Liability of Strangers to the Trust Flashcards
(13 cards)
Who qualifies as a “stranger” to a trust?
A. A beneficiary under the trust
B. Someone who is not a trustee or fiduciary
C. A co-trustee acting jointly
D. The settlor of the trust
B. Someone who is not a trustee or fiduciary.
Explanation: A stranger sits outside the trust/fiduciary relationship and may incur accessory or recipient liability
Which element is essential for a knowing-receipt claim?
A. The defendant planned the breach of trust
B. The defendant was a co-trustee
C. The defendant received trust property (or its traceable proceeds) beneficially and knew of the breach
D. The claimant has a constructive trust
C. The defendant received trust property (or its traceable proceeds) beneficially and knew of the breach.
Explanation: Unconscionable receipt requires both receipt of trust assets and actual or constructive knowledge that they derived from a breach
What are the two principal heads of stranger liability?
A. Negligence and nuisance
B. Accessory liability (dishonest assistance) and recipient liability (unconscionable receipt)
C. Proprietary estoppel and resulting trust
D. Contractual and tortious claims
B. Accessory liability (dishonest assistance) and recipient liability (unconscionable receipt).
Explanation: Strangers can be liable either for dishonestly assisting a breach or for unconscionably receiving trust assets
Which requirement must be satisfied for dishonest-assistance liability?
A. The defendant received trust property
B. The claimant was a volunteer
C. The defendant held legal title
D. The defendant knowingly assisted the breach and acted dishonestly
D. The defendant knowingly assisted the breach and acted dishonestly.
Explanation: Dishonest assistance demands proof of assistance plus dishonesty (subjective belief + objective standard)
Pat, a friend of the trustee, helps falsify trust accounts so funds can be diverted. Pat knew this was improper. What liability arises?
A. Accessory liability (dishonest assistance), because Pat assisted the breach dishonestly
B. Recipient liability, because Pat never held any proceeds
C. Constructive trust, because Pat holds legal title
D. No liability, as Pat is not a trustee
A. Accessory liability (dishonest assistance), because Pat assisted the breach dishonestly.
Explanation: Participation in planning and concealment of the breach triggers dishonest-assistance liability
Quinn buys land from the trustee for full market value but later learns it was trust property. Quinn still holds the land. Which claim applies?
A. Recipient liability—Quinn must return the land
B. Accessory liability—Quinn assisted the breach
C. No claim—Quinn is a bona fide purchaser for value without notice
D. Personal claim under Saunders v Vautier
C. No claim—Quinn is a bona fide purchaser for value without notice.
Explanation: A bona fide purchaser without notice is protected from recipient liability
Rita receives sale proceeds of trust property knowing they derive from a breach and immediately spends them. Beneficiaries sue. What remedy?
A. Accessory liability—dishonest assistance
B. Recipient liability—account for full value and any profit/loss
C. Proprietary claim—recover substitute assets
D. No remedy, since proceeds are dissipated
B. Recipient liability—account for full value and any profit/loss.
Explanation: Knowing recipients must account for the entire value even if proceeds are spent
Sam, a solicitor, drafts documents concealing the trustee’s misapplication of funds. He did so dishonestly. Which liability applies?
A. Recipient liability, because Sam received funds
B. Accessory liability—dishonest assistance
C. Resulting trust, because the trust failed
D. No liability, due to professional immunity
B. Accessory liability—dishonest assistance.
Explanation: Dishonest involvement in arranging or covering up a breach attracts accessory liability
Which scenario calls for a proprietary claim instead of recipient liability?
A. The recipient still holds the trust property or sale proceeds
B. The recipient has dissipated the proceeds
C. The recipient never received any property
D. The recipient acted honestly
A. The recipient still holds the trust property or sale proceeds.
Explanation: Where assets remain identifiable, the beneficiary can pursue a proprietary remedy to recover them
How is “dishonesty” assessed in a dishonest-assistance claim?
A. By a statutory definition only
B. By comparing to a reasonable trustee’s conduct
C. Subjectively (defendant’s belief) and then objectively (honest standards)
D. Through the rule in Keech v Sandford
C. Subjectively (defendant’s belief) and then objectively (honest standards).
Explanation: The two-stage test examines what the defendant knew and whether an honest person would consider it dishonest
Why might a claimant choose dishonest assistance over knowing receipt against the same stranger?
A. Dishonest assistance can recover losses even if the stranger didn’t benefit
B. Recipient liability creates a proprietary interest
C. Knowing receipt has no knowledge requirement
D. Recipient liability is barred by limitation
A. Dishonest assistance can recover losses even if the stranger didn’t benefit.
Explanation: Accessory claims focus on wrongful assistance, not just receipt of benefit
Which defence protects a recipient who paid full value without notice?
A. Clean hands
B. Bona fide purchaser for value without notice
C. Laches
D. Statutory exemption clause
B. Bona fide purchaser for value without notice.
Explanation: This defence bars knowing-receipt claims if the recipient gave value and lacked notice of the breach
Which exception prevents a beneficiary from pursuing a proprietary claim against a knowing purchaser of registered land?
A. The bona fide purchaser for value without notice rule
B. The volunteer rule
C. The rule in Saunders v Vautier
D. The Land Registration Act 2002 exception (actual occupation required)
D. The Land Registration Act 2002 exception (actual occupation required).
Explanation: Even if the purchaser knew the land was trust property, equity cannot override a registered title under LRA 2002—only someone in actual occupation can assert an overriding interest
