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United Kingdom Journals
You are here: BAILII >> Databases >> United Kingdom Journals >> Inferring share of interest in home: <I>Midland Bank</I> v <I>Cooke
URL: http://www.bailii.org/uk/other/journals/WebJCLI/1995/issue4/todd4.html
Cite as: Inferring share of interest in home: <I>Midland Bank</I> v <I>Cooke
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Inferring share of interest in home: Midland Bank v Cooke
Nicola Glover LLB,
University of Manchester,and
Paul Todd MA BCL,
Cardiff Law School,< slapnt@cf.ac.uk>
Copyright © 1995 Nicola Glover and Paul Todd.
First Published in Web Journal of Current Legal Issues in association with Blackstone
Press Ltd.
Summary
In Midland Bank v Cooke, CA, 7 July 1995, the Court of Appeal held that Mrs Cooke was entitled to a half share in the matrimonial home, binding on a third party mortgagee, although this was not justified by her direct contribution to the purchase price, and there had been no express discussions between the parties. In Springette v Defoe (1992) 24 HLR 552, [1992] 2 FCR 561, the Court of Appeal had held that the absence of express discussions precluded any claim to apportion shares otherwise than in proportion to contributions to the purchase price, but Waite LJ in Midland Bank v Cooke took the view that Springette v Defoe was not applicable in all instances, and that the lack of discussions or express agreement did not preclude the court from inferring an agreement on general equitable principles.
Web JCLI | [1995] 4 Web JCLI | Download this file.
Contents
The Facts.
In 1971, shortly before Mr and Mrs Cooke's marriage, their matrimonial home was purchased by Mr Cooke, and registered in his name alone. The only financial contribution which she could argue was half a wedding present, of £1,100, from Mr Cooke's parents. She did not make any contributions to the mortgage instalments, but discharged other household outgoings, and devoted much time and energy to the improvement of the house and garden. In 1978, the original mortgage was replaced by a new mortgage in favour of Midland Bank, granted to Mr Cooke in his sole name, which also secured repayment of the business overdraft of Mr Cooke's company. In 1981, Mrs Cooke signed a consent form postponing her rights in the property, if any, to the bank. Later that year, a second charge was executed on the property to secure their liability under a joint guarantee, as security for a business loan. In 1984, the property was conveyed into the joint names of Mr and Mrs Cooke. In 1987, the bank brought possession proceedings, claiming outstanding amounts due under the mortgage. Mrs Cooke claimed a one half beneficial interest in the property, overriding any interests of the bank. It was common ground that at the time of purchase there had been no discussion between the parties as to how the property should be owned beneficially.The Decision.
At first instance, Mrs Cooke claimed a beneficial interest in the property, which was binding on the bank notwithstanding the 1981 consent form, which she claimed had been obtained by undue influence. The judge decided that Mrs Cooke had a 6.47% share, based on her financial contributions (one half of the wedding present from Mr Cooke's parents). He also found in her favour on the undue influence issue.Mrs Cooke appealed on the quantification of her interest, and there was no cross-appeal by the bank on the undue influence finding. The Court of Appeal held that the beneficial interests in the property should be shared equally, on the basis of an inferred agreement, it was common ground that there had been no express discussions.
General Observations.
It was essential for Mrs Cooke to claim a beneficial interest in the property, rather than a proprietary estoppel, since on the conventional view (Hayton 1990, p 380ff; Battersby 1991, p 38), estoppels do not bind third parties, at any rate until they are crystallised by the intervention of the court. If the court decides to satisfy the equity by creating a proprietary interest, then only thereafter will a third party be bound. To succeed, Mrs Cooke had to claim an interest capable of binding the bank from the date of the mortgage in 1978.For the same reason, the conveyance of the property into the parties' joint names in 1984 was irrelevant. Even if a presumption of advancement could apply from husband to wife, it would be too late for an interest created in 1984 to bind the bank.
The leading authority on this area of the law is generally taken to be the decision of the House of Lords in Lloyds Bank plc v Rosset [1991] 1 AC 107, a case which, it has been claimed (eg Ferguson 1993, p 115), has become 'the new orthodoxy'. Lord Bridge (at pp 132E-133A) distinguished between two categories of case where somebody without legal title could claim a beneficial interest: the first where there is evidence of an agreement or understanding as to the disposition of the beneficial interests, independently of any inference to be drawn from the conduct and contributions of the parties, and the second where there is no such evidence. In the second case, 'the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust.'
It is difficult to categorise Midland Bank v Cooke in terms of either of the Rosset categories. It does not fit happily within the first category, given that at the time of purchase there had been no discussion between the parties as to how the property should be owned beneficially. Nor does it fit happily within the second; Lord Bridge observed that:
"In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do."
It has been argued (eg Ferguson 1993, p 115) that this passage is inconsistent with earlier authorities, and that it is unclear whether Lord Bridge intends to change the law. In Burns v Burns [1984] 1 Ch 317, both Fox and May LJJ (at pp 329C and 344H) thought that indirect contributions, including substantial contributions to the family expenses so as to enable the mortgage instalments to be paid, would also suffice. In Midland Bank v Cooke, however, it was common ground that there was insufficient evidence before the judge as to whether the contribution of Mrs Cooke towards household expenses affected Mr Cooke's ability to pay the mortgage instalments. The judge also ignored Mrs Cooke's maintenance and improvement contribution, which fell into the three categories of redecoration, alterations/improvements and repair. Waite LJ observed that his conclusion that it did not amount to a contribution to the purchase price was justified by the authorities, ranging from Pettitt v Pettitt [1970] AC 777, to Lloyds Bank v Rosset [1991] 1 AC 107. In the last case he was presumably referring to the passage referred to above.
The passage in Rosset, and those referred to from Burns v Burns, actually related only to the acquisition rather than quantification of the interest, and the ratio of Midland Bank v Cooke appears to be that once the partner without legal title has established some equitable interest through direct contribution, the whole course of dealing between the parties becomes relevant to its quantification. Yet although Midland Bank v Cooke can therefore technically be reconciled with Lloyds Bank v Rosset, Waite LJ's reasoning is based more closely on Lord Diplock's speech in Gissing v Gissing [1971] AC 886, particularly at p 908, where no particular limitations are placed on the evidence that can be used to establish quantification.
Yet although it may be reasonable to conclude that evidence which would not lead to the inference of an acquisition of an equitable interest may nonetheless be relevant to quantification, we suggest that there is a more fundamental difficulty in Cooke, which Waite LJ side-stepped. In Gissing v Gissing, Lord Diplock also gave explicit voice (at p 904H) to what can be inferred from Pettitt v Pettitt [1970] AC 777, that the applicable principles are those of the general law of trusts. So we are entitled to look to the general law of trusts to examine the mechanism by which Mrs Cooke's interest arose. On normal resulting trust principles, she was entitled only to a share based on her contribution to the purchase price. Therefore her half share, presumably obtained on acquisition since there is no suggestion that she acquired it later, cannot be justified on resulting trust principles. On the conventional analysis (which is elaborated further below), the only alternative route would have been for Mr Cooke to have declared himself trustee for himself and Mrs Cooke, in which case she must have relied on his declaration so as to give rise to a constructive trust, thereby avoiding the formality provisions of the Law of Property Act 1925, s 53(1)(b). It is difficult to see how that could have occurred in the absence of some form of communication between the parties. The real issue, then, is what communication ought to suffice.
Relationship with Springette v Defoe.
In Springette v Defoe (1992) 24 HLR 552, [1992] 2 FCR 561, Miss Springette and Mr Defoe purchased a house, Miss Springette being able to obtain a 41% discount under a "right to buy" scheme under the Housing Act 1985, Part V, the discount being based on her 11 years as a tenant. The property was conveyed into joint names, there being no declaration of trust in the transfer, and both were liable to repay the mortgage instalments, and in fact both contributed equally to the repayments. Both Springette and Defoe also provided other moneys, the result being that, taking into account her 41% discount, Miss Springette's financial contributions were about 75%, and Mr Defoe's 25%.The relationship broke down and proceedings were commenced to determine the respective beneficial interests of the parties. Miss Springette claimed a 75% share on the basis of her financial contributions, whereas Mr Defoe claimed 50% on the basis that the couple understood that they were to share the property equally. Mr Defoe claimed that the case should be decided on the basis of the first category in Lloyds Bank plc v Rosset [1991] 1 AC 107, above, where an agreement, arrangement or understanding is reached between the parties, independently of any inference to be drawn from their conduct, or contributions. In such cases, evidence of such agreement, arrangement or understanding overrides any presumptions created by the conduct, or contributions.
The Court of Appeal held in Miss Springette's favour, following Lord Bridge's remarks in Rosset that the finding of such an agreement, arrangement or understanding could only be based on evidence of express discussions between the partners. There was no such evidence in Springette v Defoe, and hence no reason to rebut the presumption of resulting trust. Steyn LJ observed, (1992) 24 HLR 552, at p 558, that:
"[o]ur trust law does not allow property rights to be affected by telepathy. Prima facie, therefore, the alleged actual common intention was not established."
Springette v Defoe was distinguished in Savill v Goodall [1993] 1 FLR 755. In this case, Mrs Goodall was entitled to a 42% discount under a 'right to buy' scheme, the entirety of the remainder of purchase money being raised on a mortgage for which Mr Savill accepted liability to repay. As in Springette v Defoe, the property was transferred into the joint names of the parties. The Court of Appeal held, on the basis of express discussions between the parties, that the beneficial interests should be divided equally, but also accepted that his quid pro quo for being granted a beneficial interest was his agreement to repay the mortgage capital, and costs of redemption. The net proceeds, after repayment of the mortgage by him, was therefore divided equally.
The only substantive difference between Springette v Defoe and Savill v Goodall was the absence of any discussion in the former, and it presence in the latter case.
In Midland Bank v Cooke, however, Waite LJ did not regard Springette v Defoe as laying down any general principle, for the following reasons: that Dillon LJ, who had given the leading judgment in Springette v Defoe, had taken a very different approach in McHardy & Sons v Warren [1994] 2 FLR 338; that no such requirement for express discussion could be gleaned from Gissing v Gissing [1971] AC 886 or Grant v Edwards [1986] 1 Ch. 638; and that the couple in Springette v Defoe were:
"a middle aged couple already established in life whose house-purchasing arrangements were clearly regarded by the court as having the same formality as if they had been the subject of a joint venture or commercial partnership."
If Waite LJ is correct, we can no longer assume that the presence or absence of discussions will be decisive. However, the passages referred to from Gissing v Gissing (at p 908) and Grant v Edwards (per Sir Nicholas Browne-Wilkinson at p 657G) both concerned quantification, on the assumption that a trust had already been established. The problem in Midland Bank v Cooke, we suggest, given that Mrs Cooke could obtain only a 6.47% share under a resulting trust, is in finding Mr Cooke's initial declaration of trusteeship.
Requirement for Discussion in Principle.
It is clear from Lord Bridge's speech in Lloyds Bank v Rosset that acquisition of a beneficial interest (apart from under a resulting trust) depends not only on an agreement, understanding or arrangement between the parties, but also that the party claiming the beneficial interest has acted to his or her detriment or significantly altered his or her position in reliance on that agreement, in order to give rise to a constructive trust or proprietary estoppel (at p 132G). Professor Hayton takes the view that whether the analysis is in terms of trust or estoppel makes no difference (Hayton 1990), but we would argue that constructive trust and proprietary estoppel are separate and alternative ways of acquiring a beneficial interest.Although Mrs Cooke had to claim an interest under a trust in order to bind the bank, the requirement for discussion can affect either route.
Constructive trust.
In Gissing v Gissing [1971] AC 886, at pp 904H-905D, Lord Diplock explained the applicable legal principles in terms of a declaration of trust by the person in whom the legal estate is vested (A) for the person claiming the beneficial interest (B). The declaration would be void for want of writing, which is required by the Law of Property Act 1925, s 53(1)(b), unless it were acted upon by B, so as to render it inequitable to allow A to deny the trust. It would then take effect as a constructive trust, to which, by virtue of s 53(2), s 53(1)(b) has no application.The explanation in Lloyds Bank v Rosset, at p 129C, is similar. The analysis requires all the elements of an express declaration of trusteeship by A to be present. In determining whether A has declared himself or herself trustee, we would suggest that the courts are not concerned to ascertain A's intention as such, but instead adopt the position of a reasonable observer. For example, in Richards v Delbridge (1874) LR Eq 11, Sir George Jessel MR concentrates on the words used by A, observing that:
"however anxious the Court may be to carry out a man's intention, it is not at liberty to construe words otherwise than according to their proper meaning."
This suggests that A's actual intention is irrelevant. In Re Kayford (in liq.) [1975] 1 WLR 279, Megarry J, at p 282A, talks in terms of an intention being manifested, rather than merely held. That being so, the reason why discussion is required becomes evident, since it is difficult to manifest an intention without saying so.
In any case, in order to render it fraudulent for A to deny the existence of the trust, B must rely on the declaration, or significantly alter his or her position. Again, this necessitates communication between the parties, and is again a justification for the requirement for discussion.
There are also certainty arguments for requiring communication. Waite J's decision in Hammond v Mitchell [1991] 1 WLR 1127 shows how much can turn on A's declaration of trusteeship: Vicky Mitchell obtained a half share under the first category in Lloyds Bank plc v Rosset, having contributed nothing at all to the house itself, solely because of statements that had been made to her by Hammond. Any beneficial interest thereby created will also bind third parties. It should also be borne in mind that a declaration of trusteeship constitutes an irrevocable and onerous commitment. Prior to an act of commitment, it ought to be possible for A to change his or her mind, however much, at that time, he or she is determined to become a trustee. It is not unreasonable to require the act of commitment to be in some sense public, at any rate to be communicated to the other party.
There is nothing in the Springette v Defoe line of cases to indicate what needs to be communicated. It follows from the above, however, that A needs to say something which leads B to suppose that A is making an immediate and irrevocable commitment, whether or not this is A's actual intention. We would suggest that, contrary to the position taken by Gardner (Gardner 1993), this is a good explanation of the excuse cases, such as Grant v Edwards and Eves v Eves [1975] 1 WLR 1338. What A is saying in these cases, in effect, is that although legal title must be vested in himself alone, this is for purely formal reasons, and the reality is that the property is to belong to both of them. It is difficult to imagine a clearer declaration of trusteeship than that, given that the test is what B might reasonably think.
However, a trust takes effect immediately, and it follows that statements of future intention by A should not be sufficient for trusteeship (although they may well be for an estoppel), still less statements made by A before the trust property is even identified. Consequently, we would suggest that the conversations which took place in Beirut, which were relied upon by Vinelott J in Ungurian v Lesnoff [1990] Ch 206, should not have been capable of creating a trust. Similarly, whereas the excuse in Hammond v Mitchell, like those in Eves v Eves and Grant v Edwards, was properly considered capable of creating a trust, the statement that Hammond would always look after Vicky and the boy would not have been capable of doing so.
We have observed that in Savill v Goodall, the Court of Appeal distinguished Springette v Defoe on the basis that there were discussions in the later case. The court did not pay particular regard to the nature of the discussions, however, and we would suggest that in principle, they ought not to have been considered sufficient to lead to the inference of a beneficial interest. The content of the discussions was tenuous, and certainly there was no substantial discussion of beneficial interests in the property. We would suggest that there were no obvious grounds for distinguishing Springette v Defoe, and that the case was incorrectly decided.
We would also suggest, however, that communication does not necessarily mean talking. In Re Kayford, Megarry J required only that the intention to declare oneself trustee be manifested. While detrimental reliance requires some form of communication, it may not necessarily require words. If the evidence showed that the parties really were capable of communicating by telepathy, there is no obvious reason why the law should not allow this method of communication to be used to create beneficial interests within this category.
The requirement in Lloyds Bank v Rosset (at p 132F) was for evidence of express discussions, not express evidence of discussions. This suggests that inferred evidence of discussions ought to be sufficient, and indeed, in Gissing v Gissing Lord Diplock suggested (at p 906A) that the parties' intentions could be inferred from their conduct, even in the absence of express words. No doubt is thereby cast on the correctness of Springette v Defoe, where there was no evidence at all of discussions.
Estoppel
Although this route was not available in Midland Bank v Cooke, in Lloyds Bank v Rosset, Lord Bridge suggested the proprietary estoppel as an alternative route to come within the first head. We would suggest that estoppels differ from trusts in that they do not necessarily create full beneficial interests, the position of third parties is different, A's intention can be as to the future and indeed, the property need not even be identified: (Ferguson 1993). There is also no obvious need for an irrevocable commitment by A. Estoppel is based on the notion of A misleading B. A is prevented from going back on his or her assurances only to the minimum extent necessary for equity to do justice to B.This suggests that the arguments for communication for creation of trusts would not necessarily apply in an estoppel context. The commonly-accepted formula for proprietary estoppel, adopted by Oliver J in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133, at pp. 151H-152A, requires only that 'it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment'. There is no express communication requirement in this formula, and there is authority for the proposition that encouragement can be by words or conduct: eg Moorgate Mercantile Co Ltd v Twitchings [1975] QB 225, per Lord Denning MR at p 241.
Indeed, it is universally accepted that Oliver J's formulation is intended to broaden the definition of estoppel, and there is no doubt that it still suffices to satisfy Fry J's five probanda from Willmott v Barber (1880) 15 Ch D 96, at pp 105-106, recently applied by Roch LJ in Matharu v Matharu (1994) 26 HLR 648, at pp 656-657. Fry J's fifth element, encouragement of B in the expenditure of money, or in other acts, can be satisfied by A merely abstaining from asserting a legal right. A can therefore be estopped, in theory, having taken no positive acts to communicate at all. So although in many cases communication will be necessary to establish an estoppel, we cannot assert that it will be necessary in every case.
Conclusion.
There are two alternative routes, then, for someone without legal title in the home to acquire a beneficial interest. The Springette v Defoe line of cases have considered exclusively the trust route, where, we suggest, the requirement for communication is made out, but the requirement for express discussion may be too stringent. Any form of communication which is fully understood by both parties ought to suffice. It should not be necessary to use express words.While Springette v Defoe may go too far in one direction, however, to allow a complete lack of communication, as in Midland Bank v Cooke, seems impossible to justify, especially as it was common ground that there had been no discussions between the parties. An inevitable consequence of Midland Bank v Cooke is that beneficial interests will be difficult to determine with any reasonable degree of certainty, a most unsatisfactory consequence bearing in mind that Mrs Cooke's interest took priority to that of a third party.
None of the Springette v Defoe line of cases has considered estoppel, the second route suggested by Lord Bridge in Lloyds Bank v Rosset. Had estoppel been considered, we suggest that it is possible, albeit exceptionally, to envisage circumstances where the communication requirement is unnecessary.
Bibliography
Battersby, G (1991) 'Contractual and Estoppel Licences as Proprietary Interests in Land' [1991] Conveyancer 36.
Ferguson, P (1993) 'Constructive Trusts - A Note of Caution' 109 Law Quarterly Review 114.
Gardner, S (1993) 'Rethinking Family Property' 109 Law Quarterly Review 263.
Hayton, D (1990) 'Equitable Rights of Cohabitees' [1990] Conveyancer 370.