Resulting Trusts(LAWS2385)

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This article is a topic within the subject Equity and Trusts.

Contents

Required Reading

M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 22.

Introduction

[1]Resulting trusts arise where property is disposed of in circumstances in which a provider of property does not intend to confer a beneficial interest on the recipient. The recipient holds the property on trust for the provider. The property is said to “result back” to the provider.

  • The resulting trust resembles a constructive trust in that it is imposed but it differs in that it can be rebutted by evidence that the provider intended to confer a beneficial title to the property on the recipient.
  • Resulting trusts are said to be either presumed or automatic. Presumed resulting trusts can be rebutted. There are two types of presumed resulting trust:
1. A purchase money resulting trust. If P purchases property in the name of D, equity presumes that D holds the property on trust for P.
2. A voluntary transfer resulting trust. If P voluntarily transfers property to D, equity presumes that D holds the property on resulting trust for P.
  • Automatic resulting trusts arise on failure of an express trust. The trustee holds the property on trust for the settlor.
  • Failure can occur when the trust fails to comply with legal requirements, such as the rules relating to certainty of objects or the perpetuity rule, where there is surplus property remaining after the trust has vested in the beneficiaries, and where the reason for creating the trust no longer exists (for a example, where a family trust was created in contemplation of a marriage and the engagement was broken off.
  • It will be necessary for the court to determine whether the express trust has in fact failed, or whether the trust instrument expressly or by implication provides for the destination of trust property in the event of the failure of an interest under the trust. Effect will first be given to the trust instrument and the settlor’s intentions.
  • An automatic resulting trust can also arise where the intention of the provider of property has been vitiated or where there is a complete absence of intention to make a disposition, such as where a contract or gift is voidable for misrepresentation, unconscionability or another recognised vitiating factor.
  • The plaintiff can elect to have the transaction set aside and held on trust for them by the defendant.
  • In most cases the trust imposed on the subject-matter of vitiated transactions has been described as constructive but because the effect of the trust is that the property results back to the original owner, there is a convincing argument for classifying the trust as resulting instead.

Why does equity recognise resulting trusts?

[2]The express trust is an established equitable structure for managing wealth and the constructive trust provides an equitable method for preventing injustice caused by unconscionable conduct. What about the resulting trust?

  • It has been suggested that equity is suspicious of gifts and declines to give effect to a gift unless a clear donative intention has been established.
  • The presumption of resulting trusts presumes that a recipient of property who has not paid for it is not intended to be the absolute owner.
  • Another justification is that it reflect what parties would have intended had they addressed their minds to the circumstances which have occurred.
  • It would therefore be a “gap-filling” device.
  • It can also be explained in terms of its historical origins, which can be traced to attempts by landowners in medieval England to avoid payment of feudal incidents (taxes).

The presumption of advancement

[3]In some cases, equity presumes that a transfer of property is intended to take effect as a gift, or advancement, to the recipient.

  • When a husband buys property in the name of his wife, or a parent buys property in the name of a child, the purchaser is presumed to have intended to make a gift.
  • The presumption also applies to voluntary transfers made by husbands to wives and parents to children.

Therefore, purchase money and voluntary transfer resulting trusts are based on the presumption of advancement applying to the above two categories of relationship.

  • ‘Advancement’ in equity means more than a gift; it is financial provision made by a person obliged to provide for another, which is intended to advance the station in life of that other.
  • It could be considered discriminatory for a husband’s actions to be presumptive advancement, when a wife’s voluntary transfer attracts the opposite presumption. However, there is little practical difference and only slight evidence is needed to rebut the presumptions.
  • Trustees of the Property of Cummins v Cummins[4] illustrates that courts will readily assume that the spouses intended to share the property equally when the contributions to the purchase of the family home are unequal. When the home is fully paid for by one spouse but the title is taken solely in the name of the other, the court will assume it was intended as a gift.
  • It has been suggested that the presumption of advancement should apply to transfers made by de facto partners where the relationship is permanent and the partners hold themselves out to be married. This is unlikely to be applied now that legislation confers wide powers on the Family Court.
  • Should a transfer of a substantial amount of property by an elderly parent to an adult child attract the presumption of advancement? The parent is no longer legally obliged to support the child, although they may be under a moral obligation if the child is disabled or suffers from a serious medical condition.
  • Brown v Brown[5] held that the presumption did apply to such transfer but held on very slight evidence that the presumption had been rebutted on the facts.
  • The presumption of advancement must be sustained or rebutted by evidence relating to the time of transfer, not the court date.


Application of the presumptions to family property

[6]Family Law legislation has diminished the relevance of the presumptions in this area, however, they still have a role to play when the relationship is terminated by death. The equitable principles apply to all forms of property – not only the home but also chattels and money in bank accounts.

Adaption had proved necessary for three reasons:

1. Modern financing reconceptualises the definition of ‘purchase’ and typically takes the form of mortgage terms from institutional lenders.
2. Many aspects of family property holding rests upon tacit assumptions, which means that the court will have to infer an agreement between a couple as to how the equitable title is to be shared.
3. The law of resulting trusts rewards financial contributions towards the acquisition of property and does not value non-financial contributions. There is now greater recognition for the non-financial ‘homemaker’ contributions made by one partner. Nevertheless, the doctrine does not permit a court to examine the “whole context” of the family relationship.

Calverly v Green'[7]

Facts: A de facto couple purchased a house in their joint names. The purchase price was $270,000, of which the defendant paid a deposit of $90.000, with the balance raised by a mortgage. The defendant told the plaintiff that the finance company required the mortgage to be in their joint names and at his suggestion, they became jointly and severally liable under the loan agreement to make repayments. The defendant in fact made all of the mortgage repayments. The couple split up after living together for ten years, and the plaintiff claimed a share in the home.
Issue: Definition of purchase under a mortgage agreement.
Held: The High Court held that the application of resulting trust principles entitled the plaintiff to a one-third share in the home. In reaching this conclusion the court ruled that:
- The defendant was entitled to a one-third share by virtue of his payment of a deposit amounting to one-third of the purchase price.
- The parties were entitled to an equal beneficial interest in the remaining two-thirds by virtue of their joint liability to pay the mortgage. It is irrelevant who made the actual repayments.
- A proprietary interest under a resulting trust cannot be obtained by a party who has paid more than their share of a joint loan, although they may have a right to a personal contribution.
The decision defined “purchase” as not only a cash purchase of but property but also taking out a mortgage. Repayments of the mortgage do not constitute the purchase.


Trustees of the Property of Cummins v Cummins[8]

Facts: A married couple bought their home jointly, the wife contributing 76% and the husband the remaining 24%. The husband had failed to lodge tax returns for 45 years and was made bankrupt on the application of the Tax office. His wife claimed a 76% interest in the matrimonial home on his bankruptcy, based on her contribution to the purchase price, which would have left the remainder to be claimed by the Tax Office.
Issue: The circumstances in which equitable title can be modified by factors other than financial contributions.
Held: The High Court held that the presumption of resulting trust based on the payment of contributions was rebutted on the facts. Each spouse held a 50% equitable interest in the house and the husband’s half share was payable to the Tax Office. The High Court emphasised that:
- The parties were married.
- The home was the family home. Equitable interest would have reflected their actual contributions, had the property been an investment property.
- Title had been taken as joint tenants; who notionally hold the property as one person in law. Equal share would also have been presumed if the registered title had been taken in of their names only.
Within personal relationships, the division of financial contributions to the purchase price of a home is often arbitrary.


Buffery v Buffery[9]

Facts: A husband had received compensation as a result of a workplace accident and used it fund the majority of an investment property, with the balance being paid by a mortgage of which he and his wife were co-mortgagors. The wife’s employers accused her of embezzlement and obtained an interlocutory order over the property, with a view to having it sold off to satisfy any judgement obtained against her.
Issue: Rebutting the presumption of advancement.
Held: The trial judge found that the husband had paid 87% of the purchase price of the property and the wife 13% by virtue of her joint liability under the mortgage. The argument that the husband had advanced his 37% interest to his wife, equalising their shares, was rebutted because the husband had not intended his wife to have an equal share. He had bought the property as a superannuation investment because he could no longer work.

Voluntary transfers of property

[10]The same principles apply to voluntary transfer resulting trusts as to purchase money resulting trusts. Differences have been created by legislation in some jurisdictions.

Resulting trusts arising on failure of an express trust

[11]If an express trust fails, equity will order the trust property to be held by the trustee on resulting trust for the settlor.

  • If the settlor has died, the property will be held on trust for any beneficiary nominated in his will to take the property, or if he is intestate, for the person(s) entitled on his intestacy.

• A beneficiary who is of full age and capacity can require the resulting trustees to transfer the property to him/her in accordance with the rule in Saunders v Vautier.

  • A common type of trust failure occurs when the property cannot be properly disposed of under the terms of the trust.
  • If the trust was to be applied for charitable purposes, the money will be applied cy-près[12] for the nearest analogous purpose.
  • If the trust is not charitable, surplus money will be held on trust for the settlor.
  • In Re Trusts of the Abbott Fund,[13] a sum of money was collected from subscribers for the maintenance of two deaf women. On their death it was held that money remaining in the fund was to be returned to the subscribers under a resulting trust because the donors had not intended their contributions to pass to the womens’ estates. The resulting trust responds to the absence of intention to benefit the recipient of property.

Resulting trusts arising in other cases of failure of basis: the Quistclose trust

[14]Some writers have argued that if money paid to a trustee for a trust purpose which fails is held on resulting trust for the payer, then logically money paid to a non-trustee for a purpose which fails ought also to be held on resulting trust for the payer. The basis of the payment has failed: the payer did not intend to let the payee keep the money if it could not be applied for the purpose.

  • In Westdeutsche Landsbank Girozentrale v Islington London Borough Council,[15] the House of Lords held that the resulting trust was not a general proprietary remedy for failure of basis. An automatic resulting trust only arises in case where property is paid to the trustee of an express trust and the fails.
  • A possible exception is the Quistclose trust.[16]
The weight of Australian authority holds that the trust is express, not resulting.


End

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References

Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).

  1. Textbook, pp 373-4.
  2. Textbook, pp 374-6.
  3. Textbook, pp 376-9.
  4. (2006) 227 CLR 228.
  5. (1993) 31 NSWLR 582.
  6. Textbook, pp 379-83.
  7. (1984) 155 CLR 242.
  8. (2006) 227 CLR 278.
  9. [2006] NSWSC 1349.
  10. Textbook, pp 384.
  11. Textbook, pp 384-6.
  12. See 16.40
  13. [1900] Ch 300.
  14. Textbook, pp 386-8.
  15. [1996] AC 669.
  16. See Chapter 14.
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