In the Shadows of the Deed: A Study of Implied Trusts and Beneficial Interests in Property Disputes

Introduction

The issue in this situation is whether Christie has a share in the family home under the rules of trust. Christie and Farrand are not married and have shared a home that is registered in Farrand’s name. This essay discusses the law on constructive trusts, and promissory estoppel with respect to the interest of Christie in the given situation. In the event of the split between the couple, the court cannot distribute property between Christie and Farrand under the Matrimonial Cause Act 1973; rather the court can make an order on ownership of the property and claims under trust law. As such, the following essay discusses the rules of trust as they apply to Christie’s share in the family home.

The family home is registered in Fernand’s name alone and there is no express trust is made in Christie’s name with respect to the property. Under the Law of Property Act 1925, it is provided that express trust should be provided in writing. In this case, Farrand has not made an express trust in writing, therefore, Christie is required to claim interest in the property under implied trusts. For this purpose, resulting and constructive trust are also examined in this essay. Section 53 (2) (c) of the Law of Property Act 1925 exempts from the formality of writing, resulting, implied and constructive trusts. As per Lady Hale’s observation in Stack v Dowden, the determination of beneficial interest can be made on the basis of intention of the parties for which the court may consider a number of factors including but not limited to financial contributions. In general, the court can consider oral agreement and detriment or direct financial contribution to determine beneficial interest.

Resulting trust stems from the concept of ‘resultare’ or ‘springing back’. This can help redirect the beneficial interest to the former owner of the title of the property. This can arise in the case of failed trusts and apparent gifts. Resulting trust arises when an attempt to create an express trust was unsuccessful as the parties did not comply with Section 53 (1) of the Law of Property Act 1925. For instance, the court held that the beneficial interest could revert to the original settlor estate when the trust failed on account of uncertainty. In apparent gift cases, resulting trust can arise when a party contributes towards the purchase price of the property; this is illustrated by authorities in which resulting trust was constituted due to direct contributions towards the purchase price. In Westdeutsche Landesbank Girozentrale v Islington LBC, it was held that unlike constructive trust which seeks to impose a trust against the intentions of the trustee, the resulting trust aims to give effect to presumed intention of the trustee. Therefore, the resulting trust is created where the presumed intention of the trustee can be determined as creating such a trust. There are two presumptions in English law regarding the intentions of the property owners; these can be rebutted by showing a contrary intention. The first presumption is that the owner of the property does not intent to make a gift; in other words, there is a presumed retaining of equitable interest when the owner voluntarily transfers legal title without consideration. The second presumption is that purchaser of the property acquires the equitable interest in the property. In cases where a person has contributed to a part of the purchase money, the court can presume resulting trust based on the equivalent proportion of the equitable interest.

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1. Section 53 (1)(b) of the Law of Property Act 1925.
2. Stack v Dowden [2007] 2 AC 432
3. Hodgson v Marks [1971] 2 WLR 1263 CA.
4. Boyce v Boyce (1849) 60 ER 959.
5. Curly v Parks (2004) EWCA Civ Section 53 (1)(b) 151; Tinsley v Milligan (1993) 3 WLR 125 HL.
6. Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12.

In this case, equitable interest under a resulting trust cannot be applied to Christie because she has not made any direct contributions when the house was purchased. Under the circumstances, Christie would have to rely on equitable interest under a constructive trust. As per Stack v Dowden, constructive trusts are more appropriate in establishing for determination of cohabitee’s interests in the family home. Therefore, Christie can make an argument that Farrand held the home in constructive trust for her.

In Carl Zeiss Stiftung v Herbert Smith & Co, it was held that courts can be flexible in determining constructive trust as there is no legal definition of the concept. Constructive trust arises under an operation of law conditions for its compliance are not created under Section 53 (1) of the Law of Property Act 1925. The conditions under which a constructive trust arises are related to the claimant being acted upon unconscionably by the legal owner, or acting to their detriment, or where they are deprived of their right to assert a beneficial interest. In Lloyds Bank v Rosset, it was held that when there is an expressed common intention and the claimant of the beneficial interest has acted on while relying on such expression in a way that is to their detriment, then beneficial interest can be determined under a constructive trust. Constructive trust can arise when one party has the legal title vested in them, while the other has beneficial interest vested in them. Christie would have to establish that there was common intention for her to have equitable interest in the home and her acting to her detriment based on the common intention. Common intention could have been expressed by Farrand or may be inferred from the conduct of Farrand and Christie. Farrand’s statement when Christie suggested conveyance of the house in their joint names that they did not need “a bit of paper”, and his question “Don’t you trust me?”, suggest that common intention may be inferred that Chrstie should have an interest in the property. Christie could argue that the statement by Farrand amounts to an expressed common intention, or even inferred common intention.

In Eves v Eves, the claimant was informed by her partner as she was not old enough to hold a legal title over the home, only his name should be used to register the title to the property; this ‘excuse’ of age was held by the court to manifest the common intention to share the beneficial interest in the property between the registered title holder and the claimant. The court held in this case that even if the claimant did not make direct financial contributions at the time of purchasing property, but had provided substantial physical labour for developing the property, it would be inequitable to deny the claimant her beneficial share in the property. Therefore, an expressed common intention can be a ground for claimant to receive a beneficial interest under a constructive trust.

In Grant v Edwards, the defendant told the claimant that he should be the only one holding the title deed to the property as co-registering it with her could have an adverse effect on his ongoing divorce proceedings. However, the claimant did make significant payments towards the house expenses, which allowed the defendant to make the mortgage payments. The court considered that this indicated that the claimant had acted to her detriment while relying on the common intention that she had the beneficial interest. This was used by the court to determine constructive trust in favour of the claimant. Thus, detrimental reliance can be a ground for claiming beneficial interest under a constructive trust. This principle was applied in Hammad v Mitchel, where the claimant was allowed beneficial interest to the amount of 50 percent based on detrimental reliance placed by them.

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7. Midland Bank plc v Cooke [1995] 4 All ER 562.
8. Curley v Parks (2004) EWCA Civ 151.
9. Stack v Dowden [2007] 2 AC 432
10. Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch. 276.
11. Lloyds Bank v Rosset [1990] UKHL 1.
12. Eves v Eves [1975] 1 W.L.R 1338
13. Grant v Edwards [1986] Ch. 638

From the discussion on the authorities above, it can be stated that expressed common intention is an important determinant of constructive trust and leads to beneficial interest. However, Farrand might argue that his statement referred to above was not intended to express common intention of Christie’s beneficial interest in the home, but merely meant to reassure her that she had a home with him. In this situation, Christie may argue for inferring of the common intention. This point of common intention was explained in Lloyds Bank v Rosset as something that can be inferred the conduct of the parties. Therefore, in the absence of an expressed common intention, there can be inference on the basis of inferred intention and detrimental conduct based on the reliance on the intention. However, Lord Bridge has also stated that common intention can only be inferred if there are direct contributions made for the purchase and mortgage of the property.

The question then arises as to what payments would be in the nature of contribution to the acquisition of the property for Christie to have beneficial interest in the property. In Le Foe v Le Foe, the wife had paid for expenditures for the running of the home, while the husband had made payments towards the mortgage; this was held by the court to indicate common intention where the wife’s incurring of the domestic expenditure could be inferred as being an indirect payment towards the mortgage. However, it may also be noted that the nature of the contributions also is relevant to determining common intention. In Gissing v Gissing, provision of chattels for joint use was held to be insufficient to determine inferred intention. Lloyds Bank plc v Rosset saw only direct contributions to the acquisition of the home being held to be sufficient to determine constructive trust. However, Stack v Dowden has rejected this a narrow approach. Lord Walker has observed in that case that if the claimant’s contributions amount to improvement of the property that enhances its value, then inferred intention can be determined on that basis. Therefore, if the claimant has made substantial contributions to outgoings including mortgage payments, other payments that may be for the joint use, or home expenses, then these will be considered to be indirect contributions, which may be considered to be inferred common intention. In this situation, Christie has made substantial payments that may be considered to be indirect payments. She used the sale proceeds of her studio flat to furnish the home and she also used the wages that she made to pay for the family finances when Farrand’s business was not making profits. Christie’s contributions to the payment of all other household bills allowed Farrand to continue making mortgage payments.

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14. Hammad v Mitchell (1992) 1 WLR 1127.
15. Lloyds Banks v Rosset [1990] UKHL 1.
16. Ibid.
17. Le Foe v Le Foe [2001] 2 FLR 970.
18. Gissing v Gissing [1970] UKHL 3.
19. Lloyds Bank plc v Rosset [1991] 1 AC 107.
20. Stack v Dowden [2007] 2 AC 432.
21. Ibid, [1].
22. Le Foe v Le Foe [2001] 2 FLR 970.

With respect to the payments made by the claimant towards household expenses, the authorities indicate that such indirect contributions are relevant to determining the beneficial interest only when there is an express agreement or where such payments enable the legal owner to make payments towards the mortgage.

The question arises as to the quantum of the share of the beneficial interest. If Christie is able to establish that there was a constructive trust, then the equitable interest in the property can be quantified by the court as per the agreement between the parties. In case of there being no such express agreement on the share of interest, then as per the judgment in Stack v Dowden, the intentions of the parties during the whole course of dealings have to be ascertained to determine their equitable interest. Baroness Hale’s suggestion that the purpose for acquiring the house, the relationship between the claimant and the defendant, their family size and whether they had children, the initial mode of financing the purchase and the latter re-arrangement of the finances between the parties are all relevant to determining the equitable interest share of the two parties. This suggests that even though both the parties may not have contributed to the purchase of the property initially, their subsequent understanding on how they managed their family expenses can be pivotal to establishing the shares. This has been accepted by the Supreme Court in Jones. In Jones, the Supreme Court held that where there is no express agreement as to what the respective shares of the two parties would be, the intentions of the parties would have to be inferred according to what would be fair having regard to the whole course of dealings. With regard to this, Chadwick LJ has also observed earlier in Oxly v Hiscook, that if there is no prior discussion between the parties as to the share they would each have in the property, they would be entitled to the share that the court thinks fair for which the court will consider the entire course of dealing between the parties. This point can be explained further by having regard to two cases in which the issue of the quantum of beneficial interest arose. The first case is Stack v Dowden, in which the court held that the person whose contribution was more for the acquisition of the house would have a higher beneficial interest; in this case, the property was in joint names of cohabitants and there was no express declaration of trust. In Burns v Burns, the property was registered in the defendant’s name, and the claimant was found to not have made any substantial contribution while purchasing the property, therefore she was held to have not acquired any beneficial interest in the family home. What can be inferred from these authorities is that there should be a common intention and that this should also be manifested in the contributions made by the two parties towards the acquisition of the family home.

As to what would be fair in ascertaining the intentions of the two parties for the purpose of constructive trust and the inferring of the shares of the two, recourse can be had to proprietary estoppel. Christie would have to establish that it would be unconscionable for Farrand to deny an assurance which she had relied upon to her detriment. Proprietary estoppel is in the nature of an equitable remedy, for which three elements have to be established, these being, assurance of the defendant, reliance by the claimant, and detriment; a fourth element is unconscionability. In Pascoe v Turner, where a proprietor gave an express assurance to the claimant that the latter will receive the title to the proprietor’s property, which led to the claimant spending a substantial amount of money to redecorate the property, it held to have led to application of proprietary estoppel. Proprietary estoppel is applicable where claimant responds to the assurance, given by the defendant and acting to their detriment. The assurance should be clear and unequivocal for the purpose of creating proprietary estoppel. In this case scanario, Christie may be able to establish proprietary estoppel.

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23. Burns v Burns [1894] Ch 137; Pettitt v Pettitt [1970] AC 777.
24. Stack v Dowden [2007] 2 AC 432.
25. Ibid.
26. Jones v Kernott [2011] UKSC 53.
27. Oxley v Hiscock 2004 EWCA CIV.
28. Stack v Dowden (2007) 2 AC 432.
29. Burns v Burns (1984) Ch 317.

Farrand had said to her that “We don’t need a bit of paper…”, which may have been seen as an assurance that even without a piece of paper, she would have an interest in the property. This can be seen as an assurance by Farrand to Christie. If based on this assurance, Christie has acted to her detriment, the court may hold it to be unconscionable to deny an interest in the property. In this case, Christie did act to her detriment because she sold her flat and used the proceeds of the sale to buy furniture for the family house. She also gave up her job to look after her daughter with Farrand and subsequently, she paid the household bills to enable Farrand to make the payments for the mortgage. Therefore, the elements for establishing proprietary estoppel are present. As per the decision in Jennings v Rice, the courts award the ‘minimum equity to do justice between the parties’; in Jennings, where the court was required to quantify the interest in the property, the court awarded the claimant almost half the share. In this case, the court has the option to award an interest in the property or to consider other alternatives for financial reimbursement for the expenditure. The court also takes into account any benefits that the claimant may have received from the property in coming to the quantification of the interest or the reimbursement. For instance, if the claimant has lived rent-free in the property, then that could be a factor considered by the court. This approach of the court is also aligned to the avoidance of unconscionability, which leads the court to maintain a position of justice to both parties. In Jennings, the court held that the award to be given to the claimant should be proportionate to what is due to them and not more than what they deserve. Therefore, these factors will be relevant to the quantification of interest between Farrand and Christie.

To conclude, Christie does have a case under constructive trust whereby she can claim that there was an intention that can be inferred from conduct that she also have an interest in the property. She can show that Farrand’s words amounted to passive assurance, on which she relied and then acted to her detriment. She sold her flat and instead of using the proceeds to buy another property in her own name, she bought furniture for the family home. She also paid for household expenses enabling Farrand to make the mortgage payments. All of these facts strengthen Christie’s position that she has an equitable interest in the property. The authorities discussed in this essay suggest that Christie has a reasonable chance to prove the case to her merit. Discover additional insights on A Critical Analysis of the Law of Property (Miscellaneous Provisions) Act 1989 by navigating to our other resources hub.



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30. Pascove v Turner [1979] 1 WLR 431
31. Holman v. Howes [2008] 1 FLR 1217
32. Thorner v Major [2009] UKHL 18.
33. Jennings v Rice [2002] EWCA Civ 159
34. Emma Warner-Reed, Optimize land law (Oxon: Taylor and Francis 2014) 151.
35. Jennings v Rice [2002] EWCA Civ 159

Cases

Boyce v Boyce (1849) 60 ER 959.

Burns v Burns [1894] Ch 137.

Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch. 276.

Curly v Parks (2004) EWCA Civ 151

Eves v Eves [1975] 1 W.L.R 1338

Gissing v Gissing [1970] UKHL 3.

Grant v Edwards [1986] Ch. 638

Hammad v Mitchell (1992) 1 WLR 1127.

Hodgson v Marks [1971] 2 WLR 1263 CA.

Holman v. Howes [2008] 1 FLR 1217.

Jennings v Rice [2002] EWCA Civ 159.

Jones v Kernott [2011] UKSC 53.

Le Foe v Le Foe [2001] 2 FLR 970.

Lloyds Bank v Rosset [1990] UKHL 1.

Midland Bank plc v Cooke [1995] 4 All ER 562.

Oxley v Hiscock 2004 EWCA CIV.

Pascove v Turner [1979] 1 WLR 431

Pettitt v Pettitt [1970] AC 777

Stack v Dowden [2007] 2 AC 432

Thorner v Major [2009] UKHL 18.

Tinsley v Milligan (1993) 3 WLR 125 HL.

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12.

Books

Emma Warner-Reed, Optimize land law (Oxon: Taylor and Francis 2014).