Common Law Regarding Characteristics of Contributions - Essay Example

The imposition of a constructive trust is primarily a judicial function. It involves the interpretation of facts and circumstances and whether or not an implied trust is an equitable remedy. A constructive trust is declared by reference to the conduct and common intent of the parties. Although not always clear, it can be created by indirect payments or by making improvements to the value and condition of the property of another. 1 Lord Diplock defined the circumstances in which a trust will be implied by operation of law. He said there is no real distinction between the concept of resulting, implied and constructive trusts. Trusts of this nature 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.’2 The case giving way to Lord Diplock’s observations, Gissing v Gissing involved a scenario where matrimonial property was held in the name of the husband only. The questions for determination were: Did the husband hold the legal title upon trust for the benefit of both he and the wife. And if so, how were the beneficial interests to be divided? In cases such as this, Lord Diplock opined that court must satisfy itself on the evidence that it was ‘the common intention of both spouses that the contributing wife should have a share in the beneficial interest and that her contributions were made upon this understanding.’3 In many cases, the intention or common understanding of the parties will have to be inferred as there is not always going to be statements of intent from either or both parties. Lord Diplock went on to explain that this inference might also be a mere matter of fact. In many cases he explained and husband and wife purchase a matrimonial home by virtue of a mortgage, the capacity of each spouse to contribute to the monthly mortgage payments will usually come out of their separate earnings. However, a woman’s income might be altered by the introduction of children into the marital union. This, Lord Diplock stated should not operate to negate the common intention of both parties to acquire a matrimonial home for both parties in equal shares. 4 Over the years some confusion appears to have developed in respect of the principles of common intention and its impact on common ownership. These developments have functioned to place a stranglehold on the stability of a consistent and rational law on family property. Lord Justice Dillion said in Springette v Defoe 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’5. However, in the same case Lords Steyn and Slade were of a different opinion. In the words of Lord Steyn, if there is no general communication regarding the division of beneficial interests in equal shares the matter does not end there. The courts must then look for evidence that is capable of implying that the property was intended to be divided in a manner consistent with each party’s respective contributions.6 This can be an onerous task. Lord Justice Chadwick said ‘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.’7 The courts have also warned that when the names of both spouses appear on a conveyance and there is no declaration of trust embodied in the conveyance this will not automatically imply that the parties are to hold the property as joint tenants. 8 The only thing that will automatically be implied is that the parties intended that each would hold a beneficial interest in the property. The difficulty lies in determining how that share is to be distributed. Sir Christopher Slade had this to say regarding the disposition of beneficial interests in circumstances where a declaration of trust is omitted: ‘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(1).’9 (The general requirements referred to in Section 53(1) of the Law of Property Act 1925 dictate that a disposition of an interest in realty be evidenced by writing. The imposition of an implied or constructive trust necessitates a departure from the rigid statutory requirements for written evidence of the conveyance or other disposition of an interest in realty.) The common theme that has followed the course of the law relating to the imposition of constructive and implied trust is to be found in the statement by Dillion LJ in Walker v Hall. The learned Justice 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…’10 This can be a fairly simple exercise when the proceeds of sale are derived from personal resources without the benefit of a loan. However, when a mortgage is required, the law can be complicated and over the years the courts have wavered in the application of a consistent rationale. For instance Lord Diplock said that ‘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.’11 The court in such a case would very probably determine the common intention by reference to what was fair and just given the unique circumstances. Lord Dipock pointed out that there was another option open to the court in instances where the purchase by joint parties is by way of a partial loan and by cash which is provided by one or all of the parties. The court can consider contributions made by each party and assess that amount at the time of the actual purchase. The court will also look at the obligations of each party with reference to the ensuing mortgage.12 In Huntingford v Hobbs the court found that although the proceeds for the purchase of a matrimonial home was provided for from the cash sale of a home owned entirely by Mrs. Hobbs and in part by a loan obtained from a building society, Mr. Huntingford was regarded as having provided the proceeds from the loan. Sir Christopher Slade explained that was so, since Mr. Huntingford accepted full responsibility for the discharge of the loan despite the fact that both parties’ names appeared on the mortgage deed.13 The English courts recently revisited the law relating to the respective interests of co-habitees. In Oxley v Hiscock the court looked at a scenario where only one of the co-habitees names appeared on the documents of title and determined that although the case would be treated in much the same manner as cases where both parties’ names appeared in the relevant documents, the determination of respective interests was a more onerous task. This was only so because while the joint names appearing in the document was good evidence of the parties’ common intentions, it was not altogether conclusive.14 Lord Chadwick asserted that many factors are relevant in a case where there is no evidence of actual communication as to the parties’ common intention ‘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.’ 15 The ‘whole course of dealing’ was described as any activity in relation to the property in question, for example ‘mortgage contributions, council taxes, utilities, repairs, insurance and housekeeping’ together with all expenses that are necessary for the upkeep and maintenance.16 Whether or not there is evidence communicated between the parties of an intention to share the beneficial interest in the property, Lord Bridge said there were two categories of cases to keep in mind. The first category of cases involved instances where the parties conducted some measure of discussions at the time of purchase where a reasonable inference can be drawn that the party with legal title intended to share the beneficial interest with the other party. The second category of cases envisages instances where no discussions take place at the time of purchase, but a reasonable inference can be drawn from the conduct of the parties.17 Lord Bridge was of the opinion however, that conduct in relation to repairs and refurbishment are not to be construed as the intention to impose a constructive trust. He said that nothing short of direct contributions toward the purchase price will suffice. In fact 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 payment toward the purchase price requirement is inconsistent with the previous and subsequent developments of the law regarding constructive and/or implied trust. This is particularly confusing when Pettitt v Pettitt is considered, as it appears to give some credence to the direct contribution principle as enunciated by Lord Bridge. In this case it was decided that a husband adding a fireplace to a house was merely doing what any husband would do and could not be interpreted to impose a constructive trust.19 Parliament responded to this ruling by enacting Section 37 of the Matrimonial Causes Act 1970. Section 37 provides that when any party to a marriage makes a significant contribution or improvement to the matrimonial property he or she will acquire a beneficial interest unless there is an agreement between the parties to the contrary. Sections 24 and 25 of the Matrimonial Causes Act 1973 contain similar provisions.20 Lord Bridge’s direct contribution is founded on the doctrine ‘equity will not assist a volunteer.’ However the law has developed to be more loosely construed. For example Gissing v Gissing held that a constructive trust may be implied when one party’s contribution is indirect but functions to relieve the other party of expenses that make it possible for him to make the monthly mortgage payments.21 Fox LJ made a similar observation in Burns v Burns when he acknowledged that the wife’s housekeeping was not sufficient to imply a constructive trust. She would have had to have made some financial contributions that enabled the husband to dispose of his income in favor of the mortgage.22 In another case LCJ MacDermott said 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 Despite the conflicting developments at common law regarding characteristics of contributions, one thing has remained static and unchanging. The courts will seek to imply a constructive trust when it is just and equitable to do so. As in any situation where the courts attempt to do justice between the parties it is impossible to apply a strict rationale. Each case has to be determined by its own facts. 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