Disputes relating to family trusts
I have recently received a number of enquiries and cases involving children who have savings, or who have been left an inheritance from grandparents in a Will, or who have money available to them by way of a Trust.
I suppose given the current financial gloom, that people who find themselves in difficult positions, looking after their children’s money or funds, rationalising the taking of monies from their children on the basis that perhaps i) one day they will re-pay it; ii) the child will never miss what they do not know they had; iii) it never really truly belonged to the child…
The law must surely protect weak and vulnerable children as well as volatile adults in such circumstances. This article focuses then, on a contract in respect of lending money. In respect of other issues say for land, etc the same principles do not necessarily apply, and one must be careful not to adopt a ‘broad brush’ approach on the issue, because the subject matter is treated differently.
A teenager, who enters into a contract, with his/her mother or father, or both, let us say, to lend money to them, that contract is unlikely to be considered a binding contract, or an actionable contract/promise, for the following reasons:
- A minor (someone under the age of 18), doesn’t have full legal capacity. Under the Infants Act 1874, contracts entered into by infants for the repayment of money lent or goods supplied other than necessaries, and all accounts stated shall be null and void and incapable of ratification on the attainment of full age;
- In any event, the adolescent may not necessarily understand that which he/she signed. In which case, ‘It is not his Deed’, Non Est Factum. This falls under the doctrine of ‘mistake’. This is an old common law defence which permitted a person who had executed a written document in ignorance of its character to plead that notwithstanding they had signed it, they did not understand its in which case it was not his Deed. The main case on this is Saunders (Executrix in the Estate of Rose Maud Gallie) v Anglia Building Society  AC 1004.
- Money paid under mistake of fact may be recovered, as ‘money had and received’, to the use of the person paying it: Jones v Waring and Gillow  AC 670.
- There is likely to have been misrepresentation on the part of the adults to the minor. A false or fraudulent misrepresentation is one made with knowledge of its falsehood, and intended to deceive. A negligent misrepresentation is one made with no reasonable grounds for believing it to be true. An innocent misrepresentation is one made with reasonable grounds for believing it to be true, as where an honest mistake is made.
- Likely to be implied into a contract of such a nature. Certainly, in the case of a husband and wife entering into a loan/mortgage, if the wife is not separately legally represented, at the time, there is such a presumption as to make the loan void able, and thus unenforceable. The obvious cases are Barclays Bank v O’Brien,  1 AC 180, Royal Bank of Scotland plc v Etridge (No 2)  UKHL 44. The effect of someone not understanding or appreciating what they are signing, coupled with no independent legal advice, is likely to render such a contract voidable. If, however, they had an opportunity to take legal advice and chose not to do so, or was invited to take legal advice, and failed to do so, a wife cannot now argue ignorance either of the Law or the document she was signing. I suspect, that the principles laid down in Etridge are unlikely to apply to a minor, who would not be expected to know or have the resources to seek independent legal advice.
Breach of Trust/Breach of Fiduciary Duty
- There is implied in Law, a duty upon a parent, or someone acting in place of parents/in loco parentis, to act in a child’s best interests rather than their own interests. If there is money held by a parent for a child, it is done in trust until that child reaches 18, or such other age as is expressly stated in a Trust. A child expects to be looked after, and trusts and confides in his/her parents, and expects them to reciprocate with the same love and confidence. A failure to do so by way of expectation, is likely to be a breach of faith/fiduciary duty.
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