#15707 - Resulting Trusts - Trusts and Equity

RESULTING TRUSTS

A resulting trust is where the transferee holds property on trust for the transferor. A conveys to B, who holds the trust property for A.

The beneficial interest results (comes back) to the transferor (or the party who provided the purchase money). NB: the metaphor of ‘springing back’ associated with RTs is misleading. In truth, the RT is a new interest which is created.

Two main debates:

• The role of intention. When does an RT arise? While an express trust gives effect to intention and CTs respond to unjust enrichment / wrongs, RTs only tell you about the structure of the trust, not the reasons.

• Whether the beneficial interest remains with the transferor, or is returned to him. Two views here:

  • View 1: the transferor starts with both legal and beneficial interest, the beneficial interest remains with him when he passes the legal interest to the transferee. Lord Reid in Vandervell: “the beneficial interest must belong to or be held by someone. So, if it is not to belong to the donee/trustee, then it must remain with the donor.”

  • View 2: the transferor starts with absolute ownership, rather than a title consisting of legal and beneficial interest. Beneficial interest is then created when he tries to pass legal title to the transferee, and the RT returns the beneficial interest to him (i.e. he gains a new interest). Lord B-W in Wesdeutche and Birks take this view.

Presumed and Automatic RTs

When do RTs arise? The traditional approach (taken in Re Vandervell (No. 2) is that RTs fall into two categories:

1. Presumed RT: arises where the transfer is not made on any trust, but there is a rebuttable presumption of trust (i.e. when a person voluntarily transfers property for no consideration). These are dependent on the intention of the transferor.

2. Automatic RT: arises on a failure to dispose of the beneficial interest (i.e. where an express trust fails). These are imposed by operation of law, without regard to intention.

The division is false for two reasons (Swadling)

1. Presumed and automatic are not opposing terms: they are each answering questions. ‘presumed’ tells us how the fact triggering the trust is proved in litigation (procedure), while ‘automatic’ tells us that the fact triggering the trust is not a declaration of trust (substance). As a matter of logic, therefore, a RT can be both presumed and automatic.

2. RTs do not fit into the overall taxonomy of trusts: if a declaration of trust is proved, then presumptive trusts are express, if not they are constrictive. Automatic RTs are constructive.

PRESUMED RTS

What is a presumption: it is a method of proof. Saying there is a presumption only tells us how the fact is proved, not what it is. Yet, it is the substance (what is presumed) that is important. An evidential presumption is the most likely inference we can draw from the evidence of the primary fact.

There are two main situations in which a presumed RT arises: (i) voluntary conveyance of property to another; (ii) the purchase of property in the name of another.

Voluntary conveyance of property

Where property is transferred for no consideration, a rebuttable presumption arises that the transferee holds the property on RT for the transferor. E.g.

• Re Vinogradoff A gratuitously transferred shares worth 800 into the joint names of herself and her granddaughter, B. Farewell J: a presumption of RT arose from this gratuitous transfer such that the shares did not belong to B in equity, B held them on RT for A.

This presumed RT arises on the basis of the transferor’s presumed intention not to give away her beneficial interest to a volunteer gratuitously. This presumption can be rebutted by showing that the transferor did intend to give absolute title to the property to the transferee as a gift.

Voluntary conveyances of land: The presumption of resulting trust used to apply to land in the same manner as personality, but s60(3) LPA now governs the presumption of resulting trust on voluntary conveyance of land.

• 60(3): “In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee”

• Broad interpretation: Virgo: s60(3) means that a voluntary conveyance of land takes effect as expressed, unless there’s evidence of contrary intention. I.e. s.60(3) abolishes the presumed RT for voluntary conveyances of land.

• Narrow interpretation: Swadling: s.60(3) is merely a word saving provision that did not alter substantive law—under the Statute of Uses 1536 it had been necessary to use the words ‘unto and for the use of’, but this section is simply a reminder to conveyancers that such words are no longer needed. s.60(3) does not prevent a presumed RT arising in cases of gratuitous transfer of land, it just means an RT will not arise merely because the words are absent.

• Lohia v Lohia: first instance judge adopted the broad interpretation, but Mummery LJ in the CA seemed to adopt the narrow interpretation —he did not, however, come to a clear conclusion as to which was correct.

• Mummery LJ: from the language of s.60(3), it is clear that: (i) there can be no presumption of RT “merely from the absence of the words ‘unto and the use of’”; (ii) nothing in the subsection “precludes the implication of a trust … [in] circumstances other than the omission of the words ‘unto and to the use of’.”

• Stack v Dowden suggests that there is no presumption of a RT in the family home context in cases of conveyance in joint names. Instead, the presumption is that the registered owner owns the property – the non-owner is required to produce evidence that the parties intended differently, creating a constructive trust.

Purchase Money Presumed Resulting Trust

When a purchaser buys property in the name of a third party, it is presumed that the property is held on RT for the purchaser, proportionate to the purchaser’s contribution to the purchase price. This applies to both land and personal property.

• Dyer v Dyer [1788] H&W purchased land in their joint names. The purchase money was provided entirely by H. Eyre CJ: “The trust of a legal estate…results to the man who advances the purchase money.” Unless contrary evidence rebuts this presumption.

• Fowkes v Pascoe [1875]: A purchased an annuity in B’s name. A presumption of RT arose on A’s favour.

NB: s.60(3) does not apply because the conveyance is not voluntary.

The fact proved by the presumption

Primary facts: (i) A conveys to B (voluntary conveyance); (ii) A pays C to covey to B (purchase money).

We know that primary fact + secondary fact = B holds on trust for A. What is the secondary fact?

1. Declaration of trust by transferor in his own favour

• Used by Lord Nottingham in Cook v Fountain [1676]. He notes that there are two types of trust: (i) express; and (ii) constructive. Express trusts can either be declared by direct and manifest proof, or violent and necessary presumption.” These ‘presumptive trusts’ arise when “the Court, upon consideration of all circumstances presumes there was a declaration, either by word or writing, though the plain and direct proof thereof be not extant.”

• Thus the ‘presumed secondary fact’ is the transferor’s declaration of trust.

2. Unexpressed intention to create a trust

• Different from the above, as the intention is unexpressed.

• Vandervell (No. 2): “In the first category, subject to any provisions in the instrument, the matter is one of intention, with the rebuttable presumption of a RT applying if the intention is not made manifest.”

• However, this seems at odds with the operation of presumptions. Presumptions operate to draw the most likely inference from primary facts. This is not the most likely inference —people do not transfer rights without expressing intention to do so.

3. Transferor did not intend to benefit the transferee

• Birks and Chambers: “equity tends to be suspicious of gifts and often asks the recipient of an apparent gift to prove that it was intended as a gift. The failure to do so means that it will be held on trust for the apparent donor.” In other words, equity is suspicious of gifts, so presumes that there is no gift, leading to a presumption of non-beneficial transfer (a trust) in favour of transferor.

• Birks’ theory was rejected in Westdeutsche [1996]:

• Facts: Local Authority entered into an ultra-vires agreement with Westdeutche to bet on interest rate fluctuations. Under the agreement W had paid out money to the LA in the mistaken belief that the agreement was valid (i.e. that the LA had authority to enter into it). W sought resolution from the HL that money was held on RT (so LA would owe fiduciary duties as a trustee and W could claim compound interest).

• HL (Lord B-W): no RT arose (LA just had to make restitution for unjust enrichment —only simple interest). The fact presumed in presumed RT cases is the transferor’s positive intention to create a trust, not the absence of intention to benefit the transferee. In reaching his decision, Lord B-W relied upon Swadling’s statement that: “the presumption of resulting trust is rebutted by evidence of any intention inconsistent with such a trust, not only by evidence of an intention to make a gift. In other words, such trusts are based on intention.”

  • Inconsistent with Birks’ theory: if the fact presumed were a lack of intention to benefit, then it could only be rebutted by evidence that the transferor intended to confer a benefit.

• However, Chambers argues that the lack of intention to benefit theory gains support from Air Jamaica v Charlton:

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