Undertaking to repay mortgage does not give rise to beneficial interest in property

May Malone and Stephen Fagan (plaintiffs) v Liam McQuaid (defendant) and the Registrar of Titles (Notice Party).

May Malone and Stephen Fagan (plaintiffs) v Liam McQuaid (defendant) and the Registrar of Titles (Notice Party).

Equity - Presumption of advancement - Whether presumption arising in relation to money provided by the second plaintiff to the first plaintiff - Whether the presumption rebutted in the circumstances of this case - Whether the first plaintiff had clean hands.

Equity - Resulting trust - Whether second plaintiff had provided the money for purchase of property - Whether the second plaintiff entitled to beneficial ownership of property as a result of his undertaking responsibility for the repayment of a mortgage on that property.

The High Court (before Mr Justice O'Sullivan); judgment delivered 28 May 1998.

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The first plaintiff was entitled to the benefit of the presumption of advancement in circumstances where the second plaintiff was expected to provide any monies which he contributed for the benefit of his wife and/or his children. That presumption had not been rebutted. Furthermore, the fact that the second plaintiff had undertaken the repayment of a loan, was evidence only as to the inference to be drawn as to the common intention of the parties at the date of the transaction; it did not entitle him to any share in the beneficial ownership of the property.

Mr Justice O'Sullivan so held in deciding that the defendant was not liable in damages to the plaintiffs for registration of a judgment obtained against the second plaintiff against a property of which the first plaintiff was registered owner.

Michael Forde SC and Deirdre Byrne BL for the plaintiffs; John Trainor SC and Brian Murray BL for the defendant.

Mr Justice O'Sullivan said that the plaintiffs were married to each other and were both onethird shareholders in Greendale Developments Ltd. The remaining shareholder was one Rory Burgess. The defendant was the liquidator of the company. In May or June 1986 the first plaintiff had purchased a commercial property, providing rental income and known as "Scope House", from Scope Construction Ltd for £120,000. The first plaintiff became registered owner of the property in December 1986.

The defendant obtained judgment against the second plaintiff in March 1996 and registered that judgment as a mortgage against the second plaintiff's alleged (unregistered) equitable interest in and beneficial ownership of Scope House. The defendant believed that the second plaintiff had disposing power over the property. As a result of the registration of the judgment, a sale by the first plaintiff to a third party was called off.

The plaintiffs claimed damages for negligence, slander of title, misfeasance of public office and interference with contract by unlawful means. The defendant delivered a defence and counterclaim seeking a declaration in relation to the second plaintiff's interest in the property, a well-charging order and orders for sale and inquiries. Mr Justice O'Sullivan refused liberty to deliver a reply, in which it would be pleaded that the judgment was obtained as a result of fraud since that issue had been decided in separate proceedings before Mr Justice O'Higgins.

The evidence established that the declared purchase price of £120,000 plus £12,000 VAT was provided in the following manner: (a) £100,000 by way of loan to the first plaintiff from the AIB; (b) £10,000 raised by the sale of a vehicle; and (c) £22,000 which was paid as commission to the second plaintiff for a transaction involving videos in the UK.

There was also an issue as to whether £50,000 had been paid "under the table".

The defendant alleged that the loan of £100,000 was in reality a loan to the second plaintiff and that the second plaintiff had undertaken the repayments and dealt with the property. The defendant also alleged that the security for the loan (£76,000 in an account in the name of the first plaintiff) was in fact provided by the second plaintiff, and arrangements were subsequently made for an alternative security in the form of property owned by the second plaintiff although this was never implemented. The two smaller sums were also monies provided by the second plaintiff and as a result the defendant contended that the second plaintiff was entitled to the entire beneficial interest in the property. The first plaintiff could not rely on the presumption of advancement because her evidence was that she herself had provided the money; if the court found to the contrary it could then not apply the benefit of an equitable doctrine to a plaintiff with unclean hands.

Mr Justice O'Sullivan said that the first plaintiff gave evidence of the ownership of a hairdressing salon and of businesses in which she and her husband had been involved. The proceeds of these businesses were invested in Irish Life. Those investments were very successful and were subsequently used to buy Scope House. She accepted that she could not remember many of the specific details and that her husband was the entrepreneurial leader in these ventures. The Irish Life policies were in the joint names of her husband and herself, but she said that her husband had taken monies for other projects in which she was not involved and the £76,000 which was used as security for the purchase of Scope House was her own. In fact she regarded it as belonging to her children. In many of the matters relating to the Irish Life investments, the first plaintiff was supported in her evidence by her brother-in-law, who had dealt with the investments.

Mr Justice O'Sullivan said that while the evidence of the first plaintiff was contradictory in some details and quite vague, he accepted that this was due to her own lack of grasp of detail and vagueness due to a great extent to the lapse of time in question. Furthermore, on controversial points, she had been corroborated by other witnesses whose evidence the court accepted as truthful. She had not set out to mislead the court, but her evidence would be treated with care. The court would have regard to documentary evidence and independent testimony in determining the meaning and intent behind the transactions.

Mr Justice O'Sullivan held on the evidence that the purchase price for Scope House was £120,000 and that there was no further sum paid "under the table".

Mr Justice O'Sullivan said that the presumption of advancement was an equitable doctrine which applied to transactions between husband and wife where the circumstances show that the husband is to be expected to provide for his wife: RF v MF [1995] 2 ILRM 572. There was a stronger presumption in relation to a father and child. With some hesitation the court found that the evidence in relation to the purchase of Scope House showed that the second plaintiff was expected to provide any monies which he contributed for the benefit of his wife and/or his children.

In view of the finding that no money was paid "under the table" and of the court's view that the first plaintiff's evidence had been independently corroborated in several important respects, Mr Justice O'Sullivan held that the first plaintiff did not come to court with unclean hands and should not be deprived of the benefit of an equitable doctrine. Therefore the presumption should be applied unless it was rebutted.

On this point, Mr Justice O'Sullivan held that the presumption had not been rebutted. The evidence in rebuttal was indirect and consisted of statements made to the bank manager, who was himself clear that the loan was being given to the first plaintiff, and statements by the second plaintiff to Mr Burgess who gave evidence for the defendant. In contrast, the first plaintiff gave direct evidence and the documentation was comprehensive and unambiguous.

The loan was made to the first plaintiff. It was repaid in part by monthly instalments of £2,010 paid from an account in the name of the first plaintiff. In August 1989, £14,000 was lodged to the loan account. No evidence was given as to the source of this money and the court could not infer that it came from the second plaintiff. The security for the loan was a charge on Scope House together with a lien on the £76,000 held in the name of the first plaintiff. Her evidence was that it was the fruit of life policies and while her evidence was vague, the court could not infer, without specific evidence, that the money came from the second plaintiff.

The defendant contended that in circumstances where the second plaintiff had undertaken the repayment of the loan, he must be given a benefit of an interest proportionate to the amount repaid on the basis of a resulting trust: Cowcher v Cowcher [1972] 1 WLR 425; In re Gorman, a Bankrupt [1990] 1 WLR 616; Huntingdon v Hobbs [1993] 1 FLR 736. The second plaintiff had been responsible for the management of Scope House and the collection of rents which were used to repay the loan.

Mr Justice O'Sullivan said that these cases did not support the defendant's contention. They established that a person could acquire the beneficial ownership of property to the extent that he assumed legal responsibility for mortgage repayments, as distinct from liability to manage and arrange such payments. Where one party merely arranged for the payment of the mortgage this was relevant only as to the inference to be drawn as to the common intention of the parties at the date of the transaction. Therefore, it was clear that the first plaintiff was entitled, so far as the loan of £100,000 was concerned, to the corresponding proportionate interest in Scope House.

As regards the sums of £10,000 and £22,000, Mr Justice O'Sullivan held on the evidence that both of these sums had been provided by the second plaintiff. The presumption of advancement applied to these advances, otherwise they would raise a resulting trust in favour of the second plaintiff. Consequently, the entire beneficial ownership of Scope House was vested in the first plaintiff. However, the plaintiffs were not entitled to any damages in respect of the registration of the judgment by the defendant. The evidence established that the first plaintiff called off the sale when she learned of the registration, but this was not caused by the defendant's action. In fact, the defendant had indicated that the sale could go through if £100,000 was retained pending determination of his claim, but the first plaintiff refused this offer. The first plaintiff was also indebted to others.

The defendant was not in breach of any duty of care in acting as he did. The defendant had the evidence of Mr Burgess in the previous High Court proceedings as grounds for his action and he was under a general duty to the creditors of the company to preserve any assets which might become available to satisfy their claims. It had taken twelve days in these proceedings to clarify the matter and the defendant could not be said to be negligent.

Since there was no evidence of malice or recklessness on the part of the liquidation, the claims of slander of title and misfeasance in public office had not been made out. The liquidator had had an honest belief in his claim. In the circumstances, it was not necessary to decide whether a liquidator appointed by the court is a holder of a "public" office. Finally, Mr Justice O'Sullivan found as a matter of fact that the registration of the judgment did not interfere with the contract.

No damages were awarded to the plaintiffs.

Solicitors: Hinkson (Dublin) for the plaintiffs; Hussey & O'Higgins (Dublin) for the defendant.