Constructive Trusts in the Land - Coursework Example

?Question Isaac may have a claim in the Groove property under the principles of trusts. Constructive trusts in land are created when an individual acquires an equitable interest in land. In such a case the legal owner of the property is regarded as a trustee of the land, holding the equitable interest for both the legal owner and the non-legal owner.1 Lord Diplock’s ruling in Gissing v Gissing provides the starting point for assessing Isaac’s situation and the extent to which he can challenge Rose’s request for vacant possession and presumably all of the interest in the Groove property. In Gissing v Gissing, Lord Diplock established the manner in which a cohabitee can claim a beneficial or equitable interest in a home to which he/she does not have legal title. Lord Diplock essentially established what is referred to as the common intention constructive trust. Under the common intention constructive trust, when one cohabitee held legal title to property, cohabitees would share the equitable interests whether or not they had made direct contributions to the purchase of the property provided the non-legal owner could prove that there was a common intention that the parties would share the beneficial interest. Moreover, the non-legal owner must also prove that he/she acted to his/her detriment pursuant to this common intention.2 Isaac can be said to have acted to his own detriment pursuant to a common intention that he would share the equitable interest in the Groove home. To start with, he not only quit his well-paid job to move to the Groove home, he gave up his own accommodations at the time. The common intention is further exemplified by Rose’s statement that she had been looking for someone to share the home with and invited Isaac to be that person. The fact that Isaac move to the home and gave up his job and home to do so clearly establishes a common intention. Isaac also acted to his own detriment in furtherance of the common intention by remaining at home, caring for the home and the two children he sired with Rose. Moreover, Isaac spent 15,000 pounds of his own money in improvements to the property. The 15,000 pounds would be treated by the courts as an indirect financial contribution which is relevant for establishing the existence of a constructive trust as evidence of a common intention.3 Evidence of a common intention can therefore be constructed out of the facts of the case for discussion. Rose expressed an intention to share the beneficial interest in the Groove home with Isaac and Isaac acted pursuant to that common intention by first making indirect financial contributions and acting in ways that supported that intention to his own detriment. Secondly, and at a later stage, Isaac made direct contributions toward the purchase of the Groove home by discharging the mortgage and taking up household expenses. Thirdly, with Rose’s approval Isaac spent 60,000 pounds on further improvements to the property. In the first two instances, Isaac freed up Rose’s own disposable income. In the third instances, Isaac improved the value of the property. This would provide evidence of the acquisition of a beneficial interest in the home pursuant to a common intention.4 Arguably, a resulting trust will be implied out of the direct financial contributions made by Isaac in discharging part of the mortgage obligations on the Groove property.5 Ultimately, the question is whether or not in all the circumstances it would be unfair or unjust to permit Rose, the legal owner of the property, to now treat the ownership of the Groove property in a manner that would encroach upon the acquired equitable rights of Isaac. As stated in McKenzie v McKenzie, a constructive trust will arise: Out of, and is equity’s way of giving effect to, the common intentions of the parties regarding allocation of the beneficial ownership.6 Ultimately, the courts will imply the existence of a constructive trust in circumstances where it would be unjust or fraudulent to permit total beneficial interest in the property to the legal owner.7 Essentially, the courts will look at the entire relationship between the co-habittees and construct it as a “joint venture”.8 In looking at the entire relationship, there was no ambiguity. Both Isaac and Rose intended to build a life together at the Groove property. Rose was express in her intentions and Isaac acted pursuant to that intention. He clearly intended that he would acquire an interest in the property and this is manifested by acting to his own detriment. Isaac cannot however, expect to acquire the whole beneficial interest in the property. Nor can he ask for the legal title. Although Rose stated that she gave the hose to Isaac, she did not commit this transfer to writing. The transfer of the legal estate is ineffective since Rose did not conduct the transfer by deed. According to Section 53(1)(b) of the Law of Property Act 1925 a legal estate in realty can only be conducted in writing.9 Moreover, Rose could not have disposed of her equitable interest in the land by transferring it to Isaac because the same had not been done in writing. Section 53(1)(c) of the Law of Property Act 1925 requires that the disposition of an equitable interest in land be conducted in writing.10 In the final analysis, Isaac can expect to be treated as entitled to a beneficial interest in the Groove property. In all likelihood, the court will not permit him to claim the entire interest, despite the fact that Rose stated that she had given Isaac the house. She could not have transferred the equitable interest in the land nor the legal estate by word of mouth. Isaac however, has by virtue of the common intention implicit in the doctrine of constructive trust acquired an equitable interest in the home. He can either be ordered to purchase Rose’s interest and have the property transferred to him properly. Or he can insist that Rose pay him a sum equal to his beneficial interest in the Groove property. Question 2 A. Lucy’s Entitlement to Property Whether or not Lucy is entitled to a share of the property purchased by Sandra and Nath will be determined by the law applicable to joint tenancies. Consequently, the entire property is treated as owned as if there were one owner only.11 Under a joint tenancy, the property passes under the doctrine of jus accrescendi. In other words, if one joint tenant dies during the existence of the joint tenancy, then that whole of the property automatically falls to the surviving joint tenant.12 The effect of a joint tenancy therefore means that Lucy would not be entitled to a share in the property as Nath would not have been entitled to pass his interest in the property on to anyone. However, if the joint tenancy was severed by conduct or otherwise, then Nath was at liberty to pass his share of the severed joint tenancy to Lucy. In determining whether or not the joint tenancy was severed or ceased to exist, it is necessary to ascertain whether or not, at the time of Nath’s death or the time leading up to his death whether or not the co-ownership was possessed of the four unities. The four unities require that the title was passed to the joint tenants at the same time (unity of time), interest was passed by virtue of the same instrument (unity of title), all parties have the same interest (unity of interest) and each of the co-owners must have the right to possession (unity of possession).13 There is no doubt that the four unities existed at the time of the creation of the joint tenancy. However, since the four unities are important for the creation of the joint tenancy, should any of these unities disappear, then the joint tenancy will be severed. All that is required is that one of the co-owners conducts himself/herself in such a way as to act on his/her own shares. However, a simple declaration of one’s shares will not sever the four unities or any of them. What is required is something more substantial.14 In this regard, Nath’s moving out of the home and taking up residence elsewhere with Lucy would tend to suggest a destruction of the unity of possession and therefore could give rise to severance of a joint tenancy. The fact is, the courts have consistently held that any course of dealing illustrative of an intention to treat the property title as a tenancy in common would operate as a severance. However, there must be evidence that the parties to the joint tenancy have mutually agreed that the interest in the property be treated as a tenancy in common.15 There is evidence that the intention to create a tenancy in common was mutual. Sandra and Nath met and discussed the current situation and although Sandra was not inclined to sell the property, she did agree that Nath should not have to wait forever to receive his share. The fact that she felt Nath was entitled to a share in the property indicates that the joint tenancy was treated by both parties as severed. Sandra’s letter by email also constitutes the requisite statutory notice for severance of a joint tenancy. By virtue of Section 36(2) of the Law of Property Act 1925, a joint tenancy can be severed by notice.16 Such notice must be in writing and must demonstrate an intention to sever the property and must be served on the other party.17 Sandra’s letter specifically refers to a previous agreement to sell the property and divide the proceeds among the parties in half. However, Sandra was not amendable to a one half as it would not enable her to purchase a house big enough to accommodate her and her teen who was still in school. She proposed two alternatives: she takes 75 per cent of the proceeds of sale; or they wait four years until Ines completes school. Therefore, not only was the severance in writing as required by law, but also evidence of a mutual intention to sever the joint tenancy.18 It therefore follows that the joint tenancy was severed at the time of Nath’s death and as such he was entitled to dispose of his share in the tenancy by will. Lucy is therefore entitled to a share in the property. B. Lucy’s Share of the Property With the severance of the joint tenancy, a tenancy in common will be inferred. The effect of the tenancy in common means that Lucy will inherit by virtue of Nath’s will, his share in the property. Since Nath’s interest in the property emanates from a severed joint tenancy between two co-owners, it is to be assumed that the will take a one half interest in the property.19 In fact, this much can be gleaned from Sandra’s email letter to Nath in which she spoke specifically of a one half entitlement relative to Nath’s share. She was only attempting to negotiate a 75 per cent share in the property. Since Nath did not have an opportunity to resolve the issue prior to his death, his share in the severed joint tenancy is undisputedly fifty per cent or one half of the interests in the property. At this point, the property represents a trust in land with Sandra holding the legal title to it in trust for her and Lucy. Sandra has proposed two alternatives at this point: the allocation of 75 per cent of the proceeds of sale to her upon an immediate sale; or wait for four years at which time the property will be sold and the proceeds of sale divided equally among the co-owners. Lucy can accept the first arrangement by which she will obtain 25 per cent of the proceeds of sale or wait four years and receive half of the proceeds of sale. However, if Lucy insist on a sale of the property immediately, since it is a trust in land, she can make an application for the sale now with the expectation that the proceeds will be divided as they should: in half.20 Question 3 Mortgages In seeking to balance the rights of mortgagees as lenders holding security over residential property and the interest of residential property owners, the courts have set parameters for the equity of redemption rights.21 Essentially, the mortgagee has a right of possession and foreclosure in the event the mortgagor fails to satisfy his or her obligations under the mortgage agreement to discharge the debt as prescribed by the mortgage deed with the results that arrears accrue.22 However, upon the exercise of the power of sale which is encapsulated under the powers of foreclosure and possession, the interest of the mortgagors generally are not ignored. The court imposes upon the mortgagee, a duty to obtain a fair and proper price for the mortgaged property.23 The right to take possession and exercise the power of sale under the ambit of foreclosure is not automatic as the mortgagee is required to obtain an order from the court. As Warrington J stated in Re Farnon, Eades, Irvine and Co. [1915] 1 Ch 22: Foreclosure as a thing which can be done by a person has no meaning. Foreclosure is done by the order of the court, not by any person. In the strict legal sense it is nothing more than the destruction of the equity of redemption which previously existed. The court will ultimately balance the rights of the mortgagee and the interest of the mortgagor in determining whether or not to order a sale of the mortgaged property.24 The court will generally order a sale of the property for redemption of the mortgage if it is of the opinion that the sale would be more beneficial to the mortgagor.25 However, it is also possible that the court may revisit the entire mortgage and make an order postponing sale. In such a case the court will take into account the brevity with which the mortgagee proceeding with foreclosure proceedings, the reasons for the mortgagor’s failure to discharge the debt, the mortgagor’s ability to discharge the debt if sale is postponed, the disparity between the loan and the property’s value and any particular value that the property may have had to the parties.26 If residential property is mortgaged for a business, the value of the property may indeed be in excess of the mortgage and may act as grounds for postponement of the foreclosure proceedings. Essentially, the courts will want to ensure that the mortgagor is in a position to discharge the mortgage debt if given a reasonable time to do so. Otherwise, the court will not postpone the foreclosure proceedings as it will not produce a more advantageous outcome for the mortgagor. All that will be accomplished by a postponed sale if the mortgagor is not in a position to eventually discharge the mortgage debt, is an accumulation of debt. As a result the mortgagor will only achieve minimal funds out of the surplus sum from the sale of the mortgaged property. Residential mortgagors have a statutory right to apply to the courts for a postponement of the sale of a dwelling house under Section 36 of the Administration of Justice Act 1970 as amended. Section 36 permits the courts to postpone sale if it is satisfied that the mortgagor can satisfy the arrears within a reasonable time.27 This could be problematic for mortgagors who use their dwelling houses for business purposes, thereby taking the dwelling house outside of the special consideration accorded the Administration of Justice Act 1970. The court will not grant automatic and repeated extensions or suspensions. This was demonstrated in the case of Abbey National Building Society v Newton in which the defendant received a suspension of sale, but failed to make payments and subsequently applied for additional suspensions. The court ruled: It seems clear that the defendant, having failed to comply with the conditions on which the suspension of possession is granted, is not in a position to complain about the orders and warrants for possession made. His record of payment is deplorable.28 In other words, the court in attempting the balance the right of the mortgagee and the interest of the mortgagor will take a practical and factually guided approach to the right of foreclosure and the ability to discharge the debt within a reasonable time. To this end, the court has ruled that if a sale would take between six months and year, there is no reason for assuming that the mortgage debt could not be discharged within a reasonable time.29 In fact the court went so far as to rule that what is a reasonable time might depend on the facts and circumstances of each case and much will depend on the extent to which the mortgage is secured by the property’s value.30 Therefore, residential property which secures a business might be especially extended a liberal timeframe for postponing the sale of the mortgaged property. Ultimately, the court takes the position that the mortgagee must act in good faith. The mortgagee’s sole obligation is to ensure that any action taken pursuant to the recovery of arrears is calculated to secure “repayments of the moneys owing under his mortgage.”31It therefore follows that, guided by this concept, the balancing of the competing interests of the mortgagee and the mortgagor permits the courts to consider the practicality of ordering a repossession in circumstances where the mortgagee could just as easily obtain the moneys owed under the mortgage by extending the time for repossession. This can mean ordering a refinancing of the mortgage loan if it will ensure that the residential mortgagor is not dispossessed of a dwelling house and the mortgagee will receive the funds owed under the mortgage. Section 105 of the Law of Property Act 1925 ensures that the power of sale under a mortgage is solely for the purpose of discharging the arrears of mortgage. Section 105 provides that any surplus funds are to be paid to the mortgagor.32 It follows from this provision and the manner in which the courts regulate and manage the power of sale, that the interest of the mortgagee and the mortgagor are balanced so as to ensure that the mortgagee gets no more than it is entitled to and the mortgagor gets no less than he or she is entitled to. References Textbooks Clarke, A. and Kohler, P. Property Law, (Cambridge University Press, 2005). Dixon, M. Modern Land Law, (Taylor and Francis 2011). Lind, G. Common Law Marriage: A legal Institution for Cohabitation. (Oxford University Press, 2001). Table of Cases Abbey National Building Society v Newton [1955] CLY 3598. Bannister v Bannister [1948] 2 All ER 133. Burgess v Rawnsley [1975] Ch. 42. Campbell v Holyland [1877] 7 Ch. D. 166. Cuckmere Brick C0. Ltd. v Mutual Finance Ltd. [1971] Ch 949. Gissing v Gissing [1970] 2 All ER 780. Hammersmith and Fulham L.B.C. v Monk [1992]1 AC 478. Harris v Goddard [1983] 1 WLR 1203. Le Foe and Le Foe [2001] ALL ER 325. Lloyds Bank Plc v Rosset [1991] 1 AC 107. McKenzie v McKenzie[2003] EWHC 601. Midland Bank v Cooke [1995] 4 All ER 562. Neilson-Jones v Fedden [1975] Ch 222. Palk v Mortgage Services Funding Plc [1993] Ch 330. Palmer v Rich [1896] 1 Ch. 134. Re Farnon, Eades, Irvine and Co. [1915] 1 Ch 22. Table of Statutes Administration of Justice Act 1970. Law of Property Act 1925. Trust of Land and Appointment of Trustees Act 1996. Read More