Someone recently bought our

students are currently browsing our notes.


Constitution Long Notes

Law Notes > Trusts and Equity Notes

Updates Available  

A more recent version of these Constitution Long notes – written by Oxford students – is available here.

The following is a more accessble plain text extract of the PDF sample above, taken from our Trusts and Equity Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

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


o Transferring the property to a trustee for the purposes of the settlement: i.e. creating a trust by transfer. o Or, if the property is personal, a trust can be declared by parol: i.e. selfdeclaration 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: o 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. o 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 selfdeclaration of trust in this case). o 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 PS900 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: "This deed and all thereto I give to R from this time henceforth with all stock in trade." He gave the lease certificate to R's mother to hold on his behalf. On the death of the settlor, it was ascertained that his will made no reference to the business premises. The question in issue was whether the lease belonged to the grandson or to the residuary beneficiaries under the testator's will. Sir George Jessel MR: the lease was subject to an RT for the residuary beneficiaries. There was an imperfect gift inter vivos to the grandson as the assignment, not being under seal, was ineffectual to transfer the lease. Further, no trust had been created for the grandson, as the grandfather did not declare himself a trustee of the lease for him. The court will not construe an ineffectual transfer as a valid declaration of trust:
? "For a man to make himself a trustee there must be an expression of intention to become a trustee, whereas words of present gift show an intention to give over property to another, and not retain it in the donor's own hands for any purpose, fiduciary or otherwise."
? He endorsed the Milroy proposition that "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." NB: the word 'trust' does not need to be used explicitly in order to find that a person declared himself / herself to be holding property as a trustee: for example, in Paul v Constance [1977]1, the court held that the words 'the money is as much yours as mine' in their particular context were sufficient to find that the speaker was declaring himself to hold the property as trustee for himself and the addressee of the words beneficially. Scarman LJ:
? "When one bears in mind the unsophisticated character of the deceased and his relationship with the plaintiff during the last few years of his life, Mr. Wilson submits that the words that he did use on more than one occasion, 'this money is as much yours as mine', conveys clearly a present declaration that the existing fund was as much the plaintiff's as his won. The judge accepted that conclusion. I think that he was well justified in doing so and, indeed, I think that he was right to do so." One case which has caused difficulty in this area is the following, where the method of constitution of the trust was essentially by self-declaration: 1 See week 1 notes

T Choithram International SA v Pagarani [2001]
Facts: The donor, Pagrani (referred to as TCP in the case), who was seriously ill, executed a trust deed to establish a philanthropic foundation. Having appointed himself one of the trustees, he stated orally that he gave all his estate to the foundation. TCP died before deposit balances and shares had been transferred to the foundation. The plaintiffs (his children) claimed that they were entitled to TCP's estate on an intestacy because he had not made a valid gift to the foundation. Privy Council: held that TCP had intended to make an immediate irrevocable gift to the foundation. Since TCP was one of the trustees of the foundation he was bound by the trust and so the gift to the foundation was properly vested in all the trustees.
? Lord Browne-Wilkinson: o The central question is whether, "on the basis that TCP intended to make an absolute gift 'to the foundation' but had not vested the gift property in all the trustees of the foundation, are the trusts ... enforceable?" He found that, in the context, the words 'I give to the foundation, must mean, "I give to the Trustees of the Foundation trust deed to be held by them on the trust of the Foundation trust deed." In other words, "although the words are apparently words of outright gift, they are essentially words of gift on trust." o An ineffective gift - under Milroy - will not create a trust, however, "although equity will not aid a volunteer, it will not strive officiously to defeat a gift. And whilst the words used here are "normally appropriate to an outright gift," if you give them the only meaning they could possibly have had in this context, they clearly, instead of declaring a gift to the foundation, declared that he was giving the trustees of foundation trust deed. o In substance, Pagarani was saying that he, as sole legal beneficial owner of the assets, and trustee of the foundation, gave his beneficial interest on trust for the foundation's charitable purposes, and so now holds those interests as trustee for foundation. So this was a perfectly constituted self-declared trust --- he himself is a trustee here, despite the fact that he hadn't actually transferred title to the gifted assets to all 7 trustees. o Where trust property is vested in one of a body of trustees (as was effectively the case here), he's "bound by the trust and must give effect to it by transferring the trust property into the name of all the trustees," i.e. an oral gift to the trustees is invalid (generally) to create a trust, but as A himself is a trustee, so the beneficiaries can compel A to apply the money to the trust. o That there was in principle no distinction between a settlor declaring himself to be the sole trustee and one of a number of trustees. In both cases, it would be unconscionable for him subsequently to resile from this declaration of trust [but this was extended far too broadly in Pennington]. My thoughts: crucial to the decision that the execution of the deed of trust and the oral gift formed part of one composite transaction; any special factors, such as any express/implied

intention of the settlor, that no trust should arise until the moment of transfer of subject matter would have led to a different result. If the subject matter were land, then note that 53(1) applies.An ineffective transfer can take place in equity. So, here, where a settlor who is one of a number of trustees declares a trust: where you're one of the trustees, then declaration is sufficient as the property is vested in you already. This case is also reiteration of the fact that the declaration of trust need not be literal - they read into his words here.

Virgo: It may be doubted whether the case is in fact novel --- in Rickett's case note, he noted that the case did not fall "between the two common form situations" and that it's a relatively uncontroversial case of "successful declaration by TCP of himself as trustee, rather than as one of the transfer to trustees." Virgo notes that TCP was one of the trustees, had the relevant property, and declared himself to be holding it on trust; the only difficult point is that he used the language of 'handing over' the property to trustees --- but seeing as he was a trustee this may legitimately be interpreted as him holding the property he already owned on the trusts already established. The rule that emerges is that if the property is vested in one of a number of trustees, then the trust will be fully constituted. TRANSFER OF TRUST PROPERTY TO THE TRUSTEE The other method constituting a trust is for the settlor to transfer the property to the trustees. The vesting of the trust property in the trustee constitutes the trust. In a completely constituted trust, there is no need for consideration and the question of whether a beneficiary is a volunteer is immaterial. Legal interests The method of transfer of legal title varies with the property in question. A legal estate in registered land must be transferred by deed, and in registered land by registration; stocks and shares by an appropriate from of transfer followed by registration of title in the share register; chattels by deed of gift or by an intention to give coupled with a delivery of possession. As long as the trustee receives legal title of the property, the trust will be constituted, regardless of the reason why title is vested in the trustee. This principle was made clear in Re Ralli's Will Trusts: Re Ralli's Will Trusts [1964]
Facts: a settlor, Helen, entered into a covenant to transfer any existing or after-acquired property to the trustees of her marriage settlement (i.e. to benefit her children, or, because she died childless, her sister Irene's children). At the time of this settlement, she already held existing property caught by this covenant, namely an interest in remainder in the residue of

her father's estate subject to the prior life interest of her mother (i.e. H was the beneficiary of a trust set up by her father). She never assigned this interest to the trustees of the marriage settlement at any time prior to her death 32 years later. Her mother actually survived her so that it was over four years after her death before her interest in remainder vested in possession. At that point the sole trustee of her father's will was, fortuitously, also the sole trustee of the marriage settlement (he was Irene's husband and the claimant in this case). He was, therefore, in the former capacity holding on trust for her an interest which she should have assigned to him in the latter capacity. The question arose as to whether this fortuitous occurrence had the effect of completely constituting a trust of the interest in favour of the beneficiaries of the marriage settlement. Buckley J: held, as a matter of construction, that H had declared herself to be a trustee for her marriage settlement of any property caught by the covenant pending transfer of that property to the trustees. Thus her interest in remainder had, ever since the date of the marriage settlement, been subject to a completely constituted trust in favour of that settlement. Its beneficiaries could, therefore, obviously enforce this trust without any need to rely on the fact that the interest had fortuitously vested in their trustee in another capacity.
? The above was enough to deal with the case, but Buckley went on to hold that, since the interest in question had fortuitously reached the hands of the person to whom the settlor should have transferred it, the trust of that property in favour of the beneficiaries of the marriage settlement had by this means also become completely constituted, this time by transfer rather than by declaration.
? He went on to say that it was totally irrelevant how the property had come into the hands of the person to whom it should have been transferred; the mere fact, fortuitous though it was, that property had reached his hands was sufficient to have completely constituted the trust. "The circumstance that the trustee holds the fund because he was appointed a trustee of the will is irrelevant. He is at law the owner of the fund, and the means by which he became so have no effect upon the quality of his legal ownership. The question is: For whom, if anyone, does he hold the fund in equity? In other words, who can successfully assert in equity against him disentitling him to stand upon his legal right?"
? Nor was it of any significance that the result of the case would, on this ground, have been different had anyone other than the trustee of the marriage settlement been the trustee of the will. Thus, H's representatives (i.e. those who were looking to inherit her property) were unable to assert any right against the C and the C was considered to be holding the property on the trusts of the marriage settlement --- the fact that he received the property in an unanticipated manner did not affect the nature of his holding the property as such as a trustee. NB: a failed attempt to transfer title will not be reinterpreted as a declaration of trust simply in order to ensure that the gift is fully constituted --- as is clear from Milroy. Equitable interests

The settlor may transfer equitable title to the trustee --- this would create a sub-trust. In order to transfer a subsisting equitable interest, compliance with s.53(1)(c) of the LPA 1925 is required, such that signed writing is needed. FAILED GIFTS: INCOMPLETELY CONSTITUTED TRUSTS In Milroy, in concluding that the transfer failed, Turner LJ relied upon the fundamental principles that 'equity will not assist a volunteer' and that 'there is no equity to perfect an imperfect gift'. Thus in Re Fry [1946], a purported git of shares failed since the consent of the Treasury to the transfer was required, and the donor died before the consent was given. Even though the donor had applied for consent and clearly intended the transfer to occur at the time of his death, Romer J held that further steps were necessary for the gift to be perfected: "it was necessary for him to obtain permission from the Treasury for the assignment and he had not obtained it." Cases such as Milroy and Fry can be seen as harsh --- for the gift to fail in its entirety might appear to frustrate the intentions of the donor. In order to alleviate the strict nature of Milroy, emphasis is sometimes placed on the maxim 'equity will not strive to officiously defeat a gift.' This was the case in Pennington v Waine [2002]. There are two major ways in which it will be seen that Equity has enabled a transfer to be effective in Equity, even if it is not effective at law: (i) Where the donor has done everything in his / her power to transfer title under the 'rule in Rose' (ii) Where it would be unconscionable for the donor to deny the gift under Pennington v Waine. Although the latter rule has come under more criticism, both can be objected to --- i.e. that equity should follow the law here: if a gift is not complete, and the donee has not provided any consideration, then the donor might legitimately expect to be able to change his / her mind. The problem situation is where the donor dies before he has a chance to perfect a gift and the evidence suggests he wouldn't have changed his mind. There is clearly a desire of the courts to try to give effect to the wishes of a testator --- yet this might be questioned. I.e. under the law, a donor could just declare himself a trustee, pending completion of the transfer. Donor or settlor has done all necessary to transfer title The strict approach of Milroy v Fry has clearly been softened by the intervention of Equity. Of particular significance is 'the rule in Rose' which provides that if the donor has done everything in his power to complete the transfer then the gift will be effective.

Buy the full version of these notes or essay plans and more in our Trusts and Equity Notes.

More Trusts And Equity Samples