Proprietary Estoppel and Formalities in Land Law - Essay Example

A constructive trust is a mechanism by which the courts will imply a beneficial interest in favor of a party in circumstances where it is equitable to do so. In order to discern whether or not the circumstances justify the imposition of an implied trust the courts will look at the conduct and statements of all of the parties concerned.1 The relevant questions involve a determination of whether or not one party held the legal title upon trusts for himself and/or others. If so, the court will then determine whether or not the beneficial interests should be divided among the parties and in what manner.2 On the facts of the case for discussion it appears that a certain understanding existed between Pam, Tim and Derek with regards to the beneficial interests of the dwelling house and although Derek did not execute the deed reflecting those interests he is at liberty to invoke the doctrine of proprietary estoppel to enforce his interest. Martin Dixon, senior lectured at Queen’s College, Cambridge explains the use of proprietary estoppels in the following terms: “The essence of the issue in these formality cases is that one party claims to be entitled to some proprietary right (or the monetary expression of the right22) even though in the normal course such creation or transfer would be ineffective due to an absence of formality.”3 As Dixon explains the use of the doctrine of proprietary estoppel requires a contravention of some statutory provision.4 For instance Section 53(1) of the Law of Property Act 1925 dictate that a disposition of an interest in realty be evidenced by writing. The imposition of an implied or constructive trust necessitates a departure from the rigid statutory requirements for written evidence of the conveyance or other disposition of an interest in realty.5 Be that as it may, Sir Christopher Slade in Huntingford v Hobbs [1993] 1 FLR 736 explains that the imposition of a constructive, implied or resulting trust are typically exempt from the formal requirements mandated by Section 53(1). Sir Christopher Slade explained: “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(1).”6 According to the ruling in Lloyd v Dugdale [2001] All ER 306 an estoppel is a proprietary right which can bind a third party as an overriding interest within the meaning of Section 70(1)(g) of the Law of Property Act 1925.7 Dixon maintains that this proposition remains the same under Schedules 1 and 3 of the Land Registration Act 2002.8 In Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 Oliver j explained that generally the courts will look for three essential elements in discerning whether or not proprietary estoppel will arise. They are: 1) the claimant believed that he or she would have or had a right over the property held by another; 2) the title holder encouraged that belief; and 3) the claimant acted in reliance on that belief.9 In other words the doctrine of proprietary estoppels is used to avoid otherwise unconscionable conduct.10 The doctrine of proprietary estoppel is married to the doctrine of resulting trust in that formal requirements for the disposition of an interest in realty are not necessary in the event a resulting trust arises. The key determining factor in both instances is the common intention of all the parties concerned. In Gissing v Gissing Lord Diplock said that resulting trusts 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.”11 In Gissing v Gissing involved a scenario where matrimonial property was held in the name of the husband only. The questions for determination were: Did the husband hold the legal title upon trust for the benefit of both he and the wife. And if so, how were the beneficial interests to be divided? Obviously the same questions have to be determined in the present case where Pam held the legal title and there is no question that the beneficial interests were intended to be divided. In cases such as this, Lord Diplock opined that court must satisfy itself on the evidence that it was ‘the common intention of both spouses that the contributing wife should have a share in the beneficial interest and that her contributions were made upon this understanding.’12 In many cases, the intention or common understanding of the parties will have to be inferred as there is not always going to be statements of intent from either or both parties. Over the years some confusion appears to have developed in respect of the principles of common intention and its impact on common ownership. These developments have functioned to place a stranglehold on the stability of a consistent and rational law on family property. Lord Justice Dillion said in Springette v Defoe that: “…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”13. Obviously there is little doubt as to what was the common understanding of the parties in the case for discussion. Derek was not a suitable candidate for a mortgage and he therefore agreed to go along with Pam’s application for the mortgage in her name with the understanding that he would continue to maintain the controlling interest in the property. This was evidenced by his provision of the deposit and the continuous payment of the monthly mortgage installments. Moreover, Derek prepared a deed reflecting the division of the beneficial interest in the dwelling house. However Lord Steyn maintains an entirely different position. He is of the opinion that if there is no general communication regarding the division of beneficial interests in equal shares the matter does not end there. The courts must then look for evidence that is capable of implying that the property was intended to be divided in a manner consistent with each party’s respective contributions.14 This can be an onerous task. Lord Justice Chadwick said: “…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.”15 Dillion LJ in Walker v Hall 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…”16 This can be a fairly simple exercise when the proceeds of sale are derived from personal resources without the benefit of a loan. However, when a mortgage is required, the law can be complicated and over the years the courts have wavered in the application of a consistent rationale. For instance Lord Diplock 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.”17 The court in such a case would very probably determine the common intention by reference to what was fair and just given the unique circumstances and the same principles will apply in cases involving joint acquisitions and not limited to married parties only. There is some doubt as to whether Tim’s conduct is sufficient to sustain a resulting trust in his favor since the courts have not always been consistent on the relative value and implications of indirect contributions. On the one hand, Lord Bridge in Lloyds Bank plc v Rosset [1991] 1 AC 107 said that: “…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.”18 However, in Oxley v Hiscock [2005] Fam 211 the court held that determining the respective interests of co-habitants when only one name appeared on the title deed was not a simple task, suggesting that direct contributions was not the only means of determining the interest of all parties.19 In fact Lord Chadwick asserted that many factors are relevant in a case where there is no evidence of actual communication as to the parties’ common intention: “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.” 20 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.21 This ruling is relevant to Tim’s position since there is no communication with regards to his interests and he did in fact make indirect contributions to the property’s upkeep and maintenance. Lord Bridge’s direct contribution is founded on the doctrine “equity will not assist a volunteer.” However the law has developed to be more loosely construed. For example Gissing v Gissing held that a constructive trust may be implied when one party’s contribution is indirect but functions to relieve the other party of expenses that make it possible for him to make the monthly mortgage payments.22 Fox LJ made a similar observation in Burns v Burns when he acknowledged that the wife’s housekeeping was not sufficient to imply a constructive trust. She would have had to have made some financial contributions that enabled the husband to dispose of his income in favor of the mortgage.23 In another case LCJ MacDermott said 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.”24 Despite the conflicting developments at common law regarding characteristics of contributions, one thing has remained static and unchanging. The courts will seek to imply a constructive trust when it is just and equitable to do so. As in any situation where the courts attempt to do justice between the parties it is impossible to apply a strict rationale. Each case has to be determined by its own facts. The facts of this case appear to justify a resulting trust in favor of both Tim and Derek. Tim’s interest will be determined with reference to the doctrine of resulting trust and his respective contributions whether direct or indirect. Derek’s interest will be determined by reference to his direct contributions and by the imposition of the doctrine of proprietary estoppel. Works Cited Burns v Burns [1984] Ch 317 Dixon, Martin. (2003) “Proprietary Estoppel and Formalities in Land Law: A Theory of Unconscionability.” Modern Studies in Property Law. Vol. 2 Ch. 9 Gissing v Gissing. [1971] AC 886 Huntingford v Hobbs [1993] 1 FLR 736 Lloyds Bank plc v Rosset [1991] 1 AC 107 Lloyd v Dugdale [2001] All ER 306 McFarlane v McFarlane [2006] http://www.timesonline.co.uk/article/0,,200-2194958,00.html Viewed August 13, 2007 Milne, Patrick. (1995) “Proprietary estoppel, purchasers and mortgagees: an alternative approach.” 5 Web JCLI http://webjcli.ncl.ac.uk/1997/issue5/milne5.html Viewed August 13, 2007 Oxley v Hiscock [2005] Fam 211 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 13, 2007 Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 Walker v Hall [1984] 5 FLR 126 Methodology I found that a good starting point was Roger Smith’s text book, 2006 edition entitled Property Law: Cases and Material. From here I gained a good understanding of the basic constructs of the law of equity as it relates to resulting trusts and the doctrine of proprietary estoppel. The relevant cases: Burns v Burns, Gissing v Gissing, Huntingford v Hobbs, Lloyds Bank plc v Rosset, Lloyd v Dugdale, Oxley v Hiscock, Springette v Defoe, Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd and Walker v Hall appeared to be relevant. I found Smith’s discussion very helpful and the cases relevant. I therefore looked them up and read them in preparation for this report and since they provided relevant information for the case for discussion they were included in this report. Cases such as Pettit v Pettit were relevant for background and general understanding purposes. However, since the cases discussed above appeared to expound upon the doctrines of proprietary estoppel and resulting trusts in a way more relevant to the case for discussion I decided not to use Pettit. I conducted a further search of the cases discussed by way of an electronic search with a view to determining a source of academic discussions of these cases in the context of the doctrine of resulting trust as well as proprietary estoppel. The article written by solicitor Patrick Milne published in 1995 entitled“Proprietary estoppel, purchasers and mortgagees: an alternative approach.” 5 Web JCLI available at http://webjcli.ncl.ac.uk/1997/issue5/milne5.html came up. After reading the article I decided that it was useful and relevant and included it in the research material to be used in the report. This article provided further insight into the equitable principles of proprietary estoppel and constructive trusts. The 2003 article written by Martin Dixon entitled “Proprietary Estoppel and Formalities in Land Law: A Theory of Unconscionability” and appearing in Modern Studies in Property Law. Vol. 2 Ch. 9 came up via the electronic search. Having read some online commentary on the article I looked it up in the library and found it was a good source of information on the development of the doctrine of proprietary estoppels particularly in light of the Land Registration Act 2002. I did not use the Land Registration Act 2002 since Dixon’s reference to it was sufficient for the purpose of this report. An electronic search also provided online sources to recent relevant cases such as McFarlane v McFarlane [2006] the full judgment is available at http://www.timesonline.co.uk/article/0,,200-2194958,00.html. This case was not only relevant but provided a history of the doctrine of constructive trusts together with its development and current status. Another relevant case was discovered online. The case was Stack v Dowden [2005] EWCA 857 which is also available at http://www.familylawweek.co.uk/library.asp?i=892. The entire judgment is available and like the case of McFarlane v McFarlane a comprehensive discussion of the development of the principles of the law of resulting trust can be found in this case. The law relating to resulting trusts and proprietary estoppel is comprised of many years of common law developments. It is therefore an onerous task attempting to sort through all the case law and deciding which cases are relevant. I found it best to try to sift through cases that were not closely similar to the fact of the case for discussion in the interest of time and exigencies. I concentrated on cases that were more closely aligned to the facts of the case for discussion. Read More