Where two persons acquire property but only one of them is registered as the legal owner of the property, the other person may seek to acquire a beneficial interest in the property. Such an interest may be acquired under a resulting trust or a constructive trust. This raises the question as to whether there is a distinction between resulting and constructive trusts. The law does not draw a clear line between resulting and constructive trusts. Nevertheless, under an implied trust, resulting and constructing trusts appear to be fundamentally different, operating on different principles. Recent case law also illustrates that the distinction between resulting and constructive trusts is important when it comes to determining: (i) the nature of the contributions that can give rise to the trust; and (ii) the approach to be adopted by the court in determining the size of each party’s share in the property.
A resulting trust arises where the property is held on trust to give effect to the parties’ respective contribution to its purchase price. Thus where, for example, a woman makes a voluntary payment to her husband, or pays wholly or in part, for the purchase of the property which is vested in the husband alone, the property will be held on trust for the woman if she is the sole provider of the money. In the case of a joint purchase by the woman and the husband, the parties will be entitled to shares proportionate to their contributions, unless it can be established that the woman’s money was a gift. A constructive trust, on the other hand, arises where the property is held on trust to give effect to the agreement reached between the parties. As was held in Lloyds Bank v Rosset [1991] 1 AC 107, the agreement can be any agreement, arrangement or understanding reached between the parties that the property is to be shared beneficially.
Usually, it is the circumstances of a given case that determines whether one of the above-mentioned forms of trust is preferable to the other in the context of claims for beneficial interest in land. It must be emphasized that it is not for the claimant to choose whether they want to acquire a beneficial interest in the property under a resulting trust or a constructive trust. The Lloyds Bank v Rosset case illustrates that in determining whether the party asserting a claim has acquired a beneficial interest in the property, an inference will first be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs. Essentially, express discussions between the parties about the property will constitute evidence of agreement, arrangement or understanding between the parties that the property is to be shared beneficially. There is therefore what can be described as ‘common intention’ constructive trust. In the case of Killey v Clough [1996] NPC 38, from example, a common intention constructive trust arose as the court held that there had been a common intention that the property would be shared ‘fifty-fifty’. In the absence of common intention or express agreement, the court will consider whether any inference could be drawn from the parties’ conduct regarding the sharing of the property. The finding of direct contributions to the purchase price made by the claimant, whether initially or by payment of mortgage installments, will lead to the conclusion that the claimant has acquired a beneficial interest in the property under a constructive trust.
The quantifying of beneficial interests arguably makes one form of trust preferable to the other. In the case of a resulting trust, there is rarely any difficulty in quantifying beneficial interests. The claimant’s share would be proportionate to the amount he/she contributed to the purchase price. It is clear from Curley v Parks [2005] 1 P&CR DG 15 that the only contributions which can be relied upon to establish a resulting trust are those made at the time the property was purchased or acquired. Thus later contributions, such as paying installment due under the mortgage, do not create a resulting trust in favour of the party making the payments. In the case of a constructive trust, however, the claimant may acquire a share which is not necessarily proportionate to their financial contributions. This means that payment of mortgage installments and other contributions, which are not relevant in establishing a resulting trust, can be relied upon in establishing a constructive trust.
The court’s decision in Drake v Whipp (1995) 28 HLR 531 clearly indicates that in the case of a constructive trust, all that is required is that there should be a common intention that the party who is not the legal owner should have a beneficial interest and that that party should act to her detriment. In that case, the plaintiff and the defendant cohabited after leaving their respective spouses. They purchased a barn, each contributing, on the common understanding that they were to share beneficially, although the property was taken in the sole name of the defendant. It was found that there was a common intention of the parties as to their beneficial shares, but the only direct evidence in support of that finding was the defendant's evidence as to his own intention. The claimant argued that the shares in the property should not be decided on the basis of a resulting trust as that required only that costs of acquisition be taken into account, not the costs of conversion, and operated on the basis of presumed, rather than actual, intention. The court said that the facts gave rise to the creation of a constructive trust since there was undisputed evidence of a common intention that the claimant should have a beneficial interest in the property and she had acted to her detriment. Accordingly, the claimant’s fair share was one third.
In Midland Bank plc v Cooke [1995] 4 All ER 562 , it was emphasized that the court should undertake a survey of the whole course of dealing between the parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages and should take into account all conduct which throws light on the question of what shares were intended. Also, in Oxley v Hiscock [2005] Fam 211, a case which involved an unmarried couple and their family home, it was stated 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 equitable principles, from inferring one.
It is clear from above that apart from the fact that distinction between resulting and constructive trusts is of crucial importance, constructive trust is preferable to resulting trust in the context of claims for a beneficial interest in land under an implied trust. Unlike the rules governing resulting trust, the flexible nature of the rules governing constructive trust enables claimants to acquire a fair share in property of which they are not the legal owner. However, the House of Lords’ decision in the recent case of Stack v Dowden [2007] 2 AC 432 makes it clear that the focus is not on the court imposing its own sense of fairness or justice on the parties, nor should the court be engaged in seeking to identify an imputed common intention. According to their Lordships, compelling evidence is required before a court could infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership was held.
Bibliography
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