The Law of Trusts and Equitable Obligations - Case Study Example

The law presumes a resulting trust exists where property is purchased in the of another. Whilst the legal passes to the transferee, the transferor retains the beneficial interest, and it is said that the transferee holds the legal title on trust for the donor. One exception to this is a presumption of a gift - called a presumption of advancement - where it will be for the donor to show that s/he did not intend to make a gift to a family member (Smith: 23). This presumption of a resulting trust would act in Martin's favour in the sense that the beneficial interest would result back to him. Whether or not the courts will find so in this instance is open to debate. As it is a presumption it is rebuttable by the donees showing that it was a gift, but the onus is on Wendy and Karen to show that it is a gift. (i)(a). Wendy will have to establish either that Martin intended to make a gift or that the presumption of advancement takes precedence over the presumption of a resulting trust. In order to establish that a gift was made the onus of proof is on Wendy. The court must go into the facts in order to determine whether there is sufficient evidence to rebut the presumption. Whilst Wendy is not married to Martin they do have a relationship which might indicate a moral obligation on Martin's part to provide for Wendy. This could give rise to the presumption of advancement, in which the assumption is that Martin intended Wendy to take both the legal and the beneficial interest of the shares. However in a series of cases quoted in Pearce and Stevens1 it is clear that there is no presumption of advancement between cohabiting couples. However in Pettitt v Pettitt [1970] AC 777 at paragraph 823 Lord Diplock reminds us that the presumption of resulting trust and advancement are: no more than a consensus of judicial opinion disclosed by reported cases as to the most likely inference of fact to be drawn in the absence of any evidence to the contrary On the facts before us there is no reason to believe that Martin did not intend Wendy to own the shares outright. We are reminded that they shared a full life together and that Martin purchased shares for both Wendy and Karen at the same time. There is no indication that he did this for any other reason than for them to accrue benefits from the company - in the form of dividends - as the shares increased in value. It could be argued that based on conduct and the circumstances that Martin intended the shares as a gift. For example, Wendy may be able to show that Martin gave her the share certificates and that she was able to keep the dividends. However, based on the evidence before us the point is moot, and could go either way. (i)(b) There is a presumption of advancement between a father and his child, that is that a father would wish to provide financially for his child: Murless v Franklin [1818] 1 Swans 13. In such a case the child takes the property beneficially. Whilst Karen is not Martin's child they do have a relationship which might indicate a moral obligation on Martin's part to provide for Karen. In Bennet v Bennet [1879] 10 Ch D 474 Jessel MR said: as regards a child, a person not the father of the child may put himself in the position of an in loco parentis to the child, and so incur the obligation to make provision for the child The burden of proof will be on Martin to show that no gift was intended. For example if Martin could show that he retained the share certificates and/or that Karen paid the dividends to him (see Re Gooch [1890] 62 LT 384) this might be sufficient evidence to rebut the presumption, particularly if at the same time Martin had clearly stated that a gift was not intended. (ii) Martin's rights - if any - will be determined under a resulting or common intention constructive trust, or else proprietary estoppel - which does not require proof of common intention. Since Martin has made a direct contribution to the purchase price out of the profits of the business and by paying the mortgage this raises a rebuttable presumption of a resulting trust in his favour. It would then follow that Wendy holds the legal title on a resulting trust for Martin in the proportion of their respective contributions or undertakings: Walker v Hall [1984] FLR 126. Wendy might wish to argue that Martin did not intend to retain beneficial interest in the property as he feared that creditors would take it in the event his business failed, which is why he transferred the legal and beneficial rights to her. However, in Tinsley v Milligan [1994] 1 AC 340 Lord Browne-Wilkinson said 'a plaintiff can at law enforce property rights [acquired under an illegal contract] provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right' On the facts one cannot see how Wendy could rebut the presumption of a resulting trust. Nor can Wendy prove that a gift was intended as she clearly received the property for the sole purpose of deceiving a third party. The decisions in Tinsley and Tribe v Tribe [1996] Ch 107 suggests that Martin may be able to recover the legal title as well as the beneficial interests, since there appears to be no common intention for Wendy to benefit from either. the transferor can recover the property if he can do so without relying on the illegal purpose. This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour2. In any event it would appear that Martin is entitled to at least 40% of the beneficial interest as this is the percentage raised from the mortgage for which he is solely responsible: Huntingford v Hobbs [1993] 1 FLR 736. Problems arise with regard to the 60% which came out of the profits of the business, as Wendy worked for free in the business while these profits were accruing. It is not clear how long for, so it will be difficult to ascertain the proportion of the 60% to which she is entitled, if any. We are also told that Wendy has paid some of the mortgage repayments, but again not how much. The answer to this question must be determined in order to ascertain Martin's entitlement. It is submitted that in the absence of evidence to shares in the beneficial interest the court will quantify this based upon the whole course of the dealing between them in relation to the property: Oxley v Hiscock [2004] 3 WLR 715 (iii) We are told that Wendy worked for free while the business accrued profits, that she undertook a major refurbishment of the flat and that she has made some contribution to the mortgage on the shop/flat. Wendy's beneficial interest will turn upon her establishing a constructive trust as it would be inequitable for Martin to claim sole beneficial ownership. The courts will want evidence of a common intention that both parties should have a beneficial interest and that Wendy has acted to her detriment on the basis of that common intention. Martin's comment that "Now it's ours, we're secure," could be seen as direct evidence of a common intention to share the beneficial interest. In Midland Bank Plc v Dobson [1986] 1 FLR 171 the fact that the parties shared everything and treated the house as 'our house' was sufficient to find direct evidence of a common intention. Further, the court can infer a common intention from their actions. In this case Wendy has made direct and indirect contributions to the mortgage instalments and general housekeeping expenses. The refurbishment of the flat alone would not have been sufficient evidence: Lloyds Bank Plc v Rosset [1991] 1 AC. Once the court has evidence of a common intention they then look for a link between the common intention and the conduct. In Grant v Edwards [1986] Ch 638 Nourse LJ said that the court would look for conduct which the claimant would not have been expected to undertake unless s/he was to have an interest in the house. However Browne-Wilkinson VC said that once the defendant has held out to the claimant that s/he has a beneficial interest in the house this is an inducement to do the acts relied on, even if the conduct could also be referable to the mutual love and affection of the parties. The burden of proof lies on the legal owner to show that the claimant did not act in reliance on the promise. Hayton & Marshall state that where X and Y jointly purchase property in the name of Y alone and they both contribute toward the purchase money then Y holds the property on resulting trust for X and Y in shares proportionate to their contributions3. However, there is no fixed formula for quantification of the beneficial interest where the parties have not decided this prior to the break-down of their relationship. In Oxley v Hiscock [2004] 3 WLR 715. Chadwick LJ expressed this as follows: '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.' It is possible for a claimant to acquire a larger share under the principles of proprietary estoppel and/or common intention constructive trust4. Although it is difficult to quantify Wendy's non-financial contributions, the court will take both direct and indirect contributions into account in determining her share of the beneficial interest - if any. If Wendy can show that the parties intended that she should be entitled to claim reimbursement on a subsequent sale she may be entitled to be credited for the monies she spent on the major refurbishment of the flat: Huntingford v Hobbs [1993] 1 FLR 736 B: I started with the lecture notes, as this helped me to identify the main areas of law involved and the sections of the text books to be consulted. This led me to the cases, which were often cross-referenced in the footnotes. As I had invested in a case book I relied on this for the main facts of the cases and the commentary was particularly useful in coming to a conclusion as to the ratio decidendi. There were some useful dicta too, which helped to explain the point being made in the cases. I had to read the whole chapters on resulting and constructive trusts, joint tenancies and tenancy in common as well as successive interests in order to put this into context, which took a lot of time. I had hoped that I would find the text of the cases on line and would be able to find them using the search engine Google, but found that this wasn't true. I had to resort to the actual online databases such as the Weekly Law Reports. For older cases I had to return to the reports themselves. I found that I could get through online sources more quickly as it is possible to search for a word or phrase. It's also easier to copy and paste from these sources, rather than having to re-type useful quotations. I tried wider searches when I had difficulty deciding on a particular legal issue or its resolution. For example, I could not see at what point a gift could become a trust and so spent quite a while trying to make sense of that. My results were not very useful as I could not find a suitable phrase to enter into Google. In the end I re-read the textbooks. The section on Martin's rights with respect to the cottage was quite straight-forward and well covered in the text books, so there was little cause to conduct searches outside of the rules pertaining to resulting trusts. One area on which I spent some time seeking other authorities than the textbooks was the allocation of beneficial share in respect of the 60% of the cottage purchased from the profits of the business. I could not find anything conclusive at first and left this to answer last. Again Wendy's interest in the matrimonial home was fairly straight forward and well covered by the text books. The only issue was in terms of quantification of her share. There was some debate in the decided cases as to whether it was to be decided on a resulting trust basis, but then I found a summary of the decided cases and a pronouncement on the law as it stands in Oxley. This seemed to answer the question on Martin's share in respect of the 60% of the cottage purchased from the profits of the business also. Bibliography Pearce, R. and Stevens J. 2002. The Law of Trusts and Equitable Obligations. 3rd Edition. OUP Hayton, D. and Mitchell, C. Commentary and Cases on The Law of Trusts and Equitable Remedies. 12th Edition. Sweet & Maxwell. Smith, R. 2006. Property Law. 5th Edition. Longman Martin, J. 2005. Hanbury & Martin Modern Equity. 17th Edition. Sweet & Maxell Cases Burns v Burns [1984] Ch 317 Gissing v Gissing [1971] AC 886 Grant v Edwards [1986] Ch 638 Hogson v Marks [1971] Ch 892 Huntingford v Hobbs [1993] 1 FLR 736 Lavelle v Lavelle [2004] 2 FCR 418 Le Foe v Le Foe [2001] 2 FLR 970 Lloyds Bank plc v Rosset [1991] 1 AC 107 Lowson v Coombes [1999] 1 FLR 799 Midland Bank v Cooke [1995] 4 All ER 465 Murless v Franklin [1818] 1 Swans 13 Oxley v Hiscock [2004] 2 FLR 669 Pettitt v Pettitt [1970] AC 777 Re Gooch [1890] 62 LT 384 Re Vandervell's Trust (No 2) [1974] Ch 269 Seldon v Davidson [1968] 1 WLR 1083 Springette v Defoe [1992] 65 P&CR 1 Stokes v Anderson [1991] 1 FLR 391 Tinsley v Milligan [1994] 1 AC 340 Tribe v Tribe [1996] Ch 107 The Venture [1908] P 218 Vandervell v IRC [1967] 2 AC 291 Walker v Hall [1984] FLR 126 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 Read More