Properties as Required by the Property Act - Case Study Example

Equity and Trusts: The Family Home 1.0 Overview Statement Bianca does not have any interest and cannot claim any interest in the London flat or in the Essex property because there was no document evidencing her interest in said properties as required by the Property Act of 1925, nor has she earned any resulting, constructive and implied trusts over them to merit exception under the aforementioned law. 2.0 Discussion Under English law, the presumption of community of ownership does not exist. This is true even with respect to couples who are married and have shared together a long, stable life. The law takes an objective perspective of property relations such that even if married couples lived together in a property owned by one of them prior to the marriage and used the same as family home after the marriage the law does not deem the newcomer as a part owner of such property. Albeit the courts enjoy wide discretion under the Matrimonial Causes Act of 1973 to distribute the properties between divorced husband and wife, a declaration dividing the matrimonial home equally between the ex-spouses cannot be made ipso facto because courts usually take into account legalities and legal requirements in adjudicating such property. Thus, in Pettitt v Pettitt [1970] AC 777 HL, the Court declared that the husband has no equitable interest in the couple’s family home despite the fact that he contributed labour and money in the improvement of the property. The Court held that the wife is the legal and equitable owner of the property because she used her own money in its purchase. This decision was held despite the fact that the husband relied on the provision of s 17 of the Married Women’s Property Act 1882, which allowed the Court discretion to distribute properties between contending husbands and wives. In another interesting case, Lloyds Bank v Rosset [1991] 1 AC 107, [1991] All ER 1111, a married couple purchased a farmhouse out of family funds. The sellers, however, insisted that the purchase should be made in the name of the husband alone but the wife had a significant role in supervising the extensive repairs over the property. The family funds, however, were not enough to pay for the entire purchase price of the property and the husband, without the knowledge of the wife, sought loan from a bank and secured the same with a legal charge over the property. When the payments for the loans defaulted, the bank moved to foreclose the property over the objection of the wife who claimed beneficial interest over it. The Court disagreed holding that the wife had no beneficial interest over it because of the absence of evidence. Moreover, her contributions were considered insignificant. Couples who lived together under one roof without the benefit of marriage are not governed by any specialised law unique to their case unlike married couples with their Matrimonial Causes Act of 1973. Thus, such couples’ property relations are totally governed by the general and basic law governing property, which is the Property Act of 1925, the law that applies to all transactions and dispositions of lands and interests in such lands (Watt 2007 267). According to § (a) to (c) if s 53 of the Property Act of 1925, any interest in land can be created or disposed only if the same is reduced into writing and signed by the person, or his authorised agent, creating or disposing such interest. Similarly, any trust created over land should be apparent and should be capable of being evidenced by some kind of writing likewise signed by one authorised to do so. Likewise, dispositions of equitable interest and trusts should also be made in writing at the time of the disposition. The aforementioned section is however, subject to resulting, implied or constructive trusts. Applying the above provisions to the problem at hand, it would seem that Bianca has no interest to speak of, both of Ali’s flat in London or the property in Essex simply because there is no document or piece of writing evidencing her interest in any of them. The Essex property is in the name of Ali and presumably the London flat also. Unless, Bianca has resulting, constructive or implied trusts over them she will have to contend with the fact that she has no shares in the aforementioned properties. 2.1Resulting Trusts The question at this point is whether Bianca has a resulting trust over the London flat or the Essex property. This is important in order to determine whether she can claim any right over both the London flat or the Essex property or any of two. A resulting trust is defined as one that automatically occurs when a disposition of the property was faulty or incomplete and therefore, failed to fully vest the interest supposed to be conferred to a party. Resulting trusts may either arise under the following conditions: one, it is aimed at returning equitable interest in the property to the original beneficial owner in cases of failed or incomplete transfers so that the property will not be left without an owner, or; two, to confer equitable right to a person to prevent unjust enrichment (Hudson 2005 379). In Westdeutsche Landesbank Gironzentrale v Islington LBC [1996] AC 669, however, the Court was skeptical of an automatically vesting resulting trust, sans intention. In that case, a bank paid a huge amount of money to the London Borough of Islington for an interest rate swap, a transaction that was supposed to continue for ten years. After five years however, the transaction was rendered void ab initio by the HL in one case. The bank not only wanted to get its money back to but to get it back with compounded interests but the problem was to find legal basis for such claims. The Court of Appeal said that the basis should be the concept of resulting trusts on the ground that a resulting trust was created when the Borough accepted and retained money that was not legally theirs. This was struck down however, by the HL holding that a resulting trust was not created when a settler abandoned its beneficial interest over a trust property because an abandoned trust property can ipso facto be vested in the Crown. Nevertheless, automatic resulting trusts is acknowledged as forming part of the law on equity and trusts and are deemed important to prevent a vacuum in ownership. A clear example of this type of trust is Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, where a wealthy car racing manufacturer donated money to a charity called the Royal College of Surgeons. Vandervell wanted to hit two birds with one stone by donating money to the charity for the establishment of a chair in pharmacology and at the same time avoid the payment of donor’s taxes which are assessed from outright donations as well as taxes assessed from income from dividends of company shares. Thus, he instructed his trustee company orally to transfer 100,000 shares of the company he owned to the charity and declare dividends on the shares. At the same time, he established another company which had the option to buy back all the shares from the charity at £5000. The IRC subsequently brought an action against Vandervell for unpaid taxes on the shares transferred to the charity alleging that he retained equitable interests over them. It also alleged that the transfer itself was void because it lacked the prerequisite of writing as provided in the Law Property Act of 1925. The Court did not agree with the arguments of the IRC ruling that Vandervell had effectively disposed his equitable ownership of the 100,000 shares to the charity and therefore was no longer responsible for the taxes owing them. In addition, the LPA requirement is not applicable to a situation where a beneficiary instructs his trustees. However, the Court held that Vandervell is still responsible for the payment of taxes over his equitable interest of the buy-back option considering that the trustee company he formed had only legal interest over it but not equitable interest. There was an imperfect divestment of ownership and interest and therefore, a resulting trust was created in favour of Vandervell of the equitable interest over the option. The other type of resulting trust, which is founded on the concept of equitable rights, is illustrated by Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1984] 3 WLR 1016, HC. In this case, a cigarette and tobacco manufacturer entered into an agreement with an advertising agency to provide services for its advertising needs, paying the latter on a monthly basis both for its services and the credits owed to various participating media. When the finances of the advertising agency turned sour, the manufacturer agreed to set up a bank account in the name of the latter to continuously pay the media creditors involved in the advertising services for the manufacturer. It poured more than half a million pounds into the bank for that purpose but a month later, the advertising agency went into liquidation. The media creditors sought the manufacturer’s aid to secure payment of their credits. The liquidator, however, refused to release money to the manufacturer for such purpose. When the case went up to the Court, it held that a resulting trust was created in favour of the manufacturer, which owned the equitable interest of the money in the bank. It was evident that the bank account was set up and the money on it deposited to serve the interests of the manufacturer and not to benefit the agency. It never was the intention of the manufacturer to have the agency use the money any way it wants to but only to secure payment of media creditors involved in serving the manufacturer’s needs. It is evident from the foregoing that a resulting trust does not exist in Bianca’s case because there was no failed transaction in the properties involved mentioned in the problem that could engender in a resulting trust due to a vacuum in ownership nor is unjust enrichment exists on the part of Ali because Bianca did not contribute to the purchase price of either property in issue. 2.2 Constructive Trusts Constructive trusts are created by mere operation of the law, which could imply two things: that courts will construe certain conditions as constructive trusts in accordance with established principles of law, and; that courts will make such determination regardless of the intention of the parties. The underpinning of constructive trusts is the general principles of equity. In one case, i.e. Paragon Finance plc v DB Thakerar and Co [1999] 1 All ER 400, the Court provided for a definitive description of the term: “A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of the property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another” (cited Hudson 2004 96). In Stack v Dowden [2007] UKHL 17, the Court deduced a constructive trust out of the contributions of the cohabitants to the purchase price of their family home despite a joint ownership indicated in the land registry. The first property upon which the cohabitants and children lived in was purchased from the woman’s own funds and title to the property was in her name. When the said house was sold, which netted £66.613, the couple bought another house under joint ownership at the price of £190,000, with £65,025 of it raised through joint mortgage. The rest of the purchase price was paid by the woman as well as the rest of the fees incidental to the transaction. Despite the fact that the ownership was declared in the registry, the HL ruled that the woman was entitled to 65% of the share of the house, in effect, establishing a constructive trust as to the additional 15% of the woman’s share on the basis of the evidence adduced to the Court showing and refuting the presumption of 50/50 ownership implicit in joint ownerships. It is likewise evident in this case that a constructive trust was not created to favour Bianca because first and foremost, the properties are both in the names of Ali and therefore, the presumption is that he has full ownership, both legal and equitable, over them. Secondly, it is impossible for a constructive trust to attach because Bianca cannot adduce evidence refuting such presumption that would prove that she has paid a part of the purchase price in either the London flat or Essex property. 2.3 Implied Trusts The notion of implied trusts in the context of the Property Act of 1925 is an empty one and is rarely used today, according to author Alistair Hudson. This is because the term, like express trusts, is a broad one that encompasses the idea of resulting and constructive trusts. There is a suggestion, however, that constructive trusts should be taken in reference to express trusts that were unwittingly created by a settler, but this is not much different from the concept of resulting trusts. In the Westdeutsche Landesbank case, Lord Browne-Wilkinson likewise used the phrase. The common consensus, however, is to use the term to refer to a broad category, comprising resulting and constructive trusts, and as opposed to the idea of express trusts. 3.0 Conclusion Bianca has no interests, equitable or beneficial, over the London flat or the Essex property. First, these properties are not in her name but in the name of Ali. The Property Act 1925, which governs the transactions of land require that any disposition of land or interests therein must be in writing signed by the person authorised to do so. There is a similar requirement when it comes to the establishment of express trusts over it – the same should also be evidenced by some writing signed by the authorised party. The case at hand does not speak of any written instruments evidencing part ownership by Bianca or any express trust held by her in any of the two properties. Both the aforementioned properties are in the name of Ali and the presumption is that he holds both legal and equitable ownership to them. The only way by which Bianca can dispute such presumption of ownership is when her case falls within the exception provided in the Property Act 1925, which is that either a resulting trust or constructive trust was created over the aforementioned properties in her favour. Bianca’s case, however, does not point to the creation of either trust. Resulting trusts necessarily arise when there is a vacuum of ownership created as a result of an imperfect disposition over property or when unjust enrichment occurs and equity demands that a trust should be created in favour of a party who deserves to own or share in the ownership of a property. These two situations do not apply to Bianca because there was no imperfect disposition of the properties that should result in a resulting trust nor an unjust enrichment can be said to have arisen on Ali’s full ownership of the properties. This is because the full purchase prices of the Essex property came from Ali’s pockets and is presumably, the case in the London flat, too. Moreover, a constructive trust will unlikely be created in favour of Bianca because she has no evidence to show that she shared in the payment of the purchase price of either property. Her contributions, in the form of renovation expenses, are de minimis to count. References: Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1984] 3 WLR 1016, HC. Hudson, A. (2004). Understanding Equity & Trusts, 2nd Edition. Routledge. Hudson, A. (2005). Equity & Trusts, 4th Edition. Routledge, 2005. Lloyds Bank v Rosset [1991] 1 AC 107, [1991] All ER 1111. Married Women’s Property Act 1882 Matrimonial Causes Act of 1973. Paragon Finance plc v DB Thakerar and Co [1999] 1 All ER 400. Pettitt v Pettitt [1970] AC 777 HL. Property Act of 1925. Stack v Dowden [2007] UKHL 17. Vandervell v Inland Revenue Commissioners [1967] 2 AC 291. Watt, G. (2007). Todd and Watt's Cases and Materials on Equity and Trusts, 6th Edition. Oxford University Press. Westdeutsche Landesbank Gironzentrale v Islington LBC [1996] AC 669. Read More