Re Schebsman [1944] Ch 83

Facts

  • Schebsman entered into a contract with a company that provided for payments to his wife and daughter after his death.
  • During his lifetime, Schebsman held a contractual right to receive payments from the company.
  • The agreement expressly stated that after Schebsman's death, his family would receive the payments.
  • The court examined the nature of these payments to determine if they were held under a trust or constituted simple contractual rights.

Issues

  1. Whether the contract between Schebsman and the company created an implied trust in favour of his wife and daughter for future payments.
  2. Whether the intent to create a trust was sufficiently established by the written terms of the agreement.
  3. Whether the absence of consideration from the beneficiaries affected the existence of an implied trust.

Decision

  • The court held that while Schebsman had a contractual right during his life, the agreement set out a clear intention for his family to benefit after his death.
  • It was found that the specific reference to the wife's and daughter's entitlement to the payments, coupled with the nature of the agreement, established an implied trust.
  • The lack of consideration from the beneficiaries did not prevent the finding of a trust, as intent to create a trust was regarded as the decisive factor.
  • The obligations of a contract debtor were distinguished from those of a trustee, with the latter entailing management of property for others.

Legal Principles

  • Implied trusts can arise from clear intent shown in contracts, even without express declaration.
  • A mere contractual promise to pay does not create a trust; the parties' intention to benefit a third party as a trust beneficiary must be established.
  • The existence of a trust does not require consideration from the beneficiary, whereas contracts do.
  • The distinction between contractual obligations and trust duties is fundamental: a contract debtor is not a trustee unless the agreement indicates intent to create a trust.
  • Later cases such as Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 and Don King Productions Inc v Warren [2000] Ch 291 have developed the test for identifying trust intent in contracts.

Conclusion

Re Schebsman [1944] Ch 83 clarified that for an implied trust to arise out of a contract, there must be clear intent—demonstrated through words or conduct—to benefit third parties, and this does not depend on consideration from the beneficiaries; trust and contract obligations remain distinct.

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