Understanding Equity and Trusts - Assignment Example

Question Barry and John Barry’s request for a remedy with respect to John’s sale of the home is founded on the principles of constructive trust.A constructive trust is typically imposed when one party contributes to the value of property with the understanding that he will subsequently acquire an interest in that property.1 The situation that Barry describes with respect to his co-habitation with John appears to be the kind of circumstance in which the courts may impose a constructive trust. Lord Diplock’s words in Gissing v Gissing are instructive. Lord Diplock explained that a constructive trust will be imposed in circumstances where the conduct of the parties is such that it can easily be inferred that there was a quid pro quo agreement between them.2 In other words there must be an agreement between the parties that when one party acts to his own detriment under the reasonable understanding that he/she would acquire an interest in the property and agreement to this extent will be inferred. . On the facts of the case for discussion, the decision for Barry to give up his work and look after John’s child from a previous relationship appears to be a joint decision. It also appears that the arrangements were such as to facilitate John’s job with the understanding that he would take care of Barry. At this stage there were no discussions about Barry acquiring an interest in the house, so it cannot be determined at this stage that the parties had an agreement that Barry would by giving up work and minding the child would acquire an interest in the property. However, when Barry brings the subject up, John reassures Barry that the only reason the property is not placed in their joint names is because it would compromise his divorce settlement. He also goes on to reassure Barry that he will always take care of him. These latter reassurances can be interpreted as a promise that Barry would acquire an interest in the property should they retain the status quo. Moreover a similar scenario arose in Grant v Edwards where the male cohabitant told the female cohabitant that the only reason the property was not in their joint names was because it would have compromised his divorce proceedings it was held that the statement was evidence of a shared intention that the female inhabitant would acquire an interest in the home.3 The presumption in law is therefore that the parties had a shared intention that Barry by continuing to remain at home, taking care of the child would be rewarded by his acquiring an equitable interest in the home. As Lord Dillon explained in Springette v Defoe when he said: …the common intention of the parties must, in my judgment, mean a shared intention communicated between them. It cannot mean an intention which each happened to have in his or her, own mind but had never communicated to the other.4 Even so, it has been held that communication is not conclusive. Lord Chadwick ruled that the courts will look at the conduct of the parties to determine whether or not a reasonable inference can be drawn from their conduct that the party holding title to the property intended that the other party would acquire an equitable interest in the property.5 Lord Chadwick said in cases where there is no evidence of the actual communications between the relevant parties with regard to their shared or common intentions: It must now be accepted that (at least in this Court and below) the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property.6 The parties conduct is derived primarily from the contributions made by the party whose name does not appear on the conveyance. Essentially these contributions may be direct or indirect financial contributions that are substantial in one way or another.7 In this regard, it is entirely unlikely that Barry’s domestic duties will be deemed an indirect substantial contribution to the property’s intrinsic value. It was held in Burns v Burns by Fox LJ that a wife’s domestic duties would not generally give rise to the imposition of a constructive trust. The nature of the indirect contribution must be such that it frees the co-habitant’s expenses in a significant manner so as to justify an acquisition of a beneficial interest on the part of the other party.8 It is therefore doubtful that Burns v Burns will offer any assistance to Barry in his quest for a portion of the proceeds of sale from the sale of the dwelling house. It would appear that minding the child, although it freed up a portion of John’s income, that free portion of his income could have very easily been absorbed by John’s care of Barry himself. Barry’s claim for a portion of the 10,000 pounds realized on the sale of the dwelling house is further supported by McFarlance v McFarlane in which LCJ MacDermott said that when parties agree that: …some quid pro quo (something for something) in the nature of proprietary benefit an indirect contribution to the family finances becomes as much a basis of a resulting trust as a direct contribution.9 Having given up his job which appears to correspond with a shared intention and a common interest, he devoted his time to taking care of the child. It is unlikely however, that Barry’s installation of a patio would constitute an indirect contribution as it is tantamount to housekeeping duties that do not free up John’s income. Moreover it would not likely be regarded as a contribution that enhanced the value of the house.10 Question 2: Alf, Ben and Christa’s Trust Based on the terms of the Methusala trust, the trust terminates once two of the founders die with the results that the whole of the trust funds are vested in the last to survive. Although the Methusla trust provides that “no dependents or relations of the undersigned” will “have any claim on the trust funds”, there are no provisions for what should happen to the funds in the event the last to survive does not claim the funds. Christa, the last to survive cannot be found and Joey, her next-of-kin wishes to know whether or not he has a claim to the fund. The question of what happens to the trust property will most likely be determined by reference to the principle of bona vacantia which is arguably based on the same principles of the resulting trust. Both doctrines ensure that property does not remain ownerless and is ultimately allocated. The principle of bona vacantia dictates generally that “ownerless personal property belongs to the Crown” although the principle is not of universal application.11 For instance, where property is abandoned as it has been in Christa’s case it will not pass to the crown on the basis of bona vacantia. Rather it will pass to the “first taker”12 which in this case happens to be Joey. However, if the doctrine of bona vacantia does not apply Joey’s right to claim will fall under the principles enshrined in result trusts. The resulting trust is defined by the case of Baird v Columbia Trust Co. [1915] 22 DLR 150 as: The person in whose favour the trust arises is the person who provided the property or equitable interest vested in the person bound by the trust.13 A resulting trust arises in one of two ways. First it may arise where a gift of property is apparently made or where there is an express trust that has “failed to dispose of the trust property.”14 The Methusula Trust is more properly defined as falling under the scenario where there is an express trust that has failed to dispose of the trust property. The failure arises because, two of the settlors have passed on and the remaining settlor who was the intended beneficiary cannot be traced. Therefore the property cannot be disposed of. In such a case the resulting trust is said to be automatic.15 The law of property dictates that property cannot be “unallocated” and this is where the resulting trust arises, to prevent property being characterized as unallocated.16 Ultimately, property laws assume that someone is entitled to take possession of property to the extent that property cannot be characterized as abandoned as “someone must agree to assume the rights and obligations of its owner.”17 Equity responds by requiring that the property passes back to the settlor by virtue of the resulting trust.18 In order to assist Joey it is necessary to look to the authorities to see how the courts have dealt with similar circumstances. Re Cochrane’s ST [1955] is helpful in this regard. In this case, two spouses settled their estates upon trust for themselves as beneficiaries on the condition that they remained married. However, the wife subsequently left the husband who died. The wife claimed her husband’s estate to which his relatives counterclaimed that the end of the marriage was tantamount to a failure of the trust. The court agreed with the husband’s relatives and held that this share of the trust settlement would be returned to him on a resulting trust and would therefore be distributed according to the terms and conditions of his will.19 Although the facts of Re Cochrane’s ST are different from the facts of the Methusula trust, they are in principle alike. The trust failed in both cases although for different reasons and therefore according to Re Cochrane’s ST, the contributions made by Alf and Ben toward the trust funds would revert to their respective estates to be distributed in accordance with their wills. The fact that the Methusula trust expressly forbids the devolution of the funds on relatives and dependents would be of no relevance since the trust has terminated. Joey as the first taker can claim Christa’s share. The rationale for the reversion of the property to the settlors is found in the word of Eyre C.B. in Dyer v Dyer who said that: …the trust of a legal estate, whether freehold, copyhold, or leasehold; whether taken in names of the purchasers and others jointly, or in the names of others without that of the purchaser; whether in one name or several; whether jointly or successive – results to the man who advances the purchase money.20 Although Dyer v Dyer refers to the money characterized as purchase payment, the resulting trust applies to the proceeds for the trust fund, regardless of the nature of that consideration.21 There is a presumption that the parties who have contributed to the fund the resulting trust will distribute the funds in accordance to the contributions made by each of the parties.22 In this regard, the funds resulting to Alf, Ben and Christa will be equal to the sums they each contributed to the trust fund. Ultimately the contributions were made for the express purpose of providing a source of funds for the last to survive. Since the last to survive abandoned the property, the purpose of the gift failed and can therefore give rise to a resulting trust. It was held in Cunnack v Edwards [1896] 2 Ch 679 that the surplus had not belonged to the society since its objects came to an end.23 Similarly, the funds do not belong to the trust since the objects have come to an end with the death of Alf and Ben and with Christa’s disappearance. Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society [1979] 1 All ER 623 held that in such a case the funds would not be held on resulting trust nor would it be characterized as bona vacantia.24 The funds would simply be divided among those remaining at the time the trust is terminated. In this regard, the funds can be taken by Joey who is Christa’s next-of-kin. The fact is it was held in Cunnack v Edwards that when trust property is abandoned, it does not become subject to bona vacantia, it become the subject of a resulting trust.25 Therefore, the property will revert to Alf and Ben’s estates and Joey may if he wishes hold the funds on trust for Christa or he may obtain the full portion of her contribution if she dies without claiming the fund and the funds then fall to her estate. As next-of-kin he will then be able to claim the funds if Christa dies without leaving a will. Bibliography Baird v Columbia Trust Co. [1915] 22 DLR 150 Burns v Burns 1984] Ch 317 Calverley v Green [1984] 155 CLR 242 Chambers, R. (1997) Resulting Trusts. Oxford University Press. Cowcher v Cowher [1972] 1 WLR 425 Cunnack v Edwards [1896] 2 Ch 679 Dyer v Dyer [1788] 2 Cox Eq. 92. Gissing v Gissing. [1971] AC 886 Grant v Edwards [1986] Ch 638 Hudson, A. (2007) Understanding Equity and Trusts. Taylor and Francis. McFarlane v McFarlane [2006] 1 FLR 1186 Oxley v Hiscock [2005] Fam 211 Ramjohn, M. (2009) Text, Cases and Materials on Equity and Trusts. Taylor and Francis Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society [1979] 1 All ER 623 Re Cochrane’s ST [1955] 2 WLR 267. Re Vandervell’s Trusts (No. 2) [1979] 1 Ch. 269 Smith, Roger. (2006) Property Law: Cases and Material. London: Longman. Springette v Defoe [1992] 2 FLR 388 Stack v Dowden [2005] EWCA 857 Wilson, S. (2006) Todd and Wilson’s Textbook on Trusts. Oxford University Press. Read More