This is an extract of our Constitution And Formalities document, which we sell as part of our Trusts and Equity Notes collection written by the top tier of Oxford students.
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Equity 3 Formalities
CONSTITUTION OF TRUSTS; FORMALITIES FOR THE ENFORCEMENT OF EXPRESS TRUSTS; PERPETUITIES Abbreviations: C Claimant D Defendant T Trustee S Settlor B Beneficiary PoA Power of Appointment
CONSTITUTION OF TRUSTS
*For testamentary trusts, by virtue of death, there is perfect gift of legal beneficial ownership to executors/administrators.
-so as long as 3 certainties are present, and debts/taxes/expenses do not exhaust property, trust will be constituted!
For inter vivos trusts, there are 2 methods of constitution:
1. S transferring property intended to be subject-matter of trust to trustees: must comply with formality rules!
2. S declaring that he himself will hold property on trust:
Subject matter must be clearly identified/segregated, and a present binding declaration must be made complying with requisite formalities.
Need NOT be literal, just need some form of expression which in the circumstances shows S intended to constitute himself trustee and another, beneficiary, even if S didn't know what he was creating amounted to a trust!
-Choithram International SA v Pagarani, 2001: though the words were apparently words of outright gift, they were essentially words of gift on trust. Where trust property was vested in one of a body of trustees (Pagarani himself), he is bound by the trust and must give effect to it by transferring it into name of all trustees.
Declarations of trusts over after-acquired property are ineffective at law, and ineffective in equity where volunteers are concerned!
Hence, for inter vivos trusts, when there is imperfect transfer to T, there are 2 conflicting maxims of Equity: 1) valuable consideration given: equity considers as done that which ought to be done 2) voluntary settlements: equity will not aid a volunteer
(2) is more relevant to trusts, because trusts are usually voluntary gifts, without valuable consideration which is more typical of contract!
1. Equity considers as done that which ought to be done
If A, owner of fee simple absolute in possession, enters into contract with B to grant long lease to him, then A must comply with certain legal formalities.
need a deed (s52 LPA 1925) . But if deed not completed, doctrine in Walsh v Lonsdale, 1882, still provides that equitable lease will arise, provided valuable consideration given AND contract is specifically enforceable. Same applies to sales of long lease, for instance.
2. Equity will not assist a volunteer...
Trusts do NOT need consideration: once trust relationship is established, fact that B did not give value is irrelevant, and S cannot 'undo' a completely constituted trust on basis that B is a volunteer, UNLESS S expressly reserved power to revoke. But before the trust is completely constituted, it is different! Equity will not aid a volunteer!
1 Equity 3 Constitution and Formalities Milroy v Lord, 1862: despite clarity of intention, an imperfect transaction will not be reinterpreted by court as an effective declaration of trust - B cannot enforce the promise. Facts: S owned shares, wanted to transfer to L to hold on trust for Ps. After he died, Ps sued to assert validity of trust, because L was behaving as if no trust had been created. Ps argued that: (i) S had executed voluntary deed purporting to transfer shares to L to hold on trust for Ps; (ii) before deed made, L already held power of attorney authorising L to transfer S' shares; (iii) after deed, S gave further POA authorising L to collect dividends paid out.
but governing rules in company's articles of associations required shares to be transferred only by entry in the bank's books - no such entry ever made in L's favour. CA decided in favour of L. Lay down 2 fundamental principles which still hold true; A) "in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him".
seems to be asking 1) what donor intended; 2) what was intended mode of dealing; 3) what steps are necessary (3 might differ depending on the subject matter).
aligning validity of gift at law and in equity - no room for gift to be invalid at law but saved by equity. B) "if the settlement is intended to be effectuated by one of the modes...the Court will not give effect to it by applying another of those modes" - if intended to be transfer, court won't allow it to work as trust.
eg. If A executed docs to try to bring about transfer, but no valid gift at law, court can't then say sufficient things were done to declare a trust - would be changing settlor's original intentions.--
Application of the principles in Milroy
Richards v Delbridge, 1874: man wanted to give grandson lease. He wrote "This deed and all thereto belonging I gave to my grandson.." on the lease instrument. Jessel MR held there was no valid gift at law/equity.
at law: transfer must be executed by deed (s52 LPA)
in equity: no gift by way of trust. Though grandfather didn't necessarily have to use words "I declare myself trustee" to create trust, this was NOT grandfather's true intention. Rather than intending trust (keep legal title and assume role of trustee), the grandfather had intended to transfer legal title!
T Choithram International v Pagarani, 2001: P, a rich man, wanted to establish charitable foundation. Trust deed was drafted, and there was elaborate bed side ceremony (P was ill) whereby he purported to give money to foundation. Assets included deposit balances/shares he held in 4 companies. Some designated Ts signed draft deed at ceremony, and some later. On same day, P orally announced establishment of the foundation at company meetings, and directed accountant to transfer shares/credit balances. But P died before any actual transfer question whether P's estate retained beneficial ownership of the shares/balances.
Privy Council upheld the gift!
--words used would usually be taken to indicate an outright gift, not a trust. But on the facts/all the evidence, there was different intention to create trust/remain a trustee himself.
--gift not rendered ineffective by fact that legal title remained in P only (not all Ts), since Ts have duty to ensure that trust property is vested in all of them, with duty arising once trust exists. Hence, P, having created the trust and made himself a trustee, then owed duty to convey title to vest in all Ts
--rejected arguments that there was only conditional intention (imperfect gift), and that there was uncertainty of subject matter.
Hence, also turns on the facts, and the intentions of the settlor/transferor.
Exceptions to the rule that Equity will not assist a volunteer...
1. Proprietary estoppel
Equity can prevent land owner who made imperfect gift of some interest/estate in the land, from asserting his title against donee
Where donee spent money on land in mistaken belief that he has/will acquire some interest in it, and owner, knowing of mistake, stood by and allowed expenditure.
Necessary elements were stated in Thorner v Major, 2009:
- 1) D's assurances/conduct in relation to the property were sufficiently clear and unambiguous 2
Equity 3 Constitution and Formalities
- 2) C reasonably relied on these assurances/conduct
- 3) C acted significantly to his detriment, making it unconscionable for D to deny him (detrimental acts need not be money/inherently referable to the property).
- -once (1) and (3) are shown, onus of rebutting presumption of reliance in (2) falls on D.
Where landowner merely acquiesced and didn't know his rights were being infringed, it seems courts take higher threshold - landowner needs to be at fault in some way.
But where landowner encouraged expenditure, courts look at how unconscionable it would be if claimant were to suffer from landowner asserting his strict legal rights.
Acquiescence/standing by might amount to implied assurance that C is entitled to build.
- -no need level of certainty for a valid contract/valid express trust
- -oral assurances may suffice
Commercial context: where parties deal with each other at arms' length, one would expect there to be proper contractual arrangements - greater significance of failure to do so, compared to domestic context - Cobbe v Yeoman's Row Management Ltd, 2008.
2. Rule in Re Rose
Looks like extension of maxim "equity considers as done what ought to be done", but actually different, since here there is no need for valuable consideration/contract to be specifically enforceable, as usually required under that maxim.
Where transferor (where S is not T) does everything which is obligatory for him alone to do to make the transfer effective, and something remains to be done by a third party, transfer will be valid in equity---Statutory background:
NB: the following is to do with company shares held by registration (not those held by certificate)
Companies Act 2006: statute focused on the company
s544: transfer of shares will be done according to company's articles - need to look at facts.
s770: requirements before company can register share transfer
s771/772: obligation on company to register the transferee, so as to make him new legal owner of the shares.
Stock Transfer Act 1963: statute focused not on company, but on transferor and transferee.
see the stock transfer form in handout - must fill out required info.
EFFECT? Kaye v Zeital, 2010: basically, transferor can only bring about transfer if: 1) parties execute the stock transfer form (both parties signing) and deliver it to company 2) company registers transferee as new member (but Companies Act allows company discretion not to do so )
But in Re Rose, held that if donor has done everything he can do, there will be valid gift of shares in equity even if not all the above steps have been taken - company's articles of association may lay down additional formalities (eg. Requiring transferee to sign other doc)
This principle was derived from two unrelated cases, Re Rose, 1949 and Re Rose, 1952. How to reconcile with Milroy v Lord?
Re Rose, 1949; Jenkins J [adopted in Re Rose, 1952 by Evershed MR/Jenkins LJ/Morris LJ]: IRC had tried to argue that the Re Rose rule would be inconsistent with 2nd principle in Milroy, since failed gift can't be amended to give effect by other means.
Court said principle did not apply on the facts - Mr R was constructive trustee from time he delivered signed documents/share transfers.
no contradiction because while outright transfer was intended, the constructive trust was merely a legal device to give effect to the outright transfer. Pennington v Waine, 2002
FACTS: A wanted to give shares to H, so that H could become director of company. P was auditor of company. A correctly filled out share transfer forms, and signed it, handing it to P. But P never passed it to H/company, instead filing it. A died. Question whether there was valid gift in equity in H's favour, so as to qualify H for directorship? CA said YES!
Line of reasoning adopted by Arden LJ (Schiemann LJ agreeing): 3
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