Issues Concerning Equity and Trusts - Assignment Example

Equity and trusts Ans At the outset, it must be d that the function of the law in the creation and adjudication of trusts is to protect individual property rights and to ensure that a person is not deprived of his or her property rights without first being subjected to due process of law. Moffat highlights the fact that trusts are in effect a measure of a confidence reposed by the testator in the legatee which is conditioned by equity and conscience by leading to “certain moral obligations that are conditioned by ethical principles”, therefore a trust constitutes “the duty or aggregate accumulation of obligations that rest upon a person described as a trustee.”1 If a trustee is therefore not provided with a clear indication of the testator’s intentions in the gifts that he/she has formulated, then the administration of those gifts could create legal problems as well as disputes among several claimants for a particular trust. In the case of an imperfect gift, there is uncertainty and the general rule is that equity cannot step in to perfect the gift since equity recognizes a valid gift under the law only when adequate title exists.1a The only exceptions to this would be the rule established in Re Rose1b where exchange of contracts equates a valid transfer of title, the rule in Strong v Bird1c where imperfection can be perfected through the exercise of equitable discretion or the principle of donatio mortis causa. Therefore from a legal standpoint, legal execution of an imperfect gift creates problems. It is only when the intention to donate or give away the property on trust is established without any doubt, through certain formalities1d that such a disposition may be deemed to be valid. This is the reason why it is necessary to establish certainties of intention, subject matter and object as stated in the case of Knight v Knight2 where Lord Langdale clarified that these requirements were necessary to ensure that the Courts will not deprive a person of his/her property nor direct the manner of use of the property without a measure of certainty being established. In the case of Petty v Petty3 an oral declaration was made while creating a trust account in favor of a named child which established certainty of intention. However in the case of Jones v Lock4, a father placed a check payable to himself in the hands of his baby and said he was going to put it away for him. In this case, Lord Cramworth stated, I think it would be of very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declaration of trust.."5 It was held that no trust had been created, since the three certainties laid out in the case of Knight v Knight6 had not been established satisfactorily. Where certainty is an issue, such oral trusts are imperfect gifts because the intent of the donor cannot be satisfactorily established. Loose words can be stated to anyone and a person may make such oral declarations to more then one person, which could give rise to disputes in actual allocation of proceeds of a gift, unless and until clear and definite intent of the donor to part with his/her property can be established. This helps to (a) prevent a property owner from being deprived of his/her property unfairly (b) ensures no disputes arise in allocation of proceeds of a particular property. As also pointed out by James LJ in the case of Lambe v Eames7 the use of precatory words to construe establishment of a trust is equivalent to imposing a trust where such was not the intent of the testator. Similarly Cotton LJ in Adams v Kensington Vestry8 also pointed out how precatory words alone could not be deemed to be an indication of certainty of trust. Lord Diplock in the case of Gissing v Gissing9 stated that any beneficial interest in a trust or a gift, in order to be deemed to be valid, must constitute a cestui que trust and the intention of the testator must be firmly established in order to give effect to it. Alternatively, in the case of an imperfect gift created by the inability to formally constitute a trust before death, the principle of donation mortis causa10 must operate and the validity of the gist be determined according to the circumstances and facts. On the basis of the above, it may be noted that an imperfect gift could create problems by depriving a person of his property unfairly or by denying a gift to someone who is entitled to it. Disputes and legal problems can be created when there is a lack of clear intention on the part of the testator in the assignment of the gift. Ans 2: In reconceptualizing legal notions of the family, one of the tools used is the constructive trust. “A constructive arises where a person who holds title to a property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it.”11 In the case of Pettitt v Pettitt12 there was a dispute in regard to the beneficial interests in a property for which the wife held the legal title. The Court conclusively rejected the doctrine of family assets and automatic equal beneficial interest in property. The husband was the claimant and relied upon Section 17 of the Married Women’s property Act of 188213 seeking an interest in the home in view of the improvements that he had carried out to the home. Although Lord Reid has expressed some doubts, the general principle that has been established in this case appears to be that only a contribution to the purchase price could give rise to an equitable interest while improvements to the property may not, thereby establishing the fact that such dispositions are made on the basis of formal expressed intention between the parties.14 The case of Gissing and Gissing15, like Springette v Defoe16 also corroborates Pettitt in principle, that in the absence of specific discussions between the parties establishing a common intention trust, the claim to shares in the property would be limited to the extent of the contribution to the purchase price. The case of Grant v Edwards17 confirmed this principle stating that a common intention could establish beneficial interests and in the case of Burns v Burns18, the wife was refused an equitable interest since the formality requirements did not adduce interest in her favor. Therefore, this suggests that declarations on the constructive trust will be made on the basis of formalities rather than with any gender predisposition in mind, unless detrimental reliance is a factor and there would be undue unfairness to one party, as in the case of M v M19 which involved a marital relationship where the man was the sole breadwinner, yet the Court held that in a distribution of assets after their separation, the common intention trust attributed an equal importance to the wife’s contribution in taking care of the children. In the case of Lloyds Bank plc v Rosset20, the Court held that no common intention constructive trust existed due to the absence of evidence of oral or written agreement, but Lord Bridge stated that a CICT may be inferred based upon the circumstances of a particular case, however this would need to be substantiated by direct contributions to the mortgage installments. While the strict reliance upon monetary contribution to purchase price in Rosset ignores the significance of the Act of 197021 and 197322 the inference of common intention as stated by Lord Bridge may be exercised by Courts in determining an equitable settlement. In the case of Midland Bank v Cooke23, Mrs. Cooke’s contribution to the matrimonial home price was only equivalent to about 7% in the form of half of a matrimonial gift, yet the Court accorded her a half share in the matrimonial home, taking the view that the lack of discussion did not preclude distribution of interests on equitable principles. Similarly, the case of Oxley v Hiscock24 establishes the fact that allocations on a common intention trust are to be made on the basis of proportionate representation through investment.25 When a party does not assume legal ownership of a property, he or she will be construed to have acted in his/her own detriment, in making contributions based upon a common intention and therefore the beneficial interests of such parties was also to be preserved26. The Court therefore stated that in determining beneficial interests it was important to take into account the “whole course of dealing” in regard to the property, in arriving at its decision. One of the salient aspects raised by this case is the issue of cohabitation, and the rights accruing to partners under this arrangement, especially where traditional institutions of marriage are disappearing and where common intention trusts must be inferred27. Such common intention could not be inferred in the case of Pettitt. “The finding of an agreement to share …can only…be based on evidence of expressed discussions between the parties, however imperfectly remembered and however imprecise their terms may have been.”28 In the case of Crossley v Crossley, Peter Gibson relied upon the statement of Chadwick L.J29 that where joint title existed, a common intention trust granting beneficial interest could be taken for granted,30 but this was not the case in Pettitt where title rested solely for the wife. Gibson also clarified that a Court will support the distributions under a common intentions trust – “where the parties have reached a consensus on the beneficial interests of a property, the court will give effect to it…”31 On the basis of the above, it may therefore be noted that the decisions of the Courts on constructive trusts have been governed by the extent of the monetary contributions made and the common expressed intention to share beneficial interests in a property and allocations have been made according to such expressed or inferred intent. The gender of the parties has not been the issue where the allocations have been made. Ans 3: According to Section 1(1) of the Law of Property Act of 1925, there are only two kinds of ownership (a) fee simple absolute and (b) term of lease absolute.32 Therefore, it is unlikely that Emily can claim any kind of ownership rights to the house on Brookes Avenue, despite her four years of residence in the house, Similarly the law of adverse possession will also not operate in Emily’s favor despite the fact that her possession includes physical occupation of the property.33 “If a person is in occupation of property with the consent of the owner he is not in adverse possession.”34 Therefore the major issue that must be considered is whether the oral declaration by Shaiza is equivalent to the creation of a trust in favor of Emily. While there can be no question of any legal interest, Emily may be entitled to some beneficial interest in the property since she has made substantial investments into refurnishing and improving it. In the case of Knight v Knight,35 the Court has laid out three certainties in order to determine disposition of a trust (a) certainty of intention (b) certainty of subject matter and (c) certainty of object. A gift on trust involves a separation of the legal title from the equitable interest, which Emily will be entitled to, since an oral declaration may also be deemed to be a perfect gift on trust.36 Applying this principle to the instant case, it may be noted that Shaiza has undoubtedly indicated to Emily that she will be entitled to live in the house conditional upon her carrying out some refurbishments. Therefore the certainty of intention is established as also the certainty of object which is the house on Brookes street. Since Emily has carried out her part of the bargain, it would then be inequitable to deny her the right to stay on in the house by Shaiza backing out of her part of the bargain. In this case, a constructive trust may exist in Emily’s favor through the principle of detrimental reliance, since Emily has in effect relied upon Shaiza’s promise and incurred substantial expenditures. In the case of Re Adams and the Kensington vestry36a however, Cotton LJ held that precatory words alone would be insufficient to demonstrate the intention to create a trust. In the case of Grant v Edwards37, there was a common intention to share interests in the property however legal title did not exist in favor of the woman. But since she had made substantial payments towards the mortgage, therefore the courts held that she had a beneficial interest in the property on equitable principles. In contrast with this, the case of Pettitt38 involved the issue of payments made towards improvements on the house in which a couple jointly lived, but where the man was denied an equitable interest because improvements were not construed to imply an equitable interest. Since Emily’s contribution has been towards refurbishments rather than towards mortgage payments, it is not likely that her claim for an equitable interest in the property would be considered by the Courts. However, the recent case of Oxley v Hiscock established the assignment of beneficial interest in proportion with the investments made by each party. However, since Emily is not Shaiza’s spouse, it may be difficult to enforce the beneficial interest. Therefore, the best course of action for Emily to consider is to consider petitioning the Court for the right to stay on in the house in view of the investments she has made and Shaiza’s oral declaration that she would be allowed to continue to live there if she carried out those improvements. Alternatively, Emily can also seek a return of the amounts she has already invested in the house on the basis of Shaiza’s promise, including damages for the inconvenience she is likely to suffer from Shaiza’s violation of her promise. However, it is likely that in such a case, the courts may hold that Emily will be entitled to only a proportionate return on her investment, since she has been living rent free in the Brookes property for four years and rentals may have to be adjusted. Bibliography Books/articles: Austin Wakeman and Fratcher, William Franklin. (1989) 4th edition. “The Law of Trusts”, p 304 Moffat, Graham Trusts Law: texts and Materials Fourth edition, pp 1-3 Royle, Richard (2003) Briefcase on Land Law. 4th edn. Cavendish Publishing Worwood, Anna, 2004. Does cohabitation equate to marriage? The Lawyer.com [online] available at: http://www.manches.com/practices/family/article.php?id=51 Cases: Burns v Burns (1984) FLR 216 Crossley v Crossley (2005) EWCA Choithram International SA and Others v Pagarani and Others [2001] 1 WLR 1 Gissing v Gissing (1971) AC 886 Grant v Edwards [1986] Ch 638, [1986] 2 All ER 426 JA Pye (Oxford) Ltd v Graham [2002] UKHL 30 [2003] 1 AC Jones v Lock (1865) 1 Ch App 25 Knight v Knight (1840) 3 Beav 148 Lambe v Eames (1871) 6 Ch App 597 Lloyds bank plc v Rosset {1991] 1 AC 107, House of Lords M v M {2004] EWHC 688 Milroy v Lord (1862) 2 De GF & J 264 Midland Bank v Cooke [1995] 4 All ER 562, [1995] 2 FLR 915 Oxley v Hiscock (2004) EWCA 546 Powell v McFarlane (1977) 38 P&CR 452 Petty v Petty (1853) 22 LJ Ch 1065 Pettitt v Pettitt (1970) AC 777 Re Rose [1952] Ch 499 Re Adams and the Kensington Vestry (1884) 27 Ch D 394 Strong v Bird (1874) LR 18 Eq 315 Sen v Hedley [1991] Ch 425 Springette v Defoe 24 HLR 552, [1992] 2 FCR 561 Stack v Dowden (2005) EWCA Civ 857 Read More