Principles of Equity - Essay Example

1. In order to advise Alice it is necessary to consider the law in relation to resulting trusts1 and constructive trusts. This study will examine theway in which a resulting trust or a constructive trust can be created or assumed and use the facts from previous case law in this area to determine the rights of Alice in this matter. It will also be necessary to consider the rights of a person in actual occupation and their rights to claim proprietary estoppel if they are able to prove that they have a beneficial interest in the property. Resulting trusts Equity presumes the existence of a resulting trust in situations where the plaintiff has clearly made a contribution towards the purchase price of the property, despite the fact that they have not been entered onto the property register. This equitable presumption is based on the notion that the person contributing towards the property must have expected to acquire an interest in that property, in proportion to the money expended2. Lord Diplock in Gissing v Gissing3 made the point that 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. In generalised terms a resulting trust will have the effect of making an express declaration4 that the person contributing towards the purchase price will have an interest in the property. It should be noted that in this particular case Alice did not contribute to the purchase price of the property, even though she did spend her inheritance on improvements within the property. As there was no direct contribution towards the purchase price Alice would have to rely on the principle of constructive trusts to assert her claim. Constructive trusts Under the law of constructive trusts the applicant must prove that they expected to acquire an interest in the property, either by their actions or by money paid towards the maintenance or improvement of the property. Cases that have succeeded are those were the applicant has paid towards household bills or has spent their own money on repairs within the property5. in determining whether a constructive trust can be averred the court will often take into account the conduct of the parties. The court will look for evidence to support an assertion that the applicant has acted in their detriment in reliance of an expectation of having a beneficial interest in the property. The court determined this to be the case in Lloyd’s Bank Plc v Rosset6, in which the court found that work carried out by the applicant on the property, should be regarded as evidence that the applicant expected to gain a beneficial interest in the property. In this case the court agreed that the evidence was sufficient to prove that there had been an intention between the parties to create a constructive trust. A constructive trust was also deemed to have been created in Rowe v Prance7, despite the fact that the applicant had made no financial contribution to the purchase price. In this case the court awarded the applicant a half share in the yacht based on the expressions made by the respondent with reference to the yacht as ‘our boat’. The court held that as a result of his comments the applicant had an expectation of a beneficial interest in the yacht and that as such a constructive trust had been duly created. Similar inferences were also drawn from the behaviour of the respondents in the cases of Eves v Eves8 and Grant v Edwards9. In this particular case with Alice it is likely that the courts would infer a common intention to have joint ownership in the property10, although the court would be entitled to reject an insinuation of a constructive trust if there was no evidence of any financial contribution towards the property. This was deemed to be the case in Burn v Burn11, where the applicant hoped to rely on her contribution towards the property based on the fact that she had carried out the household chores and raised the children for the respondent. In the situation with Alice, although she did not pay towards the purchase price of the property she has spent her own money on improvements. As a result of this it is likely that a constructive trust would be inferred which would entitle her to a share of the property. Actual occupation and proprietary estoppel Having established that Alice would be likely to have a beneficial interest in the property under the principle of a constructive trust it is necessary to discuss the effects of her actual occupation of the property and her right to claim proprietary estoppel. In some cases the courts have regarded the actual occupation of the applicant to be treated as an overriding interest12. Case law demonstrates overriding interests in terms of legal easements13, as well as squatter’s rights and the rights of persons in actual occupation14. In situations where a person is in actual occupation and can demonstrate an interest in that property the court are unlikely to interfere with their right to remain in the property. In the situation with Alice, this would mean that if she could prove that a constructive trust had been created Eddie and Freddie would not be able to have her evicted from the property. Any attempt to do so would entitle Alice to apply for proprietary estoppel on the basis of her contribution to the property and her beneficial interest under the constructive trust15. Proprietary estoppel was established in the cases of Willmott v Barber (1880) 16 Ch D and Ramsden v Dyson (1866) LR 1 HL 129 where five essential elements were highlighted that had to be satisfied before a legal owner would be prevented from asserting his legal rights. These five elements consisted of the plaintiff having expended some money or having done some act on the faith of their mistaken belief that they would acquire an interest in the land16; they must have made some mistake as to their legal rights; the defendant must know of the existence of his own right which is inconsistent with the plaintiffs rights; the defendant must be aware of the plaintiffs mistaken belief of his rights; and lastly the defendant must have encouraged the plaintiff to spend money in the way they have or have encouraged them to act in the way they did17. In this particular case this would mean that Eddie and Freddie could be prevented from selling the property, as Alice has a beneficial interest in the property and is in actual occupation. The advice to Alice in this particular situation is that she is likely to have gained a beneficial interest in the property, partly as a result of the money used on the improvements, but also based on the comments made by Bentley and Damien, implying that she would have an interest in the property. Her actual occupation would also give her the right to claim proprietary estoppel if Eddie and Freddie attempted to sell the property and have her evicted. 2. In order to be able to advise the parties in relation to the above it is necessary to examine the law in relation to the creation of trusts and the formalities that the court will expect to see in order to determine whether the trust has been formally created. There also needs to be a discussion in relation to the use of precatory words and the effect of should words on the trust. The three certainties In law the courts recognise three certainties for the creation of a trust. These certainties include certainty of intention18, certainty of subject matter19 and certainty of objects20. Certainty of intention requires that the will of the testator should be clear of any ambiguities so that the executor can establish the intention of the testator in relation to the bequests and the intended beneficiaries. A trust is regarded as fully constituted when there has been a separation between the legal and the equitable title to the property. According to McGarry J in Re Kayford [1975]21 ‘…it is well settled that a trust can be created without using the words ‘trust’ or confidence or the like…’ In some cases where the language used by the testator is ambiguous the trust has still been regarded as valid if the courts can be persuaded of the overriding intention of the settler or testator22. In Paul v Constance23 Scarman LJ stated that there must be clear evidence from what is said or done of an intention to create a trust. When dealing with trusts involving land and shares certain formalities must be complied with for the trust to be classed as fully constituted24. These formalities can include the transfer of the deeds in respect of the property to the trustee. The certainty of subject matter25 element of a trust requires the testator to specifically identify the property which id the subject of the trust26. Trusts can fail if the property has not been clearly defined27. This has happened in situations where the testator has left the residuary of the estate to another28. In some instances it can be impossible to identify the trust property29, which results in the trust being declared invalid. Hunter v Moss [1994]30 demonstrates an occasion where the trust was still deemed to be valid despite the ambiguities in the will. When considering certainty of object the beneficiary principle is applied in order to determine potential beneficiaries. As with certainty of subject matter there have also been cases where the beneficiary principle is not met but the trust has still been allowed to succeed31. Sir William Grant MR in Morice v Bishop of Durham32 commented that Every trust must have a definite object. There must be someone in whose favour the court can decree specific performance. This was reaffirmed by Lord Parker of Waddington in Bowman v Secular Society33 when he stated that for a trust to be valid it must be for the benefit of individuals34. The courts tend to follow the rule that there must be identifiable beneficiaries in order for the trust to be valid35. The courts expect the beneficiaries to supervise the trusts as they are the ones that are likely to be affected by the performance or non performance of the trust. Beneficiaries are therefore best placed to bring any abuses of the trust to the attention of the courts36. Precatory words Problems tend to arise with the use of ‘precatory’ words where the words express a hope or desire that the trustee will act in a certain way. The courts have struggled with the use of precatory words and there is a tendency for trusts to be regarded as ineffective where precatory words have been used as was the case in Lamb v. Eames37 where the testator gave his estate to his widow “to be at her disposal in any way she may think best, for the benefit of herself and her family”. The use of the precatory words led to the finding that a trust had not been duly created and the property should be transferred to the widow absolutely. Precatory words only impugn a moral obligation on the recipient38. Similar decisions where reached in Re Hamilton39 and Re Adams and the Kensington Vestry40. In the latter case the testator included the wording ‘...in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease.” The court stated that taking the will has a whole the testator intended the widow to have absolute ownership of the property. In Comisky v. Bowring-Hanbury41 the court gave effect to the wishes of the testator despite the use of precatory words. In this case the testator had stated he was giving his wife “the whole of my real and personal estate...in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more or my nieces as she may think fit and in default of any disposition by her thereof by her will or testament I hereby direct that all my estate and property acquired by her under this my will shall at her death by equally divided among the surviving said nieces.” The court stated, in this case that it was obvious to the reader that the testator intended ‘to make a gift to his wife, with a gift over of the whole property at her death to such of the nieces as should survive her’ Having discussed the elements required for the trust to be regarded as fully constituted, it is possible to advise the parties as to their respective rights to the money. Discretionary trusts A discretionary trust is where the trustee is instructed to distribute the money as they see fit42. It is usual in these cases to name the beneficiaries by groups of eligible parties. Such cases are the norm when money has been left for the trustee to distribute amongst the family and children of the testator43. As the title implies the trustee has the discretion to apportion the money as she sees fit. Discretionary trusts can be exhaustive or non-exhaustive. In an exhaustive trust the trustees must distribute all of the trust property44 whereas in a non-exhaustive trust the trustees can use the property to accumulate money45. Similarly the list of beneficiaries can be exhaustive or non-exhaustive depending on the interpretation of the court46. Recovery of the money from Walter As the money lent to Walter was placed in a special account it might be possible to recover the £25,000 left in the account despite the fact that Walter has been declared bankrupt. In order to do this there would need to be some documentary proof of the loan agreement between the parties. If Simon had a written agreement with Walter which had been signed by Walter, then the administrators would be able to release the remaining money to the executors, and would place the beneficiaries of Simon on the list of creditors in relation to the £75,000 that has already been spent. If the £25,000 was returned to the estate of Simon the money would become part of the residuary of the estate. Trust held by Ulrik and Victoria In this situation there may be difficulties in regarding the trust as fully constituted as the list of beneficiaries might be regarded as too vague. The use of the term employees or ex employees could be regarded as too vague as there is no stipulation as to whether this should only include those employed at the time of his death or any future employees and their relatives. The inclusion of the discretionary power of the trustees could also cause problems as the courts might regard the wording as precatory words which would place no formal requirement on the trustees to distribute any of the money47. The insertion with regard to the residuary of the money might also cause difficulties as the residuary is an undefined amount and therefore might offend against the requirement for certainty of subject matter. Claim by Trevor In this particular situation assessing the amount of money that Trevor might be eligible to receive could be problematic as the bequest made by their father refers to any money remaining from the £500,000 left to Simon. The bequest is for an uncertain amount and might offend against the requirement in relation to certainty of subject matter. From the information above there does not appear to have been any specific bequest to Simon’s wife Yvonne. Under the provisions of the Inheritance (Provision for Family and Dependants) Act 1975 Yvonne would be entitled to money from the estate to provide for her needs. Although it has been stated that a trust has been created by Simon there is no mention of a will. It could therefore be determined that he died intestate. The rules on intestacy are governed by the Administration of Estates Act 1925. The effect of the 1925 Act was to change the way in which succession to personalty and realty was decided. This Act gives primacy to spouses, which in general terms means that the surviving spouse would inherit the whole estate. Under the Intestacy Rules all the property will transfer to the spouse first48. This would effectively mean that Trevor might not be entitled to any of the money. However, as the money was the subject of the will of Simon’s father, it could be argued that the money did not form any part of the estate. This would entitle Trevor to claim the £100,000 that had not been apportioned as well as any money recovered from Walter. It is unlikely that Trevor would be entitled to claim any of the money that is remaining from the trust money, as Simon has specifically stated that this should be held for the benefit of Yvonne. However, if the courts determine the trust to be invalid for lack of certainty, then the whole of the money might be transferred to Trevor, since Yvonne’s rights to any of this money is determined by the wording of the trust. Bibliography Ashburner, W, Principles of Equity, 2nd Ed, 1933, Butterworths Bryn Perrins, Understanding Land Law, 3rd Ed, 200, Cavendish Publishing Ltd Cockburn, T & Shirley, M Equity in a Nutshell, 2005, Lawbook Co Cockburn, T, Harris, W, & Shirley, M, Equity & Trusts, 2005,Butterworths Dixon, M. Modern Land Law, 5th Ed, 2005, Cavendish Publishing Ltd Glover, N & Todd, P, Inferring share of interest in home: Midland Bank v Cooke, 1995] 4 Web JCLI 28 September 1995. Gravells, N P, Land Law Text and Materials, 2nd Ed, 1999, Sweet and Maxwell 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 Read More