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Constructive Trusts Of Property And Constructive Trusts Of The Home Notes

GDL Law Notes > GDL Equity and Trusts Notes

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Topic 9 - Implied Trusts of the Home Constructive Trusts of Property:?

Constructive Trust of property = arise by operation of law and reflect parties informal intentions, even though 1 party may deny such intention. They are imposed by equity when good conscience requires the owner of property to hold it for another. o English law treats constructive trusts as a substantive institution - arising automatically by operation of law from the date of the circumstances giving rise to it and substantive rights over the property itself (Westdeutsche Landesbank Girozentrale v Islington BC). Trustee under strict duty not to profit as owner/controller of trust property. If they do make a profit, they may have to hold what they get on constructive trust for trust fund/beneficiary (Keech v Sandford). o Principle extends where relationship is a fiduciary one (i.e. someone who owes another a duty of good faith) - including:
? Trustees towards beneficiaries
? Directors to company
? Agents to principals
? Partners to co-partners
? Solicitors to clients o = All must account for profits made in breach of the fiduciary relationship.Common Intention Constructive Trusts = where Property-owner and Claimant have common but enforceable intention (due to non-compliance with formalities requirements) where Claimant is to have some beneficial interest in the property and acts to her detriment in reliance - a constructive trust will arise from the date of detriment to give effect to the common intention (i.e. Family homes). o Crossco No 4 Unlimited v Jolan Ltd / Banner Homes Group plc v Luff Development Ltd
? A and B agree A will acquire some property for the benefit of both A/B on terms yet to be agreed or not certain, so that B is induced to refrain from trying to acquire the property herself, and so is disadvantaged if A claims 100% ownership = constructive trust will arise to provide an equitable interest for B despite the uncertainties.Substantive Proprietary Trusts = Court recognise a pre-existing equitable proprietary interest arising from certain events (i.e. agreement between relevant parties, and 1 parties later disputes this) o Common intention constructive trusts o Secret Trusts

o Mutual Wills o Constructive trust on transferee of LT to property, if not a bona fide purchaser for value without notice, to give effect to express trust is justified to vindicate pre-existing/continuing equitable proprietary interest.??Remedial Constructive Trusts = English law concerned with pre-existing constructive trust-occasioning events. Court has no discretion whether to impose a constructive trust (i.e. cannot make an order for compensation to be paid) Case = Re Polly Peck International Ltd (No 2) o CoA made clear existing property right could not be varied or new ones created so as to affect creditors' rights on insolvency Case = Sinclair Investments Ltd v Versailles Trade Finance Ltd o Only the Supreme Court can change matters UK Substantive Trust = no discretion US/Australia Remedial Trust = discretion to change.

Constructive Trusts of the Home: How to divide ownership of the family home between cohabitees. Problems usually arise when the relationship breaks down or where a third party makes a claim against the property.?

Identify situations when a person might need to rely on implied trusts in order to claim an interest in a home: o 1. Dispute where property is registered in names of both parties but no declaration of their beneficial interests. o 2. Dispute where LT is registered in name of 1 party only but other claims a beneficial interest in property. Problem arises when: o Relationship breaks down (on differences between the parties)
? On divorce, the court has wide discretion to reallocate property rights between spouses under Matrimonial Causes Act 1973 [not necessary to ascertain the precise share of each party in particular property].
? On dissolution of civil partnership, Civil Partnership Act 2004 gives similar powers. rd o 3 party makes claim against property - I.e:
? Where Mortgagee seeks to reinforce their security over the property
? Where Trustee in bankruptcy wishes to claim home to meet bankrupt's debts.

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NO statutory provisions for unmarried different sex couples [cohabitees] who share land (beneficial ownership found by applying trust principles) o Possible to have an express trust:
? However, currently, the only method of ascertaining the beneficial interests in the home would be according to trust principles. An express trust of land needs to comply with s53(1) (b) Law of Property Act 1925, that is, it must be evidenced in signed writing. In the context of family relationships this is, of course, rare. Where there is no express declaration complying with s53(1)(b), the parties must rely on an implied trust (resulting or constructive) which does not have to comply with s53(1)(b) LPA 1925 and may be implied from conduct. Left to the courts to use their powers under S53(2) LPA 1925 to imply a trust in favour of the party claiming a beneficial interest. The implied trust is thus a default law used when no statutory provision can be applied. However, as it was not designed to respond to the modern reality of family life, the requirements are often unrealistic and somewhat unfair towards the partner who is not registered as owner at law.

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? Denning's attempt to impute (impose upon) the parties what the court considered 'fair share' in justice/good conscience by 'new model of constructive trust' failed - scope for imputation: o BUT Jones v Kernott = once court found express or inferred actual intention that parties are to have different shares in the property from 100% or 50% appearing from LT being in the name of 1 or both. o Stack and Dowden = and above case - now given broader range of inquiry to try and infer actual intentions than permitted in HoL in Lloyds Bank v Rosset STEP 1: Identify the issues:
? State that an express trust would clearly outline who held the LT to the property, and who held beneficial interests in the home, and in what shares.
? However, given formalities required, this is unrealistic. Instead, it is likely that the property will be held under an implied trust. Implied trusts can be resulting or constructive. We therefore need to consider whether an implied trust has arisen. o What is the issue here? Who is claiming a beneficial interest? Issues can arise
? (1) where the property is registered in the names of both parties, but there has been no declaration of the extent of their beneficial interests, or

(2) where LT is registered in the name of one party only and the other wants to establish that they have a beneficial interest in the property. Both issues could also be present STEP 2: Explain the legal title - Is it joint ownership? If so, a 50:50 split is likely. If not (i.e. just one legal owner) then the other party will have to establish whether a beneficial interest exists in favour of them:
? Trust principles vary depending whether registered in joint names or in 1 party only:STEP 2(a): Is the property registered in the names of both parties (joint legal ownership)?
? Both parties have beneficial interest in the property (registered in the names of both parties). So need to determine size.
? Pettitt v Pettitt o If the parties have expressly declared exactly what their interests are (e.g. a declaration in the conveyance or a separate declaration of trust), that will be deemed conclusive. o Expressly declared interests conclusive unless claim for rectification can succeed (if deed declares whom LT vests but also in whom beneficial title will vest it concludes questions between spouses).
? Example - If conveyance says "vendors conveys land to M and W in fee simple to hold as beneficial joint tenants (or certain stated shares)". True even if express declaration doesn't reflect actual contributions. o Cases = Richards v Wood & Wood; Clarke v Harlowe?

Note the formalities: any declaration of the beneficial interests needs to be evidenced in writing to comply with s, 53(1)(b) LPA 1925, or it will be unenforceable (per Diplock in Gissing v Gissing). o NB - Where formalities not followed as not in writing or NO express trust = it can only take effect as resulting, implied or constructive trust which the courts will look to as a solution.

Where there has been no express declaration of the size of the beneficial interests, Stack v Dowden:
[Joint beneficial ownership case - where claimed beneficial ownership is different to legal ownership]
? Background =
o Home purchased in her sole name, who earned substantially more than Claimant, so paid all mortgage payments and household bills. Along with many home improvements. o New home purchased in both names but 2 / 3rd provided by her based on the equity of the first home sale. She also paid 60% of the mortgage

?payments. Both kept separate bank accounts and made separate transactions for savings. o On separation the Claimant claimed an interest in the house. Result =
o Held = both parties had LT presumption they held equal beneficial shares. But was rebutted as she provided larger amount of purchase price and kept her financial assets separate to indicate that an unequal distribution of assets was intended and she would be given higher share.
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Outlines the principles which apply to ascertaining the size of the beneficial interests of the co-owners of LT: o Normal rule starting point is that equity follows the law, so where the legal title is in their joint names the beneficial interests will be of equal size (50:50 split presumption) (Stack v Dowden; Jones v Kernott) o However, this is only a presumption and can be rebutted if the parties intended the beneficial interests to be different from the legal interests (i.e. no equitable joint tenancy will arise if unequal shares intended).
? I.e. by express/inferred oral common intention to have different shares or 'whole course of conduct' indicates intended different shares. Either at point of acquisition or later as relationship changes (ampulatory trust in nature = they will change over time.
? Proof needs to be on exact size of parties shares otherwise court will impute size - like a sort of balance sheet.
? Burden of proving this on person claiming their beneficial interests should be apportioned differently.
? IF presumption rebutted - only then will court look at quantitification question (60/40) for joint legal owners o HoL confirmed that it would be very unusual for the equal split presumption to be rebutted (Baroness Hale)
? Unequal parties' financial contributions alone would not suffice to rebut the presumption).
? Deposit
? Obtaining a mortgage
? Paying a mortgage off
? However, in Stack v Dowden (lived together, had children together but had very separate lives) the majority of the court were influenced by the fact that Ms Dowden had contributed significantly more to the acquisition of the property and parties had kept their finances separate (no joint accounts, husband had bank statements sent to parents house so wife couldn't see them), so did not split the property equally (65/35) in her favour.

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