The informal acquisition of an interest in land
“The development of a coherent set of principles to govern the informal acquisition of an interest in land has been frustrated by the courts’ apparent difficulties in distinguishing between concepts such as resulting and constructive trusts and the doctrine of proprietary estoppel.”
The essence of this paper is to explore the area of equitable interests in land. The transfer of land has historically been governed by the need to exercise caution and formality. It is the case that the use of formal means of rights creation in land such as those provided by a deed or other form of signed writing has historically governed the transfer of interests in land. It is thought that such formal methods of rights creation provide for clarity and certainty, particularly when disputes arise, as they can usually provide an accurate picture of events.
In trusts for land, it is usually the case that there has to be an express declaration of a trust in respect of the beneficiary in order for such trusts to be recognised. However the lack of an express declaration of trust in land has not prevented the courts from interpreting those situations as giving rise to trusts. Trusts, which are recognised by the courts in this way, are referred to as ‘implied’, ‘resulting’ or ‘constructive trusts’.
Historical Background to the Creation of Rights in Land
Prior to 1677, trusts of land could be created by word of mouth, and there was no need for such a disposition to be evidenced by deed or in writing. However, following the tidal wave of statutory reforms brought about by the Law of Property Act 1925, it was provided that a declaration of trust respecting any land or any interest therein must be evidenced either by writing signed by some person able to declare the trust, or else by will .
However it was soon recognised that the dogmatic insistence on documentary formality sometimes had the effect of distorting the parties’ relevant intentions or giving one party an unconscionable advantage over the other party, thereby frustrating their legitimate expectations. This it was thought would have the effect of outweighing the policy motivation underpinning the statutory requirement of signed writing. The courts therefore began to acknowledge, and give effect to informal creation of rights in land where the strict formality requirements had not been adhered to. In 1925, the Law of Property Act provided a statutory footing for this exception in the form of section 53(2) of the Law of Property Act 1925. This section provided that the requirement of documentary formality does not affect the ‘creation or operation of resulting, implied or constructive trusts.’
The numerous ways in which the courts started to recognise the informal acquisition of interests in land can be categorised into four-fold. The first was through the means of implied trusts; the second was by means of the proprietary estoppel doctrine, the third was through informally conferred life interests and the fourth, through donations mortis causa. The ambit of this essay does not require one to examine the last two categories. We are therefore principally concerned with the first two instances: implied trusts and the doctrine of proprietary estoppel.
Implied Trusts
It is usually the case that a transfer of a legal estate in land essentially carries the entire beneficial interest in the land conveyed and the person in whose favour the transfer is made is able to lay claim to both the legal and equitable interests in the land. This is usually so, unless another person is able to establish a basis upon which they have also acquired a beneficial interest in the land concerned. Such a person faces an uphill task of establishing a beneficial interest in the land where details of such an interest are absent from the express terms of the transfer of land. Such a claimant would usually have to establish their claim on the basis of an implied trust.
Implied trusts are primarily of two kinds, the resulting trust and the constructive trust.
Resulting Trusts
A resulting trust is based upon the intention of the parties and operates where property is transferred without intending that there should be beneficial ownership in the transferee. It is thought that a resulting trust is used to give effect to the intention of the parties, which in the default of any other evidence, is presumed to underlie the ways in which money is put towards the acquisition of a legal title. It is therefore the case that resulting trusts are usually used to deal with problems arising from money contributions towards the purchase of land. A very good example of such use of the resulting trust is where B provides £40,000 and D £60,000, towards the purchase of land, but the legal title is vested in B alone. In such a case, equity intervenes and provides that B will hold the legal title on a resulting trust for both of them in proportion to their contributions.
Constructive Trusts
Constructive trusts on the other hand, arise by operation of the law. They are imposed by the courts where it would be unconscionable for the holder of the property to maintain his sole beneficial ownership in derogation of rights which have already been bargained away informally to another. In constructive trusts cases, it is usually the case that both parties have already had a discussion as to their equitable rights in the land, with one party having made a promise to another. In such instances, the courts construct a trust to give effect to the parties’ understanding so that one party is not unjustly enriched at the expense of the other.
According to Oakley , there are three major instances where the courts are likely to impose a constructive trust. These are:
(i) where a person has obtained an advantage by acting fraudulently or unconscionably or (perhaps) inequitably;
(ii) where a fiduciary has obtained an advantage as a result of a breach of his duty or loyalty; and
(iii) where there has been a disposition of trust property in breach of trust.
It is usually thought that there are close parallels between constructive trusts and the doctrine of proprietary estoppel. This issue will be later considered in detail.
Proprietary Estoppel
The law relating to proprietary estoppel provides a further means by which rights in land may be created informally. As with the constructive trust, proprietary estoppel is often used to avoid formality requirements, but it is unique in that it can also create legal obligations. Proprietary estoppel is usually said to arise from an owner’s encouragement of or acquiescence in another’s mistaken belief about his present or future rights in the owner’s property. Proprietary estoppel is usually employed as an alternative route for spouses or partners who believed that they were to receive a share in the family home but cannot show the common intention necessary for a constructive trust.
The criteria for establishing proprietary estoppel were propounded in the case of Willmott v Barber in the form of five propositions. Two relate to the person seeking to raise the estoppel: he must have made a mistake as to his legal rights, and must have expended money or done some other act in reliance on his mistaken belief. The other three relate to the person who is said to be estopped: he must know that he himself has some right inconsistent with the other party’s mistaken belief; he must be aware of the mistake; and he must have encouraged the other party to act in reliance on the belief, either directly or by refraining from asserting his own right. However in recent years, a more relaxed approach has been formulated by the courts, and it will now usually suffice for the party seeking to raise the estoppel issue to show that there was a representation; that he relied upon the representation and that reliance on the representation led him to act to his detriment.
Tags: beneficiary, constructive trusts, declaration of trust, equitable interests, property act 1925, statutory reforms
