P A P E R T R A N S F E R S

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There are good reasons to continue debating the legal nature of equitable title in a jurisdiction like England where legal title cannot be acquired in good faith. Because in English law the legal owner’s position is stronger than the position of an owner in German or Austrian law, English doctrine needs to be careful about placing legal title, for which there is no good faith rule, and equitable title, for which there is a good faith rule, into the same pigeonhole. When comparing English with German and Austrian law, however, we should not fall into the trap of replicating the English debate on the differences in the nature of legal and equitable title. It is possible to classify the entitlement of a buyer arising out of the constructive trust in the context of a sales transaction as proprietary in the same way as the entitlement of an owner under German or Austrian law.

The buyer’s right as a beneficial owner can be considered as proprietary in the context of a comparative legal analysis because the rights of a beneficial owner are good against the seller’s general creditors unless they have acquired an overriding interest in good faith and for value. The equitable owner’s claim has priority over the seller’s judgement creditor and in the seller’s insolvency.

2.4.3 Acquisition of an equitable (beneficial) interest

The conclusion of subsection 2.4.2 was that equitable ownership is a proprietary right. In this subsection we shall analyse the circumstances in which equitable ownership arises when securities are sold.

To conduct this enquiry, we need to proceed in a path-consistent manner; the question we need to ask is indirect. We do not start our enquiry by asking about the point in time at which equitable title to the securities passes to the buyer. We have rather to examine the rules governing the creation of a trust to identify the point in time when the seller becomes a trustee and the buyer becomes the beneficiary. At this point, the buyer will be considered to have equitable title in the securities.

A trust arises either as a result of an express declaration or by operation of law. Trusts that are created by a declaration to that effect are referred to as ‘express trusts’. Trusts that arise by operation of law are called ‘constructive trusts’. Both types of trusts are used in English law to regulate property rights in the context of sales of registered securities. This subsection will begin by analysing constructive trusts, before addressing the use of express trusts in relation to transactions involving registered securities.