When purchasing property, it is not uncommon for purchasers to purchase the property in other’s name. This article investigates the legal protection of such purchasers under the presumption of resulting trust and the limitation of it, followed by the ways for purchasers to better protect their rights.

Presumption of Resulting Trust

In property, there are both the legal and equitable interests. If A purchased the property with his own money, both the legal and beneficial interests vest in him. If a property is conveyed into A’s name but with money contributed by B, in the absence of any evidence to the contrary, A will acquire the legal interest and B will acquire the beneficial interest by virtue of his contribution to the purchase price. This is known as the presumption of resulting trust. However, as its name suggests, it is only a presumption. This presumption can be rebutted either by the actual intention of the parties or negated by the presumption of advancement.

Presumption of Advancement

The presumption of advancement arises in favour of the legal owner when a husband purchases property in the name of his wife, or when a parent purchases property in favour of his children. The law assumes the property is intended to be a gift for the wife or the children under those circumstances, hence, the legal as well as the beneficial owners of the property will be the wife and the children. If there is any dispute, it is for the person who provides the purchase money to rebut this presumption.

The operation of the presumption of resulting trust and the presumption of advancement is best demonstrated byWong Chim Ying v Cheng Kam Wing[1991] 2 HKLR 253.

Facts

The husband purchased a flat in the sole name of his wife. Only the husband had contributed to the purchase price for the flat. The wife, the husband and their two sons lived in the flat until the wife sold it to a subsequent purchaser without the consent of the husband.

Issues

The controversies were, firstly, whether the husband could acquire a beneficial interest in the flat; secondly, even if the husband had a beneficial interest, whether his interest could havepriority over that of the subsequent purchaser; and thirdly, whether the subsequent purchaser could evict the husband out of the flat.

Decisions of the Court

Both the Court of First Instance and the Court of Appeal held that the husband could acquire beneficial interest in the flat due to his contribution to the purchase price. The husband was able to rebut the presumption of advancement by proving that he did not intend to convey the property to his wife as a gift, and his reason for vesting the flat in the name of his wife was one of convenience.

The Court found that the subsequent purchaser had constructive notice of the husband’s interests and his interests had priority over that of the subsequent purchaser. The Court concluded that the husband succeeded in acquiring the beneficial interest in the property by resulting trust and the subsequent purchaser could not evict him out of the flat.

Limitation in Home Ownership Scheme’s Flat

A limitation in the presumption of resulting trust is that, under the restrictions on unlawful alienation imposed by Section 17B of the Housing Ordinance, Cap. 283, no resulting trust can arise in favour of a member of the family who provides purchase money for a Home Ownership Scheme’s flat. Such family arrangement is void under the law and is unenforceable. This has been illustrated in the recent Court of Appeal’s decision of Cheuk Shu Yin v Yip So Wan and Lo King Fai CACV 163/2009. For a detailed discussion of this case, please refer to our Newsletter published in March 2012.

Advice to Purchasers

Although the principle of resulting trust may help the person who contributed the purchase money to establish his beneficial interest in a property, the presumption of advancement and the above limitation undoubtedly pose some risks to the person who contributed the purchase money.In order to better protect their rights, a person who provides the purchase money on behalf of another should ask the legal owner to make an express trust clearly stipulating that the legal owner is holding the property on trust for him. It is note-worthy that under Section 5(1)(b) of the Conveyancing and Property Ordinance, the declaration of trust must be proved by some writing signed by the grantor or by his will.

A person who provides the purchase money on behalf of another should further protect his beneficial interest by registering the instrument creating the trust in the Land Registry in order to prevent his rights from being defeated by a subsequent purchaser for value without notice.