common perception of trusts, which means that the constructive trusts come into existence only when the settlor exercises a power to create a new equitable property right. Hence, in his opinion many constructive trusts may seem to be anomalous. However, this anomaly may not remain if all trusts arise due to any person holding a right to property, which he is obliged to pass on to another person, under the law. In addition, Mitchell has referred to the discussions of Charlie Webb, which states that the intention of a claimant to transfer property may be subject to many conditions, whose circumstances may not extend fully to the laws of constructive trust. Under such circumstances, the claimant may be genuine in denying the transfer of said property. Mitchell refers to Irit Samet’s understanding of “locus poenitentia” rule, which says that the property transferred for an illegal purpose can be recovered under a resulting trust, even when a transferor withdraws from the transfer before committing any wrongdoing. However, keeping the controversy of constructive trusts alive, Samet questions the ethics of such transfer, even if the tranferor has done so, before committing the illegal act…………(Mitchell, 2009) As the responsibility of creation for any constructive trust remains solely with the court, it is used as a tool by the court to compel the defendant to convey the title of the property to the plaintiff, who is the just and fair owner of the same. Hence, a constructive trust cannot be classified with other trusts, as it has no administrative or functional responsibility or obligation, except that its sole purpose is to force the trustee transferring the property to the beneficiary. Hence, this is a temporary arrangement sought under the law of the land, which happens to be an alternative remedial course for the aggrieved party to choose, while considering other alternatives like filing a case for the recovery of money that has been wrongfully taken form the beneficiary. However, once deciding to take the course of action through the formation of constructive trust, the plaintiff cannot claim relief from both types of legal proceedings. In addition, the constructive trust rules state that the interim expenses incurred by both the plaintiff and defendant, after the said transfer of property until the formation of trust, must be deposited in the trust. These would include the property and other taxes along with the money spent on the maintenance of the said property. However, these are certain clauses of the trust which are debatable and controversial. In addition, certain courts have asked the plaintiff to compensate the defendant in case it is established that his wrongful doing was not intentional, but was out of mistake or ignorance. This again is open to many arguments and debates…………..(Constructive trusts) Similarly, the following circumstances, with respect to creation of constructive trusts would create controversies. When the cause relates to any duress or undue influence The transfer of property can be set aside by the court if it finds that any mistake or wrong doing is involved in the transfer of the said property. Therefore, in such cases, the court can consider the instrument of conveyance as invalid, while it can restrain the transferee to retain the said property. (Constructive trusts, para 7-8) Concealment of facts In many cases the courts have found fraudulent submission of facts or concealment of the real position by the transferor of the property, which has resulted in appointment of the transferee of the property as a constructive trustee. In such cases it is the state of mind of the defendant which might be the basis of raising the necessary constructive trust. However, to prove the allegations of fraud is a long drawn judicial process. In addition, the defrauded party could use other methods of justice, like filing a separate case to recover damages. (Constructive trusts, para 9-10) Possession of property through homicide The constructive trust can be established if it is found that any person has obtained the property, after committing the murder of the genuine property owner. If the murder has been intentionally or wrongfully committed then the said property could be decreed to the trust. Although many states in America do not allow the murderer to retain the property of the victim, each state has a different law in this regard. However, most of the states require by law that the murderer should be convicted for wrong doing, which caused the death of the property owner. However, this again is open to controversy, as the statutes do not apply in case of any negligent killing. Similarly, it should be established that the murderer killed the property owner mainly for the purpose of acquiring his property…..(Constructive trusts, para 11-12) Will based on broken promise If the property owner makes an absolute gift by way of will or otherwise in favor of the defendant, which is based on an oral promise by the defendant and the promise is not fulfilled, after the death of the property owner; then a constructive trust can be raised. As establishing a constructive trust is not the end in itself for getting the remedial relief, it is essential that the plaintiff considers all the related controversies, before requesting for formation of such trust. Other remedial legal tools are also available to seek justice. BIBLIOGRAPHY In-text citation references Constructive trusts, available at: http://legal-dictionary.thefreedictionary.com/Constructive+trusts (accessed on 1st April 2010) Duhaime Lloyd, 2009, “Constructive and Resulting Trusts”, available at: http://duhaime.org/legalresources/elderlawwillstrustsestates/lawarticle-341/constructive-and-resulting-trusts.aspx (accessed on 1st April 2010) Elias Gbolahan,, 2005 “Explaining constructive trusts”, book available at: http://books.google.com/books?id=GrSl0wTVz8sC&pg=PA116&lpg=PA116&dq=use+of+%E2%80%98constructive+trusts%E2%80%99+and+its+controversies&source=bl&ots=OSTxhP3n7y&sig=3rX2rSCx5YiPuP009XPggCojUD0&hl=en&ei=uP6yS4vFAdO8rAf5h6nuAg&sa=X&oi=book_result&ct=result&resnum=8&ved=0CBkQ6AEwBzgK#v=onepage&q=&f=false (accessed on 1st April 2010) Mitchell Charles, 2009, “Constructive and resulting trusts”, available at: http://docs.google.com/viewer?a=v&q=cache:RLRu9x9sW44J:www.hartpublishingusa.com/pdf/1841139270.pdf+use+of+%E2%80%98constructive+trusts%E2%80%99+and+its+controversies&hl=en&sig=AHIEtbR0xCADQddUQUsvxHVqh0takogaAg (accessed on 1st April 2010) What is a trust constructive?, available at: http://www.estatesortrusts.co.uk/when-is-a-trust-constructive.html (accessed on 1st April 2010) Other sources used http://duhaime.org/LegalDictionary/C.aspx http://www.statemaster.com/encyclopedia/Constructive-trust Read More