Principles of Equity - Essay Example

In order to be able to advise Executive Finance it is necessary to examine what rights Ella has over the property despite the fact that she is not named on the property register. The starting point for this is to look at the financial contributions each party has made towards the purchase of the house. It is stated in this scenario that Ella contributed £50,000 towards the purchase price of Martingales house. An assessment needs to be made to decide whether Harry is entitled to mortgage the property without the knowledge or consent of Ella and then to look at the effect this would have on Ella if Harry subsequently defaults on the payments. It states above that the property was only registered in one name and therefore it would only require one signature for the sale or mortgage of the property1. This effectively means that Harry is entitled to mortgage the house without consulting with Ella. It is necessary to look at the ways in which a legal interest in the property can be acquired and the ways in which a party might acquire an equitable interest. The Law of Property Act 1925 s1 states that (1) The only estates in land which are capable of subsisting or of being conveyed or created at law are (a) an estates in fee simple absolute in possession; (b) a term of years absolute. Subsection 2 lists the other interests or charges over the land that can be classed as legal interests and includes such things as easements2, rights of way, rentcharges3, legal mortgages4 and other similar charges. Under the Land Registration Act 1925 s5 the courts recognise the registered land as belonging to any person to whom the land has been registered as having an absolute title to that land5. This would effectively mean that Ella would not have a legal interest in the property. The Law of Property Act 1925 s1(3) states that All other estates, interests, and charges in or over land take effect as equitable interests. It is possible that she could argue that the money she paid towards the purchase of the house entitles her to a share of the property6. If Ella can show that she made a direct contribution to the purchase price the court would be free to concur that by her actions a resulting trust has been duly created7. The equitable presumption of resulting trusts is that a person who contributes to the purchase price of the land must have done so with the intention of acquiring an interest in that land in proportion to the amount that they have paid towards the purchase price8. If the courts can find that such an intention is to be inferred by Ella’s actions then they will give effect to the presumption thereby whilst recognising Harry as the legal owner of the property requiring him to hold the property on trust for Ella9. Lord Diplock stated in Gissing v Gissing10 A resulting, implied or constructive trust…is 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 the cestui que trust a beneficial interest in the land acquired. Having established the way in which legal and equitable rights are established it is necessary to make the point that legal ownership of the properties entitles the owner to dispose of them or use them in any manner they wish11. Equity only intervenes in this area to prevent unfairness or injustice for those affected by the actions of the owner12. In essence, applying this to the scenario above, in law Harry would be entitled to grant a legal charge over his property to Executive Finance as he is the registered owner13. By taking out a mortgage on his share of the property the owner is giving ownership to the mortgagee whilst remaining in possession of the property himself14. Continuing from this point, if he subsequently defaults on his payments to the bank they would be entitled to seek possession of the properties for his breach15. In this instance because Harry has granted a legal charge over the property to Executive Finance they would have a proprietary interest over the property16. The court could infer that the mortgage has created a legal charge over the property whereby the borrower retains the ownership and possession of the property but gives the lender the right to take the property charged in the event that the loan is not paid in the agreed manner. In the case of Midland Bank Plc v Pike17 the court held that a person entitled to a charging order on the share of a co-owner is entitled to apply for an order for sale of the property. In this case the defendants were co-owners of a property. The bank obtained a charging order over the husbands interest in the property. Subsequently the bank applied for an order that the property be sold with vacant possession under the Law of Property Act 1925 s. 30. The bank appealed the masters decision that it had no locus standi to make the application. The court held that the bank had a proprietary interest in the husbands share and was entitled to make a s. 30 application for sale of the property and allowed the appeal. It would appear from the above that if Harry fails to make the payments the bank may well be able to take action for possession of the property. In Lloyds Bank Plc v Byrne & Byrne18 the defendants’ husband had assigned the house to the bank by way of a mortgage without the knowledge of the defendant the court held that the voice of a creditor must prevail in the absence of exceptional circumstances or specific hardship. This decision was not accepted in Mortgage Corp v Shaire19 where the court stated that there was nothing to indicate that the interests of the chargee took priority over the interests of any resident children. They further stated in this case that s15(1) of the Trusts of Land and Appointment of Trustees Act 1996 indicated that the interests of the chargee were only one of four factors to be considered in the courts exercise of its powers, suggesting that Byrne was no longer decisive. In this case the plaintiffs were seeking possession of the property due to mortgage areas owing, of which the beneficiaries had no knowledge of. Despite the fact that the mortgage was created between Harry and Executive Finance Ella could still be held liable for the default and subject to either having to make the payments or surrender the property for sale. The banks are under no obligation to allow Ella to rectify the situation by making the payments and can go straight for foreclosure, however, given the circumstances the bank may well allow her to take over the payments rather than seek an order for possession. In relation to the rights of Ella it was stated above that she provided half the purchase of the property. Although her name was not on the registration document she would still be able to claim a share under the principal of a resulting trust20. Ella could rely on the authority established in Tinsley v Milligan21. In this case the plaintiff had bought a house with her lesbian partner but in order to be able to claim benefits had chosen not to have her name included on the registration despite having contributed towards the purchase price. The respondent attempted to use the fact that the property was only registered in one name to deprive the plaintiff of their share when the relationship came to an end. In this case the courts were faced with the difficulty that the plaintiff had chosen to not have her name on the register so that she would be entitled to claim benefits. This caused problems as equity insists that he who seeks equity must do equity. Using common law remedies a plaintiff could assert their common law right to ownership provided that they did not need to rely on their illegal conduct to establish title. In this case the plaintiff did not need to rely on their illegal conduct to establish title her claim and the courts allowed the claim under common law remedies. In this case there is no suggestion that Ella chose not to have her name on the title in order to claim benefits or to defraud and so therefore it is even more likely that the courts would reach the conclusion that a resulting trust should be implied. It could be viewed that as she is not registered on the title she has no rights to a claim in the property. However, under the registered system she could claim an overriding interest22 on the basis of actual occupation of the land or squatter’s rights When advising Executive Finance it is expected that before granting the loan they would have searched the register to establish whether anyone else had a claim to the property. Most incumbrances of a family nature are equitable and registrable. Equitable incumbrances should bind the whole world23. The doctrine of notice24 is unreliable and inefficient and depends on what a reasonable purchaser would or ought to have discovered. The owner of a relevant incumbrance is expected to register it at the Land Charges Registry25 and any purchaser is expected to search that register26. If a registrable incumbrance was registered at the time of his purchase then the purchaser is bound by it whether he searched the register or not. If the incumbrance is not registered a purchaser takes free of it even if he knew of its existence27. Notice becomes registration. In this particular case there was no mention of the Registry of Ella’s rights to occupation of the property, however, the surveyor for Executive Finance did notice Ella’s belongings in the property when he carried out the survey. If he had enquired at that time he would have been made aware of Ella’s interest in the property and would have known of her entitlement to a claim for a share of the property. With unmarried couples were the property is not in both names the courts can infer joint ownership on the principle of implied28 or constructive trusts29. The likely outcome in this case is that the courts would not grant an order for possession of the property to Executive Finance as it would be inequitable to Ella to deprive her of her share of the property. The courts are likely to follow the authority of Lloyds Bank Plc v Rosset [1989] Ch. 350 which is very similar to the facts above. In this case the courts held that a constructive trust had been created and it would be inequitable and unjust to allow the bank to take possession of the property as the respondent was not aware of her husband’s actions of remortgaging the property. The conclusion that can be drawn from the above is that the courts may order possession of the property using the case law stated above. However, the courts may give a greater degree of attention to the plight of Ella and grant her an equitable interest in the property allowing her to prevent the repossession of the house under proprietary estoppel. If the courts do order possession of the house Ella would still be entitled to a share of the money once the finance company sold the house. Bibliography Ashburner, W, Principles of Equity, 2nd Ed, 1933, Butterworths Bryn Perrins, Understanding Land Law, 3rd Ed, 200, Cavendish Publishing Ltd Butterworths Civil Procedure, The White Book, Volumes 1 & 2, 2002, Sweet & Maxwell Cockburn, T & Shirley, M Equity in a Nutshell, 2005, Lawbook Co Cockburn, T, Harris, W, & Shirley, M, Equity & Trusts, 2005, Butterworths Gravells, N P, Land Law Text and Materials, 2nd Ed, 1999, Sweet and Maxwell Harris, P, An introduction to Law, 4th Ed, 1995, Butterworths Hayton, D J, The Law of Trusts and Equitable Remedies, 11th Ed, 2001, Sweet & Maxwell Holdsworth, W, History of English Law, 7th Ed, 1956, Mathuen & Co Ltd Pearce, R and Stevens, J, The Law of Trusts and Equitable Obligations, 2nd Ed, 1998, Slapper, G & Kelly, D, The English Legal System, 4th Ed, 1999, Cavendish Publishing Ltd Thomas, M, Statutes on Property Law, 8th Ed, 2001, Blackstone’s Zander, M, The Law-Making Process, 3rd Ed, 1988, Weidenfield & Nicolson Table of Cases City Permanent Building Society v Miller [1952] Ch. 840 [1952] 2 All E.R. 621 [1952] 2 T.L.R. 547 Dyer v Dyer (1788) 2 Cox Eq Cas 92 Gissing v Gissing [1971] AC 886 H v M ( Property: Beneficial Interest) [1992] 1 FLR Horrill v Cooper (2000) 80 P. & C.R. D16 Lloyd’s Bank plc v Rosset [1991] 1 AC 107 Lloyds Bank Plc v Byrne & Byrne [1993] 1 F.L.R. 369 Midland Bank plc v Cooke [1991] 1 FLR 391 Midland Bank Plc v Pike [1988] 2 All E.R. 434 Mortgage Corp v Shaire [2001] Ch. 743 [2001] 3 W.L.R. 639 [2001] 4 All E.R. 364 [2000] 1 F.L.R. 973 [2000] 2 F.C.R. 222 [2000] B.P.I.R. 483 (2000) 80 P. & C.R. 280 [2000] 3 E.G.L.R. 131 [2000] W.T.L.R. 357 [2000] Fam. Law 402 [2000] E.G.C.S. 35 (2000) 97(11) L.S.G. 37 Times, March 21, 2000 Moscow v Brown [2005] EWHC 2243 Pettitt v Pettitt [1970] AC 777 Phipps v Pears [1965] 1 QB 76 Pilcher v Rawlins (1871-72) L.R. 7 Ch. App. 259 (1872) 20 W.R. 281 (1872) 41 L.J. Ch. 485 (1872) 25 L.T. 921 Prestige Properties Ltd v Scottish Provident Institution [2002] EWHC 330 [2003] Ch. 1 [2002] 3 W.L.R. 1011 [2003] 2 All E.R. 1145 [2002] 13 E.G.C.S. 98 [2002] N.P.C. 41 Times, May 23, 2002 Sawden v Sawden [2004] EWCA Civ 339 [2004] 1 F.C.R. 776 Sharp v Thomson 1995 S.C. 455 1995 S.L.T. 837 1995 S.C.L.R. 683 [1995] B.C.C. 852 Times, July 25, 1995 Springette v Defoe [1992] 2 FLR 388 Tang Man Sit (Deceased) v Capacious Investments Ltd [1996] A.C. 514 [1996] 2 W.L.R. 192 [1996] 1 All E.R. 193 Times, December 26, 1995 Tinsley v Milligan [1994] 1 AC 340 Tiverton Estates Ltd v Wearwell [1975] Ch 146 Turner v Jacob [2006] EWHC 1317 Table of Statutes Land Charges Act 1972 Land Registration Act 1925 Law of Property (Miscellaneous Provisions) Act 1994 Law of Property Act 1925 Rentcharges Act 1977 Read More