It is well-established that where property is received subject to an undertaking, this may give rise to a trust. This post will critique two recent domestic cases where such a transfer occurred: in Archibald v Alexander, a constructive trust was found by the court. In Solomon v McCarthy, no constructive trust was found. It will be argued that the reasoning in each case is inconsistent with the principles recognised by the Court of Appeal in De Bruyne v De Bruyne. In that earlier case, shares were transferred to a husband on the basis of his promise to settle those shares on trust for his children. A constructive trust in favour of the children arose on the appointment of those shares. The shares were accordingly unavailable for distribution in ancillary relief proceedings between the husband and his wife.
In Archibald, the mother of three children purchased a property in the joint names of herself and one of her daughters. This was on the footing that the property would be held for the mother for life and upon her death it would be held by her daughter on trust for all three of the children in equal shares. It was held by Fancourt J, affirming a judgment from the Central London County Court, that a constructive trust came into existence on the basis of a direct application of De Bruyne. However, Fancourt J’s judgment suggests that the trust will only arise if the transferee is the gratuitous recipient of property. For example, it is stated at  that: “Although the facts and context in De Bruyne were of course different, the essential facts were substantially the same, namely that property had been transferred to a volunteer on the basis of his promise to hold it on certain terms, and would not otherwise have been so transferred.”
There is disagreement among commentators as to whether these trusts are express trusts or constructive trusts. As can be seen from the extract above, Patten LJ clearly subscribes to the constructive trust classification, which represents the prevailing view in the case law. Patten LJ’s view is supported by McFarlane, who has put forward a justification for the imposition of a trust in cases where property is received sub conditione. He opines that such trusts are justified by the fact of the transferee’s undertaking and its role in the transferee’s acquisition of the property. A constructive trust will be valid where the transferee agrees to confer a new property right upon receipt of the property and thereby acquires an advantage which assists in the acquisition of the property, so that it can be said that the transferee’s receipt of that property is coloured by his undertaking. As Patten LJ put it, a constructive trust is imposed to the effect of the terms upon which it was acquired. There is no principled reason why a paying transferee who makes an undertaking to the transferor should not be bound in the same way.
Duhaime's Law Dictionary
In Solomon, a husband in financial difficulties transferred property to his wife so that his creditors could not get it. HHJ Matthews, sitting in the Bristol County Court, preferred the husband’s evidence that the property was to be held by his wife on trust for his three sons. However, it was decided that, due to a failure to comply with formality requirements, the property was held not on a constructive trust for the sons, but instead on a resulting trust for the father.
HHJ Matthews stated at  that: “Overall, I am satisfied that the claimant took the property on trust rather than by way of beneficial sale or gift. The question therefore is how far it can be established who were the beneficiaries of the trust. It is clear law that, where A conveys to B on trust for A, this can be proved without the need for signed writing complying with the Law of Property Act 1925, section 53(1)(b), because otherwise the statute would be used as an instrument of fraud: see eg Re Duke of Marlborough  2 Ch 133, Rochefoucauld v Boustead  1 Ch 196, CA. So, a fortiori, the existence of a trust itself can be so established. The problem is whether, where A conveys to B on trust for C, the trust for C can be established without compliance with the statute. In my judgment it cannot. It is not necessary to enforce such a trust in order to defeat a fraud by A. It is only necessary that there be a trust rather than an absolute gift. And to allow the trust for C to be enforced would leave the statutory requirement without effective scope.”
Secondly, as a matter of principle, it is hard to see why the distinction drawn by HHJ Matthews should make a difference. Whether the agreement is to hold on trust for the transferor or for someone else, denying that agreement would be unconscionable and where the transferee receives an advantage in acquiring the property a trust can be validly imposed. It follows that equity should respond by enforcing the terms of the agreement. It is right to question whether Rochefoucauld drives a coach and horses through the statutory formality requirements. Adopting the view that the trust is a valid constructive trust obviates this dilemma as constructive trusts need not be in writing.
In conclusion, the two recent cases discussed here are inconsistent (in different ways) with the justification underpinning De Bruyne. Although the eventual decision in Archibald is correct, there is no need for a gratuitous transfer. The factual matrix in Solomon is sufficient for the imposition of a constructive trust and HHJ Matthews should have so found. Ultimately, the courts should not veer away from a straightforward application of De Bruyne, as it provides a clear principle on which the courts’ intervention can be based.
How to cite this blog post (Harvard style)
Foy, A. (2020). Receipt of property subject to an undertaking in the domestic context. Available at: https://www.law.ox.ac.uk/research-and-subject-groups/property-law/blog/2020/08/receipt-property-subject-undertaking-domestic (Accessed [date]).