The Law Relating to Constructive Trust - Case Study Example

A constructive trust is a mechanism whereby equity intervenes as a matter of conscience. Constructive trusts arise by operation of common law principles and are by and large implied by circumstances and facts particularly in respect of the conduct and intention of the relevant parties. When a party makes some contribution toward the intrinsic value of property in circumstances where it can be implied that by doing so he would acquire some equitable interest in the property a trust will be implied.1 This is the guiding principle behind the imposition of a constructive trust. In Springette v Defoe, Lord Justice Dillion was of the opinion 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.’2 The Lords appeared to be divided on the issue of communication of intentions in Springette’s case. In fact Lord Steyn, indicated that in the absence of communication in respect of the vesting of any beneficial interest in the property in question was not conclusive. The court is required to look for evidence of that intention by reference to the corresponding contributions of the relevant parties.3 Moreover, Lord Justice Chadwick maintained that ‘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.’4 An older case, Gissing v Gissing offers a comprehensive understanding of the nature of a constructive trust and the manner in which it will arise at law. The facts and circumstances of this case lend itself to the development of the law regarding intention and the interpretation of intention. Gissing v Gissing was a case where the legal title to the matrimonial home was held in the husband’s name only. The court fell to decide whether or not the husband held the legal title as trustee for both himself and his wife. And if the court was satisfied on the facts that the husband was a trustee, how were the beneficial interest in that property, fall to be divided. Noting that there was no appreciable difference between resulting, implied and constructive trusts, Lord Diplock said these kinds of 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.’5 The courts disposed of the matter must be satisfied on the evidence that the both parties to the matrimonial union shared a common understanding and intention that the wife’s contribution to the matrimonial property would operate to create an interest in the property. It is also important to bear in mind as Lord Diplock pointed out, there is not always going to be actual evidence of a clearly communicated intention or understanding. What the court must do in such circumstances is look at evidence capable of inferring that intention and understanding between the parties.6 Moreover, Lord Diplock explained, a wife’s earning capacity might be altered to some extent following the acquisition of matrimonial property by virtue of a mortgage. For instance, at the onset, both parties to the marriage might take out a mortgage for the purpose of purchasing a family home with the intention that both parties will contribute to the mortgage repayments from both of their earnings. However, somewhere down the road, the wife might become pregnant and her ability to work and earn is altered by childcare responsibilities. Lord Diplock did not feel that such a turn of events should affect the initial intention that the parties hold the property in equal shares.7 There will be circumstances when both spouses’ names are contained in a deed of conveyance but there will be no express declaration of the beneficial interest in the case at hand. A joint tenancy will not automatically be implied in such circumstances.8 The court will be called upon to intervene in most cases for determining the method and manner of the division of the beneficial interest in the property. To be sure, a beneficial interest is automatic in such cases, the only confusion applies to the nature and extent of the respective interest. Sir Christopher Slade explained that, ‘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(2).’9 The importance of Section 53(2) is understood when one looks to Section 53(1) of the Law of Property Act 1925 which provides as follows:-‘a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will’.10 Obviously Section 53(2) of the Law of Property Act 1925 exempts constructive and resulting trusts from the requirements for the disposition of those types of trusts to be made in writing. That said, the imposition of a constructive trust is not an exercise taken lightly by the courts. This might account for the complex nature of the development of the doctrine of constructive trusts. It is important to note here, that when the proceeds for the purchase price of a family home originates out of personal income rather than from a mortgage, the imposition of a constructive trust can be a fairly simple matter. When a mortgage is involved, the matter is not so simply disposed of since the initial deposit does not usually determine the real value of the property. However, Lord Dillion 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…’11 Lord Diplock said something entirely different when he said ‘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.’12 Lord Diplock went on to explain what he proposed as a fair and simple method of dividing the beneficial interest in the shared property when the proceeds for the purchase was derived from both personal funds and by virtue of a mortgage. All that the courts were required to do was to look at the contributions made by both parties at the onset, when the initial deposit was made and what contributions were made in respect of the discharge of the mortgage.13 The courts decided such a matter in Huntingford v Hobbs in a case where one party provided the initial deposit from her own income and the other party made all the repayments on the mortgage despite the fact that both parties’ names appeared on the deed of mortgage. It was held that the party discharging the mortgage was regarded as having a beneficial interest equal to the funds covered by virtue of the mortgage.14 When one party’s name appears on the documents of title, disposition of the equitable interest can be an onerous task. This is not altogether surprising since complications also arise in circumstances where both parties’ names appear on a document of title. The courts have consistently held that unless expressly provided for in the deed of title, the court will not automatically imply that the beneficial interests of both co-habitees are to be divided equally. Although the courts have held that the appearance of both names will serve to provide some evidence of the parties’ intentions.15 Lord Chadwick insisted that in the absence of evidence of actual communication regarding the common intention of the parties ‘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.’ 16 Lord Bridge said identified two types of cases to which the imposition of a constructive trust might apply. One type of case involved situations in which the parties discussed the matter prior to or at the time of purchase. As a result of that discussion it is not unreasonable to imply that the party taking legal title did so with the intention of sharing the beneficial interest with the other party. The second type of case arises when no discussions take place at or near the time of the purchase of the realty. Yet it can be reasonably inferred from the conduct of the parties that the person taking legal title intended to share the beneficial interest with the other party.17 Lord Bridge warns however that there are limitations on what kind of conduct will amount to an inference of a shared intention. For instance, orchestrating repairs and refurbishment in respect of the property will not suffice to create an inference of a shared intention. In fact, he felt that a direct contribution toward the purchase price by way of mortgage installments or otherwise was the only conduct capable of amounting to grounds for the imposition of a constructive trust. He said, ‘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 Lord Bridge’s ‘direct contribution’ requirement is suspect when one looks at earlier and later rulings, although his ‘direct contribution’ was to some extent validated by the ruling in Pettitt v Pettitt. In the latter case it was decided that when a husband installed a new fireplace in the matrimonial home he was only performing his duties as a husband and derived no beneficial interest from that installation.19 Parliament’s response to the ruling in Pettitt v Pettitt was to enact Section 37 of the Matrimonial Causes Act 1970. By virtue of this section when a spouse makes a significant contribution or improvement to the matrimonial property in the absence of an agreement to the contrary will derive a beneficial interest in that property. Sections 24 and 25 of the Matrimonial Causes Act 1973 contain similar provisions.20 Lord Bridge’s ‘direct contribution’ is founded on both the doctrines of ‘propriety estoppel and ‘equity will not assist a volunteer.’ The law however, has developed to be more loosely construed. For example, in Gissing v Gissing the court ruled that a constructive trust may be implied in circumstances where it is equitable to do so. There are instances when one party’s contribution is indirect but beneficial because he or she does something that effectively relieves the other party of expenses making it possible for him to make the monthly mortgage payments.21 In Burns v Burns, Fox LJ acknowledged that the wife’s housekeeping was not sufficient to imply a constructive trust. He did not feel that housekeeping would operate to free the husband’s expenses in such a material manner as to be tantamount to the acquisition of a beneficial interest on the part of the wife. What is required is that the wife would have to make some financial contribution toward the family expenses so as to relieve the husband himself of that expense. In that manner his income is freed up for the discharge of the mortgage installments.22 LCJ MacDermott said in another noteworthy case 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.’23 It is easy to understand why the courts have struggled to develop a consistent rational of family law. The law relating to constructive trust necessarily requires an examination of fairness and justice between the parties involved. There can be no blanket application of any specific guidelines. Each case will have to be determined on its own merits. This will sometimes, in the interest of justice and fairness, require the restatement of policies as well as the identification of new guidelines from time to time. However, the common thread that runs throughout is an attempt to hold parties to their obligations and promises. Bibliography Burns v Burns 1984] Ch 317 Constructive Trusts. http://www.studywizard.org/equity/constructive.html Viewed November 7, 2006 Dixon, Martin. Resulting and constructive trusts of land: the mist descends and rises’ [2005] Conv 79. Gissing v Gissing. [1971] AC 886 Gray, Kevin. Elements of Land Law. 2006. Oxford University Press. Huntingford v Hobbs [1993] 1 FLR 736 Lloyds Bank plc v Rosset [1991] 1 AC 107 McFarlane v McFarlane [2006] http://www.timesonline.co.uk/article/0,,200-2194958,00.html Viewed November 7, 2006 Oxley v Hiscock [2005] Fam 211 Pettit v Pettit [1970] AC 777 Smith, Roger. Property Law: Cases and Material. Longman. 2006 Springette v Defoe [1992] 2 FLR 388 Stack v Dowden [2005] EWCA 857 http://www.familylawweek.co.uk/library.asp?i=892 Viewed November 7, 2006 The Law Commission Report 2003. www.lawcom.gov.uk Viewed November 7, 2006 Walker v Hall FLR 126 Read More