This section is from the book "Dart's Treatise On The Law And Practice Relating To Vendors And Purchasers Of Real Estate", by J. Henry Dart . Also available from Amazon: A treatise on the law and practice relating to vendors and purchasers of real estate.
From the time the owner of an estate enters into a binding (agreement for its sale, he holds the same in trust for the purchaser, subject to payment of the purchase-money: but the relationship thus created does not entail all the obligations of an ordinary trusteeship (a). The vendor is not a mere dormant trustee; he is a trustee having a personal and substantial interest in the property, a right to protect, and an active right to assert that interest, if anything is done in derogation of it. The relation, therefore, of trustee and cestui que trust subsists, but subject to the paramount right of the vendor to protect his own interest as vendor of the property (b). When the title has been accepted and the purchase-money paid, this paramount right of the vendor ceases, and the trusteeship subsists without qualification; but, as from the date of the contract, the relationship is throughout that of trustee and cestui que trust (c), and it follows that the purchaser is personally liable to indemnify the vendor as trustee from the liabilities of the trust property, (d).
Vendor, how far a trustee for purchaser.
(a) Wall v. Bright, (1820) 1 J. & W. at p. 501; Rose v. Watson, (1864) 10 H. L. C. 672; 33 L. J. Ch. 385; Plews v. Samuel, 1904, 1 Ch. 464; 73 L. J. Ch. 279; and see 2 Wh. & T.l. C. 9th ed. p. 859.
(6) Per Lord Cairns in Shaw v. Foster, (1872) L. R. 5 H. L. 321., 338; 42 L. J. Ch. 49, 56. But he is not a trustee within the Trustee Acts, see He Carpenter, (1854) Kay, 418; Re Colling, (1886) 32 Ch. D. 333.
(c) See judgment of James, L. J., in Rayner v. Preston, (1881) 18 Ch. D. 13; 50 L. J. Ch. 472; and of Farwell, J., in Ridout v. Fowler, 1904, 1 Ch. 658; 73 L. J. Ch. 325; affd. 1904, 2 Ch. 93; 73 L. J. Ch. 579; and see Re Pagani, 1892, 1 Ch. 236; 66 L. T. 244; Re Beaufort, (1898) 43 Sol. J. 12.
(d) Dodson v. Downey, 1901, 2 Ch. 620; 70 L. J. Ch. 854, where the above passage is approved by Farwell, J.
Where freehold and leasehold premises were sold, together with the goodwill of the business carried on thereat, and through the purchaser's default there was delay in completion, and the vendor carried on the business, informing the purchaser that he was so doing and that it was being carried on at a loss, it was held that the vendor was entitled, apart from any express provision in the contract, to be indemnified in respect of the losses incurred (e). If the contract is rescinded or specific performance has been refused to one of the parties, the relationship of trustee and cestui que trust cannot be considered as having existed between the parties and the vendor holds the property free from any liability arising out of such relationship (f).