Circumstances in Which a Constructive Trust May Be Imposed upon a Trustee - Coursework Example

Introduction A constructive trust unlike an express trust is not an agreement between a settler and a trustee. It represents an equitable remedy andis a means by which equity intervenes as a matter of conscience. Constructive trusts arise by operation of common law principles and are by and large implied by circumstances and facts particularly in respect of the conduct, statements and intention of the relevant parties where applicable. The most common circumstances in which a constructive trusts may arise is when a party makes some contribution toward the intrinsic value of property with the understanding that he will acquire some interest in that property.1 These kinds of circumstances usually arise in and over the respective interests of co-habitants of a dwelling house. In these types of scenarios a constructive trust may be imposed upon a trustee. Discussion Lord Diplock defined the circumstances in which a constructive trust will be imposed. He maintained that there is no real distinction between the concept of resulting, implied and constructive trusts. Trusts of this nature are: “…created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held to have so conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.”2 This case, Gissing v Gissing offers a comprehensive understanding of the nature of a constructive trust and the manner in which it will arise in equity. The facts and circumstances of this case lend itself to the development of the law regarding intention and the interpretation of intention. Gissing v Gissing was a case where the legal title to the matrimonial home was held in the husband’s name only. The court had to determine whether or not the husband held the legal title as trustee for both himself and his wife. And if the court was satisfied on the facts that the husband was a trustee, how should the beneficial interest in that property, to be divided. When the courts are disposed of a similar matter it must be satisfied on the evidence that the both parties to the matrimonial union shared a common understanding and intention that the wife’s contribution to the matrimonial property would operate to create an interest in the property. It is also important to bear in mind as Lord Diplock pointed out there is not always going to be actual evidence of a clearly communicated intention or understanding. What the court must do in such circumstances is look at evidence capable of inferring that intention and understanding between the parties.3 Moreover, Lord Diplock explained, a wife’s earning capacity might be altered to some extent following the acquisition of matrimonial property by virtue of a mortgage. For instance, at the onset, both parties to the marriage might take out a mortgage for the purpose of purchasing a family home with the intention that both parties will contribute to the mortgage repayments from both of their earnings. However, somewhere down the road, the wife might become pregnant and her ability to work and earn is altered by childcare responsibilities. Lord Diplock did not feel that such a turn of events should affect the initial intention that the parties hold the property in equal shares.4 In such circumstances the court is required to look at evidence capable of inferring that intention and understanding between the parties.5 It is obvious from this ruling that it is important that both parties share a common understanding and this can only be derived by the words and/or conduct of the relevant parties. Lord Bridge identified two types of cases to which the imposition of a constructive trust might apply. One type of case involved situations in which the parties discussed the matter prior to or at the time of purchase. As a result of that discussion it is not unreasonable to imply that the party taking legal title did so with the intention of sharing the beneficial interest with the other party. The second type of case arises when no discussions take place at or near the time of the purchase of the realty. Yet it can be reasonably inferred from the conduct of the parties that the person taking legal title intended to share the beneficial interest with the other party.6 Lord Justice Dillon seemed to think that there was only one type of case in which a constructive trust can be imposed upon a trustee and that would be in circumstances where the intention of the parties was communicated. He explained this in no uncertain terms 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.”7 Not all of the Lords appeared to agree that communication was an essential element for the imposition of a constructive trust in Springette’s case. In fact Lord Steyn, indicated that in the absence of communication in respect of the vesting of any beneficial interest in the property in question was not conclusive. The court is required to look for evidence of that intention by reference to the corresponding contributions of the relevant parties.8 Moreover, Lord Justice Chadwick maintained that: “…the court must do its best to discover from the conduct of the parties whether any inference can reasonably be drawn as to the probable common understanding about the amount of their respective shares upon which each must have acted in doing what each did.”9 Lord Bridge was careful to caution however that there are limitations on what kind of conduct will amount to an inference of a shared intention. For instance, orchestrating repairs and refurbishment in respect of the property will not suffice to create an inference of a shared intention. In fact, he felt that a direct contribution toward the purchase price by way of mortgage installments or otherwise was the only conduct capable of amounting to grounds for the imposition of a constructive trust. He said: “…direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.”10 Lord Bridge’s ‘direct contribution’ requirement is suspect when one looks at earlier and later rulings, although his ‘direct contribution’ was to some extent validated by the ruling in Pettitt v Pettitt. In the latter case it was decided that when a husband installed a new fireplace in the matrimonial home he was only performing his duties as a husband and derived no beneficial interest from that installation.11 Parliament’s response to the ruling in Pettitt v Pettitt was to enact Section 37 of the Matrimonial Causes Act 1970. By virtue of this section when a spouse makes a significant contribution or improvement to the matrimonial property in the absence of an agreement to the contrary will derive a beneficial interest in that property. Sections 24 and 25 of the Matrimonial Causes Act 1973 contain similar provisions.12 Lord Bridge’s ‘direct contribution’ is founded on both the doctrines of “propriety estoppels” and “equity will not assist a volunteer”. The law however, has developed to be more loosely construed. For example, in Gissing v Gissing the court ruled that a constructive trust may be implied in circumstances where it is equitable to do so. There are instances when one party’s contribution is indirect but beneficial because he or she does something that effectively relieves the other party of expenses making it possible for him to make the monthly mortgage payments.13 In Burns v Burns, Fox LJ acknowledged that the wife’s housekeeping was not sufficient to imply a constructive trust. He did not feel that housekeeping would operate to free the husband’s expenses in such a material manner as to be tantamount to the acquisition of a beneficial interest on the part of the wife. What is required is that the wife would have to make some financial contribution toward the family expenses so as to relieve the husband himself of that expense. In that manner his income is freed up for the discharge of the mortgage installments.14 LCJ MacDermott said in another noteworthy case 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.”15 There will be circumstances when both spouses’ or co-inhabitants’ names are contained in a deed of conveyance but there will be no express declaration of the beneficial interests in the case at hand. A joint tenancy will not automatically be implied in such circumstances.16 The court will be called upon to intervene in most cases for determining the method and manner of the division of the beneficial interest in the property. While a beneficial interest is automatic in such cases, the only confusion applies to the nature and extent of the respective interest and by extension a constructive trust is imposed upon either one or both of the parties as trustee or trustees. Sir Christopher Slade explained that: “In the absence of any declaration of trust, the parties respective beneficial interests in the property fall to be determined not by reference to any broad concepts of justice, but by reference to the principles governing the creation or operation of resulting, implied or constructive trusts which by s 53(2) of the Law of Property Act 1925 are exempted from the general requirements of writing imposed by s 53(2).”17 Section 53(1) of the Law of Property Act 1925 provides as follows:- “…a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will”.18 Section 53(2) of the Law of Property Act 1925 as referred to by Sir Christopher Slade exempts constructive and resulting trusts from the requirements for the disposition of those types of trusts to be made in writing. This is all the more reason why courts are not predisposed to lightly impose a constructive trust upon a trustee. As a result the law surrounding the evolution and development of the doctrine of constructive trusts has been a complicated and onerous task. Some circumstance for the imposition of a constructive trust serve to further complicate matters and this is especially so in cases involving property secured by way of a mortgage. Compared to property purchased from personal proceeds, mortgaged property creates more challenges for the courts in the imposition of a constructive trust upon a trustee. By comparison, when the proceeds for the purchase price of a family home originates out of personal income rather than from a mortgage, the imposition of a constructive trust can be a fairly simple matter. When a mortgage is involved, the matter is not so simply disposed of since the initial deposit does not usually determine the real value of the property. However, Lord Dillion said that the emphasis in relation to the law of trusts has been on the sums contributed by each person for the purchase price of the property. This is the starting point for determining the respective interests of the contributing parties and is the “basic doctrine of the resulting trust…”19 Lord Diplock however said something entirely different when he said that: “…there is nothing inherently improbable in their acting on the understanding that the wife should be entitled to a share which was not to be quantified immediately upon the acquisition of the home but should be left to be determined when the mortgage was repaid or the property disposed of, on the basis of what would be fair having regard to the total contributions, direct or indirect, which each spouse had made by that date.”20 Lord Diplock went on to explain what he proposed as a fair and simple method of dividing the beneficial interests in the shared property when the proceeds for the purchase originated out of both personal funds and by virtue of a mortgage. All that the courts were required to do was to look at the contributions made by both parties at the onset, when the initial deposit was made and what contributions were made in respect of the discharge of the mortgage.21 A similar set of circumstances arose in Huntingford v Hobbs. In this case one party had provided the initial deposit from her own income and the other party made all the repayments on the mortgage and both parties’ names appeared on the deed of mortgage. It was held that the party discharging the mortgage was regarded as having a beneficial interest equal to the funds covered by virtue of the mortgage.22 When one party’s name appears on the documents of title, disposition of the equitable interest can be an onerous task. This is not altogether surprising since complications also arise in circumstances where both parties’ names appear on a document of title. The courts have consistently held that unless expressly provided for in the deed of title, the court will not automatically imply that the beneficial interests of both co-habitees are to be divided equally. Although the courts have held that the appearance of both names will serve to provide some evidence of the parties’ intentions.23 Lord Chadwick said that in circumstance where there is no evidence of actual communication between the parties in respect of the common intentions of the parties: “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.” 24 The “whole course of dealing” was described as any activity in relation to the property in question, for example ‘mortgage contributions, council taxes, utilities, repairs, insurance and housekeeping’ together with all expenses that are necessary for the upkeep and maintenance.25 Conclusion It is easy to understand why the courts have struggled to develop a consistent rational in respect of the doctrine of constructive trusts making it impossible to state with any degree of efficiency and certainty when one would be imposed upon a trustee. The law relating to constructive trusts necessarily requires an examination of fairness and justice between the parties involved. There can be no blanket application of any specific guidelines. Each case will have to be determined on its own merits. This will sometimes, in the interest of justice and fairness, require the restatement of policies as well as the identification of new guidelines from time to time. However, the common thread that runs throughout is an attempt to hold parties to their obligations and promises. Over the years the Trust at Equity has evolved with a number of maxims which reflect the moral virtues of equitable principles from which the doctrine of constructive trust have evolved. Semple Rochex explains that: “The equitable maxims are a set of general principles, which (together with the equitable doctrines) govern the way in which the rules of equity are applied. They illustrate the fact that equity is flexible and responsive to the circumstances of the case.”26 The most affective and meaningful maxim with respect to the doctrine of constructive trust is perhaps the maxim “Equity looks to the intent rather than the form”. This maxim reflects the true spirit of the development of equitable principles surrounding the imposition of constructive trusts and is a common theme that runs throughout the application of equitable remedies. The courts have demonstrated a willingness to enforce agreements and obligations notwithstanding the absence of the requisite formalities. This includes an agreement which was made by implicit means.27 Works Cited Burns v Burns 1984] Ch 317 Constructive Trusts. (n.d) http://www.studywizard.org/equity/constructive.html Viewed August 20, 2007 Crabb v Arun District Council [1976] Ch 179 Gissing v Gissing. [1971] AC 886 Gray, Kevin.(2006) Elements of Land Law. Oxford: Oxford University Press Huntingford v Hobbs [1993] 1 FLR 736 Lloyds Bank plc v Rosset [1991] 1 AC 107 McFarlane v McFarlane [2006] http://www.timesonline.co.uk/article/0,,200-2194958,00.html Viewed August 20, 2007 Oxley v Hiscock [2005] Fam 211 Pettit v Pettit [1970] AC 777 Rochez, Semple Piggot. THE NATURE AND DEVELOPMENT OF EQUITY AND TRUSTS http://www.spr-law.com/site/lntrust1.pdf Viewed August 20, 2007 Smith, Roger. (2006) Property Law: Cases and Material. London: Longman. Springette v Defoe [1992] 2 FLR 388 Stack v Dowden [2005] EWCA 857 http://www.familylawweek.co.uk/library.asp?i=892 Viewed August 20, 2007 The Law of Property Act 1925 Walker v Hall FLR 126 Read More