• In the case of Bannister v Bannister [1948] 2 All E.R. 133, it was held that the Law of Property Act 1925 section 53(1)(b) (that requires any interest in land to be manifested in written form) cannot be relied upon where denying the innocent party an interest made by an oral agreement as this would be fraudulent.

Facts of the Case

  • D inherited two adjoining cottages upon the death of her husband, including the one in which she lived.
  • D sold these cottages to C, her brother-in-law, for £250 when the market price was closer to £400.
  • The sale was made on the basis of an oral agreement that D could live in her cottage without rent for as long as she wished.
  • C sought to have D evicted, arguing that there was no written evidence of the agreement, and that D had no beneficial interest in the cottage.
  • Ms Bannister claimed she held a beneficial life interest in the cottage which arose as soon as C gave the oral undertaking that she could remain in the property rent free.

Issues

  • Did the oral agreement give rise to D’s beneficial life interest in the cottage if there was no written declaration of such intent?

Held by the Court of Appeal

  • Finding for D, that D sold the cottage on the faith of the oral agreement and would not otherwise have done so. The undertaking must be assumed to have reserved to her a benefit worth at least £150, and therefore created a life interest determinable when D ceased to occupy the cottage.
  • Even if there was no fraud in this case, it was fraudulent of C to make the oral agreement and then insist on the lack of writing to defeat the beneficial interest he had agreed that D should retain. The wording of the 1925 Act was immaterial.

Scott L.J.

  • The oral agreement gave rise to a constructive trust granting D a beneficial life interest in the property. The conveyance of the property was not obtained by fraud. It is immaterial that the transfer did not use the technical language of a trust, or that the conveyance was at an undervalue.
  • It is true that at common law the oral agreement would not be enforceable since it was not recorded in writing. However, equity will not allow a statute to be used as a cloak for fraud. The formal requirements to validate a trust can be dispensed with when one party makes an oral agreement and then denies it at court.
  • “It is clearly a mistake to suppose that the equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial interest which, according to the true bargain, was to belong to another, is confined to cases in which the conveyance was fraudulently obtained. The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest, and that is the fraud to cover which the Statute of Frauds or the corresponding provisions of the Law of Property Act 1925 cannot be called in aid in cases in which no written evidence of the real bargain is available. Nor is it, in our opinion, necessary that the bargain on which the absolute conveyance is made should include any express stipulation that the grantee is in so many words a trustee. It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was taken by another” [136B].