Summary

Where a son had bought his father's property from the father's trustee in bankruptcy and the father had continued to live in the property, the court found that there had been an agreement that the beneficial interest in the property would remain with the father, not pass to the son.

Facts

The claimant bank (B) claimed possession of a property whose registered owner was the first defendant (N) and which was occupied by the second defendant (X), who was N's father. X also claimed a declaration that N held the legal title on trust for X.

X had owned the property since 1964. In 1994 a bankruptcy order was made against him and a trustee in bankruptcy was appointed. In 1998 the trustee obtained an order for possession of the property, which he enforced the following year. N purchased the property from the trustee, having obtained a mortgage. X remained in occupation and made payments to N. N remortgaged the property to B, but defaulted. B sought possession. X asserted that after the trustee enforced the order for possession, he and N had agreed that the property would be transferred to N to enable him to get the first mortgage, X would pay N sufficient to cover the mortgage repayments, and the beneficial interest would remain with X. N denied any such agreement, stating that he had acquired the beneficial interest, and X had paid him rent. Under a settlement agreement, B's claim against N was subject to an agreement with X that, unless N defeated X's claim, a possession order would not be sought, but X would become responsible to B for part of the mortgage debt.

Held

HELD: The court accepted X's evidence that after the trustee had been given permission to execute the possession order, he and N had agreed that N would raise money to pay off the debts, on the basis that the property would be transferred to N to enable him to get a mortgage, and that X would pay N money each month to enable N to cover the mortgage payments. X would also pay all the outgoings on the property and would be able to remain living at the property. X had told N that as soon as the mortgage was paid off, he wanted N's name off the title. The clear and express agreement between X and N was that N was not really to own the property, save in the legal sense, and that the true owner, in the beneficial sense, was at all times to be X. The court rejected N's evidence that he had bought the property as an investment with which he could do as he liked. N's remortgaging had been done without X's knowledge; N had known that he should not have done that and that he was acting contrary to his agreement with X. It was inherently implausible that, in the circumstances, X would have agreed to an outright sale of the property to N. He would not have given up the equity by way, in effect, of a gift, but nevertheless also have agreed to pay the mortgage. The court rejected N's submission that, had there been an agreement, it would have been put into writing; it accepted X's evidence that he had trusted his son and that the need to put anything in writing had not crossed anyone's mind. Although there were significant advantages to X in that he remained in the property, he had acted to his detriment and significantly changed his position in reliance on the agreement: he could have received the surplus proceeds had the trustee sold to a third party; instead, he had paid for the mortgage and outgoings (see paras 66, 75-79 of judgment). If there had had been no express agreement, there had been an intention, common to both X and N, that X had a 100 per cent beneficial interest in the property and N had no beneficial interest, and there had been detrimental reliance (para.80).

Judgment for second defendant