Are the constructive trust rules affecting co-owned housing based on the common intention of the parties - Essay Example

?Essay Topic: 3j. Are the constructive trust rules affecting co-owned housing based on the common intention of the parties? Introduction While there are several principles and methods for the imposition of the constructive trust the common intentions of the parties is specifically applicable to co-owned housing disputes.1 The rules relative to constructive trusts in the context of co-owned housing focus on the unconscionable conduct of the legal owner of the property in question.2 Unconscionable conduct as a prevailing legal theme in the rules applicable to constructive trusts in the context of co-ownership is particularly important to intimate relationships. First and foremost, intimate relations are based on trusts and this is particularly important where “individual autonomy” is ceded in reliance and trust on the perpetuation of shared goals and objectives.3 Secondly, the rules applicable to constructive trusts recognize that the intimate bond can be broken and equity will intervene to ensure that one party is not unjustly enriched to the detriment of the other.4 Thus the rules of constructive trust are designed to interpret and affect co-owned housing in circumstances where factual evidence contradicts the legally documented ownership of the house in question. The courts do not automatically interpret the mere existence of a relationship at time the house is acquired as evidence of co-ownership. The courts are guided by the concept of unconscionability and refer to the common intentions of the parties in determining what is conscionable or unconscionable. The main idea is to determine whether the common intentions of the parties are sufficiently made out to justify a claim to co-ownership against the legal title to real property.5 Thus it is argued that the rules of constructive trusts affecting co-owned housing are based on identifying the common intentions of the parties. This paper demonstrates how the courts have relied on the identification of the common intentions of the parties to determine whether or not it would be unconscionable to enforce ownership by reference only to the legal title. The first part of this paper therefore examines and analyses the doctrinal basis of constructive trusts and the second part of this paper demonstrates how the common intentions of the parties forms the basis by which co-owned housing is interpreted under the rules of constructive trusts. The Doctrinal Basis of Constructive Trusts The result of a court finding the existence of a constructive trust is twofold. First the court may order that one party compensate another or that one party “convey a particular right” to another.6 It is this characterization of the constructive trust that has given way to criticisms that the constructive trust is no more than a fiction created by the courts and is not comparable to an express trust. More specifically it is argued that the constructive trust is confusing and with an unclear doctrinal basis because it interprets entirely personal matters relative to property and thus does not follow a clear and concise doctrine.7 Despite the criticisms about the nature and doctrinal basis of the constructive trust, it is based on a sound doctrine: the equitable distribution of property.8 As Hudson explains, the constructive trust serves a practical purpose. It provides a means by which the courts may imply a trust so that “justice is done on the facts before” the courts “on the basis of preventing unconscionable conduct”.9 It therefore follows that constructive trusts are not based on a doctrine that facilitates random distribution of property. Rather, the constructive trust is applied “to ensure that an ethical notion of good conscience is maintained in English law.”10 The House of Lords puts the doctrinal basis of the constructive trusts in its proper perspective by noting the equity has always focused on the conscience.11 Hudson argues that constructive trusts are imposed: ...on the basis of the defendant knowing of some factor which affects her conscience in relation to property. That is a perfectly viable, underpinning principle on which to base a legal concept like the constructive trust.12 The courts will thus look to determine whether or not the defendant’s conduct is unconscionable and thus warrants a more just distribution or settlement of property. In the case of co-owned housing, courts invariably turn attention to the common intentions of the parties. Co-Owned Housing and the Common Intentions of the Parties There is a general presumption that where the legal title to property is in the name of two owners the equitable interest is jointly held unless otherwise expressed in the document of title. Likewise if the legal title is conveyed to one person it will also be presumed that the equitable interest is also held absolutely by the legal owner.13 However, each of these presumptions are rebuttable and can be disproved by the person seeking to prove an equitable interest in the property to which he or she does not have an express declaration of equitable interest or a legal title.14 Generally, where express trusts are declared over realty, the express trust and its stated terms will be applied.15 The express trust is only valid however if it complies with Section 53(1((b) of the Law of Property Act 1925 which provides that the transfer of an equitable interest in land be evidenced by writing.16 However, Section 53(2) the requirement for writing in Section 53(1)(b) “does not affect the creation or operation of resulting, implied or constructive trusts”. 17 Therefore a constructive trust can be created informally and therefore trust may not always be express, but rather may be implied. In the absence of an express trust and for the purpose of implying a constructive trust, the courts will look toward the common intentions of the parties in terms of determining the equitable interests in the home.18 According to the House of Lords, changing social and economic conditions have corresponded with a specific shift in the law on co-ownership in housing. This change has reflected attempts to: Ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.19 It has also been held that an equitable interest in land in the absence of an express declaration of that interest can be established by reference to the contributions made toward the purchase of the house or land. In such a case the equitable interest will correspond with the amount of money contributed toward the purchase price and will thus be held upon a resulting trust for the party making the contribution.20 The Court of Appeal held that a resulting trust would be imposed in cases where there was no evidence of a common intention to form a constructive trust.21 It therefore follows from that a constructive trust rests wholly in the finding of a common intention to form a constructive trust, otherwise, a resulting or implied trust will be imposed by the court. In other words, the common intentions of the parties are the basis by which constructive trusts are imposed with respect to co-owner housing. The Court of Appeal held that common intentions are evidenced by things said and done between the parties to such an extent that the common intentions are communicated and known between the parties. These communications must be affected when the transactions are conducted. In cases where there is no manifestation of an agreement relative to the parties’ common intention, the courts will look to the law regulating the presumption of a resulting trust.22 The Law Commission informed that constructive trust cases typically are of two broad kinds: express common intentions and inferred common intentions.23 An express common intention arises out of “an express (though informal) agreement, arrangement or understanding between the parties”.24 An inferred common intention arises when a party’s conduct is interpreted as “referable to the acquisition of an interest in the property”.25 An express common intention to form a constructive trust is relatively clear. In fact the courts have been entirely liberal in finding an express common intention to create a constructive trust. When there is evidence of an express common intention or an agreement to share the equitable interest in the home and the legal owner merely makes excuses for failure to include the other party’s name in the title deed, the courts have treated this as evidence of a common intention.26 Obviously making excuses is evidence of the existing of a common intention. Otherwise, the defendant would not feel compelled to explain why he or she failed to include the other party’s name on the title deeds. It would be sufficient to state that the other party did not share the equitable interest in the property and thus was not entitled to have his or her name reflected in the title deeds. The inferred common intention relative to making direct financial contributions toward the purchase of a home however is not altogether clear. It is not clear whether or not the courts will always require evidence of some common intention that those contributions were tacitly or expressly agreed between the parties to represent and reflect a constructive trust. As previously demonstrated, it has been held that in a case where a financial contribution is made toward the purchase of home by the non-legal owner, the case is properly treated as one of a resulting trust.27 In Midland Bank Plc v Cooke, Waite LJ argued that it would indeed be unconscionable to hold that a contributor does not share the equitable ownership simply because he or she did not articulate an intention to share an equitable interest that was confirmed by the legal owner. Waite LJ stated that: It would be anomalous to create a range of home-buyers who were beyond the pale of equity’s assistance in formulating a fair presumed basis for the sharing of the beneficial title, simple because they had been honest enough to admit that they never gave ownership a thought or reached any agreement about it. I would therefore hold that positive evidence that the parties neither discussed nor intended any agreement as to the proportions of their beneficial interest does not preclude the court, on general principles, from inferring one.28 The significance of Waite LJ’s remarks is therefore that courts may indeed come to the conclusion that a common intention can be implied from the fact that a party contributed to the purchase price of a home and thus a constructive trust will be imposed. This is because equity operates on the basis of one’s conscience. It would therefore be unconscionable to ignore the fact that the party making a financial contribution toward the purchase price of a home in reliance upon an expectation that as a result of that contribution he or she would acquire an interest in the property. Thus both inferred and express common intentions fall back on the doctrine of “detrimental reliance”.29 It was stated in Stack v Dowden that the court will attempt to determine an outcome “which reflects what the parties must, in light of their conduct, be taken to have intended.”30 In determining the common intentions of the parties, whether express or implied that court will take into consideration a number of factors including the financial contributions made toward the purchase price of the property. Other factors the courts will take into consideration are: Any conversations or advice that took place around the time the property was purchased or otherwise acquired that can indicate the intentions of the parties. The reason the house was purchased in joint names or in a sole name. The purposes for purchasing or acquiring the home. The relationship between the parties. Whether or not the parties have children for whom they were responsible for housing. The financing of the purchase of the house at the time of purchase and beyond. How the parties conducted their financial affairs (whether together or separately or mixed). How the property expenses and other household maintenance were satisfied.31 It would therefore appear that once the parties are or were in an intimate relationship and shared children at the time of the purchase of the property, made contributions toward the purchase of the property and shared finances to some extent relative to the property, a constructive trust will be implied from these factors. Thus sharing a family and financial responsibilities suggests that these factors are sufficient for the courts to infer a common intention that both parties share the beneficial interest in the home. Evidence of sharing family and financial responsibilities will therefore rebut the presumption that the parties own only what the legal title and declarations of trusts in the title deeds express. However, the court has stated that the shared intentions must be communicated and when intentions are not communicated they cannot be characterized as shared intentions. However, this kind of reasoning occurred in a case where a husband attempted to rebut the presumption that a joint tenancy as expressed in a title deed was not representative of the true nature of ownership. The husband had argued that although he had included his wife’s name on the title deeds and declared joint ownership, he had only intended that the property pass to her upon his death and nothing more. The court held however, that such an intention was “secret” and therefore “does not provide the evidential basis for rebutting the presumption since it is not evidence of the parties’ shared intention.”32 Where the legal title to property is held by two parties and the beneficial interest is expressed as joint tenancies, it will be very difficult to rebut that the property was in fact owned by only one of the parties. The criterion for rebutting the presumption is by reference to a common intention. This is necessary to the concept of constructive trust and co-ownership housing because the common intentions of the parties is relevant in these kinds of cases and thus provide some guidance as to how the doctrine of common intention is interpreted by the courts and it also deals with rebutting the presumption of ownership and equitable interests, but important features for determining the existence of a constructive trust. The fact is equity will generally follow the law unless there is evidence to the contrary.33In other words, the equity starts out by presuming that the property is held in a manner that corresponds with the title to the property and the descriptions of the interests of the parties unless there is evidence capable of proving otherwise. For the purpose of imposing a constructive trust, evidence of a common intention will suffice to rebut the presumptions at law. to this end, evidence of a common intention will be evidence demonstrating the parties had one intention at the time of acquiring the property and that intention subsequently changes to reflect a different common intention relative to how the property would be divided between the parties.34 Evidence of a common intention would therefore be substantiated by reference to the factors set forth in Stack v Dowden.35 More specifically: The relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by the party’s words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party.36 Essentially, the common intentions of the parties will be gleaned from the “whole course of dealing” between the parties.37 The idea is to ensure that one party does not profit as a result of the other party acting to his or her own detriment in circumstances where both parties tacitly or expressly agreed that the party acting to his or her own detriment would obtain an interest in the property not reflected in the title deeds. Thus constructive trusts function on basis of the common intentions between the parties. Conclusion A review of the case law and the literature generally indicates that the rules applicable to constructive trust rely on the principle of common intentions to define the nature of the ownership relative to co-owned housing. This approach is necessary because co-owned housing usually arises in a family or couple context. The very personal nature of these relationships suggests that formalities are removed and the parties feel comfortable dealing with property informally and on the basis of trust. Thus constructive trust and the concept of common intentions provides the court with the authority to ensure that the house is not settled in a manner that is unconscionable. The concept of common intentions is used as means of determining the extent to which a home should be divided pursuant to the rules of constructive trusts. Bibliography Textbooks Hudson, A. Equity and Trusts, 6th Edition (Oxon, UK: Routledge-Cavendish 2010). Law Commission. Cohabitation: The Financial Consequences of Relationship Breakdown – A Consultation Paper, Consultation, Paper No. 179 (London, UK: The Stationery Office, 2006). Oldham, J. T. Divorce, Separation, and the Distribution of Property. (New York, NY: Law Journal Seminars Press, 1987). Articles/Journals Harris, J.W. ‘Doctrine, Justice, and Home-Sharing.’ (Autumn 1999) 19(3) Oxford Journal of Legal Studies, 421-452. Hicks, A. ‘Conceptualising the Constructive Trust.’ (2005) 56(4) Northern Ireland Legal Quarterly, 521-550. Pawlowski, M. ‘Estoppel, constructive Trusts and Unconscionability.’ (2006) 12(9) Trusts & Trustees, 10-15. Swadling, W. ‘The Fiction of the Constructive Trust,’ (2011) 64 (1) Current Legal Problems, 399-433. Weinrib, L. ‘Reconstructing Family: Constructive Trust at Relational Dissolution.’ (2002) 37 Harvard Civil Rights-Civil Liberties Law Review, 207-247. Statutes Law of Property Act 1925. Cases Eves v Eves [1975] 1WLR 1338. Fowler v Barron [2008] EWCA Civ 377. Gissing v Gissing [1971] AC 886. Goodman v Gallant [1986] Fam 106. Grant v Edwards [1986] Ch. 638. Jones v Kernott [2011] UKSC 53. Lloyds Bank Plc v Rosset [1991] AC 107. Midland Bank Plc v Cooke [1995] 4 All ER 563. Oxley v Hiscock [2005] Fam 211. Springett v Defoe [1992] 2FLR 388. Stack v Dowden [2007] UKHL 17. Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669. Read More