the doctrine of parol agreement trusts and fraud in equity

277 Pages·2017·1.15 MB·English

THE DOCTRINE OF PAROL AGREEMENT TRUSTS AND FRAUD IN EQUITY: AN
HISTORICAL-DOCTRINAL ANALYSIS OF EQUITY'S JURISDICTION UNDER THE
HEAD OF FRAUD TO IMPOSE TRUSTS ARISING OUT OF PAROL
AGREEMENTS.

GREGORY WILLIAM ALLAN, LLB, LLM

A thesis submitted in partial fulfilment of the requirements of the University of
Wolverhampton for the degree of Doctor of Philosophy.

October 2016

This work or any part thereof has not previously been presented in any form to the University
or to any other body whether for the purposes of assessment, publication or for any other
purpose (unless otherwise indicated). Save for any express acknowledgments, references
and/or bibliographies cited in the work, I confirm that the intellectual content of the work is
the result of my own efforts and of no other person.

The right of Gregory William Allan to be identified as author of this work is asserted in
accordance with ss.77 and 78 of the Copyright, Designs and Patents Act 1988.

Signature....Gregory Allan...............................

Date........13/02/17.............................................
Acknowledgment

I would like to extend my immense gratitude to my Director of Studies, Professor
Peter Walton, for his unfailingly insightful advice in respect of this thesis and also in
relation to my research career more generally. I am similarly indebted to Professor
Roger Gregory, who was the primary source of inspiration for both the subject matter
of my research and the means by which it was, and continues to be, conducted. I
would also like to thank Wolverhampton Law School and Leicester Law School for
providing me with encouragement and financial support during the course of this
research degree.
I also owe an immeasurable debt of gratitude to my parents for consistently
supporting my education in every manner possible since the earliest days of my
infancy. I would also like to acknowledge the contribution of my children, William and
Leo, who provided frequent and (usually) welcome distractions from my work on this
thesis. Last, and by no means least, I wish to pay tribute to the equally unquantifiable
debt of thanks owed to my wife, Virna, for providing me with as much in the way of
support, encouragement and intellectual insights as any researcher could possibly
wish for.

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Abstract
This thesis examines, through the most comprehensive historical-doctrinal analysis
to date, the nature and extent of equity’s jurisdiction to impose trusts arising out of
parol agreements. The central argument of this thesis is that all such trusts are
enforced pursuant to a single doctrine of equity which arises to prevent fraud. This
doctrine, which is uncovered and elucidated in this thesis, is named ‘the doctrine of
parol agreement trusts’. It is argued that the ‘fraud’ which brings the doctrine into
play will occur if the recipient of property knowingly reneges on a parol agreement
subject to which she took the property and upon which the other party thereto relied.
Moreover, it is demonstrated that trusts arising for the prevention of fraud were, until
the early twentieth century, not seen as express, resulting or constructive trusts, but
that, according to modern nomenclature, they are best regarded as constructive
trusts. This thesis also challenges several modern orthodoxies. It is proven that the
leading case of Rochefocuauld v Boustead was reported imperfectly, and that all
previously presented accounts of the facts are inaccurate. Furthermore, it is
categorically demonstrated that secret trusts are enforced for the prevention of fraud,
but that this is not inconsistent with the notion that secret trusts are dehors the will.
The juxtaposition between parol agreement trusts and related equitable innovations
such as mutual wills, proprietary estoppel and ‘common intention’ constructive trusts
is also examined, as well as the doctrine’s relationship with contract law and the law
of agency, with a view to providing a doctrinal solution to some modern controversies
in these areas. The historical-doctrinal relationship between parol agreement trusts
and other types of constructive trusts is also examined with surprising results which
suggest doctrinal affinities with the liability which affects knowing recipients. Finally, it
is suggested that the manner in which modern commentators and some judges have
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eschewed fraud as a justification for parol agreement trusts and other related trusts
may represent an unwelcome development.

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Contents

Chapter 1: Introduction .......................................................................................................... 1
1.1 The Research Question ............................................................................................... 1
1.1.1 What are Trusts Arising out of Parol Agreements (Parol Agreement Trusts)? ....... 1
1.2 How the Research Question will be Answered ............................................................ 2
1.2.1 Research methods ................................................................................................ 2
1.2.2 The various aspects of the research question ....................................................... 4
1.3 Why will the Intended Treatment of the Research Question as Lead to an Original
Contribution to Knowledge? ............................................................................................. 10
Chapter Two: Category One and Two Parol Agreement Trusts ........................................... 12
2.1 General Introduction .................................................................................................. 12
2.2 Category One Parol Agreement Trusts ...................................................................... 13
2.2.1 The historical and contemporary relevance of fraud ............................................ 13
2.2.2 Observations on the nature of fraud in equity ...................................................... 15
2.2.3 The classification of category one parol agreement trusts ................................... 19
2.3 Category Two Parol Agreement Trusts ...................................................................... 22
2.3.1 Secret trusts- introduction and academic controversies ....................................... 23
2.3.2 Inter vivos category two parol agreement trusts: the academic controversies ..... 26
2.3.3 The Historical and Contemporary Relevance of Fraud to Secret Trusts .............. 27
2.3.4 Observations on the nature of equitable fraud in secret trusts cases ................... 28
2.3.5 Do the differing communication requirements for fully and half-secret Trusts
undermine the fraud theory? ........................................................................................ 50
2.3.6 Summary of the observations on the nature of equitable fraud in secret trust cases
.................................................................................................................................... 52
2.3.7 Observations on the nature of equitable fraud in cases of inter vivos category two
parol agreement trusts ................................................................................................. 53
2.3.8 The classification of category two parol agreement trusts ................................... 56
2.4 Summary ................................................................................................................... 68
Chapter 3: Category Three Parol Agreement Trusts and ‘Hybrid’ Cases ............................. 71
3.1 Introduction ................................................................................................................ 71
3.2 Analysis of the Facts of Rochefoucauld v Boustead .................................................. 74
3.2.1 Why are the facts of Rochefoucauld unclear? ..................................................... 74
3.2.2 The factual background to Rochefoucauld ..................................................... 77
3.2.3 The Sale of the Estates .................................................................................. 83
3.2.4 The Aftermath of the Sale .............................................................................. 96
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3.2.5 Conclusions on the factual analysis of Rochefocuauld ................................. 101
3.3 The Extent to Which the Prevention of Fraud Underpins the Enforcement of Category
Three Parol Agreement Trusts ...................................................................................... 102
3.3.1 Equitable fraud within the context of cases within the Rochefoucauld line ......... 102
3.3.2 Equitable fraud within the context of cases within the Pallant line ..................... 107
3.4 Fraud in Cases of ‘Hybrid’ Parol Agreement Trusts ................................................. 112
3.4.1 Young v Peachy ................................................................................................ 112
3.4.2 Neale v Willis .................................................................................................... 113
3.4.3 AM v SS: the most recent case of a parol agreement trust ................................ 114
3.5 The Classification of Category Three Parol Agreement Trusts ................................. 117
3.5.1 The classification of the trust in Rochefoucaud ................................................. 119
3.5.2 Summary regarding the proper classification of category three parol agreement
trusts .......................................................................................................................... 132
Chapter 4 The Doctrine of Parol Agreement Trusts and the Principle that Equity Will Not
Allow a Statute to be used as an Instrument of Fraud ....................................................... 133
4.1 Introduction .............................................................................................................. 133
4.2 Reliance-based Fraud: a Common Justification for the Enforcement of Parol
Agreement Trusts .......................................................................................................... 134
4.2.1 B’s knowledge of the other party’s reliance binds his/her conscience ................ 134
4.2.2 Why is B’s knowledge of the reliance upon the parol agreement sufficient
justification for its enforcement? ................................................................................. 141
4.3 The Classification of Parol Agreement Trusts: Analysis and Conclusions ................ 144
4.3.1 Parol agreement trusts were not historically classified as constructive trusts .... 144
4.3.2 The express trust fallacy ................................................................................... 148
4.3.3 The prevention of fraud is a classification of trust in its own right: overall .......... 151
4.3.4 Taylor v Davies: the point at which parol agreement trusts began to be classified
as constructive trusts. ................................................................................................ 153
4.3.5 The significance of the enactment of the Law of Property Act 1925, s53(2) ....... 156
4.3.6 An unintended effect of s53(2) .......................................................................... 158
4.3.7 Can parol agreement trusts be enforced as resulting trusts? ............................. 159
4.4 A Newly Uncovered Equitable Doctrine: the Doctrine of Parol Agreement Trusts .... 160
4.5 Relations between the Doctrine of Parol Agreement Trusts and the Law of Contract
...................................................................................................................................... 161
4.6 The Doctrine of Parol Agreement Trusts: the Relationship with the Instrument of Fraud
Principle and the Doctrine of Parliamentary Sovereignty ............................................... 167
4.6.1 Introduction ....................................................................................................... 167
4.6.2 The historical judicial interpretation of the scope of statutory formality requirements
.................................................................................................................................. 168
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4.6.3 The doctrine of parol agreement trusts, the instrument of fraud principle, and the
doctrine of parliamentary sovereignty: the verdict ...................................................... 174
Chapter 5 The Place of Parol Agreement Trusts within the Law of Constructive Trusts .... 177
5.1 Introduction .............................................................................................................. 177
5.2 Are ‘Common Intention Constructive Trusts’ Parol Agreement Trusts? .................... 177
5.2.1 Single ownership cases: the establishment of the constructive trust ................. 179
5.2.2 Co-ownership common intention constructive trusts .......................................... 189
5.2.3 Quantification of the beneficial interest .............................................................. 193
5.2.4 Conclusion ........................................................................................................ 195
5.3 The Relationship between Parol Agreement Constructive Trusts and Proprietary
Estoppel ........................................................................................................................ 196
5.3.1 The requirements of the doctrine of parol agreement trusts v the requirements for
proprietary estoppel ................................................................................................... 196
5.3.2 The scenarios to which the two doctrines may apply ......................................... 197
5.3.3 Why does the doctrine of parol agreement trusts only apply to pre-acquisition
agreements? .............................................................................................................. 199
5.3.4 The two doctrines should remain separate ........................................................ 200
5.4. Are Mutual Wills Parol Agreement Trusts? ............................................................. 201
5.4.1 Introduction to mutual wills ................................................................................ 201
5.4.2 The juxtaposition between mutual wills and parol agreement trusts .................. 202
5.5 The ‘Subject to Contract’ Cases .............................................................................. 204
5.6 Doctrinal Relations Between Parol Agreement Trusts and Other Constructive Trusts
...................................................................................................................................... 210
5.6.1 The modern position of parol agreement trusts within constructive trusts .......... 210
5.6.2 Parol agreement trusts compared with ‘traditional’ constructive trusts ............... 213
5.6.3 Parol agreement trusts compared with dishonest assistants and trustees de son
tort ............................................................................................................................. 216
5.6.4 Parol agreement trusts and liability for knowing receipt ..................................... 218
5.6.5 Summary: parol agreement trusts and constructive trusts ................................. 241
5.7 Overall Summary ..................................................................................................... 242
Chapter 6: Overall Conclusion .......................................................................................... 244
Table of Cases .................................................................................................................. 254
Bibliography ...................................................................................................................... 260
Appendix ........................................................................................................................... 266

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Chapter 1: Introduction
1.1 The Research Question
The purpose of this thesis is to analyse critically, through a historical-doctrinal lens
and within the context of the law of trusts generally, the full range of circumstances in
which equity will impose trusts for the prevention of fraud in order to give effect to
parol agreements. The overriding aim is to trace the development of equity’s
jurisdiction to intervene in such circumstances with a view to ascertaining whether
there is a doctrine which provides a common justification and mechanism for the
enforcement of some or all such trusts, and to consider the place of any such
doctrine within the law of trusts, from both a historical and a modern perspective. It is
hoped that the fruits of this research might be of assistance in proposing doctrinally
sound solutions to the many contemporary academic and judicial controversies
relating to trusts arising out of parol agreements and constructive trusts generally.
1.1.1 What are Trusts Arising out of Parol Agreements (Parol Agreement
Trusts)?
For the purposes of this thesis, trusts imposed by equity in order to give effect to
parol agreements (referred to hereafter as parol agreement trusts) may arise when
two parties agree that, upon one of the parties receiving title to certain specific
property, he or she will hold it subject to a certain trust, or for a certain specified
purpose. Parol agreement trusts usually, but not always, arise in circumstances in
which statutory formality requirements would seem to preclude the creation of a valid
parol trust. The Statute of Frauds 1677 introduced the relevant statutory formality
requirements. Section 5 required all wills of land to be in writing and formally
attested, and ss18-21 also greatly restricted the circumstances in which nuncupative
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wills of personalty could be created. Section 5 has been superseded by the Wills Act
1837, s9 of which requires that all wills must be in writing signed by the testator and
at least two witnesses. Section 7 of the Statute of Frauds, which has been replaced
by the Law of Property Act 1925, s53(1)(b), required trusts of land to be evidenced in
writing. The requirements of s53(1)(b) are, for the purposes of this thesis
indistinguishable from those laid down by s7.
Depending on the nature of the agreement and other circumstances surrounding the
acquisition of the property by the party in question, equity may determine that,
notwithstanding the formality requirements, he or she takes as a trustee in order to
give effect to what was agreed. There is a wide range of situations in which equity
will intervene in such a manner. Examples include secret trusts1 and trusts of the
type imposed in the well-known cases of Bannister v Bannister2, Pallant v Morgan3
and Rochefoucauld v Boustead.4 It is at least arguable that, inter alia, ‘common
intention constructive trusts’5 and trusts arising pursuant to the doctrine of mutual
wills6 are also types of parol agreement trusts.
1.2 How the Research Question will be Answered
1.2.1 Research methods
1.2.1.1 Primary research method
There is a great wealth of authorities, stretching back several hundred years,
concerning parol agreement trusts. As will be seen, however, most commentators

1 See, for example, Blackwell v Blackwell [1929] AC 318, HL.
2 [1948] 2 All ER 133, CA.
3 [1953] Ch 43, CA.
4 [1897] 1 Ch 196, CA.
5 See Lloyd’s Bank v Rosset [1991] AC 107, HL; Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432; Jones v
Kernott [2011] UKSC 53, [2012] 1 AC 776.
6 See Re Goodchild [1997] 1 WLR 1216, CA; Re Walters [2008] EWCA Civ 782, [2009] Ch 212.
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whose work focusses on various kinds of parol agreement trusts only cover the
historic case law in a relatively superficial manner, preferring instead to examine the
extent to which the more recent authorities concerning parol agreement trusts may
be assimilated within theoretical models which have been conceived in order to
rationalise various aspects of the law of property.
Rather than seeking to assess the compatibility of the authorities with any pre-
conceived theories, the aim of this thesis is to consider the extent to which any
principles or doctrines may be divined from the relevant case law. In other words, the
intention is to establish what the law is, rather than what it ought to be. In order to
assess the strength of any such findings, the degree and depth of judicial consensus
relating thereto will be examined. Accordingly, a historical-doctrinal approach will be
employed as the primary research method.7 The nature and development of equity’s
jurisdiction, as it relates to the research question, will be ascertained through
thorough analysis of all available authorities, as well as historical treatises and
commentaries, and all relevant statutory provisions.
It is pertinent at this point to recognise that the availability of most law reports8 and
some historical treatises online, particularly in databases such as Westlaw, Lexis
Library and Hein Online, provides the modern doctrinal researcher with considerable
advantages over his or her predecessors, particularly in terms of the ability to browse
and search law reports electronically. It is thus intended that, aided by modern
technology, the doctrinal analysis undertaken for the purposes of this thesis will be
the most rigorous to date in terms of authorities consulted.

7 For support of the doctrinal method as the most appropriate means by which to establish what the law is, see T
Hutchinson, ‘Doctrinal Research’ in D Watkins and M Burton (eds), Research Methods in Law (Routledge,
Abingdon, 2013) 28.
8 Although some series which proved very useful to this thesis, such as the Law Times Reports, the Weekly
Notes and the Law Journal Chancery Reports, are still unavailable online.
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