Resulting & Contructive Trusts

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<p>Equity and Trusts Lecture Handout 2</p> <p>Equity and Trusts LAWS20011 </p> <p>Semester 1, 2009/2010</p> <p>Resulting and Constructive Trusts </p> <p> A) Introduction To Resulting and Constructive Trusts 1. The Nature of Resulting and Constructive Trusts Contrast with express trusts</p> <p> Implied trusts</p> <p> Arise by operation of law and without concerted actions of a settlor to constitute an express trust </p> <p> Does not arise by the deliberate act of the parties</p> <p> Resulting Trust: arises where equity stipulates that a trust should be imposed on account of the particular circumstances.</p> <p> Constructive Trust: implied in a variety of circumstances where the defendant has knowledge of some factor that affects his conscience in respect of specific property.</p> <p> No formal requirements for the creation of implied trusts.</p> <p> Resulting trusts are exempt from the requirement of writing laid down in s.53(1).</p> <p>Law of Property Act s.53(2) This section does not affect the creation or operation of resulting, implied or constructive trusts. </p> <p>2. Resulting Trusts</p> <p>2.1. Circumstance giving rise to a Resulting TrustWestdeutsche Landesbank v Islington [1996] AC 669Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. . (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest. (Lord Browne Wilkinson)</p> <p>Resulting trust arises in 2 principle contexts:</p> <p>1. Apparent gifs: includes situations where there is a voluntary transfer of property or a contribution to the purchase price of property without an express indication as to how the equitable title is to be held. Rebuttable presumption of resulting trust: a presumption (capable of displacement by evidence to the contrary) that the intention of each transferor or contributor was not to make a gift, but that they should hold a proprietary right proportionate to their contribution.</p> <p>2. Failed trusts: where there has been an attempt to create a trust and some part of the beneficial interest remains undisposed of.</p> <p> Function: restorative</p> <p> Someone must be entitled to that property: The beneficial interest must belong to or be held for somebody: so if it was not to belong to the donee or to be held by him in trust for somebody it must remain with the donor (Lord Reid, Vandervell v IRC) </p> <p> Therefore a mechanism whereby property jumps back to the settlor or it is the tool to establish that the settlor retains an equitable interest in the property. 2.2. Theoretical Basis of Resulting TrustsAutomatic/Presumed distinction (Megarry J in Re Vandervell No. 2 [1974] Ch. 269).</p> <p> Mergarry divided resulting trusts into</p> <p>1. Resulting trusts that arise automatically.</p> <p> Do not depend on the intention of parties but arise as an automatic consequence of the transferors failure to dispose of the entirety of the beneficial interest. </p> <p>2. Resulting trusts based on the presumed intention of the transfer of property. </p> <p> Arises because there is a rebuttable presumption of trust based on inferred intention. </p> <p> When A transfers property to B, unless the transfer was made by father to child or by husband to wife, in the absence of any other evidence the law presumes that a resulting trust has been created for A. Equity presumes that the property belongs to the person who advances the purchase money, that is, in the absence of evidence to rebut the presumption. Problems with this analysis: </p> <p> Megarry J.'s analysis was doubted by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentral v Islington London Borough Council. According to Meggary J, an automatic resulting trust does not depend on intention but operates automatically. Browne-Wilkinson disagreed. According to Lord Browne-Wilkinson, a resulting trust is not imposed by law against the intention of the trustee (as opposed to constructive trust) but gives effect to his common intention. In Lord Browne-Wilkinson's view, the settlor has expressly, or by necessary implication, abandoned any beneficial interest in the trust property, there is no resulting trust; the undisposed equitable interest vests in the Crown, as BonaVacantia. According to Lord Browne-Wilkinson, there is no difference between the two classes of resulting trust as opined by Meggary J. Both are traditionally regarded as 'trust giving effect to the common intention of the parties'.Presumed intention of the parties (Lord Browne Wilkinson in Westdeutsche Landesbank v Islington LBC).</p> <p> Lord Browne-Wilkinson had sought to establish that resulting trust will only take effect when the conscience of the transferee is affect by his becoming aware that he has received property which was not intended for his benefit.</p> <p>Problems with this analysis: </p> <p> Lord Browne-Wilkinson regard his theory as 'uncontroversial'; but somehow, it appears problematic and unsupported by authority. It is said that a resulting trust gives effect to the presumed common intention of the parties. In this, however, Lord Browne-Wilkinson could be confusing resulting trust with common intention constructive trust. Browne-Wilkinson's view runs counter to the views expressed by the House of Lords in Vandervell v IRC, where resulting trust arises here when the trust fails for lack of object, which has nothing to do with presumed intention. Browne-Wilkinson's view seems inconsistent with cases where resulting trust were imposed on property held by transferee who had no intention of becoming trustees. In Re Vinogradoff, the transferor could not have intended that the tansferee be a trustee for her because the transferee was only seven-year-old. Swadling is of the opinion that Lord Browne-Wilkinson is wrong and that Megarry J.'s argument is right. According to Swadling, if a settlor who is attempting to create a trust was asked 'what he would like to happen if the trust fails, most settlor would say they want the property back. However, the problem with this argument is the fact that majority of settlors do not contemplate that the trust would fail. So, what Lord Browne-Wilkinson is doing is not presuming the intention but imputing it to the parties; he is imputing something that had never existed.[A]ll resulting trusts come into being because the provider of property did not intend to benefit the recipient. (Chambers Resulting Trusts p. 2)</p> <p> This is the preferred analysis</p> <p>Problems with this analysis: </p> <p>W. Swadling Explaining Resulting Trusts (2008) 124 Law Quarterly Review 72</p> <p>2.3. Voluntary Conveyance2.3.1. LandLPA 1925, s. 60 (3)In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee. </p> <p> Acts to prevent a resulting trust arising simply because certain words of benefit have been omitted. </p> <p> If you transfer land to me, but you dont explicitly say it is for my benefit, then a resulting trust will not arise merely for that reason. </p> <p> This means that in the absence of any further evidence, no resulting trust will arise. </p> <p> However, there is nothing to prevent a resulting trust from arising where there is other evidence indicative of the transferors intention. </p> <p>Lohia v Lohia [2001] WLTR 101</p> <p> Held that if X conveys land to Y and receives nothing in return, there will be no presumption in Xs favour that Y must rebut if he wishes to keep the property for himself. </p> <p>It follows that the subsection creates inconsistencies between the rules for real and personal property, and also between the rules for purchase for property in anothers name and transferring property in anothers name. </p> <p>2.3.2. PersonaltyFor other types of property, a voluntary conveyance does give rise to a resulting trust.</p> <p>Re Vinogradoff [1935] W.N 68 A grandmother transferred a bond into the joint names of herself and her granddaughter. Although the evidence was unclear as to her intentions, she continued to receive dividends until her death. </p> <p> Farwell J. found that the property was held on resulting trust for the grandmothers estate. </p> <p>2.4. Purchase Money Resulting Trusts Where property is purchased in the name of X, but X has provided only part (or perhaps no part at all) of the purchase price.</p> <p> Resulting trust arises by operation of law in favour of Y to reflect the contribution provided by Y.</p> <p> The more common situation involves two people contributing to the purchase price. This is held on trust for both X and Y in equal shares. </p> <p> Until recently, the presumption was: you get what you put in. </p> <p> Where the purchase money for property acquired by two or more persons in their joint names has been provided by those persons in unequal amounts, they will be beneficially entitled as between themselves in the proportions in which they provided the purchase money. (Dillon J. in Walker v Hall) </p> <p> This is a rebuttable presumption. </p> <p> Following Stack v Dowden, there is a strong presumption that equity follows the law and that equitable ownership, like legal ownership, is jointly held. </p> <p>Dyer v Dyer (1788) 2 Cox 92</p> <p> The trust of a legal estate advances to the person who left the money.</p> <p> If X buys property (real or personal) and tells the vendor to convey the property to Y, then Y must rebut the presumption that X did not mean to take the property beneficially for himself. </p> <p>Fowkes v Pascoe (1875) L.R. 10 Ch. App. 343</p> <p> A presumption of a resulting trust may be rebutted by evidence of intention.</p> <p> A testator bought shares in the name of herself and the defendant (the son of her daughter-in-law). By her will, she left the residue of her estate to her daughter-in-law and thereafter to the defendant and his sister. The question arose as to whether the shares bought in the name of the defendant and the testator were gifted to the defendant or held by him on resulting trust for the testator. </p> <p> Held (CA): On the evidence, the shares had been gifted to the defendant. At the same time, as the purchase of the shares, she purchased other shares in the name of herself and her companion. If she had intended all the shares to be held beneficially for herself, there would have been no point in the separate but contemporaneous transactions. </p> <p> The evidence to rebut the presumption was that she meant it as a gift. It was the close relationship that allowed the court to accept that it was a gift. Held that it would be very different if she had purchased a stock in the joint names of her and her solicitor and the presumption would have been more difficult to rebut in that situation. But as it was, because of the family relationship, the presumption of the resulting trust was rebutted. </p> <p>Abrahams v Trustee in Bankruptcy of Abrahams, The Times, July 26, 1999</p> <p> A wife continued to pay her own and her estranged husbands share in a lottery syndicate. It was held that the presumption of a resulting trust in her favour was not rebutted on the evidence. She was, therefore, successful in her claim. </p> <p>2.5. The Presumption of Advancement </p> <p> In certain situations, the law presumed a gift. This applied where a husband made a gift to his wife or his child. </p> <p> The Equity Act has not abolished this presumption. Equality Act 2010 s. 199 (1)</p> <p>The Presumption of Advancement (by which, for example, a husband is presumed to be making a gift to his wife if he transfers property to her, or purchases property in her name) is abolished.</p> <p> Reason: This has become outdated. Family relations have changed so that it no longer appropriate. Therefore it reflects the prevailing and socio-economic values of gone-by days. </p> <p> To be used in perspective: Anything that has come about before the Act will be dealt with in accordance with the law before the Act.</p> <p>2.6. Illegality</p> <p> He who comes to equity must come with clean hands. </p> <p> Where a proprietary interest can be established under a resulting trus t without recourse to reliance on evidence of illegality, the clean hands principle has no role to play. Tinsley v Milligan [1994] 1 A.C. 340</p> <p> Case concerned the joint purchase of a home for two women as co-habiting lovers.</p> <p> By mutual agreement, the property was registered in Ms Tinsleys name as the sole proprietor so as to enable Ms Milligan to make false social security claims, thereby benefitting both parties. </p> <p> On the breakdown of their relationship, Ms Tinsley moved out and claim possession of the house as its legal owner. Ms Milligan counterclaimed for an order for the sale claiming that the house was held on trust for both of them equally. </p> <p> HL held that in this case, Ms Milligan did not need to rely on the illegality to establish an interest. (3-2 Majority). </p> <p> Ms Tinsley held the property on resulting trust and Ms Milligan could establish an interest. </p> <p> A party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality. (Lord Browne-Wilkinson). </p> <p> The approach of the majority seems to run contrary to a long standing line of authority that the court will not give effect to a trust established for a fraudulent purpose, but will instead let the estate lie where it falls.</p> <p> Lord Goff and Keith, dissenting, would have taken a stricter line of approach and thought the courts should not intervene in cases of illegality. Lord Goff thought this would open the door to far more unmeritorious cases.</p> <p> This case may be viewed as creating an exception to the general principle of clean hands and, thereby, effecting a relaxation in the approach of equity. </p> <p> The transferor need rely merely on the resulting trust that arose when the transfer occurred. </p> <p>Criticism:</p> <p> Stowe argues: Availability for relief depends entirely on a fact which is completely irrelevant from a policy perspective (viz whether there is a presumption of advancement in relation to the person to whom the property is transferred); and is in no way related to the seriousness of the underlying illegality.</p> <p> Other commentators have focused on the impact of the obvious gender bias that pervades the historic presumptions of equity and which are implicitly retained by the HL.</p> <p> Halliwell argues: The opportunity for an authoritative review of the gender discrimination contained within this presumption rarely arises and it is regrettable that the HL failed to seize the opportunity to advance equality in the law. </p> <p>Lowson v Combes [1999] Ch. 373</p> <p> A man and his mistress contributed to the purchase price of a number of prop...</p>