Resulting Trusts — SQE1 FLK2 Trusts Law

A woman and a man buy a house together to live in. He provides the whole of the cash deposit and she provides none of it. Both join in the mortgage as borrowers on the day of the purchase. The house is registered in his sole name alone. Six years later they separate. Does she have any share at all under a resulting trust? Yes.

And here is the part that catches people. It has nothing whatever to do with the six years of mortgage instalments she paid out of her salary. This is Resulting Trusts, where the whole subject turns on presumed intention and on one date. Keep her in mind. We are coming back for her.

Here is the route. What a resulting trust is, and the two kinds. Then the presumption of resulting trust, and the presumption of advancement that displaces it. Then purchase money, and the timing rule that decides most exam questions. Then the family home, where the presumptions almost disappear. Then Quistclose trusts. And finally the automatic resulting trust, which arises whether anybody intended it or not.

Start with the idea in the name. A resulting trust arises where a person transfers property to another but does not intend that person to have the beneficial interest. The transferee holds it on trust, and the beneficial interest results back to whoever provided the property or the purchase money. Results back. That is the doctrine in two words.

It arises in two situations. First, where property is voluntarily transferred to another without payment and there is no evidence of an intention to make a gift. Second, where one person provides the purchase money but the property goes into another's name. In both, the law presumes the provider did not mean to give the beneficial interest away.

And there are two kinds, which behave very differently. A presumed resulting trust arises from presumptions about what the transferor intended, and it is rebuttable. An automatic resulting trust arises independently of anyone's intention, when a trust fails or there is surplus trust property. Keep them apart.

Hold it against the constructive trust, because the exam likes the boundary. A resulting trust gives effect to the presumed intention of the transferor. A constructive trust gives effect to a common intention, or prevents unconscionable conduct. Intention on one side, conscience on the other.

So, the presumption of resulting trust. Where one person voluntarily transfers property to another without receiving payment, the law presumes the transferee holds it on resulting trust. People do not give away valuable property without showing they meant to. But it is only a presumption, and evidence of donative intent rebuts it.

Who proves what? The burden lies on the person asserting that a gift was intended, on the ordinary balance of probabilities. Evidence can be an express statement, the circumstances of the transfer, or the parties' later conduct.

The foundation is a case from 1788. Dyer v Dyer laid down the rule. Where one person pays for property and it is conveyed into another's name, the trust of the legal estate results to the person who advanced the purchase money. Two centuries on, that is still the starting point.

Now the presumption that displaces it. The presumption of advancement is the mirror image: where it applies, the transfer is presumed to be a gift rather than held on resulting trust. It applies only in certain recognised relationships.

Which ones? Husband to wife, or civil partner. Father to child. And a person standing in loco parentis to a child. That is essentially the list. Now try the other side. A mother transfers shares into her adult son's name and says nothing about why. Gift, or resulting trust? Resulting trust.

There has never been a presumption of advancement from a mother. That is Bennet v Bennet, from 1879, and it is the discriminator the paper reaches for. The same goes for brother to sister, for uncle or aunt to niece or nephew, for unmarried cohabitants and for friends.

A statutory footnote worth a mark. Section 199 of the Equality Act 2010 would abolish the presumption of advancement altogether. It has never been brought into force. So the old categories still apply, and a question assuming otherwise is testing that.

Between spouses the presumption has lost most of its force. In one leading case a husband did improvement work on a cottage his wife owned and had paid for, and claimed a beneficial interest for his labour. The House of Lords held he acquired nothing. Advancement could still apply between husband and wife, but as a rebuttable presumption of diminished weight.

Now purchase money, where the marks concentrate. Where A provides the purchase money and the property goes into B's name, a resulting trust arises in favour of A to the extent of A's contribution. Provide 60% of the price and you take a 60% beneficial interest.

But look hard at when you provided it. A resulting trust crystallises at the moment of acquisition, and reflects what each party contributed to the purchase price at that date. A party who assumes liability under the mortgage at the outset is treated as contributing the advance, because the advance forms part of the price paid.

Paying the instalments afterwards is a different thing. Those payments come after the trust has arisen. They neither create nor enlarge a resulting-trust share. That is Curley v Parkes, from 2004, and it is the point on which our couple turns. Indirect contributions, such as household bills, do not found one either.

Which does not make those payments worthless. It means they belong in a different argument. Regular mortgage instalments, money spent on improvements, contributions to the household: all of that is evidence of a common intention constructive trust, not a resulting trust share.

And in the family home the resulting trust largely gives way. Where a house is bought in the joint names of a couple to live in, the starting point is that equity follows the law. They are presumed to hold the beneficial interest equally. That is displaced only by evidence of a different common intention, drawn from the whole course of dealing.

That is Stack v Dowden, from 2007, where rigidly separate finances were unusual enough to displace equality. Jones v Kernott, from 2011, went further: where the parties' intentions have changed, the court may infer, or where necessary impute, a common intention from their conduct. In that context the presumptions play only a marginal role.

Note the boundary, because it is examinable. That approach belongs to the shared home. A mother and daughter bought a property together as an investment rather than a home. The Court of Appeal held the domestic starting point did not apply, and the resulting trust analysis did. Ask what the property was for.

And one thing beats all of it. Where the transfer contains an express declaration of the beneficial interests, that declaration is conclusive, absent fraud or mistake. Look for it before you do anything else.

Quistclose trusts next. A company borrowed money for the specific purpose of paying a dividend to its shareholders. The money went into a separate bank account. Before the dividend was paid the company went into liquidation. The House of Lords held the money was held on trust for the lender, and could not form part of the company's general assets. Barclays Bank v Quistclose, from 1970.

The analysis runs in two stages. A primary trust, under which the borrower holds the money for the purpose for which it was lent. Then, if that purpose fails, a secondary resulting trust in favour of the lender. In a later case Lord Millett put it as a resulting trust for the lender, subject to a power to apply the money for the stated purpose.

The same idea works outside lending. A mail order company in difficulty paid its customers' prepayments into a separate account named as a trust account. The court held the money was held on trust for those customers, so they were beneficiaries of a fund rather than creditors. Segregating money before insolvency, and saying what it is for, is what does the work.

Last, automatic resulting trusts. These arise on the failure of an express trust, or where property is left over after the trust purposes are carried out. They are automatic because they operate by law, and the settlor's actual intention is beside the point.

The leading example is a tax case. A donor transferred shares to a royal college to fund a chair, and an option to buy them back was granted to a trustee company. Nothing was ever said about who should benefit from that option, and he plainly did not mean to give it away. The beneficial interest had never been effectively disposed of, so it resulted back to him. He remained liable to surtax.

Surplus funds throw up a related question, and the answer depends where the money came from. A disaster fund raised by subscription, with a surplus after the dependants were compensated, was held on resulting trust for the original subscribers. But money given anonymously in street collections is treated as parted with out and out, and passes to the Crown as bona vacantia.

And where the fund is an unincorporated association, the surplus goes to the existing members under the contract between them, usually in equal shares. The members' relationship is contractual, not a trust. That is the contract-holding basis, and it catches people who reach for a resulting trust automatically.

One final point, on illegality. Where a resulting trust arises out of an arrangement tainted by illegality, the old reliance rule has gone. The court now weighs a range of factors: the purpose of the rule that was broken, any other relevant public policy, and proportionality. Illegality does not always bar recovery.

A word on how SQE1 tests this. You will not be asked to recall case names. You get a scenario, five answers, and one instruction: pick the best. What you need is the sequence: who provided what, when, and in what relationship. The names in this episode are memory pegs, nothing more.

If you keep only three. Dyer v Dyer, where the trust results to the person who advanced the purchase money. Curley v Parkes, where the share is fixed at acquisition and later instalments add nothing to it. And Stack v Dowden with Jones v Kernott, where in a jointly owned family home equity follows the law and the presumptions step aside.

Four traps the examiners set. One: not every voluntary transfer produces a resulting trust. The presumption is a starting point, not a conclusion. Clear evidence that the transferor meant a gift rebuts it, and no resulting trust arises at all. Read the facts for donative intent first.

Two: keep automatic and presumed apart. A presumed resulting trust rests on what the transferor is taken to have intended, and contrary evidence defeats it. An automatic resulting trust arises by law on the failure of a trust, and the settlor's actual intention is irrelevant. Arguing intention against one gets you nowhere.

Three: do not lead with the presumptions in a cohabitation dispute. In the shared home they are of very limited application. Raise them only where there is no other evidence of intention, and go to the whole course of dealing first.

Four: match the question to the trust. If it turns on what the transferor is presumed to have intended, you are in a resulting trust. If it turns on a shared intention, or on what would be unconscionable, you are in a constructive trust.

Quick check, and it is our couple. A woman and a man buy a house together to live in. He provides the whole cash deposit and she provides none of it, but both join in the mortgage as borrowers at the date of purchase. The house is registered in his sole name. Over the next six years she pays most of the monthly instalments. They separate, and she claims a share.

Do her monthly mortgage payments increase her share under a resulting trust? Three candidate answers. One: yes, because the share grows in proportion to the total each party has paid. Two: no, because her share comes from taking on the mortgage at the outset, not from repaying it. Three: no, because someone who pays no cash deposit can have no interest. Pause here if you want a moment.

The answer is two. A resulting trust crystallises at the moment of acquisition and reflects what each contributed to the purchase price at that date. Taking on liability under the mortgage at the outset is treated as contributing the advance, so she does take a share. Paying the instalments afterwards comes too late to create or enlarge one.

Why the others fail. One, because the size of the share is fixed at acquisition and does not grow as the loan is paid down. Three, because she took on the mortgage liability at the outset, which is itself a contribution to the price. And her six years of payments are not wasted. They are evidence for a constructive trust.

Five things to take away. One: a resulting trust gives effect to the transferor's presumed intention, and the beneficial interest results back to whoever provided the property or the money. Two: advancement is presumed from a husband, a father, or a person in loco parentis, and never from a mother.

Three: a purchase money resulting trust is fixed at acquisition. Assuming the mortgage at the outset counts; paying it off afterwards does not. That decided our couple. Four: in a family home held in joint names, equity follows the law and the presumptions give way.

Five: a resulting trust also arises automatically, whatever anyone intended. Where a trust fails, where money lent for a purpose cannot be applied to it, or where property is left over. Next time, Trusts of the Family Home and Proprietary Estoppel.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.