'So How Should I Presume': Loan, Resulting Trust, or Discharge of a Prior Obligation?

Abstract

What does the law presume when it is proven simply that one person has made a payment of money to another? Surprisingly, there are three candidate answers to this question. First, a number of nineteenth-century authorities hold that ‘when money is paid by one man to another the legal presumption is that it was paid in discharge of some prior debt or obligation’. Secondly, both Professor James Penner and Professor William Swadling have recently argued that proof that one person made a payment or other transfer to another is sufficient to trigger the presumption of resulting trust. Finally, the rule in Seldon v Davidson [1968] 1 WLR 1083 suggests that, in the absence of any other evidence, the payment would be categorised as a loan and the recipient would be liable to repay the debt. Obviously, it would not be coherent for the law to presume three different things – discharge of a prior obligation, a resulting trust, a loan – on the same basic facts. This chapter attempts to reconcile the apparently competing approaches by showing that they do not, in fact, apply in the same scenario. It is argued that the presumption of discharge of a prior obligation is the one that applies where all that has been proven is that a payment has been made by one person to another. The presumption of resulting trust, notwithstanding the views of Professors Penner and Swadling, is not triggered unless, in addition to the fact that a payment has been made, the claimant shows that the transfer was ‘voluntary’, ie made without consideration. Similarly, the rule in Seldon v Davidson is not properly to be regarded as being triggered simply by the making of a payment but must be understood as applying only where the evidence and the pleadings have reduced the possibilities to a choice between ‘gift’ and ‘loan’ (in which case the rule dictates that a loan is presumed). Having made these distinctions, the chapter moves from the analytical to the normative and, by way of conclusion, consider briefly the merits of the three different rules in order to assess whether they represent an appropriate legal response in the circumstances in which they apply. It is concluded that both the presumption of resulting trust in the context of a voluntary transfer and the rule in Seldon v Davidson lack a convincing justification and should be discarded.