Equity and Trusts

Seminar 4

Trusts of the Family Home

• Tracy was the council tenant of a house when Lloyd, a married man, went to live with her there ten years ago. A year later,
the council offered to sell the house to Tracy at a discounted price, being 40% less than the market price of £50,000, and
Tracy discussed this with Lloyd. They agreed that the house should be conveyed into Tracy’s name alone as she was the
tenant with the right to buy and Lloyd was involved in divorce proceedings and property claims from his wife.

• Of the £30,000 discounted price, £5,000 was contributed by Lloyd and the remaining £25,000 was raised by means of a
loan to Tracy from Quicklend Bank plc, which is secured by a legal mortgage. Lloyd acted as Tracy’s guarantor.

• Tracy and Lloyd contributed equally to the mortgage payments until Tracy had a baby about a year later, after which they
were paid by Lloyd alone. Tracy and Lloyd decided to modernise the kitchen, and Lloyd, being a qualified carpenter, made
all the fitments and did most of the work. Six months ago, Lloyd left Tracy and is now claiming half the beneficial interest
in the house.

• Advice Tracy.
Issues
 Trusts of the family home
 Where does legal title lie?
 Who might have equitable title?
Introduction
 Lloyd needs to show that he has acquired a beneficial interest in the house by a Resulting Trust or a Constructive Trust.
 Note that the majority of the HOL in Stack said that the RT had no role in the domestic consumer context but Stack was
a case where the property had been put into joint names.
 Equity follows the law, so:
 Starting position - if legal title to the property is vested in one name only this means that there is a strong presumption
that that legal owner is solely beneficially entitled as well.
 Therefore, if only one person is on the title, such as Lloyd here, it is more difficult for the non-legal owner to establish a
beneficial interest. BUT it is unlikely that this is what the HOL in Stack intended.
 The earlier (sole name) cases of Gissing v Gissing [1971] and Pettitt v Pettitt [1970] are still binding. These decisions
recognised that, in the absence of an express declaration of trust evidenced in writing and signed as required by the LPA
1925 s.53(1)(b), where the non-legal owner has made a financial contribution to the purchase price, the starting point is
the presumption of advancement and RT.
Express Declaration of Trust?
• Does not appear to be an express declaration of trust here
• NB note that if there was, it would need to comply with s 53(1)(b)
formalities
Resulting Trust
 The starting point is that Tracy and Lloyd acquired, upon purchase, beneficial interests under a RT in
proportion to the size of their contributions.
 Springette v Defoe (1993) 65 P & CR 1 – the discount on the market price on a sale to a council tenant was
credited to the tenant statutorily entitled to buy. So Tracy is treated as having made a contribution of £20,000
by means of the discount (£50,000 - £30,000)
 Tracy also acquires a beneficial interest through the £25,000 advanced by the bank as she was the borrower.
 At the time of acquisition the beneficial interests under a RT would have been:-
 T = £45,000 (by way of mortgage) and L = £5,000 so 90% v 10%.
 Irrelevant for purposes of RT that Lloyd has contributed to the mortgage payments and is guarantor – no
beneficial interest there under a RT BUT may be relevant under a CT to determine his share.
Constructive Trust
• Lloyd may acquire an equitable interest in property under a CT if he satisfies the requirements set out in
Gissing v Gissing [1971] and Lloyds Bank v Rosset [1991] AC 107 and the CT overrides the RT.
• An express common intention CT or

• An inferred common intention CT

AND

• they have acted to their detriment as a result of that common intention that they were to have a share in the
beneficial interest
Express Common Intention CT
• Evidence of an arrangement or agreement or understanding between the parties that the property was to be shared beneficially

• b. Evidence of detriment based on that common intention or that they significantly altered their position

• Lord Bridge was talking about: evidence of express discussions between the partners, however imperfectly remembered or imprecise
the terms

• The express shared common intention must arise at the time of acquisition of the property

• It must be common ie shared by both parties, not just the view of one party

• The common intention must relate to the acquisition of a share in the beneficial interest of the family home. The parties intention must
be to share the home, not just to share their lives. It must concern gaining an interest in the family home.

• The express agreement can be “imperfectly or imprecisely remembered”. The courts are not looking for legal language but language
clear enough to form the necessary intention on which to base a proprietary interest.
• So here, what might amount to an express common intention that Lloyd was to have a
share of the beneficial interest?
• The excuse cases – Eves v Eves [1975] and Grant v Edwards [1986]
• What was the reason why they decided to vest the title in Tracy’s name alone?
• If she said he would have an interest “but for” the divorce, that may amount to an express
CI CT
• BUT if she said he is NOT getting an interest because of his divorce proceedings, that is
likely to be a denial of an intention for him to have an interest
Inferred Common Intention CT
• The common intention is inferred from the conduct of the parties ie a common intention to share the property
beneficially. In the absence of such common intention, no common intention CT will arise.

• As per Lord Bridge - there is only one type of conduct which allows the court to infer that the parties intended to
share the beneficial interest in the family home and thus allow the court to impose a CT – direct financial
contributions whether by contribution to the purchase price or by payment of the mortgage. “ It is extremely
doubtful whether anything less will do”.

• If direct contributions are found, the Court will readily imply a constructive trust, whereas, if no such
contributions are made, there can be no inferred intention CT.
• So here, is there anything that can be inferred from Tracy and Lloyd’s
conduct which gives rise to an inferred CI CT?
• As per Lloyd Bridge, it must be direct financial contributions to the
acquisition of the property
• He pays the deposit of £5,000 and guaranteed the mortgage
Detriment
• Did Lloyd act to his detriment by relying on the common intention?
• He paid a deposit, contributed to the mortgage payments and modernised the
kitchen.
• Are these sufficient conduct to his detriment to enable him to acquire an interest
under a CT?
• For express CI CT the claimant can show that they materially altered their position
Quantification of Shares
 Stack v Dowden – the court will have regard to the whole course of dealing between the parties in
deciding their shares
 See Baroness Hale in Stack v Dowden – “the search is still on for the result which reflects what the
parties must, in light of their conduct, be taken to have intended” and “that did not enable the
court to abandon that search I favour of the result which the court itself considers fair”.
 Conduct may include financial contributions as well as discussions between the parties plus the
nature of the parties relationship, the responsibility for children, the arrangement of finances, the
discharge of outgoing and household expenses.
• Here, is it clear what the parties intended the shares would be?
• If the intentions are clear, the Court will have regard to those intentions
• If not, the Court will infer or impute an intention based on what is fair (Oxley v Hiscox)
• What factors are relevant here to determining the shares? They both contributed equally to
the mortgage repayments. But the parties intentions might change (Jones v Kernott)
• The birth of the baby and Lloyd assuming responsibility for the mortgage payments might
change his share. Lloyd’s modernisation of the kitchen, if substantial, might also be an
indicator of their intentions.
• Judith is the registered proprietor of large house in London. In 2008, she met John, a young merchant banker, and soon she invited him
to live with her. John willingly accepted, not least because he was about to be evicted from his own flat through his inability to pay the
rent.

• At first, John insisted that he shared the expenses of running the house, but it soon became clear to him that Judith had more money
than sense, and he accepted her generosity without complaint. After some time, Judith began talking about “the future”, and although
he was not entirely committed to the relationship, John played along, especially as Judith had told him that the house was as good as his
own now that they were together.

• This encouraged John to abandon even what little financial caution he possessed, and he had soon spent nearly all of his savings on
various luxury, but unnecessary items of furniture for the house and far too many visits to the casino. By this time, Judith was becoming a
little annoyed at John’s behaviour, and after one terrible row, in which she had told him to leave, John promised to mend his ways.
Subsequently, he became altogether more responsible and even began to redecorate the house at his own expense and overhaul the
garden. Unfortunately for him, this had come too late for Judith, and now she has decided to throw John out of the house.

• John is devastated and comes to you for advice as to whether he can claim a share in the house.
Issues
 Acquisition of beneficial interests in the family home – constructive trust.
 Who is vested with the legal ownership?
 Prima facie rule? Equity follows the law. Burden is on the party without the legal title claiming an equitable
interest in the property.
 Essential elements of a common intention CT
 Quantification of the share of the equitable interest is determined by reference to the intentions of the parties
as construed by the courts.
 When John met Judith, Judith was sole legal owner of the property
 Stack v Dowden – as a starting point, apply the maxim “equity follows the law” i.e. the beneficial interest will
prima facie be enjoyed by the party with the legal title. Here, that is Judith.
 No resulting trust as John did not contribute to the purchase price.
 Burden of proof is therefore on John to establish an equitable interest by way of a CT.
 Stack v Dowden/Jones v Kernott – CT is the means of resolving a dispute between parties as to the equitable
interests in the family home.
Constructive Trust
• John may acquire an equitable interest in property under a CT if he satisfies the requirements set out in Gissing
v Gissing [1971] and Lloyds Bank v Rosset [1991] AC 107 and the CT overrides the RT.
• An express common intention CT or

• An inferred common intention CT

AND

• He has acted to his detriment as a result of that common intention that he was to have a share in the beneficial
interest
Express Common Intention CT
• Evidence of an arrangement or agreement or understanding between the parties that the property was to be shared beneficially

• b. Evidence of detriment based on that common intention or that they significantly altered their position

• Lord Bridge was talking about: evidence of express discussions between the partners, however imperfectly remembered or imprecise
the terms

• The express shared common intention must arise at the time of acquisition of the property

• It must be common ie shared by both parties, not just the view of one party

• The common intention must relate to the acquisition of a share in the beneficial interest of the family home. The parties intention must
be to share the home, not just to share their lives. It must concern gaining an interest in the family home.

• The express agreement can be “imperfectly or imprecisely remembered”. The courts are not looking for legal language but language
clear enough to form the necessary intention on which to base a proprietary interest.
• So here, what might amount to an express common intention that John was to have a share of the beneficial
interest?
• Did Judith make any promise or assurance in relation to ownership of the property?
• Lloyds Bank v Rosset – the obligations of common or shared occupation of a property are not identical with the
obligations of shared ownership

• Unlikely that a court would be prepared to establish a promise of shared ownership from these facts at this stage.

• In fact, in Rosset, Lord Bridge went so far as to suggest that it was virtually impossible as a matter of principle to
infer a promise from conduct per se – therefore there is little upon which John can base a claim at this stage.

• Even if John could establish an express CI CT, there is no detriment here.

• As per Lord Bridge - there is only one type of conduct which allows the court to infer that the parties intended to
share the beneficial interest in the family home and thus allow the court to impose a CT – direct financial
contributions whether by contribution to the purchase price or by payment of the mortgage. “ It is extremely
doubtful whether anything less will do”.

• If direct contributions are found, the Court will readily imply a constructive trust, whereas, if no such
contributions are made, there can be no inferred intention CT.
• So here, is there anything that can be inferred from Judith and John’s conduct
which gives rise to an inferred CI CT?
• John pays some household expenses, buys furniture and starts to decorate the
house.
• As per Lloyd Bridge in Lloyds Bank, it must be direct financial contributions to
the acquisition of the property
• So these actions will not be sufficient conduct to give rise to an inferred CI CT
Detriment
• Did John act to his detriment by relying on the common intention?
• He has spent his savings at the casino and on the furniture and started to redecorate
the house.
• Is this sufficient conduct to his detriment to enable him to acquire an interest under
a CT?
• For express CI CT the claimant can show that they materially altered their position
• Judith could argue that the payments (casino and furniture) were not
related to the property so not detrimental reliance
• But is any detriment sufficient? It is detriment caused by the assurance by
Judith, regardless of the type of detriment
• BUT note the reasons why CTs arise – to remedy inequitable conduct.
Here, the conduct of Judith. But he who seeks equity must do equity –
does John deserve the benefit here?
Quantification of Shares
 Stack v Dowden – the court will have regard to the whole course of dealing between the parties in
deciding their shares
 See Baroness Hale in Stack v Dowden – “the search is still on for the result which reflects what the
parties must, in light of their conduct, be taken to have intended” and “that did not enable the court
to abandon that search I favour of the result which the court itself considers fair”.
 Conduct may include financial contributions as well as discussions between the parties plus the
nature of the parties relationship, the responsibility for children, the arrangement of finances, the
discharge of outgoing and household expenses.
• Here, is it clear what the parties intended the shares would be?
• If the intentions are clear, the Court will have regard to those intentions
• If not, the Court will infer or impute an intention based on what is fair (Oxley v Hiscox)
• What factors are relevant here to determining the shares?
• She tells him the house was as good as his own – equal shares?
• Redecorating the house?
• But he has not paid substantial household expenses nor paid the mortgage