Law of Trusts: Automatic Resulting Trusts (Lecture #8)
Implied Trusts
are NOT deliberately created
arise by the ‘operation of the law’
‘They are not created intentionally by the settlor but, rather, their existence is
inferred by the courts.’ — Alistair Hudson, Principle of Equity and Trusts (1st edn, Routledge, 2016) 29
Why are Resulting Trusts Made?
exist to fill a gap that exists because of some uncertainty
equity abhors a vacuum
from the Latin Resalire – ‘to jump back’ (Birks, 1982)
'the resulting trust is a default trust which fills the gap and leaves no room for any party to be in suspense' Twinsectra v Yardley [2002] 2 AC 164 at 190 (Lord Millet)
What are Resulting Trusts?
there are 2 types of resulting trusts: automatic resulting and presumed intention resulting trusts
automatic resulting trust: restores equitable interest in property to its original beneficial owner in circumstances where [a trust has failed]
presumed intention resulting trust: trusts that come about where parties do not make their intentions as ownership clear and a rebuttable presumption arises
Automatic Resulting Trusts
rise through operation of the law - 'it appears automatic'
arises in circumstances where the beneficial interest or part of it remains unallocated
beneficial interest automatically jumps back to the original owner
Express Trust: Failure Of Condition
where a condition of a trust is not capable of being fulfilled:
trust fails
trustee's hold beneficial interest on automatic resulting trust for the settlor
beneficial interest 'jumps back' to the settlor
Re Ame’s Settlement [1946] Ch 217
...that trust... [was] based on the consideration and contemplation of a valid marriage
and now that it has been judicially decided that there never was a valid marriage that
trust [fails]" — 221(Vaisey J)
Express Trust: Failure Of Certainty Of Object
where there is a lack of Certainty of Object:
trust fails - unallocated equitable interest
equitable interest automatically held on resulting trust for the settlor
Vandervell v IRC [1967] 2 AC 291
Surplus Funds
where there is a Private Purpose Trust but with Indirect Beneficiaries
General Rule: if purpose of the trust is fulfilled but there's a surplus
trust property held on an automatic resulting trust to donor (the person who provided
the money)
Re Trusts of the Abbott Fund [1900] 2 Ch 326
trust set up to collect donations for the care of two disabled elderly ladies
surplus funds remained after their death
monies to result to the donors - no intention shown by donors that donation should be absolute gift
Surplus Funds: Re Gillingham Bus Disaster Fund [1958] Ch 300
General Rule: if the purpose of the trust is fulfilled but there’s a surplus... trust property held on automatic resulting trust to donor
this rule has proven problematic in the case of Re Gillingham Bus Disaster Fund [1958]
Re Gillingham Bus Disaster Fund [1958] Ch 300
Facts
a tragic bus accident in Gillingham killed several Royal Marine cadets
in response, the public raised money through donations and street collections, creating the Gillingham Bus Disaster Fund
the fund was intended to support the victims and their families, but after compensation was paid and the fund’s purpose was fulfilled, a surplus remained
the trustees sought legal guidance on what to do with the leftover money
Legal Question
was the fund a charitable trust, a private trust, or a non-charitable purpose trust?
if the trust failed or its purpose was exhausted, did the surplus funds result in a resulting trust for the donors?
Outcome
the court held that the fund was not a valid charitable trust.
it was a non-charitable purpose trust, which is generally not permitted under English law unless it fits narrow exceptions
since the purpose had ceased to exist, the surplus was held on a resulting trust for the original donors, where identifiable
Ratio Decidendi
A non-charitable purpose trust that lacks a valid beneficiary or charitable status is void, unless it falls within narrow exceptions.
When such a trust fails or its purpose is exhausted, the remaining funds are held on a resulting trust for the donors.
The court emphasized that donors retain a beneficial interest unless they expressly divest it or the trust qualifies as charitable.
This case reinforced the principle that surplus funds from failed or completed non-charitable trusts revert to contributors, not to the Crown or trustees.
Surplus Funds: Modified Rule
the General Rule has been modified: if the purpose of the trust is fulfilled but there’s a surplus, trust property held on automatic resulting trust to donor (if you can identify the donor)
the key focus is now how the money was raised (West Sussex Constabulary's
Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch 1)
By Subscription
contractual relationship: subscribers already received benefits of subscription membership
no resulting trusts
By Raffles/Entertainment
contractual relationship between fund and those who bought tickets
no resulting trusts
Collection Boxes
money given anonymously - classified as gifts
no resulting trusts
By Donations/Legacies
given by donors who could be identified
resulting trust in favor of donors
Quistclose Trust
lender provides money to a borrower for a specific purpose
borrower is deemed to be holding that money on an automatic resulting trust for lender...
until money is applied to that specific purpose
Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4
Facts
Rolls Razor Ltd, a company in financial difficulty, wished to pay a declared dividend to shareholders
Quistclose Investments Ltd agreed to lend £209,719 8s 6d exclusively for that purpose, with the condition that the money be used only to pay the dividend.
the funds were deposited into a separate account at Barclays Bank Ltd
before the dividend was paid, Rolls Razor went into liquidation
Barclays sought to set off the funds against Rolls Razor’s overdraft, while Quistclose claimed the money was held on trust and should be returned
Legal Question
was the money held by Rolls Razor on trust for Quistclose, or was it part of the company’s general assets?
could Barclays Bank treat the funds as part of the company’s estate and apply them to its overdraft?
Outcome
House of Lords ruled in favour of Quistclose Investments Ltd
the money was held on a purpose trust: if the purpose (paying the dividend) failed, the funds were held on resulting trust for Quistclose
Barclays could not claim the money as part of Rolls Razor’s assets
Ratio Decidendi
when money is loaned for a specific purpose, and that purpose is clearly defined and accepted, a trust arises:
a primary trust exists for the stated purpose
if the purpose fails, a secondary (resulting) trust arises in favour of the lender.
Lord Wilberforce emphasized that the lender retains a proprietary interest in the funds until the purpose is fulfilled
this prevents the borrower or third parties (like banks or creditors) from treating the funds as general assets