A resulting trust gets
its name from the Latin verb resalire (to jump back)
and this identifies the essential feature of the trust:
that the beneficial interest results to, or jumps back to, the settlor who
created the trust. The basis of an action founded on a resulting trust
is that one is seeking to recover one’s own property. The idea is strange: a person (X) gives property to another (Y) and then
Y ends up holding it on trust for X.
Categories
of resulting trusts
Resulting trusts arise
in the absence of an express declaration where a person
holds legal title in circumstances where they cannot be taken to have full
equitable ownership. According to Re
Vandervell's Trusts (no 2) [1974] Ch. 269 There
are two categories of resulting trusts:
- Automatic resulting trust
- Presumed resulting trust
"Both types of
resulting trust are traditionally regarded as examples of trusts giving
effect to the common intention of the parties. A resulting trust is
not imposed by law against the intentions of the trustee (as is a
constructive trust) but gives effect to his presumed intention". Per
Lord Brown Wilkinson Westdeutsche
Landesbank Girocentrale v Islington LBC [1996] 2 WLR 802
1. Automatic
resulting trust
An
automatic resulting trust will arise where the settlor
transfers property to the intended trustee but the trust has failed for some
reason. The trustee holds the legal title of the property on trust. The beneficial or equitable ownership is retained by the settlor.
2. Presumed
resulting trust
Presumed
resulting trusts arise either from voluntary transfer
of the legal estate or by contribution to the purchase price. In these
situations it is presumed that the person did not
intend to make a gift of the property unless there is a clear intention that
they did so intend. In such circumstances a resulting trust arises and
the transferor or the person making the contribution retains
or takes a share in the beneficial interest. However in some
relationships there is a counter presumption that a gift was intended. This is presumption of advancement.
Requirements of
presumed resulting trusts
Outside of land law,
where a person transfers property to a third party who
does not provide any consideration, there is a presumption of resulting trust,
unless the relationship is one which gives rise to the presumption
of advancement. However, S.60(3)
Law of Property Act 1925 cast doubt as to whether this
would apply to the transfer of land.S.60(3) did not prevent a resulting trust
being imposed in:
Hodgson
V Marks [1971] Ch. 892
Mrs. Hodgson
transferred her house to her lodger Mr. Evans on the basis that she would
remain the beneficial owner of the whole. They both continued to live in
the house under the same arrangement with regard to rent and payment of bills.
He held the legal title as bare trustee for her. He then in breach of trust
sold the house to Mr. and Mrs. Marks. When the Marks came to view the property
they saw Mrs. Hodgson coming up the path but did not make any enquiry as to who
she was or if she had any interest in the house, assuming she was Mr. Evan’s
wife. At trial, the judge found for the Marks and held that actual occupation
required actual and apparent occupation and only protected those whose
occupation was by an act recognizable to any person seeking to acquire an
interest in land. Mrs. Hodgson appealed.
Held:The appeal was
allowed. Mrs. Hodgson was in actual occupation and it was irrelevant that the
Marks had assumed her to be Mr. Evans’ wife. There was no requirement that
occupation need be apparent.
However,
in the following case it was suggested that s.60(3) had a more reaching impact:
Tinsley
v Milligan [1993] 3 All ER 65
The Claimant and
Defendant were lovers. Together they purchased a property from which they
jointly ran a business by letting out the rooms in the house. It was agreed
that the house was to be registered in the name of the Claimant alone. This was
so that the Defendant would be able to fraudulently claim social security
benefits which would go into their joint bank account. The relationship broke
down and the Claimant sought possession of the house asserting full ownership.
The Defendant sought a declaration that the property
was held on trust for both of them in equal shares. The Court of Appeal
applied the public conscience test and held that it would be an affront to the
public conscience to allow the Claimant to keep the whole interest in the
house. The Claimant appealed to the Lords.
Held:The House of Lords
rejected the public conscience test as it was inconsistent with previous
authorities and gave too much discretion to the court. They applied the reliance principle; the Defendant did not have to
plead the illegality to succeed, it was sufficient that she had
contributed to the purchase price and there was a common understanding that
they would own the house equally.
Lord Brown Wilkson
stated "the consequences of being a party to an illegal transaction cannot
depend...on such an imponderable factor as the extent to which the public
conscience would be affronted by recognizing rights created by illegal
transactions."
Lord Goff held
"There is no trace of any such principle forming part of the decisions in
any of the cases in question. It follows that in my opinion, on the
authorities, it was not open to the majority of the Court of Appeal to dismiss
the appellant's claim on the basis of the public conscience test invoked by
Nicholls LJ"
It therefore follows
that where there is a voluntary transfer (i.e. a gift) of personality to another or into the joint names of the transferor and
another, there is a presumption of a resulting trust for the transferor.
In Re Vinogradoff (1935), as explained above, a grandmother transferred an £800
War Loan into the joint names of herself and her granddaughter and it was held
that after the grandmother’s death the granddaughter held it on trust for her
estate. There is no clear authority on the corresponding position where land is
involved.
Failure
to Dispose of the Equitable Interest
Equity,’ it has been
said, ‘abhors a beneficial vacuum.’ Accordingly, where a settlor conveysor transfers property to
trustees, but fails to declare the trusts upon which it is to beheld, or
where the expressed trusts fail altogether on the ground, for instance, of uncertainty,or non-compliance with statutory
requirements as to writing, or where they failpartially on similar grounds, or
because the trusts expressed only dispose of a part of theequitable interest,
the entire equitable interest, or such part thereof as has not been
effectivelydisposed of, remains vested in the settlor or, in technical language,
is said to result tohim, and the property is accordingly said to be held by the trustees upon a resulting trustfor him.Or, if he is dead,
for his estate.
The same principle
applies to a devise or bequest by a testator to
trustees upon trusts that fail similarly either altogether or in part,
whenthe trustees will hold on a resulting trust, wholly or pro tanto, for the
persons entitled toresidue, or, if the gift that fails is a gift of residue, or
if there is no residuary gift, then forthe persons entitled on intestacy.
Where the expressed trusts are in part valid, but do not exhaust the
beneficial interest,there will be a resulting trust whether the
expressed trusts are of a non-charitableor a charitable nature, unless the terms of the trust expressly or by implication
excludea resulting trust.
In the case of a
charitable trust, the cy-près doctrine applies. A caseinvolving a
non-charitable trust was Re the Trusts
of the Abbott Fund, in
which a fundhad been raised by subscription for the maintenance and support of
two distressed ladies.On the death of the survivor, a portion of the fund
remained unapplied in the hands ofthe trustees. It was held that there was a
resulting trust of the balance of the fund for thesubscribers.
In Re West Sussex Constabulary's Widows, Children and Benevo-lent (1930)
Fund Trusta
fund had been established to provide benefits to widows and certain dependants
of members who died. The income of the fund came from members' subscriptions,
the proceeds of entertainments, sweepstakes, raffles and collecting boxes and
various donations and legacies. On the amalgamation ofthe West Sussex
Constabulary with other police forces in 1968, the question arose of the
distribution of the fund. Goff J. held that the surviving members had no claim
because first, the members had received all that they had contracted for, and
secondly, the money was paid on the basis of contract, and not of trust. The
funds went as bona vacantia to the Crown. The possibility that living members
may have a contractual claim on the basis of frustration of the contract or
failure of consideration was met by the Crown giving an indemnity to the
trustees.
In Cunnack v Edwardsa
society governed by the Friendly Societies Act 1829 had been established in
1810 to raise a fund, by the subscriptions of its members, to provide annuities
for the widows of its deceased members. By 1879 all the members had died. The
last widow-annuitant died in 1892, the society then having a surplus of £1,250.
A claim to the assets was made by the personal representatives of the last
surviving members. It was held that there was no resulting trust in favour of
the personal representatives of the members of the society. Each member had
paid away his money in return for the protection given to his widow, if he left
one. "Except as to this he abandoned and gave up the money for ever."
The assets went to the Crown as bona va-cantia.
FAILURE
OF CONSIDERATION OF DISPOSITION
A failure of consideration is a legal term used in a situation where somebody
fails entirely to perform their side of a contract.It
is the failure to execute a promise that had been made previously.
A disposition in law is the act of transferring the possession
of property/wealth to another or the parting or giving up of property/wealth.
In equity failure of consideration of a disposition will result
to the holding of the property in a resulting for the other person. The
resulting trust provides a mechanism for the return of
the property to the person who has been hurt by the failure of consideration.
In Re v Dewhurst a deceased widow was left
with an amount of money in a trust as an income for upkeep until she remarried.
Once she remarried only half the income would continue to go to her. She
remarried but afterwards she sought an annulment of the second marriage because
if her husbands inability to consummate the marriage. The court had to
determine whether she was entitled to the other half of the income from the
date of her second marriage. The court decided that she was entitled to the
other half as her second marriage should be treated “for all purposed as never
having happened” Judge Harman stated "it
is one thing to say that a person is entitled to property or rights after the
annulment of the marriage, but it is quite another thing to upset transactions,
completed or made permanent, while the marriage was current".
However the same was not decided in Essery v
Cowlard where a father made a trust where it was to
benefit his son and his future daughter in law. The trust was to provide for
the two once they got married. The two did not proceed with the marriage. The
court had to determine whether the trust was still valid and whether the son was still entitled
to the money even though he did not get married. The court decided that he was not entitled to the money. The trust
had failed because the consideration was based on the marriage taking place
which had not happened. The money was to go back to the original owner who in
this case was the father. The son holds the money on resulting trust for his father.
PURCHASE
IN THE NAME OF A THIRD PARTY
If a person buys property and voluntarily directs the transfer of the property into the
name of another a resulting trust is presumed to exist. This means that the recipient holds the property as a trust for the owner. However, where the
transfer of property is between people with special
relationships, such as transfers from a spouse to a spouse or parents to
children and vice versa, there is a presumption of advancement which
differs from a presumption of resulting trust. The presumption of resulting
trusts applies in real property and personal property.
This was seen in
Re Vinogradoff (1935. Where a grandmother transferred an £800 War Loan
into the joint names of herself and her granddaughter and it was held that
after the grandmother’s death the granddaughter held it on trust for her
estate.
There must be a clear distinction between
the presumption of resulting trust and the presumption of advancement.
As stated earlier, the presumption of advancement
arises in special relationship, For example, where a parent transfers
property to his or her child or from a husband to a wife. The presumption does
not exist where a transfer is made from a wife to a
husband or where she pays the purchase money for property and has it put in his
name; in this case a resulting trust will arise.
Therefore, the
presumption of resulting trust assumes that the
recipient was not meant to receive the property beneficially while the presumption
of advancement does not just assume that
beneficial title was indeed intended to pass—in fact it goes further and
presumes that an outright gift was intended
The presumption of advancement and resulting trust can be
rebutted by evidence; in the case of presumption of advancement it may
be rebutted. This was illustrated in the case of Shephard v. Cartwright
(1955). It was held that the person must to show that no gift was intended,
cannot bring evidence of matters arising after the transaction to
support this contention.
In the case of
Russell v Scott, the presumption of resulting trust applied to a bank account that was
opened by one party in her own name and the name of a third party. That presumption was rebutted by evidence of an intention to
convey a beneficial interest on the third party. A presumed resulting trust will therefore be
presumed to arise in cases of voluntary transfer of
money, for example Where A transfers
personal property owned by him to B for no consideration, a resulting trust for
A is presumed unless B proves that A intended an
outright gift to him, Purchase in a third parties name.
This was seen in Fowkes v Pascoe where Mrs. Baker
bought two sums of stock. One was put in the names of herself and a young
lodger called Mr Pascoe, who was like a grandson. The other was in her and her
friend’s name. It was argued by the executor, that a resulting trust existed.
IMPLIED
TRUST AFFECTING JOINT PURCHASE AND JOINT MORTGAGES
In cases where the purchase money is provided by two or more parties jointly and
the property is put in the name of one of the parties, equity will presume a
resulting trust in favour of the other party or parties.
In Neilson v Letch (No 2) [2006]
NSWCA 254, Mason P stated that where two or more persons have
contributed the purchase money in unequal shares and the property is purchased
in joint names, and there is the absence of a relationship
that gives rise to a presumption of advancement, a presumption that the
property is held by the purchasers in trust for themselves as tenants in
common in the proportions in which they contributed the purchase money. The presumption of advancement arises in
case where the purchase contribution is provided by a husband to a wife or by a
parent to a child, it does not have to be their biological child but someone to
whom the provider of funds stands in the position of a parent.
In Buffrey v Buffrey [2006] NSWSC,
Palmer J said that, the presumption of resulting trust
arises where joint tenants have made unequal contributions to the acquisition
cost may be rebutted:
i.
By evidence showing
that the common intention of the parties at the time of acquisition was for
equality interests despite inequality of contributions.
ii.
Evidence of the
subjective and uncommunicated intention of one of the parties is inadmissible to
prove the common intention.
iii.
The common intention of the parties may
be ascertained from the evidence as their
contemporaneous communicated statements of intention.
For the presumption of
resulting trust to arise, contributions that are made
by parties must go towards the purchase price of the property. Equity
determines this by looking at what was provided by the parties at the date of purchase.
Mortgage liability, if
a party has incurred a mortgage liability to provide
contributions to the purchase price, then that mortgage liability counts as
contribution. Joint mortgage liability is treated as equal contribution.
Costs of acquisition include legal fees, stamp duty and incidental costs.
Equity looks at
contributions that are made at the date of purchase, the
presumption of resulting trust will not arise when payment are made towards
costs incurred after the property has been acquired. Therefore no
resulting trust will arise where there has been an upgrade of property or its
maintenance unless there was a common intention between
the parties that is enforceable or gives rise to an estoppel.
The
nature of co-ownership in resulting trusts
Equity’s presumption of resulting trust is based on the co-owners holding their
shares as tenants in common. However, in cases where the parties made equal contributions, equity presumed that the interests
were held as joint tenants. This is because it is said that, ‘Equity
followed the law’ and the common law always presumed that co-owners took as
joint tenants in the absence of an express declaration of tenancy in common.
Statutory reforms have
reversed the common law presumption of joint tenancy in some jurisdiction and
imposed a presumption of tenancy in common.
In Delehunt v Carmody (1986) 161 CLR
464, the High Court found that equity still followed the law in these
jurisdictions and given that the law had changed, equity
would now presume tenancy in common when the parties make equal contribution
to the purchase price.
Where parties make
equal contributions, equity presumes that the interests
are held as joint tenants such that there is a right of survivorship if one
of them dies, their interest will be divided equally among surviving tenants.
The
presumption of advancement
In some cases equity
will refuse to presume an intention to create a resulting trust and will
instead presume that any purchase or contribution was
intended to be a gift by way of advancement.
If there is no actual intention to confer a beneficial interest
on the legal title holder, the presumption of
advancement will not be effective and therefore the presumption of resulting
trust will apply. There is presumption of
advancement when the husband either provides the purchase price or makes
contribution towards the purchase price of the property in which the wife is
given a legal interest. This however, does not apply where the wife
transfers to the husband, this is because it has been assumed that a husband had a natural duty to provide for the wife and
children. It also applies between man and his fiancée.
The law implies resulting trust in cases where land is acquired by one
person, but using wholly or partially funds belonging to another person.
Such trust only arise where there has been some contribution to the actual
purchase price or the mortgage deposit, but not arise
by reason of contribution to post acquisition costs.
If someone takes on the
burden of a mortgage alone or jointly, this should also
result in a corresponding share in equity. However, sometimes a person
may only lend their name to the mortgage while there is an agreement that they
will not be liable to it as between the joint owners. In this case that person
has no beneficial interest in the property.
In Jones v Kernott[2012] 1 AC 776,
the Supreme Court stated that where there is the purchase of a family home or
flat, in joint names for occupation, where both parties are responsible for any
mortgage, there is no presumption of a resulting trust
arising from they having contributed to the deposit in unequal shares.
The presumption is that both parties intended a joint
tenancy both in law and equity. That presumption can be rebutted by evidence of
a contrary intention, which may be shown where the parties did not share their financial resources.
Implied
trusts of unlawful purpose or mistake.
Resulting trusts may
either fall under automatic resulting trusts of presumed resulting trusts.
Under presumed resulting trusts, there is voluntary
transfer of property from one person(Y) to another (Z). There is no
consideration given by Z. Therefore a resulting trust will be presumed
for Y unless Z can adduce evidence in rebuttal and claim that Y intended it to
be a gift to him. The presumption made by the court that the property transferred to Z was an outright gift is referred to as the
presumption of advancement unless it can be rebutted by evidence
claiming otherwise by Y.
He who comes to equity must come with clean hands is a core maxim of equity
and seeks to ensure that wrongdoers do not hide behind the gates of justice
when they themselves do not practice equity. Therefore when rebutting
the presumption of advancement, evidence pointing out that the resulting trust arose for an illegal purpose will not succeed
in a court of law. However, if one can maintain the action without
making a mention of the illegal purpose then the claim will succeed even though he actually did the unlawful act. The court is
only concerned with illegality directly related to the
issue at hand. Therefore many jurists and lawyers have argued that this
is contrary to the maxim and is somehow implying that he who comes to equity must come with his dirty hands in his pockets. The
illegal act or purpose has to have been achieved or committed. A mere
intention to commit an unlawful purpose will not
interfere with the beneficiary’s right unless the unlawful act is actually
committed.
In Symes v Hughes [1870], the plaintiff who was experiencing financial
difficulties at the time, conveyed his property to a widow, to hold in trust
for him, whom he was seeing intimately so that his creditors could not acquire
that property if he was declared bankrupt. The conveyance did not mention any
aspect of a trust but falsely stated that consideration had been given.3 years
later, he became bankrupt and the widow had already transferred that land to
her son in law. After the widow died, the plaintiff sought an action to repossess
the property from the son in law alleging that the property had been
transferred without notice of his equitable interest in it. In court, Lord
Romilly held that the plaintiff’s claim was not
defeated by his illegality. He stated that the mere intention to commit
an unlawful act but was not actually executed does not
deprive the plaintiff a right to recover his property. Had he been declared
bankrupt at that time and not notified his creditors about this property
then he would lose that right.
In Re Emery Investment Trusts v Emery [1959],the plaintiff was a
British subject married to an American citizen with whom he lived in South
America, where he was employed and accordingly entitled to hold American
dollars. American Savings Bonds purchased with the husband's money were
registered in the name of the wife as the husband as an alien therefore could
not hold these bonds. The husband was expressly named as a beneficiary. Later
the husband changed the bonds for common stock in American securities, which
were also registered in the name of the wife. The husband intended to be a
beneficiary to a half of it and the remaining half left with the wife. However,
in order to avoid payment of American withholding tax, to which as an alien he
was liable under American Federal law, no mention was made of his beneficial
interest. Later, the wife removed the securities and sold them. The plaintiff
brought forward an action claiming that he was entitled to half the proceeds
his wife received after selling the securities as he was the equitable owner.
The court held that the registration of the securities in the wife's name
raised a presumption of advancement which could not be rebutted on the ground
that the purpose of the registration in her name only was to enable the husband
to avoid payment of American Federal tax, for equity would not grant relief in
respect of a transaction carried out in contravention of law, notwithstanding a
foreign revenue law.
The court upheld the
decision that illegality under equity is not a defence and he who comes to
equity must come with clean hands. If the husband used other evidence which did
not implicate any illegality then he could have successfully rebutted the
presumption of advancement.
The general rule in implied trusts on illegality can be summarised as, where a
person transfers property to another for an illegal purpose, but such purpose
is not carried into execution, or the effect of permitting the transferee to
retain the property might be to defeat the provisions of any statute or rule of
law, thenthe transferee holds the property for the benefit of the transferor.Where
the object of a transfer is illegal, the court will not help the transferor to
get his property back. In Ayerst v.
Jenkins [1873], Lord Selbourne stated that “when the immediate and direct
effect of an estoppel in equity against relief to a particular plaintiff might
be to effectuate an unlawful object, or to defeat a legal prohibition, or to
protect a fraud, such an estoppel may well be regarded as against public
policy." The same will apply in resulting trusts.
FAILURE
OF ENGRAFTED TRUSTS
However a resulting trust is not the only outcome when a gift fails. If
certain prerequisites exist, then the rule in Lassence v
Tierney [1849] may be applicable. This rule is sometimes known as the rule
in Hancock v Watson [1902].
The rule in Lassence
v Tierney is one of construction. The rule applies
where there is an initial gift made to the donee or legatee, onto which trusts
have been imposed or engrafted. It arises if these trust fail and the court
construes the initial gift to the donee or legatee as being an absolute
gift.
The rule indicates that, even though the trusts here failed, the assets do not revert back to the donor or the testator’s
personal representatives. Instead, the gift remains absolute in the donee or
legatee. The initial gift continues even though the trusts attached to
it are void. The rule applies regardless of the reason for failure of the
trust.
Pettit Philip, Equity
and the Law of Trusts.
Martin Dixon, Equity
&Trusts ,3rd edition,
2010.
Routledge, Equity
&Trusts (2010-2011) by LawCards.
Alastair Hudson,
Understanding Equity & Trusts 3rd edition 2010
Essentials of Equity and Trust(2006), John Duggiton
