Proprietary Estoppels and Constructive Trust in Oral Contracts

This article discusses the principles of proprietary estoppels and constructive trust in oral contracts. It explains how these principles protect the rights of affected parties and provide remedies for their losses. The article also discusses the elements required for the application of these principles and cites relevant cases. Subject: Law, Course Code: Not mentioned, Course Name: Not mentioned, College/University: Not mentioned.

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Introduction:
Contract is an agreement binding by law. There are certain elements of contract
necessary for its valid application. According to the common legal rule, in every contract,
there must be certain offers and free acceptance to the offer. When an offer has been
accepted, a contract has been incorporated. Further, there are certain other essentials in the
contract. There should be certain considerations as the subject matter of the contract and the
contracted parties should have to attain the age of majority. There are two kinds of contract
such as written and oral contract. The terms and conditions of the written contracts are quite
valid and reliable. However, problems are cropped up in case of oral contract. It has been
observed that in oral contract, the terms are inserted orally. There are certain challenges in
oral contract, as the parties have to face great dilemma to establish the validity of a
contractual term. There are certain issues cropped up where it has been observed that the
innocent people are affected by the oral contracts and they are deprived of their legitimate
rights and the rogue people are taking the undue advantages from the same. Therefore, the
natural justice has been affected through this malpractice and it becomes necessary to amend
certain provisions to make an effective change to this regard. Doctrines like proprietary
estoppels and constructive trusts are required to be included under this system. Both the
principles are based on the doctrine of equity and a wide application of these two doctrines is
required.
Discussion:
After the incorporation of a contract, the parties are bound to maintain all the terms
and conditions of the contract. However, to certain extent, it has been observed that either of
the parties are getting certain privileges that they are not entitled to get. Therefore, they are
enjoying the benefits by depriving the other party. Such benefits are illegal in nature. There

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are certain principles that help the affected parties to get rid of the problems. Considering the
situations, it has been stated that the poor people are affected by this problems. Further, it is
to be stated that equitable principles are required to be adopted by the jurists to avoid the
problems and for that reasons, it becomes essential to include certain provisions on equity.
Considering the situation, doctrine of proprietary estoppels and constructive notice has been
included in the oral form of contract. It is therefore, necessary to discuss about the concept of
both the principles.
Proprietary estoppels:
There are certain legal claims that that crops up from the relative rights of the parties
regarding any property. The term proprietary estoppels are a legal claim that transfers the
rights in a property from one person to another. This term is effective in case of a disputed
property1. However, there are certain conditions where the rights in a property transferred. If
in a contract regarding the sale of a property, one party has given an assurance acquiring a
right over a particular property and the party has done certain substantial things to rely
reasonably on that statement, they are entitled to get the rights; otherwise, the consequence
will be detrimental to them. This right has been confirmed by the proprietary estoppels.
Considering the above named elements, it can therefore, be stated that proprietary estoppels
mean creating certain interest in the land if there is no correct formalities are mentioned. If in
a contract, whether written or oral, any of the parties have accrued unjustified benefits by
depriving the other party and if that affected party has faced serious dilemma due to this,
proprietary estoppels help the affected party by securing the rights of the party on that
contractual subject2. It operates the unconscionable behaviour of one party and generates
1 Pawlowski, Mark, and James Brown. "Proprietary estoppel and competing equities." Conveyancer and
Property Lawyer82.2 (2018): 145-156.
2 Bright, Susan, and B. E. N. McFARLANE. "Proprietary estoppel and property rights." The Cambridge Law
Journal64.2 (2014): 449-480.

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certain remedies to the affected parties on this behalf. This can be stated that the entire
principle is based on the principle of equity. It has been decided in Crabb v Arun DC3 that the
amount of remedies are depending on the discretionary power of the court and they will
decide the case based on the equity. This mentality of the court has been re-established in the
case of Yaxley v Gotts4. According to this case, before pronouncing judgment on the
proprietary estoppels and provide remedies to the affected parties, the court should have to
decide whether there is the four elements are present in the case or not. The elements are
assertion, reliance on the assertion, detrimental cause due to non-performance of the promise
and unconscionable acts of the parties. In Willmott v Barber5, court had decided that in a case
of proprietary estoppels, five elements must be present in the contract and the affected parties
are obliged to show the elements. According to Justice Edward Fry, the affected party should
have to show that certain mistakes have been taken place regarding the legal rights of the
parties as against the contractual subject. The claimant has to prove that he has done
something believing the fact that he has occupied certain rights over that matter. There should
be certain evidences that can prove that defendant has all the knowledge that the claimant has
mistakenly claimed the rights and he has not informed the claimant regarding this. Rather, he
has let the claimant do such things with an intention to gain certain profits over the property.
If all these elements are met, the claimant could get rights over the property by way of
proprietary estoppels. In Waltons Stores Ltd v Maher6, it has been stated that the principle of
proprietary estoppels is based on the doctrine of equity.
According to the Coombes v Smith7, the main elements of proprietary estoppels is to
acquire certain rights over the property. In case where the parties are affected by the
unconscionable acts of the other parties, proprietary estoppels establish that rights. However,
3 [1976] Ch 179
4 [2000] Ch 162
5 [1880] 15 Ch D 96
6 [1988] 164 CLR 387
7 [1986] 1 WLR 808

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this principle is applied on the oral contract, where there is no mention of written rules. The
court will analyse all the facts of the claimant and it will be decided whether all the elements
of the proprietary estoppels have been met in that case or not. In Sledmore v Dalby8, the court
has decided that both the principle of proprietary estoppels and promissory estoppels are
quite similar in nature. In Cobbe v Yeoman’s Row Management Ltd9, it has been decided by
the court that the concept of proprietary estoppels are sub-species of the promissory
estoppels. It must be showed by the claimant that he has believed that he has accrued certain
legal rights over the legitimate subject matter of the contract or over the property. The object
of reliance should be mentioned and established in this case. According to Lord Hoffmann, if
a prudent person would believe that such rights could be accrued from the subject, the legal
rights will be established in this case. In the absence of any clear context in the contract, the
parties may claim for the proprietary estoppels and they have all the chances to get justice for
the belief and reliance. This principle has been approved in Thorner v Major10. However, the
modern approach of proprietary estoppels is three folded and this principle has been
established in the case of Taylors Fashion Ltd v Liverpool Victoria Trustees11. According to
this case, the affected party should have to establish three elements such the assurance of
certain interest over the contractual subject, reliance over the assurance and the claimant has
done certain things for the assured property or for the contractual subject. After the
establishment of all these three elements, the court could pronounce its judgment over the
same and the amount of remedy will be depended on the same. However, under the modern
approach, the court has divided the assurance in two parts such as active assurance and
negative assurance. The concept of active assurance has been established in the case of
Inwards v Baker12. In Shaw v Applegate13, it has been observed that when the parties to the
8 (1996) 72 P & CR 196
9 [2008] UKHL 55
10 [2009] UKHL 18
11 [1982] QB 133
12 [1965] 2 QB 29
13 [1977] 1 WLR 970

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contract has by mistaken facts believe that he has occupied certain rights over the property,
this will be known as passive assurance. In this case, the claimant has to establish that the
defendant has not stopped him in spite of knowing that he is in a mistaken condition.
Therefore, it can be stated that this principle has been established to protect the interest of the
weaker section to the contract and help them to get certain remedies for their losses.
According to the judgment made in the Jennings v Rice14, it can be stated that the principle of
proprietary estoppels has maintained the proportionality among the parties and satisfy the
equity so that no one could be affected in a contract.
Constructive trust:
Like proprietary estoppels, constructive trust is another kind of equitable remedy.
There are certain situations where it has been observed that in a contract, a party has gained
certain benefits by depriving others from their legal rights and for that, the affected party has
to face certain detrimental effects. Further, it has to be established that the rights and interest
gained by the benefitted party is wrong and in ordinary sense, he must not enjoy all these
rights. Such illegal process of occupation is known as the unjust enrichment. In The
Principles of Law of Restitution, Virgo has stated that such enrichment could be regarded as
the breach of fiduciary duty from the perspective of the contractual parties15. If the claimant
in this case proves the fact that he has been deprived of his rights illegally, court will order
the benefitted party to give remedy for their losses by maintaining the concept of constructive
trust. In the contract, such situations are quite frequent and in most of the cases, the parties of
the contract are forgetting their limits regarding fiduciary duties. It has been mentioned in the
Attorney General for Hong Kong v Reid16, if any of the parties to the contract has forgotten
14 [2003] 1 P & CR 8
15 Rothschild, William L. "How to Treat Constructive Trust Claims in Bankruptcy." American Bankruptcy
Institute Journal 35.11 (2016): 24.
16 [1994] 1 AC 324

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their duties and earned certain illegal rights over the property or the contractual subject, he
will be get punished under the principle of constructive trust. Certain exceptions are also
mentioned in this case. It has been observed in the Regal Ltd v Gulliver17 if it has been
observed that no interference has been made regarding the profit-making opportunity, the
principle of constructive notice will not be applicable in that cases. However, it has been
established in the case of Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd18 that
after the establishment of the existence of the constructive trust, the claimant could get back
the rights over the subject and the defendant will provide certain remedies to the affected
parties for the losses incurred to him. It has been observed in the Foskett v Mckeown19 that
when the original property of the claimant acquires certain interest regarding the trust fund,
they could receive certain remedies from the trust in the form of constructive trust. Further, if
any party obtained certain illegal profit over the property of others, and the other party has
been affected by keeping certain trust over the benefitted party, the court can pronounce order
in favour of the affected party under the principle of constructive trust. This principle has
been ruled out in the case of Chase Manhattan Bank NA v Israel-British Bank (London)
Ltd20. The principle of constructive trust has been regarded as the remedial institution that
intends to establish the equity and protects the affected parties from the ill motive of the
benefitted parties and certain rights of the affected parties are established through the concept
of constructive trust. Justice Deane has verified this judgment in the case of Muschinski v
Dodds21.
Considering the cases and rules regarding the constructive trust, it can be stated that
the principle of constructive trust does not created in the places where there is an express
mention about the creation of trust; rather, this principle has been established in the cases
17 [1942] UKHL 1
18 [2010] EWHC 1614
19 [2000] UKHL 29
20 [1980] 2 WLR 202
21 (1985) 160 CLR 583

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where certain property or anything has been gained or acquired by unconscionable conduct.
According to the views of the court, constructive notice is a remedial device that helps the
affected parties to protect their interest and compels the defendant to give certain remedies to
the affected parties. This principle has been established in the case of Gissing v Gissing22.
Under this case, two phrases of foundation regarding the constructive trust has been
established. It has been observed that the parties to the contract must show that there is an
inducement regarding the subject matter of the property and the claimant has developed
certain believe that he will gain certain profit from the property or the contractual subjects
and the claimant has act certain things to his detriment. However, this doctrine has been
modified by Lord Denning in the case of Eves v Eves23. In this case, it has been held that the
recognition over the property must be fair and clear. Further, it has been observed by Lord
Denning that certain inequitable happening must be taken into place. In addition to all these
rules, certain methods of common concept regarding the recognitions have been established
in the case of Lloyds Bank v Rosset24. In this case, it has been held that if the parties to the
contract has believed that he can acquire certain interest over the contractual subject and he
has done certain thing significantly to his detriment, principle of constructive trust could be
established in this case.
Conclusion:
It is therefore, be stated that both the principle of proprietary estoppels and
constructive trust is based on the doctrine of equity and the primary intention of both the
principles is to protect the interest of the affected parties in a contract. Considering the cases
mentioned above, it could be stated that there are many situations where the parties become
affected by the unconscionable acts of the other parties. The main problem in both cases is
22 [1971] AC 881
23 [1975] 1 WLR 1338
24 [1991] 1 AC 107

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that certain classes of people are deprived of their benefits and legal rights and other parties
have gained certain illegal opportunities from that. These problems are quite common in the
oral contracts where the terms and conditions are not mentioned specifically. However, oral
contracts are also valid form and both the principles are required to be added or inserted to
protect the interest of the weak people or any of the parties to the contract. Robert Walker
(2014) has supported that decision of insertion25.
25 Bright, Susan, and B. E. N. McFARLANE. "Proprietary estoppel and property rights." The Cambridge Law
Journal64.2 (2014): 449-480.

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Reference:
Attorney General for Hong Kong v Reid [1994] 1 AC 324
Bright, Susan, and B. E. N. McFARLANE. "Proprietary estoppel and property rights." The
Cambridge Law Journal64.2 (2014): 449-480.
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1980] 2 WLR 202
Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55
Coombes v Smith [1986] 1 WLR 808
Crabb v Arun DC [1976] Ch 179
Eves v Eves [1975] 1 WLR 1338
Foskett v Mckeown [2000] UKHL 29
Gissing v Gissing [1971] AC 881
Inwards v Baker [1965] 2 QB 29
Jennings v Rice [2003] 1 P & CR 8
Lloyds Bank v Rosset [1991] 1 AC 107
Muschinski v Dodds (1985) 160 CLR 583
Pawlowski, Mark, and James Brown. "Proprietary estoppel and competing
equities." Conveyancer and Property Lawyer82.2 (2018): 145-156.
Regal Ltd v Gulliver [1942] UKHL 1

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Rothschild, William L. "How to Treat Constructive Trust Claims in Bankruptcy." American
Bankruptcy Institute Journal 35.11 (2016): 24.
Shaw v Applegate [1977] 1 WLR 970
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2010] EWHC 1614
Sledmore v Dalby (1996) 72 P & CR 196
Taylors Fashion Ltd v Liverpool Victoria Trustees [1982] QB 133
Tee, Louise. "A merry-go-round for the millennium." The Cambridge Law Journal 59.1
(2000): 23-25.
Thorner v Major [2009] UKHL 18
Waltons Stores Ltd v Maher [1988] 164 CLR 387
Willmott v Barber [1880] 15 Ch D 96
Yaxley v Gotts [2000] Ch 162