The creation of express, resulting and constructive trust in banking transactions

Date08 May 2018
Published date08 May 2018
AuthorGeorge Demetriades
Subject MatterAccounting & Finance,Financial risk/company failure,Financial crime
The creation of express, resulting
and constructive trust in
banking transactions
George Demetriades
School of Law and Social Sciences, Neapolis University, Pafos, Cyprus
Purpose This paper aims to analyse the circumstances where an express, resulting or constructive trust may
arise in banking transactions, taking in consideration relevant case law. Bankers in certain situations could become
atrusteeoraduciary in relation to their customers. Emphasis is given on the issue of constructive trust as, after
many years of inconsistent case law, a recent decision of the Supreme Court claries this controversial issue.
Design/methodology/approach The paper is focused primarily on examining relevant cases and
judicial reasoning to identify thecircumstances leading to the creation of express, resulting or constructive
trust in bankingtransactions.
Findings In certain circumstances, the banker could become liable as a trustee under equity. An express trust
may arise between a banker and a customer in cases where the customer gives the money to the bank to fulla
specic purpose. Where the bank is not able to full this purpose, a resulting trust may arise and will hold the
money as a resulting trustee. There are some exceptional situations, where the bank can be liable as a constructive
trustee. An agent who receives benets in breach of his duciaryduty holds those benets on trust for his principal.
Practical implications Knowledge of the legal position and the circumstances that can lead to the
creation of express, resulting or constructive trust is essential for both bankers and their clients to protect
their interests. The exibility of equitable remedies can be used to ll in the gaps or deciencies in the
common law. Clients of banks or even third parties in the case of constructive trust can be in a very
advantageousposition in circumstances where a trust for their money is created.
Originality/value The paper takes in to consideration all updated academic papers and modern court
decisions. The analysis provided in the paper can be very useful for bankers, their clientsand practitioners.
The paper clariesthe application of equity law and the creation of trust in certain banking transactions.
Keywords Banking, Bribe, Constructive trust, European ventures, Quistclose
Paper type Research paper
One of the most important services the bank provides to the customers is to act as a
depository for their moneysand generally enabling them to deposit their money in a current
account or accountsbearing interest.
The amount paid to the customers credit account is regarded as being lent by the
customer to the bank[1]. It follows that the relationship between customer and the bank is
that of creditor and debtor[2].
However, this does not excludethe possibility that in certain situations the banker could
become a trustee or a duciaryin relation to his customer. Lord Brougham in Foley v. Hill[3]
observed that a banker could:
Make himself an agent. For example, suppose I deposit exchequer bills with a banker and he undertakes
to receive the interest upon them, or to negotiate or sell them, and to credit my account with the proceeds
of the sale, I do not stay to ask whether, in that case, he might not be in position of a trustee, and might
not partly sustain a duciary character, but he does that incidentally to his trade of banker[4].
Creation of
Journalof Financial Crime
Vol.25 No. 2, 2018
pp. 277-286
© Emerald Publishing Limited
DOI 10.1108/JFC-08-2017-0073
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