When can an informal agreement give rise to a constructive trust?

An agreement will not give rise to a constructive trust where: (1) a formal agreement is contemplated but not concluded; (2) some of the terms to be agreed have not been agreed so that the interest in property is not identified; or (3) the parties did not expect their agreement to be immediately binding.

In Herbert v Doyle ([2010] EWCA Civ 1095, CA (Eng)) H and D were neighbours who had negotiated an agreement for the exchange of interests in land. They reached agreement on the terms at a meeting in February 2003. In April 2003 they had a further meeting at which they agreed to proceed on the basis of the February agreement. Both sides intended to be bound as a result of the April meeting. In essence, the question was whether this agreement gave rise to a constructive trust and was enforceable. The judge at first instance held that the agreement did give rise to a constructive trust.

On appeal, H argued that the first instance decision was incompatible with the House of Lords decision in Cobbe v Yeoman’s Row. Arden LJ found that the agreement did give rise to an enforceable constructive trust. In an important passage she said that an agreement will not give rise to a constructive trust (or to a claim in proprietary estoppel) where: (1) a formal agreement is contemplated but not concluded; (2) some of the terms to be agreed have not been agreed so that the interest in property is not identified; or (3) the parties did not expect their agreement to be immediately binding (para. 57). There was some doubt as to whether the property that was the subject of the agreement had been identified with sufficient certainty. In the end this doubt was resolved in D’s favour. The court felt able to fill in the gaps in the agreement in this regard; this was not a case of an incomplete agreeement. Thus, none of the three factors were present here and the judge at first instance had been right to find that there was a constructive trust.

Michael Lower

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