Property Law: Equity and Trusts - Case Study Example

(i) In 1979 11% of women between the ages of 18-49 described themselves as cohabiting, whilst by 2004 that figure was 28 People cohabit for a number of reasons, and may be in a variety of relationships, such as companionship and support, as well as the more traditional ones of raising a family together despite the fact that this type of relationship is not as stable as married cohabitation and more likely to breakdown2 . The loophole in the law concerns situations where a home is purchased and no agreement is made as to the respective shares in the event of termination of the relationship. The courts have wide discretion3 to redistribute the assets of married couples without having to take into account beneficial ownership. There is no such statutory provision for cohabitants; they are subject to the equitable rules of resulting and/or constructive trusts and/or promissory estoppel and may have no redress despite having made substantial contributions to the maintenance of the property and/or indirect contributions to the payment of the mortgage. This is aggravated by the lack of certainty in the law with regard to measuring acquisition and quantification of beneficial interests. The 'justice' received turns on the initial pleading of the claimant and the manner in which the household budget was allocated4. Typically a claimant who seeks an estoppel will have a broader range of remedies available from the court than someone who seeks to establish a constructive trust based on indirect contributions. This has led to inconsistency in judgments, which undermines the certainty of the law, with a subsequent increase in litigation and costs5. The Law Commission speculated on introducing a 'statutory trust' where registered beneficiaries would earn a pro rata proprietary interest rather than a personal right to be repaid the value of their relevant contribution(s), subject to evidence of gifts or loans6. Unfortunately it was felt that the scheme would not reduce the evidential burden and that it did not offer enough remedies. In particular the scheme did not fully address the lost economic opportunities following the breakdown of a relationship where the contributions were non-direct7. Other commonwealth jurisdictions have different approaches but the same issues of uncertainty and obscurity.8 It is submitted that the focus on the 'family' home is too narrow given the statistics on cohabitation and the many diverse forms which have evolved. A broader approach to shared rights in accommodation is called for. As demonstrated in the Law Commission's review of other jurisdictions waiting for the courts to develop greater flexibility will necessarily be slow, strapped as they are by an Executive still focusing on the 'family' - hence displaying a lack of understanding of the social issues - on one hand and judicial precedent on the other. Advisors also will be limited by decided cases and the increasing difficulty of obtaining legal aid to bring novel situations before the court. Further, the law is based on outmoded ideas of shared accommodation and the idea of common intention. The emphasis on status - with marriage being the ideal - seems to be holding back the development of the law in this area. It is submitted that the 'evil' to be overcome is not one's marital status, or whether or not children are brought up in a marriage, but inadequate financial provision for persons who have a legitimate expectation to be provided for. This should be the norm regardless of 'status'. One absurdity of the 'status' approach is the impact on the descendants of married versus non-married couples, where 'legitimate' children can expect to be provided for whilst 'illegitimate' children are reliant on a judge's largesse. The Civil Partnership Act 2004 ss65-68 are a step in the right direction, but only covers couples of the same gender who have undergone a prescribed ceremony. Whilst non-financial contributions are recognised, this is limited by the requirement of a contribution of a 'substantial nature' before a partner can commence an action9. It is submitted that this takes us no further forward. What would make more sense would be a presumption of equal shares with the emphasis on self-regulation in order to opt-out by executing an express trust to the contrary. The ideal would be that all rights and obligations within the relationship flow from registration. The basic requirement to register could be supplemented with a public education campaign as well as cross-checks, such as when a person applies for credit, registers for elections or makes a will. (747 words) (ii) Intending to give property away is not the same as an intention to declare a trust. An effective declaration of trust requires a) a declared intention to create a trust b) an intention to retain formal control over the property and c) that another person(s) should have the benefit of the property. If any of these requirements are not present in a supposed trust the court will find an 'imperfect gift.' The leading case in this area was Milroy v Lord [1862]. In that case the court said that the transferor: must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.10' The decisions in Jones v Lock [1865] and Richards v Delbridge [1874] followed this logic. Jessel MR said that the transferor must do something which is equivalent to [I declare myself a trustee], and use expressions which have that meaning.11 In general if the beneficiaries have not provided money or money's worth (valuable consideration) equity will not interfere to require the transferor to complete the transaction12. Hence the maxim that equity will not assist a volunteer. If one or more of the beneficiaries has given valuable consideration then equity will compel the transferor to constitute (complete) the trust. This is the remedy of specific performance. In Re Rose [1952]13 the court upheld a trust - despite the failure of the transfer of shares - as in their opinion the transferor had done everything within his power to divest himself of his interests in the shares. The rule in Re Rose does indirectly operate to assist volunteers by widening the circumstances in which equity will regard a trust as having come into existence. Hence if the transferor has done all in his power the gift is complete in equity and a trust is constituted. This is true even if the transfer is never completed since the transferor will hold the property on trust for the donee, even if the transferor subsequently wishes to do something else with the property. It is submitted that the decision in T Choithram International SA v Pagarani [2001] follows this principle. In that case the transferor was also a trustee, and failed to effect the transfer of the trust properties before he died. However he did declare that he was giving all his wealth to the trust after he had signed the trust deed. On the specific facts of the case Lord Browne-Wilkinson observed that: [equity] will not strive officiously to defeat a gift14. Lord Browne-Wilkinson interpreted the transferor/trustee's words to mean that he meant to give his wealth to the trustees of the foundation for the benefit of the trust fund, and that these were not words of a gift, but essentially words of gift on trust.15 Pearce and Stevens explain that this meant that he had declared himself a trustee.16 The decision does not undermine the traditional principle that a failed transfer will not be construed as a declaration of trust. Rather the highly unusual situation of a transferor's words of gift to himself should be construed in substance as a declaration of trust. Whilst the decision in Pennington v Waine [2002] has been heavily criticized17 it is submitted that in fact it does follow the maxim that equity will not assist a volunteer. The Court of Appeal held that the mere completion of the relevant transfer documents may give rise to an equitable assignment even though the transferor had not strictly done everything in her power to transfer the property. The majority view was that the gift was effective in equity as it would be unconscionable for the transferor to recall the gift at that stage. The minority view was that s1(1) Stock Transfer Act 1963 allows for shares to be transferred by an instrument in writing and does not refer to delivery of the instrument to the transferee. In those circumstances delivery of the form to the transferee was not prerequisite to the validity of the transfer as an equitable assignment. Hanbury & Martin view this as an example of 'a hard case making bad law' as there is uncertainty as to whether a failed absolute gift will be treated as a perfect gift of the beneficial interest. They also fear that the 'unconscionable' test creates uncertainty as to whether and when the beneficial interest passes18. However it is submitted that Pennington v Waine the transferor had irrevocably put the transferee or his agent in a position to complete the gift (or circumstances akin to equitable proprietary estoppel) making it unconscionable for her to insist on ownership of the property19. Certainly the case can be distinguished from Jones v Lock and Richards v Delbridge as the beneficiary in Pennington v Waine provided valuable consideration. He was not a 'volunteer'. In that instance the court can complete an imperfect gift. (737 words) (iii)Charity's position There is normally a perfect gift of the legal beneficial ownership to the executor(s)/administrator(s) by virtue of Amerjit's death.20 Beena and Clara will challenge the charity's right to the testamentary trust established by Amerjit's will. The Charity will have no enforceable interest in the property if Amerjit lacked the right to transfer it to them. Beena's position Jones v Locke [1865] established that loose conversation is insufficient for the necessary intention to create a trust. There is nothing in Amerjit's conduct - actual or implied - to suggest that her comment "you know that I will see that you are all right" can take effect in either law or equity, as it lacks certainty as to intention and subject matter. There is no evidence of a common intention that Beena should remain living in the house after Amerjit's death or to inherit any share in the property. Beena might claim that she acted to her detriment in relying on Amerjit's comment taking care of her. The onus would be on Amerjit's estate to prove that Beena remained with Amerjit independent of the 'promise'. Beena will have difficulty proving that she has acted to her detriment. We believe that this will be quite difficult to do given that Beena was in receipt of free accommodation and board before Amerjit made her promise. Further, Amerjit's words may be construed to mean that she would obtain additional help for Beena - which is what happened. Clara's position Amerjit's words indicate an intention for Clara to benefit after Amerjit's death - the words do not imply an immediate, absolute gift, nor do they suggest a mere statement of present intention since we are told that Amerjit intended to alter her will but died before being able to do so. In Rowe v Prance [1999] it was held that conduct can be sufficient evidence of the requisite intention. There may well be evidence of Amerjit's intention, such as an appointment to see her solicitor in order to alter the will in Clara's favour. Where the property has not been transferred the general is that equity will assist beneficiaries who have provided valuable consideration by ordering specific performance of the trust. It could be argued that by working without wages on reliance of Amerjit's promise, Clara has provided valuable consideration: Pennington v Waine [2002]. The property to be transferred is land. The law requires that the intention to dispose of the equitable and/or legal interest should be evidenced in writing. An oral contract for the disposition of an interest in land is void, whilst an oral declaration of a trust of land which is not evidenced in writing is unenforceable unless it has been acted upon so as to give rise to a constructive trust21. It would therefore seem that the trust is unenforceable. However equity will enforce the trust in Clara's favour on one of 2 grounds: a) By relying on s53(2) Law of Property Act 1925 on the basis of a resulting or constructive trust (writing not required); b) Or by estopping Amerjit's estate raising the issue of unenforceability since in doing so it would be using statue as an instrument of fraud. Once common intention is established - which we submit is the case - the court will impose a constructive trust, and direct itself to determining the share of equity that Clara is entitled to. Alternatively it may be possible for Clara to estop Amerjit's estate from denying the trust. Once Clara pleads and proves detriment the burden of proof shifts to Amerjit's estate to establish that Clara did not forgo earnings in reliance on Amerjit's promise: Wayling v Jones [1999] Whether Clara succeeds by way of a constructive trust or proprietary estoppel, the court will have to quantify her share. The court approaches this task in a cautious way, in order to achieve "the minimum equity to do justice to the plaintiff". 22 It is noticed that Clara went without her normal wage for only a few months. The court has a very wide discretion as to the most suitable remedy.23 Certainly Counsel on behalf of the Charity would argue that she receive no more than her wages which should be sufficient to do the minimum equity. Each case will turn on its own facts, but certainly Clara expected to own a property in return for providing Amerjit with indefinite, unpaid care. Should the fact that Amerjit died within a few months affect the fact that both intended Clara to own the property absolutely (728 words) References 2004/05 General Household Survey. Available at: Hayton, D. and Mitchell, C. (2005). Hayton & Marshall Commentary and Cases on the Law of Trusts and Equitable Remedies. 12th Edition. Sweet & Maxwell: London Law Commission Cm-278: Sharing Homes: A Discussion Paper. November 2002 The Law Commission - Ninth Programme of Law Reform. Law Com No 293. HC 353. March 2005. Martin, J. (2005). Hanbury & Martin Modern Equity. 17th Edition. Sweet & Maxwell: London. Pearce, R and Stevens, J. (2002). The Law of Trusts and Equitable Obligations. 3rd Edition. OUP: Oxford Smith, R. (2006). Property Law. 5th Edition. Pearson Education Limited: Edinburgh Cases Drake v Whipp [1996] 1 FLR 826. Gillett v Holt [2001] Ch 210 Jones v Lock [1865] LR 1 Ch App 25 Midland Bank v Cooke [1995] 4 All ER 562 Milroy v Lord [1862] 4 De GF&J 264 Milroy v Turner [1862] 4 De GF&J 264 at paragraph 274 per Turner LJ Pennington v Waine [2002] 1 WLR 2075 Re D'Angibau [1880] 15 ChD 228 Re Plumptre's Marriage Settlement [1910] 1 Ch 609; Richards v Delbridge [1874] LR 18 Eq 11 Richards v Delbridge [1874] LR 18 Eq 11 Rowe v Prance [1999] 2 FLR 787 Wayling v Jones [1999] 69 P&CR 170 Read More