'Automatic' Resulting Trusts : Retention, Restitution or Reposing Trust?

This chapter considers the justification for the 'automatic' resulting trust. It points out that, as a historical matter, the dominant explanation has been that the settler 'retains' any beneficial interest of which he has not disposed. It is suggested, by reference to the “doctrine of the old use” in the law of succession, that this explanation is far more deeply rooted in the law than has been generally recognized. However, some commentators have argued that the retention idea is flawed at the level of principle, providing support for the idea that the existing rules should be altered to allow resulting trusts to operate as an instrument to reverse unjust enrichment in a wide variety of cases. The relevant issues are investigated in this chapter and it is concluded that the retention explanation, though deeply rooted in authority, is not fully satisfactory at the level of principle. It is also noted that the proposition that all resulting trusts should be regarded as being based on unjust enrichment is not supported by authority and, at the level of principle, is vulnerable to some of the same criticisms as the retention idea. This chapter identifies an alternative rationalization of the existing rules (which does not involve any modification in the content of those rules). It suggests that, in the context of the ‘automatic' resulting trust, equity is confronted with the question of what should happen when property is given on trust to a trustee but the particular trusts indicated do not exhaust the beneficial interest or are invalid. The rule chosen by equity in this situation, that there should be a resulting trust for the settler, is difficult to fault as a matter of justice. It proceeds on the basis of a logically prior decision by equity that, once property has been conveyed to a trustee in whom the settler has reposed trust to hold it according to the settler's instructions, the trust will not ‘fail', even where there is a failure in the particular trusts declared or a failure to declare any such trusts. Once one is willing to accept that a trust has been brought into existence by the conveyance to the trustee, so that someone must become entitled to the beneficial interest under that trust, it is difficult to justify anyone besides the settler taking any unallocated beneficial interest