Tracing in Equity Flashcards
(15 cards)
What is the primary purpose of equitable tracing?
A. To follow misappropriated property (or its substitutes) and identify it for recovery
B. To award damages in lieu of property
C. To create new fiduciary duties
D. To enforce contractual rights
A. To follow misappropriated property (or its substitutes) and identify it for recovery.
Explanation: Tracing is an equitable process that tracks the movement of trust assets into substitutes so beneficiaries can assert proprietary claims
Which situation requires the use of equitable tracing?
A. The trustee still holds the original trust asset
B. The trust property has been transferred to a third party
C. The beneficiary has waived their rights
D. The will creating the trust is silent on beneficiaries
B. The trust property has been transferred to a third party.
Explanation: When assets leave the trustee’s hands—whether sold or given to a stranger—tracing is needed to locate them or their proceeds
Which condition is NOT required for equitable tracing to proceed?
A. A fiduciary or similar relationship
B. An equitable proprietary interest in the asset
C. The asset (or its proceeds) still exists in some form
D. The asset is registered land
D. The asset is registered land.
Explanation: Tracing can apply to any property, registered or unregistered; the key is an equitable interest and that value remains traceable
Under the “overdrawn account” rule, money paid into an overdrawn bank account is treated as:
A. Still traceable in the account
B. Held on constructive trust
C. Dissipated and no longer traceable
D. Converted into a resulting trust
C. Dissipated and no longer traceable.
Explanation: Funds applied to reduce an overdraft are deemed irretrievably spent, ending the tracing chain
Which defence prevents tracing against a third party who holds substitute assets?
A. Bona fide purchaser for value without notice
B. Clean hands
C. Laches
D. Statutory limitation
A. Bona fide purchaser for value without notice.
Explanation: An innocent purchaser who paid value and lacked notice cuts off equitable proprietary claims
Once tracing locates substitute assets, the beneficiary may choose:
A. A proprietary claim to recover the assets
B. A personal claim for their value
C. Neither, since tracing is not a remedy
D. Both A and B
B. A personal claim for their value.
Explanation: After tracing, if assets have been dissipated beyond recovery, the beneficiary’s only remedy is a personal claim for value
A mixes £10,000 of trust funds with £5,000 of personal funds in one account, then withdraws £8,000. How much trust money remains?
A. £2,000
B. £7,000
C. £5,000
D. £0
B. £7,000.
Explanation: Equity presumes personal funds are spent first (£5k), leaving £10k trust – £3k = £7k traceable
Trustee uses £20,000 of trust money to buy shares, which double in value. Shares are sold and proceeds reinvested in land. How does the beneficiary recover?
A. By claiming £20,000 only
B. By suing for damages for breach of trust
C. By imposing a resulting trust on the landowner
D. By tracing into the land and asserting proprietary rights
D. By tracing into the land and asserting proprietary rights.
Explanation: Tracing follows funds into multiple substitutions, allowing recovery of the final asset
A trustee sells trust property and uses proceeds to pay off personal debt. Beneficiary’s claim is:
A. A personal claim for the value of the debt paid
B. Specific performance to reverse the sale
C. Injunction to prevent debt repayment
D. A proprietary claim via tracing into trustee’s estate
D. A proprietary claim via tracing into trustee’s estate.
Explanation: Even if proceeds are in a general estate, tracing allows a proprietary claim to that fund
A stranger receives £50,000 of trust proceeds and deposits them into their business account, then spends them. Beneficiary’s remedy is:
A. Proprietary claim over business assets
B. Injunction against the stranger
C. Constructive trust over business assets
D. Personal claim for £50,000
D. Personal claim for £50,000.
Explanation: Once proceeds are mixed and spent without traceable substitute, only a personal claim for value remains
Trust funds are used to renovate a property, which is sold and proceeds retained intact. Beneficiary’s best claim is:
A. Proprietary claim to recover the proceeds
B. Personal claim for costs of renovation
C. Specific performance to complete renovations
D. Resulting trust over the property
A. Proprietary claim to recover the proceeds.
Explanation: Since the proceeds remain identified, a proprietary claim recovers them
Which rule applies to determine withdrawals from a mixed current account under tracing?
A. Last-in, first-out
B. First-in, first-out (Clayton’s Case)
C. Pro rata sharing of withdrawals
D. Trust funds are immune from withdrawal
B. First-in, first-out (Clayton’s Case).
Explanation: Clayton’s Rule deems earliest deposits withdrawn first, aiding tracing in current accounts
How are mixtures with an innocent volunteer’s funds treated in tracing?
A. Volunteer funds spent first automatically
B. Shared pro rata according to contributions
C. Trust money traced separately only
D. All funds pooled equally without distinction
B. Shared pro rata according to contributions.
Explanation: When innocence and no notice apply, mixed funds are shared proportionally between trust and volunteer funds
Which exception bars a proprietary claim against registered land bought with traced proceeds?
A. Bona fide purchaser for value without notice
B. Clean hands
C. Overdrawn account rule
D. Rule against perpetuities
A. Bona fide purchaser for value without notice.
Explanation: Registered purchasers without notice are protected under land law, blocking equitable claims
What is the foundational requirement to invoke equitable tracing?
A. A pre-existing equitable proprietary interest in the claim
B. A formal written tracing clause in the trust deed
C. A declaration of resulting trust
D. The beneficiary’s residence in England
A. A pre-existing equitable proprietary interest in the claim.
Explanation: Only those with an equitable interest can trace misapplied property or its substitutes
