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CHAPTER – I
MEANING, ORIGIN AND NATURE OF BENAMI
1.1 Introduction: Benami transactions have been a common practice in India since a very long period of time. The word ‘benami’ is of Persian origin and literally means ‘property without a name’. It signifies a transaction where a person buys property in the name of another or gratuitously transfers property to another without an intention to benefit that other. A benami transaction was one where property was purchased or transferred in the name of one person but another person paid the consideration for the transfer. The person in whose name the property was transferred was only the nominal owner while the person from whom the consideration flowed was the real owner of the property. Benami Transactions means acquiring or holding or purchase of property in false name of another person, who does not pay the consideration but merely name lender, while the real title vests in another person who actually purchased the property for his own benefit. Property was purchased out of love and affection in not a benami transaction. The practice of Benami transactions was not restricted to Hindus but was also common among Muslims as furzee transactions. Moreover, benami transactions were not confined to purchases in the name of a person but also applied to leases and mortgages i.e. a person may take a lease of property in the name of another or he may buy property in his own name and subsequently convey or mortgage it to another for a fictitious consideration. Benami transactions had been recognized in this Indian subcontinent for a long time and became a valid custom, thereafter got formal legislative recognition by introducing the Trust Act, 1882.The practice of Benami transactions was not only familiar among the Hindu community but also common phenomenon among Muslims as furzee transactions. Consequently, Benami transactions were recognized by the Courts. The essential legal characteristic of these transactions is that there is no intention to benefit the person in whose name the transaction is made, the name of that person popularly known as the `benamdar’. Benamdar is simply an alias for that of the person beneficially interested. The benamdar has the ostensible title to the property standing in his name; but the beneficial ownership of the property does not vest in him but in the real owner. A benamdar merely represents the real owner. Moreover, benami transactions were not confined to purchases in the name of a person but also applied to leases and mortgages i.e. a person may take a lease of property in the name of another or he may buy property in his own name and subsequently convey or mortgage it to another for a fictitious consideration.A proceeding by or against the benamdar, although the beneficial owner is no party to it, is fully binding on the beneficial owner.The expression Benami is a persion origin the meaning of which is fictitious. In the matter of Ali Azam Vs. Mohammad Majib Ullah his lordship Mr. Hasan Foez Siddique,J Observed that:
The word “Benami” is a Parsian compound word consisting of (i) Be which means ‘without’ and (ii) Nam‘, which means ‘name. It literally means without a name that is nameless or fictitious and is used to denote a transaction which is really done by a person without using his own name. That is, not in the name of real purchaser, but in the name of another. In every such benami transaction there are three persons concerned; the vendor, the real purchaser and the name lender…………The word benami transaction means a transaction in which the purchase is made in the name of someone other than the real purchaser.
It was further observed that, to come under the purview of the Benami transaction, the property must be in the name of one person, whereas the sale price or consideration should be paid or provided by another. The consideration thus flows from a person other than the person in whose name the property is purchased. If the person in whose name the property is purchased has made a contribution towards the sale consideration, then the transaction may not amount to a Benami transaction. Further, the reasons or intention for withholding the names of the persons making the contributions for the purchase of the property will also be looked into. A deed cannot be partially benami partially shwanami. In the alleged transaction it appears that the name of the real purchaser as well as his alleged benamder are appeared in the kabala deed. So apparently the instant transaction is not a benami transaction within the meaning of the words benami’ “benamder” and “benami transaction.
1.2 Origin and development of the Benami Transaction: Roman law which is one of the oldest known legal systems recognized something like the benami transaction. The law of property of the Romans required that for the conveyance of lands, slaves, horses, oxen and the objects of first consequence to a primitive people the elaborate ceremony of mancipation had to be gone through. These were called res mancipi, that is, things which required a mancipation. Mancipation is described by Gaius with particular reference to the conveyance of moveable (res mancipi) as a pretended sale in the presence of not less than five citizens as witnesses and a libripens holding a pair of copper scales. The transferee with one hand on the thing transferred and using certain words of style declared it his by purchase with a piece of copper (which he held in his other hand) and the scales (hoc arer aeneaque libra); and simultaneously he struck the scales with the as which he then handed to the transferor as figurative of the price. The principal variation when it was immoveable that was being transferred was that the mancipation did not require to be on the spot; the land was simply described by its known name in the valuation roll. As observed by Maine in his AncientLaw, the entire solemnities must ke scrupulously completed by persons legally entitled to take part in them or else the conveyance is null and the seller is re-established in the right of which he had vainly attempted to divest himself. The Praetor remove this hardship by recognizing titles acquired by conveyance to which part only of the ceremony of mancipation had been applied and vested the beneficial interest in the purchaser to whom the property had keen delivered. If the ceremony of mancipation had been carried so far as to involve a traditio or delivery the Praetor would protect the possession of the purchaser which the course of two years at the most ripened into full ownership by what was called usucapion as known to Roman law. The concept is not also foreign to Hindu law. Manu divided the whole of Hindu law into eighteen titles. Rights and modes of procedure which were beyond the pale of the older law were recognized by later sages and designated for want of a specific name by the term “Miscellaneous”. One of the rights under this “Miscellaneous Title” probably was the right of a beneficiary of property the apparent signs of the ownership of which were allowed belonging to another. Coming to English law the trust was the posthumous offspring of the mediaeval use. Use is derived not from usus but from opus. The phrase ad opus meum meaning “on my behalf” or “for my profit or advantage” is very old. In equity alone there is the idea of A holding land permanently to the use of B. It is this permanence of dominion and stewardship that really distinguishes the word as used by equity from the word as used by common law. The real beginning of uses is according to Mait-land to be found in the thirteenth century when the practice grew up of conveying land to the use of Franciscan friars. But Sir William Holds worth found cases in Bracton’s Notebook and other places and put them at a much earlier date.4 Uses were designed to serve various ends. The feudal dues imposed a crushing burden on the tenant by knight service. Of these the most irksome were wardship and marriage. The lord had the custody of the person and lands of the infant heir of his tenant and could dispose of that heir in marriage.
Benami transactions were noticed as early as the year 1778 in Mr. Justice Hyde’s notes after the establishment of British rule in India. In Gopeekrist Gosain Vs. Gungapersuad,case it was (1854) 6 MLA 53, held that benami transaction is a custom of the country and must be recognized till otherwise ordered by law. In 1882 sections 81 and 82 of Indian Trusts Act gave legislative recognition to the practice of benami transactions and the courts were bound to enforce it.
In the case of Nurjahan Begum, wife of Mahmudur Rahman Vs. Mahmudur Rahman Mullick it was observed that,
The practice of benami developed in the Indian sub-continent long before its conquest by the Muslims and during the Muslim rule the practice of benami received full recognition from the authorities and the Courts as well. That the practice of benami was widely practiced throughout the sub-continent is evident from the early history of the East India Company. The company started administering the province of Bengalin 1757. Law reports of cases involving benami transaction decided by the Sudder Diwany Adawlat and the Supreme Court of Bengal amply show that the benarni system became an institution which was accepted in the common parlance though the Judges used to refer to it as a “pernicious system” but were obliged to recognise it and give effect to such transactions which were otherwise valid. In 1882 the practice of benami received formal legislative recognition when the Indian Trust Act (Act II of 1882) was enacted.
1.3 Causes of the Benami Transaction: Benami transactions used to take place to evade law of perpetuity, because of parda system, to avoid annoyance, Zamindar’s desire to avoid indignity and legal disability, mysterious desire etc. Various writers on Hindu Law and the 57th Law Commission Report of India have identified various reasons why people entering into benami transactions were such a common phenomenon.
- Some people had superstitions regarding certain names being lucky or unlucky and therefore they preferred to purchase property in the name of a real or fictitious person that they considered lucky.
- A desire to make secret provisions in the Joint Hindu family system is one factor, which might have led to the practice of benami.
- Another reason could have been the want to commit fraud on creditors.
- The desire to evade taxes thereby committing fraud on the State and not an individual could have been another reason for the same.
- Benami transactions might have originated in a desire to avoid certain political and social risks. Such practices grew up in Indian society at a time when there was an appreciable risk from one generation to another of hostile conquests and confiscation. Moreover the instability of the political climate at the time of the takeover of the Mughal Empire by the British explained the dangers perceived by people owning property. The persistence of habits after the reasons for their coming into existence disappeared is not a surprising phenomenon.
1.4 The Nature of Benami Transactions: In a benami transaction real owner of a property allows it to appear in the name of an ostensible owner, himself remaining the beneficiary of the property.However, this raised confusion as to in who the title to the property vested. In case of a trust, the legal ownership of the property vests in the trustee while the beneficial ownership vested with the person for whom the trust was created.There was no difference in this regard if the trust was express or a resulting or constructive trust. If a benami transaction created a resulting trust, then the legal ownership should vest with the benamidar while the beneficial ownership continued to remain with the real owner. The position of Indian Courts is rather obscure on the point. The Bombay High Court has held that the import of S.82 was only that a benamidar stood in a fiduciary relation with the real owner and therefore had all the obligations of a person in such position with respect to the real owner. He was no more than the ostensible owner of the property though his acts with respect to third parties were of such a nature as to bind the real owner of the property. But it would be fallacious to urge that the legal ownership of the property vested in him as it does in the case of a trustee. The principal distinction between a trustee as known in English law and a benamidar is that the trustee is the legal owner of the property standing in his name and the cestui que trust is only the beneficial owner whereas in the case of a benami transaction, the real owner has got the legal title though the property is in the name of the benamidar. The benamidar has some of the liabilities of the trustee but not all his rights. However, the Oudh High Court had held in Gur Prasad v. Hansraj that the legal title of the property in case of a benami transaction vested in the benamidar as he held the property as a trustee of the real owner.
1.5 Motive for benami Transaction: It is true that the absence of motive for benami is not always conclusive or. the question, but when the purchase in the names of one or other or some of the members of the family is consistent with an intention to make the acquisitions for the family and there is nothing unusual in such acquisition, certainly, the Court may give some weight to the absence of motive and absence of an acceptable explanation for taking the sale-deeds in the names of his sons. Ever: as the absences of a motive need not necessarily exclude the theory of benami, the fact that some motive is shown will equally not bars the rejection of the plea of benami. While on questions of benami, the Court will not indulge in suspicion and surmise, it will have to take into consideration the facts and circumstances as established by the record and from an overall picture of the entire evidence, draw its inference. Motive, the source of consideration, possession of the property and its enjoyment, custody of title-deeds, these are various features, which may severally or cumulatively weigh and tilt the scale one way or other. But these features are not exhaustive of the circumstances on which the final conclusion of the Court has to be based. Nor can it be said that in all cases the presence or absence of one or the other of these circumstances will be helpful in deciding the real position. At times other considerations than motive, possession and sources of consideration may play a vital part in the determination. In, certain circumstances only one or the other of the above specified elements may alone be of assistance. In case of Rupe Jahan Begum vs Lutfe Ali Chowdhury and others It was held that,
“By the deed dated 20-12-74 the plaintiff No. 1 purchased 2 and a half decimal of land in the name of defendant No. 2 as benami inasmuch as the Matriculation Certificate of defendant No. 2 shows that he was born on 2-4-1959 for which when the deed in question was registered he was a boy of 13 years and in the absence of his independent source of income it can be said the deed in question was a benami. Moreso, all the deeds of the plaintiffs including the deed dated 20-12-74 were produced from the custody of the plaintiffs and hence the defendant No. 1 did not acquire any title in the suit land by exchange deed”.
CHAPTER- II
BENAMI DISTINGUISHED FROM OTHER LEGAL RELATIONSHIPS
2.1. Religious endowment: The tests of a bona fide endowment are how have the founder and his descendants treated the endowed property and whether the income has been continuously applied to the objects of the dedication. As the Privy Council pointed out in Fuggut Mohini v. Sookheemony, a mere abuse of trust by a trustee for the time being cannot affect the validity of the endowment when there is no question about its being a real and valid endowment originally; but when the question itself is whether originally the endowment was real or fictitious the way in which it was dealt with by the founder and his successor would be the essential factors for consideration. When there is a document which purports to create the debutter it may still be proved that the deed is benami or fictitious and was not meant to be acted upon. If, however, the founder’s intention to dedicate is established and divestiture of interest is contemporaneous nothing further need be proved. The following are illustrations of inoperative endowments:
(i) Even after death of endower no change taking place in the accounts or in the management or dealings with the business or estate or proceeds thereof everything done in the same manner as if the deeds had not been executed.
(ii) Within fifteen days of the date of the endowment endower transferring to his brother half of the endowed property. No proof that the income of the so called endowment lands had been continuously devoted to the service of the idol.
(iii) No mutation of name of idol and expenditure on idol at most one tenth of the total income.
(iv) Dedicated property allowed standing as secular property in the Land Registration Department and mode of dealing with the property showing that parties still regarded the property as belonging to the estate. But where the deed of endowment is intended to be acted upon and is not a benami deed, instances of unlawful diversion of property from the services of the idol to other purposes in later years are immaterial and do not affect the Debuttur.
The fact that the property is called debutter is doubtless evidence in the plaintiff’s favour but it does not relieve them of the whole burden of proving that the land was dedicated and is inalienable. B. K. Mukcijea thinks Mookerjee, J; in Budh Singh vs. Nirod went a little too far when he laid down that the question whether the bawd had been absolutely dedicated for a public charitable purpose was wholly ismign to an enquiry in the resumption proceedings and quoted the following observations of Brett and Sherfuddin, IT, in Madhab Chandra v. Rani Sarat & seeari as laying down the correct law:
“We are of opinion that it would acrtainly be open to an officer acting under that Regulation to enquire man the grounds set forward in support of a rent-fee grant claimed and when ,Aese grounds are based on the allegation that. The lands had been dedicatcd for a public charitable purpose, then it would be necessary for such ,blic officer for the purpose of arriving at a conclusion as to whether or not there was a valid rent-free grant to take into consideration and decide incidentally question whether there has been a dedication for a charitable purpose. Such a incidental decision would not amount to a final determination of the question Imr could it be relied upon for such a purpose.”
The fact that a claim. was put forward by the shebait that the property was debutter and the claim, was admitted by the revenue authorities would certainly make the rubkagis evidence her Sec. 13, Indian Evidence Act, but they could not by any means be carded as conclusive but they should be weighed and appraised for what they were worth along with other evidence in the case. Entries in settlement records are pared under Chapter X of the Bengal Tenancy Act have a greater evidentiary value; they carry a presumption of their correctness under Sec. 103-B of the Act. The mere fact that the proceeds of any land were used for the support of a- idol may not by itself establish debutter for it is well known that worship of .rnily deities may be, and sometimes is, carried on with the income of specific property belonging to the family. But such fact may in certain circumstances have an important bearing in determining whether the property is debulter or not. When account papers are produced showing that rents were separately colkted and applied for the worship of the idol or where there is apparently good evidence going back for more than, half a century that land was given for the support of an idol, proof that from time to time the proceeds of the land had been so expended would be strong corroborative evidence of debutler. Though purchase of a property in the name of a deity is not per se evidence of dedication when however it is proved that the person who advanced the money described himself as the dharnaakarta or shebait in the document that would be good evidence of dedication. The employment of priests or archakas for the performance of worship in accordance with the rites of the sect for whose benefit the endowment is alleged to be made also constitutes material evidence in support e (dedication. Hearsay evidence given of a tradition. in plaintiff’s family that an ancestor of the defendant had established two deities and granted the plaintiffs an annuity in perpetuity for the worship charged Upon the grantor’s tstate was excluded by the Privy Council in Maharaja Srish Chandra v. Rukhalanandan though it had been admitted by the High Court.
2.2 Sham transactions: A nominal transfer is distinct from a sham transfer. In the latter there is no intention to transfer at all while in the former there is an intention to transfer to one’s nominee so that he shall hold the property openly for himself but secretly for the transferor, using the document as a cloak to save it from his creditors. The essence of a sham transaction is that though a deed of transfer is brought into existence no title of any kind is intended to be passed- to any person. If there is no intention of passing the title in the property to a. third person the transaction is a sham one.
2.3 Benami and sham transactions: Distinctions between.-Meaning of the word benami and a distinction between benami and sham transaction has been clearly drawn by their Lordships of the Supreme Court in Sree Minakshi Mills Ltd., Madurai v. Commissioner of Income-tax, Madras : “The word benami. Observed their Lordships, “is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B, but the sale-deed mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being the benamidar. This is the class of transactions which is usually termed as benami. But the word benami is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid. Hence, it is a most unreal question to raise of firms and companies whose only business consists of sham transactions as to who found the capital for them or who was running them.
2.4 Trust: Trust in the strict sense of the term in which an English lawyer uses it are unknown to Hindu and Mohammedan laws. The English law of trusts recognizes two estates of interests in the subject-matter of the trust, namely, the legal estate of the trustee and the equitable estate of the cestui que trust. Under that law there may be two persons holding different estates in the same property. Both are entitled to convey their estates, both are entitled to the rents and profits, one the legal owner to receive them and the other the equitable owner to enjoy them. The trust relationship under English law is that which arises where property is vested in a person or persons which they are obliged to hold in continual dominion and stewardship for the accomplishment of a particular purpose or for other persons according to their directions such persons being given by equity a quasi-proprietary right analogous to the common law right of ownership which will prevail not only against the trustee himself but against any one into whose hands the property co es except only a bona fide purchaser of his estate. It is possible for a trust to be imposed on B in favour of C of property which A in turn holds on trust for B. There can be a trust on a trust. Nevertheless, trusts in the wider sense of the term, namely, obligations annexed to the ownership of property which arise out of a confidence reposed in and accepted by the owner for the benefit of another are constantly created by Indians and are frequently enforced by the Courts. In a benami transaction some sort of confidence is reposed by the real owner in the benamidar but the benamidar does not by virtue of that confidence acquire any right of ownership over the property so as to give rise to the trust relationship. The real owner retains the possession himself and never gives the benami deed to the benamidar. In many cases the benamidar does noteven know of the existence of the benami deed, the assent of the benamidar not being necessary for such a transaction. Till recently the benamidar was held not entitled to bring suits in his own name. The benamidar is therefore a mere alias for the real owner and in no sense a trustee except in those rare cases where the legal estate happens to vest in him. But there are cases which take the contrary view that a benamidar is a trustee. There is also a difference of opinion as to whether a benami transaction creates an implied or a resulting trust.<href=”#_ftn13″ name=”_ftnref13″ title=””>[13] But although benami transactions have been held to be in the nature of resulting trusts all the rules governing them are not applicable to them. The English doctrine of advancement has not been applied. All things considered, it will be found best for all practical purposes to deal with the subject of benami as one in the nature of an implied or resulting trust. But though ordinarily the benami transaction whether by way of transfer or conveyance does not create a trust nor constitute the relationship of cestui que trust and trustee between the real owner and the benamidar, there may be circumstances which may convert a mere benamidar in whose name the property stands into a trustee. Thus, there is nothing in the law which prevents a real owner from vesting the legal possession of the property kept in his name in the benamidar when he creates the benami so as to make him a trustee ; or the benamidar may by his own act, conduct and course of dealing with the property make himself so liable to the real owner that the law may imply a trust being imposed upon him in favour of the real owner.After the Privy Council decision of Gurnarayan v. Sheolal Singh, it has been settled that the benamidar represents in fact the real owner and so far as their relative legal position is concerned he is a mere trustee for him. Ameer Ali, J., who wrote the judgment of the Board in the above-noted cases, delivered himself as follows:
“So long, therefore, as a benami transaction does not contravene the provisions of the law the Courts are bound to give effect to it. As already observed, the benamidar has no beneficial interest in the property or business that stands in his name ; he represents, in fact, the real owner, and so far their relative legal position is concerned he is a mere trustee for him. Their Lordships find it difficult to understand why, in such circumstances, an action cannot be maintained in the name of the benamidar in respect of the property although the beneficial owner is no party to it. The bulk of judicial opinion in India is in favour of the proposition that in a proceeding by or against the benamidar, the person beneficially entitled is fully affected by the rule of res judicata. With this view their Lordships concur. It is open to the latter to apply to be joined in the action; but whether he is made a party or not, a proceeding by or against his representative in its ultimate result is fully binding on him.”
The older theory that the benamidar is not a trustee can be said to have been definitely overruled by the above Privy Council ruling. Nevertheless, it would be a complete mistake to judge the status of a benamidar by reference to the strict conception of art express trustee. In truth the benami relationship is sui gezeris and cannot be compressed within the straight jacket of any known legal division. It is not agency because it does not arise out of contract. It is not trust because all the incidents of trust do not attach. It is in truth a cross between truncated agency, heritable trust and estoppel. It would be wisdom to recognize this fact. The Privy Council in Gurnarayan’s case did not intend to lay down that the benamidar was a person charged with the administration of a trust and that he held an office for the incidents of which the law of trust is to be looked into. The Privy Council had in mind only resulting trusts as an earlier passage in the judgment makes clear and what they desired to emphasize was that a benamidar having no separate or any interest in the property but the owner’s and being a person who had been trusted by the owner to lend to the property the appearance of his ownership for that of himself there was no reason why he could not represent the property in legal proceedings in his own name or why the representation by him should not bind the owner’s interest. It is only in the limited sense of holding the property standing in his name for the benefit of the real owner and of appearing to the world in the latter’s place and stead that the benamidar seems to have been called a trustee. There is no question of performing any other function. It is impossible in the very nature of things that a trust of this character should, as a matter of law be limited to the lifetime of the trustee. The essence of benami is secrecy. What is done is that property belonging to one person is placed in the name of another with every appearance of the latter being the true and full owner which involves that to external appearance the property will descend as a matter of course along the line of the ostensible owner until and unless the real owner or his heirs choose to disclose their interest and terminate the appearance. So long as that is not done and the real owner goes on maintaining the appearance of the benannidar’s ownership there must be an ostensible succession in the line of the ostensible owner and an heir of the benamidar will represent the property and personate the true owner just as his predecessor-in-interest did. A benamidar may be a trustee in relation to the true owner, but to the world at large he is the real owner and that appearance must necessarily go on devolving till the true owner comes out into the open. The result of the above discussion can be summed up thus:
(1) A benami transaction creates a resulting trust but the benamidar is in no sense an express trustee.
(2) As a corollary, the trust is not terminated by the death of a binamidar as in the case of express trusts and the heir of the benamidar can go on personating the true owner till he comes out into the open and prikes the bubble of apparent ownership.
(3) In cases where the real owner vests the legal possession in the benamidar the incidents of an express trust are thereby attracts. The benamidar may also by his own act and conduct and course of dealing with the property become an express trustee.
CHAPTER – III :
Resulting Trust & Doctrine of advancement:
Its applicability in Banami Transaction
3.1. General rule in England: The general rule in England is that where a person purchases property in the name of a third person, a trust “results” in favour of the purchaser or his representative. This rule has its origin in the natural presumption in the absence of all rebutting circumstances that he who supplies the money means the purchase to be for his own benefit. There is an important difference as between conveyance to a relation of the purchaser and a conveyance to a person who is not a relation. In the former case, the presumption is that the purchaser did not intend to benefit the nominal transferee, and a trust results to the man who advanced the purchase money.Purchase in anther’s name has been described in England[18] one of the most important and common forms of resulting trusts. The rule is that where real or personal property is vested in a purchaser jointly with others or in another or other persons alone, a resulting trust will be presumed in favour of the person who is proved to have paid the purchase money; the beneficial interest in the property “results” to the true purchaser. The general principle of such trusts was established as long ago as in 1788 in Dyer v. Dyer by Eyre C. B. The same doctrine is applied to cases where securities are taken in the name of another person, as, if A takes a bond in the name of B, for a debt due to himself, B will be a trustee for A for the money.If the conveyance is to the wife or child of the purchaser, then the presumption in England is the other way, namely, that the purchaser intended to benefit the child or wife. This is known as the presumption of `advancement’
3.2 Resulting trusts: In English law ‘resulting trusts’ are one of the two main categories of such informal trusts, the other being that of ‘constructive trusts’. The circumstances in which property will become subject to a resulting trust were recently examined by the House of Lords in Westdeutsche Landesbank Girozentrale v Islington London Borough Council. Lord Browne-Wilkinson identified two circumstances in which a resulting trust would arise:
“Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchaser by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter presumption of advancement or by direct evidence of A’s intention to make an outright transfer . . . (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest.’
3.3 Distinguishing resulting and constructive trusts: In some cases, the House of Lords seem to have used ‘resulting’ and ‘constructive’ trusts as interchangeable terms,suggesting that it is not necessary to distinguish between them. However it is submitted that they are fundamentally different, operating on different principles and that they need to be strictly differentiated. Constructive trusts are imposed by the court as a consequence of the conduct of the party who becomes a trustee. The equitable interests is said to ‘result back’ to the transfer or, thus ensuring that he retains his interest in the property. Re Densham (A Bankrupt)concerned a dispute as to the ownership of a matrimonial home. Whilst the husband was the sole legal owner of the house, his wife had contributed towards the purchase price and they had also agreed that the ownership should be jointly shared. Goff J held that, in consequence of the agreement, the wife was prima facie entitled to a beneficial half share in the ownership of the house by way of a constructive trust, and that through her direct financial contribution to the purchase price she was also entitled to a ninth share of the beneficial ownership by way of a resulting trust. This need was reiterated by the Court of Appeal in Drake v Whipp, where the central issue was as to the proportion of the equitable interest that the plaintiff enjoyed in a barn owned by her erstwhile partner by virtue of her contributions to the purchase price and work done, where there was also a common intention that she was to enjoy a share of the ownership. Peter Gibson LJ remarked:
“A potent source of confusion, to my mind, has been suggestions that it matters not whether the terminology used is that of the constructive trust, to which the intention, actual or imputed, of the parties is crucial, or that of the resulting trust which operates as a presumed intention of the contributing party in the absence of rebutting evidence of actual intention.Thus, whilst by means of a resulting trust the plaintiff would only be entitled to a share of the beneficial interest directly equivalent to the proportion of her contribution to the purchase price of the barn (which was 19.4%), by way of a constructive trust she was entitled to a third interest”.
3.4 Rationale of resulting trusts: In Westdeutsche Landesbank Girozentrale v Islington London Borough Council Lord Browne Wilkinson stated that resulting trusts arise to fulfill the implied intentions of the parties:
“Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intentions of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention”.
As Lord Browne Wilkinson himself observed, a resulting trust of the first type arises because ‘there is a presumption that A did not intend to make a gift to B. A resulting trust will arise in favour of A in such circumstances even though B anticipated that he was the beneficiary of an absolute gift, and in this sense B will be required to hold the property on resulting trust against his intentions. In Re Sick and Funeral Society of St John’s Sunday School,Golcar Megarry V.C stated that,A resulting trust is essentially a property concept; any property that a man does not effectually dispose of remains his own. This clearly recognises that a resulting trust arises because of the failure of the transferor to make an absolute gift of his property. As Lord Reid observed in Vandervell v IRC:
“Where it appears to have been the intention of the donor that the donee should not take beneficially, there will be a resulting trust in favour of the donor”.
A more nuanced understanding of the operation of resulting trusts was provided by The Privy Council in Air Jamaica Ltd v Charlton, where Lord Millet stated:
“Like a constructive trust, a resulting trust arises by operation of law, although unlike a constructive trust it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest”.
3.5 Presumption of resulting trusts: Where it is presumed that the transferor of property did not intend to dispose of his entire ownership interest in the property transferred. Under English law there is a rebuttable presumption that a transferor of property does not intend to make a gift of it, and unless this presumption is rebutted the transferee will hold it on resulting trust for the donor. English law adopts two basic presumptions about the intentions of property owners, both of which are rebuttable by evidence of a contrary intention. The general principle was stated by Lord Reid in Pettitt v Pettitt that,
“In the absence of evidence to the contrary effect, a contributor to the purchase-price will acquire a beneficial interest in the property”.
(a) A presumption against gifts: First, it is presumed that, outside of certain relationships, an owner of property never intends to make a gift. If an owner voluntarily transfers the legal title of his property to a third party without receiving any consideration in return, he is presumed to have intended to retain the equitable interest for himself. The transferee will therefore hold the property on resulting trust for him. This presumption was invented by equity to defeat the misappropriation of property as a consequence of potentially fraudulent or improvident transactions.
(b) A presumption in favour of the provider of purchase money: By extension of this first presumption, it is also presumed that a person who provides the money required to purchase property intends to obtain the equitable interest in the property acquired. Therefore, when the property is purchased in the name of someone who did not provide the purchase money, he will be presumed to hold the legal title on trust for the provider thereof. This presumption is long established and was recognized in Dyer v Dyer, where Eyre CB stated:
“The trust of a legal estate . . . whether taken in the names of the purchasers and others jointly, or in the names of others without that of the purchaser; whether in one name of several; whether jointly or successive, results to the man who advances the purchase-money”.
Where a person has only contributed a part of the purchase price of property a resulting trust will be presumed in his favour of an equivalent proportion of the equitable interest.
(c) Operation of the presumption of resulting trust: The operation of the presumption of a resulting trust is well illustrated by Re Vinogradoff. Mrs Vindogradoff transferred a £800 War Loan into the joint names of herself and her infant granddaughter. Farwell J held that the stock was held on resulting trust for her, and that therefore on her death it belonged in equity to her estate. In Thavorn v Bank of Credit and Commerce International SA a resulting trust was found to exist where a woman opened a bank account in favour of her infant nephew. In Aroso v Coutts it was held that the presumption of resulting trusts operated when Sr Aroso transferred money into a joint account opened in the names of himself and his nephew, although the presumption was held to have been rebutted by evidence that a gift had been intended.
(d) Operation of the presumption of resulting trust in the context of land:In Hodgson v Marks the Court of Appeal held that a resulting trust arose in favour of an elderly lady who had transferred the legal title to her house to her lodger on the basis of an oral understanding that he would look after her affairs. However in Lohia v Lohia Nicholas Strauss QC recently held that The presumption of resulting trust had been abolished in respect of a voluntary conveyance of land. Thus a presumption of resulting trust will only arise if there is some fact in addition to the lack of consideration, such as that the parties are strangers. In the light of this interpretation, he held that no resulting trust had arisen where a son had conveyed his share in the family home to his father. The mere fact that there was no evidence of any sensible reason why he had so conveyed his share in the house to his father, and that he had continued to share mortgage payments and rental income, was not sufficient to lead to the inference of a resulting trust.
(e) Operation of the presumption of resulting trust in the context of personal property: The presumption of a resulting trust of personal property was raised in Fowkes v Pascoe.<href=”#_ftn47″ name=”_ftnref47″ title=””>[47]John Pascoe was the son of Elizabeth Anne Pascoe, the widow of the only son of Sarah Baker. Over a period of some five years, Sarah Baker purchased annuities totalling £7,000 in the joint names of herself and John Pascoe. The Court of Appeal accepted that there was thus a presumption of a resulting trust in favour of Sarah Baker, but held the evidence rebutted this presumption and demonstrated that a gift had been intended. In The Venture<href=”#_ftn48″ name=”_ftnref48″ title=””>[48] a resulting trust was held to have arisen in favour of a contributor to the purchase price of a yacht. In Abrahams v Trustee in Bankruptcy of Abrahams<href=”#_ftn49″ name=”_ftnref49″ title=””>[49] it was held that a presumption of resulting trust operated where a wife, who was separated from her husband, contributed to a syndicate purchasing National Lottery tickets in the names of her husband. Since the presumption was not rebutted the husband held his share of the winnings, some £242,000, on resulting trust for his wife.In Foskett v McKeown<href=”#_ftn50″ name=”_ftnref50″ title=””>[50] concerned the question whether a contributor to the premiums of a life insurance policy thereby gained a proportionate share of the proceeds of the policy. A Mr Murphy had taken out a life insurance policy in 1986 which would provide a death benefit of £1 million. He paid the annual premiums for the first two years using his own money, but paid subsequent premiums using misappropriated trust money. He committed suicide in 1991, at which point at least 40% of the premiums had been paid using trust money. The question was whether the beneficiaries were entitled to a proportionate share of the proceeds of the policy. Whilst there was no doubt that the trust money had been used to pay premiums, under the terms of the policy the death benefit would still have been payable even if they had not been made, due to the payment of the earlier premiums. In Re Policy No 6402 of the Scottish Equitable Life Assurance Society<href=”#_ftn51″ name=”_ftnref51″ title=””>[51] Joyce J had held that resulting trust principles were applicable to a life policy. In the Court of Appeal<href=”#_ftn52″ name=”_ftnref52″ title=””>[52]Scott V-C held that this case was distinguishable because the contributions giving rise to the resulting trust had been made from the outset of the policy, so that it did not apply in favour of contributors of latter premiums which would have the effect of divesting those already entitled to the proceeds of the policy.<href=”#_ftn53″ name=”_ftnref53″ title=””>[53]
(f) Contribution to the purchase price: A direct contribution to the purchase price of the land will give rise to a presumed resulting trust, normally in proportion to the amount of the contribution. In Tinsley v Milligan<href=”#_ftn54″ name=”_ftnref54″ title=””>[54] a lesbian couple purchased a house in the sole name of Tinsley. The purchase price of £29,000 was raised by way of a mortgage of £24,000, with the remainder derived from the sale of a car that they owned jointly. The House of Lords held that this direct contribution gave rise to a presumption of a resulting trust in favour of Milligan of a half share in the house.<href=”#_ftn55″ name=”_ftnref55″ title=””>[55]In Midland Bank plc v Cooke<href=”#_ftn56″ name=”_ftnref56″ title=””>[56] a house was purchased in the sole name of a husband for £8,500. Whilst the majority of the purchase price was raised by way of a mortgage, the deposit was provided largely by a wedding gift of £1,100 from the husband’s parents. As this gift had been made to the husband and wife jointly, it was held that she had contributed £550 to the purchase price, and that this gave rise to a presumption of a resulting trust in her favour. Where such a direct contribution has been made to the purchaser price, the contributor will be entitled to a proportionate share of the beneficial interest mathematically equivalent to the proportion of her contribution. In Midland Bank plc v Cooke it was held that Mrs Cooke’s contribution of £550 to the purchase price entitled her to a 6.74% share of the beneficial interest of the house by way of a presumed resulting trust. A contributor will only be able to demonstrate an entitlement to a share of the beneficial interest greater than the exact mathematical equivalent of her contribution if she can demonstrate that the land was held on constructive trust.<href=”#_ftn57″ name=”_ftnref57″ title=””>[57] The Court of Appeal subsequently held that there was sufficient evidence to conclude that Mrs Cooke was entitled to a 50% share of the property by way of a constructive trust. This aspect of the case is discussed in the following chapter.
(g) Contribution to mortgage repayments: In the majority of cases land is not purchased outright but with the help of a mortgage. In such circumstances it might be thought that a person who contributes to the mortgage repayments should be treated as having contributed to the purchase price, thus raising a presumption of resulting trust in his or her favour in proportion to his contributions. However a distinction must be drawn between contributions made to the repayment of a mortgage on the basis of an agreement made when the mortgage is taken out, and subsequent payments of mortgage installments. In the former case the payment of mortgage installments will be taken to give rise to a resulting trust. This was explained in Cowcher v Cowcher where Bagnall J considered the consequences of a conveyance of a house to A for £24,000,where A had provided £8,000 of his own money and the remainder was provided by a mortgage taken out in the name of B:
suppose that at the time A says that as between himself and B he, A, will be responsible for half the mortgage repayments . . . Though as between A and B and the vendor A has provided £8,000 and B £16,000, as between A and B themselves A had provided £8,000 and made himself liable for the repayment of half the £16,000 mortgage namely a further £8,000,a total of £16,000; the resulting trust will therefore be as to two-thirds for A and one-third for B.<href=”#_ftn58″ name=”_ftnref58″ title=””>[58]Applying this principle, Bagnall J held that a resulting trust was presumed in favour of a wife who had made some of the repayments on a mortgage taken out by her husband.<href=”#_ftn59″ name=”_ftnref59″ title=””>[59]Similarly in Tinsley v Milligan<href=”#_ftn60″ name=”_ftnref60″ title=””>[60] the House of Lords held that there was a resulting trust where the parties had agreed that the mortgage repayments would be made form an account containing the proceeds of their joint business operation, even though this was in the sole name of Tinsley.
(h) Contribution by qualification for a discount in the purchase price: If a house is purchased at a discounted price, the amount of the discount is regarded as a contribution to the purchase price. Therefore, the person who qualified for the discount will be presumed to be the beneficiary of a resulting trust to that extent in the property. In Marsh v Von Sternberg<href=”#_ftn61″ name=”_ftnref61″ title=””>[61] Bush J held that a discount gained on the market value of a long lease because one of the parties was a sitting tenant was to be treated as a contribution to the purchase price in assessing their respective interests under a resulting trust. In Springette v Defoe<href=”#_ftn62″ name=”_ftnref62″ title=””>[62]a discount of 41% of the market value of a council flat obtained because the plaintiff had been a tenant for more than eleven years was counted as a contribution to the purchase price by the Court of Appeal.
(i) Contributions to the cost of repairs or renovation: Where the property is repaired or renovated, and its value is thereby increased, a person who contributes towards the cost of such repairs or renovations will be entitled to an interest in the land by way of a resulting trust proportionate to the extent to which the increase was attributable to their contribution.<href=”#_ftn63″ name=”_ftnref63″ title=””>[63]Improvements made much later than the date of purchase may give rise to a constructive trust.
(j) Contributions to general household expenses: In contrast to indirect contributions to the purchase price of land, it seems that contributions made to general household expenses will not give rise to a presumption of resulting trust in favour of the contributor because they are not sufficiently referable to the purchase price. In Burns v Burns<href=”#_ftn64″ name=”_ftnref64″ title=””>[64] Mr and Mrs Burns began living together as man and wife in 1961. In 1963 a house was purchased in the sole name of Mr Burns, who financed the purchase by way of a mortgage. Mrs Burns began to work in 1975. She used part of her earnings to pay the rates and telephone bills and to buy various domestic chattels for the house. When they split up in 1980, she claimed to be entitled to an equitable interest in the house by reason of her contributions. The Court of Appeal held that she was not entitled to an interest by way of resulting trust because she had ‘made no direct contribution to the purchase price’.<href=”#_ftn65″ name=”_ftnref65″ title=””>[65] It should be noted that although such contributions to family expenses will not give rise to a presumption of resulting trust, they may, if substantial, constitute sufficient detriment to lead to the imposition of a constructive trust.
3.6 Rebutting the presumption of resulting trust: The presumption of a resulting trust, whether arising from a voluntary transfer or a contribution to the purchase price of property, will be rebutted by evidence that the transferor or contributor had no intention to retain any beneficial interest in the property. The strength of the evidence required to rebut the presumption of a resulting trust will depend upon the strength of the presumption, which will in turn depend upon the facts and circumstances which gave rise to it.<href=”#_ftn66″ name=”_ftnref66″ title=””>[66]In Fowkes v Pascoe<href=”#_ftn67″ name=”_ftnref67″ title=””>[67]makes clear that the quality of evidence required to rebut a presumption of a resulting trust will vary depending on the circumstances in question, because the presumption of resulting trust will be given varying weight depending upon the context. As Lord Upjohn observed in Pettitt v Pettitt:
‘If a wife puts property into her husband’s name it may be that in the absence of all other evidence he is a trustee for her, but in practice there will in almost every case be some explanation however slight of this today rather unusual course. If a wife puts property into their joint names I would myself think that a joint tenancy was intended, for I can see no other reason for it.<href=”#_ftn68″ name=”_ftnref68″ title=””>[68]
In Knightly v Knightly<href=”#_ftn69″ name=”_ftnref69″ title=””>[69]the Court of Appeal went so far as to say there is no room for the presumption of a resulting trust in favour of a wife unless ‘a wife advances money to her husband for the purchase of either realty or personality and there is no evidence of any agreement or understanding between them as to who is to own the property and no evidence from conduct and circumstances going to show what their intentions as to rights and interests were.<href=”#_ftn70″ name=”_ftnref70″ title=””>[70]
Circumstances rebutting the presumption of resulting trust:
a) Evidence a gift was intended: It was noted above that in Fowkes v Pascoe<href=”#_ftn71″ name=”_ftnref71″ title=””>[71] a presumption of a resulting trust was raised when Sarah Baker purchased annuities in the joint names of herself and John Pascoe. However, this presumption was rebutted by evidence indicating that a gift had been intended. In Arosos v Coutt’s & Co<href=”#_ftn72″ name=”_ftnref72″ title=””>[72] Collins J held that the presumption of resulting trust was rebutted where a wealthy Portuguese gentleman had transferred money into a joint account in the names of himself and his nephew. The evidence, primarily the mandate establishing the account which clearly stated that the beneficial interest was to be held jointly and the evidence of the bank client relationship officer who had explained the effect of the account, established that he had intended the nephew to take the property beneficially. This approach was adopted in Russell v Scott,<href=”#_ftn73″ name=”_ftnref73″ title=””>[73]where an aunt had opened a joint account in the names of herself and her nephew, but did not intend her nephew to benefit during her lifetime.
b) Evidence a loan was intended: The presumption of a resulting trust will also be rebutted where evidence shows that money was advanced by way of a loan. In Re Sharpe (a bankrupt)<href=”#_ftn74″ name=”_ftnref74″ title=””>[74]Mr and Mrs Sharpe lived in a maisonette with their 82-year-old aunt, Mrs Johnson. The property had been purchased in the name of Mr Sharpe for £17,000.Mrs Johnson had contributed £12,000 towards the purchase price, whilst the remainder was raised by way of a mortgage. Mr and Mrs Sharpe were subsequently declared bankrupt and Mrs Johnson claimed to be entitled to a proprietary interest in the maisonette by means of a resulting trust presumed from her contribution to the purchase price. Browne-Wilkinson J held that the money had in fact been advanced by way of a loan, with the intention that it would be repaid. She was not therefore entitled to any share of the equitable interest of the property. A presumption of a resulting trust was also rebutted by evidence that a loan was intended in the more recent case of Vajpeyi v Yijaf.<href=”#_ftn75″ name=”_ftnref75″ title=””>[75]In this case the claimant provided the defendant, who was her lover, with £10,000 to enable him to purchase a house in his sole name. At the time of the purchase in 1980 the defendant was a young man of limited means. The claimant alleged that by virtue of this payment she was entitled to a 33.89% share of the equitable ownership of the property on the basis of a presumed resulting trust, whereas the defendant claimed that the money had been advanced by way of a loan, which he had repaid. Peter Prescott QC held that the following factors had rebutted the presumption of a resulting trust in favour of a loan: the fact that the defendant had been a young man of limited means who was anxious to get on the property ladder whereas the claimant was a lady who was already on the property ladder when the money was advanced; the fact that the claimant had tolerated the defendant collecting rents from the property and keeping them for himself for some 21 years; the fact that the claimant had failed to propound her claim to an interest for 21 years and the fact that she had never said anything about her alleged interest in the house when it was mortgaged by the defendant to enable him to purchase her matrimonial home some years previously.
3.7 Admissibility of evidence to rebut a presumption of resulting trust : Any acts or declarations by the parties forming part of the transaction to which the presumption of a resulting trust relates will be admissible in favour of, or against, the parties performing them. However, in Shephard v Cartwright<href=”#_ftn76″ name=”_ftnref76″ title=””>[76]the House of Lords held, in the context of the rebuttal of a presumption of advancement, that subsequent acts and declarations are admissible only as evidence against the party who made them, and not in his favour.
3.8 Presumed resulting trust arising in the context of an illegal purpose: In Tinsley v Milligan<href=”#_ftn77″ name=”_ftnref77″ title=””>[77]the House of Lords was faced with the question whether a plaintiff was entitled to rely on a presumption of resulting trust arising in the context of a transaction entered to facilitate an illegal purpose. The majority of the Court of Appeal rejected the application of such a strict principle in favour of the adoption of a ‘public conscience test’, which would vest the court with discretion to balance the consequences of either granting or refusing relief to the person seeking to claim an interest. The House of Lords in turn rejected this discretionary approach, favouring the application of a strict rule to determine when a plaintiff could assert an interest. However it was divided as to the appropriate rule. Lord Goff and Lord Keith held that the equitable maxim requiring clean hands should be strictly applied.<href=”#_ftn78″ name=”_ftnref78″ title=””>[78]In Silverwood v Silverwood <href=”#_ftn79″ name=”_ftnref79″ title=””>[79]an elderly lady had transferred money to her grandchildren to enable her to claim income support to contribute towards the costs of her residential care. The Court of Appeal held that the plaintiff, who was a beneficiary under her will, was entitled to maintain that the money was held on resulting trust by the recipients, as he did not need to rely on the illegality to establish the resulting trust. In Lowson v Coombes<href=”#_ftn80″ name=”_ftnref80″ title=””>[80]a man had purchased a flat together with his mistress, but it was conveyed into her sole name so that his wife would not be able to maintain any claim to it. The Court of Appeal held that he was entitled to assert a half-interest by way of a resulting trust, despite the illegal purpose of frustrating any potential claim under Matrimonial Causes Act 1973, because he did not need to rely on the illegal purpose to establish his entitlement. In Silverwood v Silverwood<href=”#_ftn81″ name=”_ftnref81″ title=””>[81] Nouse LJ described the principle adopted in Tinsley v Milligan as a ‘straightjacket’ and indicated that he would have preferred a more flexible approach. In particular the approach adopted by the House of Lords arbitrarily differentiates between situations where a presumption of resulting trust and a presumption of advancement are operative.