Constitution Long Notes

CONSTITUTION OF TRUSTS

An express trust only exists if the trust is constituted by title to the trust property being vested in the trustee. This is because there must be property upon which the trust obligations can bite; if the trustee has no property there can be no trust. A trust can be constituted in two ways:

• by declaration of oneself as a trustee;

• or by a transfer of property to trustees.

DECLARATION OF SELF AS TRUSTEE

If the settlor declares him or herself to be a trustee, there is no problem of constitution of the trust since the property is already vested in the settlor. The problem in this context relates to whether there has been a declaration of trust. It is necessary to show that the settlor manifested an intention to declare him or herself to be a trustee.

The two methods of constituting a trust —declaration and transfer —cannot be meshed together, so that if neither is quite effective the court will be satisfied. An intention to give will not be construed as an intention to declare oneself a trustee, as the following cases illustrate:

Milroy v Lord [1862]

Facts: Thomas Medley held shares in a company called the Bank of Louisiana, and wished to transfer them to his niece (Elenor Milroy). The bank required the shares be transferred according to regulations in the company constitution (i.e. entry in the books of the bank), but Medley did not comply with this requirement. Instead he signed a deed in Louisiana with Samuel Lord, for Lord to hold 50 shares on trust for Eleanor. He also gave Lord a power of attorney to receive dividends on the shares and to comply with the company constitution formalities. However, he did not comply with the company formalities before M’s death. M lived for three years, during that time the dividends were received by Lord. When M died, the shares remained in his name. Milroy claimed that the shares were held on trust for her (i.e. that a trust had been successfully created). She was successful at first instance, but failed on appeal.

Turner LJ:

• Notes that he wants to give effect to the settlement, but he can’t do so because it’s settled law that “in order to render a voluntary settlement valid and effectual, the settlor 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 on him.” He can do this buy:

  • Transferring the property to those he intends to provide for: i.e. to transfer full legal and beneficial title —as a gift.

  • Transferring the property to a trustee for the purposes of the settlement: i.e. creating a trust by transfer.

  • Or, if the property is personal, a trust can be declared by parol: i.e. self-declaration of a trust.

• An imperfect gift is not a declaration of trust: “in order to render the settlement binding, one or other of these modes must, as I understand the law of this court, be resorted to, for there is no equity in this court to perfect an imperfect gift”

• If the intention is that a settlement is effectuated by one of the modes above, the court won’t give effect to it by applying one of the other modes: “if the settlement is intended to be effectuated by one of the modes to which I have referred [either self-declaration as trustee or transfer to another to hold on trust], the Court will not give effect to it by applying another one of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.

• Applying the law to the facts:

• Case isn’t mode 1: In this case, there’s no transfer of the legal title to the claimant, so the court needs to ask whether a trust has been created—with either Lord or Medley as trustee.

• Case isn’t mode 2: Clearly the purpose of the settlement wasn’t for Medley to be the trustee, so the intention was for the trust to be vested in Lord (i.e. there was no self-declaration of trust in this case).

• Case isn’t mode 3: The shares (trust property) were never legally vested in Lord (due to the bank’s formalities on transfers not being met) therefore there was no constitution, Lord wasn’t a trustee, and there was no valid trust in this case.

Jones v Lock [1865]

Facts: on returning from a business visit to Birmingham, Mr. Jones was reproved by his family for not bringing a present for his baby son. He produced a cheque for 900 payable to himself and said “look you here, I give this to baby; it is for himself, and I am going to put it away for him, and will give him a great deal more along with it.” He placed the cheque in his baby’s hand. His wife feared the baby might tear it, and Jones added: “Never mind if he does; it is his own, and he may do what he likes with it.” He then took the cheque back and locked it in a safe. Six days later he died. The question was whether the baby was entitled to the cheque.

Lord Cranworth LC: it was held that there had been no gift to the baby [at the time a gift of a cheque required indorsement —this is no longer the case under the Cheques Act 1992] and no declaration of trust in his favour.

• “I should have every inclination to sustain this gift, but unfortunately I am unable to do so; the case turns on the very short question whether Jones intended to make a declaration that he held the property in trust for the child; and I cannot come to any other conclusion than he did not. I think it would be of very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declarations of trust.”

Lord Cranworth obviously regretted the result, but the claimant could not show that the father had intended to declare himself a trustee for the child.

Richards v Delbridge [1874]

Facts: a settlor attempted to assign a lease of business premises to his grandson by endorsing the lease and signing a memorandum:...

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