Equity and Trusts

1
Equity and Trusts

• Creation of express trusts 2 constitution of
  trusts

2
Requirements for a valid trust

• In Lecture One on express trusts the first three
  requirements of express trusts were outlined
• capacity
• formalities
• requirement of certainty
• The fourth requirement is constitution
• (i) by settlor declaring himself trustee OR
• (ii) by settlor transferring property to
  trustees
• Also will consider the effects of
  non-constitution and possible remedies.

3
A trust must also be constituted

• Trust is not constituted until legal title to
  the trust property has been effectively
  transferred to trustees using appropriate
  formalities
• Following also applies to gifts gift must be
  transferred to donee.

4
Turner LJ in Milroy v Lord (1862)4 De GF J 264

• in order to make a voluntary settlement valid
  and effectual, a 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
• Different types of property will require
  different formalities to be observed in order
  that the property may be effectively transferred.

5
the nature of the property comprised in the
settlementChattels

• For chattels there must be delivery intent to
  give or a deed of gift.

6
Land

• Unregistered land must be transferred by deed
  registered at LR
• Registered land must be transferred by land
  registry transfer registered.

7
Shares

• Shares must be transferred by (usually) stock
  transfer form registration on companys books
• In Milroy neither form nor registration had
  happened. Transfer by deed ineffective an trust
  not constituted.

8
Equitable interests

• S53(1)(c) LPA 1925 must be transferred in
  writing

9
Future property

• e.g. possibility of receiving something under a
  will cannot form subject matter of a trust

10
Remedies

• If trust not constituted then beneficiaries
  receive nothing because nothing to enforce.
• Will wish to show trust is constituted or
  another remedy.

11
Remedies

• Possible remedy construe failed transfer as
  valid declaration of trust.
• e.g. if settlor executes document setting up
  trust of Blackacre but omitted to transfer
  Blackacre to trustees then he might be said to
  have self declared as trustee.
• Self-declaration as trustee involves no transfer
  because the legal title is already in the trustee
  it is really a declaration that the legal owner
  is no longer beneficial owner.

12
Milroy

• Settlor had intended to make a transfer of
  assets to trustees the court would not construe
  this as evidence by the settlor as evidence of
  his declaration of self as trustee.
• if the settlement is intended to be
  effectuated by one of the modes to which I have
  referred, the Court will not give effect to it by
  applying another 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.

13
Equity will not perfect an imperfect gift

• In Milroy neither the appropriate transfer form
  nor registration on the companys books had been
  carried done and purported transfer by deed was
  ineffective.
• Trust was not constituted.

14
Position so far

• When settlor creates a trust by declaring
  himself trustee providing capacity formality
  certainty are satisfied this will, be
  sufficient
• But if settlor must transfer property to
  trustees then trust is incomplete until the
  property is transferred. Failure to constitute a
  trust can be fatal to the expectations of the
  intended beneficiaries.
• There are though some possible exceptions to the
  rule that equity will not perfect and imperfect
  gift.

15
Doctrine of every effort

• For this rule to constitute an incompletely
  constituted trust a settlor must have done
  everything which was necessary to be done in
  order to transfer the property
• The only acceptable reason for non-constitution
  must lie with a third party. See Re Rose 1952
  1 All ER 1217. R executed two transfers of shares
  one to his wife and one to trustees on trust.
  Transfer were executed in required form in March
  1943. R sent the forms and share certificates to
  the company registrar and they were registered in
  June 1943. R died five years later but less than
  five years after shares were registered. If
  effective date of transfer was June 43 estate
  duty was payable if March 43 it was not. CA
  held R had done all in his power to vest the
  shares in the transferees and they could perfect
  their title by obtaining registration. Gift
  complete in March 43 and no estate duty was
  payable.

16
Re Fry

• Compare with Re Fry 1946 2 All ER 971 treasury
  consent was necessary before registration but had
  not been obtained.

17
Mascall v Mascall (1984) 50 P CR 119

• Father executed transfer of house to son. Gave
  it to him with land certificate. They argued and
  father sought declaration that transfer
  ineffective because son had not sent documents to
  land registry. Gift was complete father had
  done everything within his power to effect the
  transfer.

18
Pennington v Waine 2002 EWCA Civ 227

• A wished to transfer 400 of 2000 shares in
  private company to H. Sep 1998 signed transfer
  form and sent to P an accountant in the firm
  which audited the companys books but acting as
  As agent for the transaction. P failed to pass
  the form to the company or H. But P did write to
  H that A wanted H to be a director of the
  company. H signed consent form to become
  director. P also told H that he was to transfer
  400 shares of As shares to him and that H need
  do nothing. A died in 1998 leaving H her shares
  which totalled 51 of company. H name not on
  company register the shares still belonged to A.
  Residuary bens took action. J concluded A had
  transferred the whole beneficial interest to H
  that A was trustee therefore. On appeal bens
  argued transaction incomplete without delivery of
  share transfer form to H or company.

19
Pennington v Waine 2002 EWCA Civ 227

• Appeal dismissed. Delivery of stock transfer
  form could be dispensed with in some
  circumstances. A had intended immediate gift to
  H who was informed of it therefore
  unconscionable for A to withdraw the gift once H
  signed the consent form.
• Also unconscionable for executors to refuse to
  hand H share transfer after her death.

20
Pennington

• Pennington controversial. See Milroy to effect
  a voluntary settlement a settlor must have done
  everything which was necessary to be done in
  order to transfer the property Note maxim
  equity will not perfect an imperfect gift set
  against the doctrine of every effort if donor
  has done everything in their power, the gift is
  complete in equity. Where the beneficial interest
  is transferred to the donee, legal title is held
  on trust by the donor for the donee.
• BUT in the doctrine cases delivery was
  necessary. In Rose gift was complete when the
  donor executed share transfers and delivered
  them.
• Arden LJ in Pennington maxim equity will not
  perfect an imperfect gift include insuring that
  donors did not act unwisely. Furthered by
  permitting donors to change their minds anytime
  before the gift is completely constituted a
  paternalistic objective.
• BUT there are policy considerations in favour of
  holding gift completely constituted effectuating
  the clear continuing intention of donor and
  preventing unconscionable behaviour by donor, an
  incomplete gift is constituted if it is
  unconscionable for donor to change their mind.

21
Pennington

• A had made gift of own free will, had signed the
  share transfer form, delivered this to P to
  secure registration, H told about gift, also that
  he need do nothing himself, H had also agreed to
  become a director of the company, once H signed
  consent form too late for A to change mind and
  recall gift.
• Was delivery necessary per Re Rose?
• No could be dispended with.

22
Pennington

• Was delivery necessary per Re Rose?
• No could be dispended with in some
  circumstances.
• Stage reached in Pennington where unconscionable
  to recall gift. Delivery of share transfer was
  therefore unnecessary.

23
Position after Pennington

• Position changed from the gift is perfected in
  equity when the donor has done everything
  necessary that they should do to
• Gift is perfect in equity when it is
  unconscionable for the donor to change his mind
• Despite rule in Rose et al completion of all
  formalities is unnecessary.

24
Pennington further criticism

• T Choithram International SA v Pagarani 2001
  All ER 492 cited in Pennington as support. See
  Browne-Wilkinson although equity will not assist
  a volunteer it will not strive officiously to
  defeat a gift.
• Pagaranis words I give to the foundation
  included him as trustee therefore legal title was
  held by donor himself only needed him to
  transfer title to other trustees.
• Unconscionable for Pagarani to refuse to
  transfer to other trustees.

25
Pennington

• Pennington is very different statement that
  unconscionable for A to revoke gift is too broad.
  

26
The rule in Strong v Bird (1874) LR 18 Eq 315

• Rule applies to perfect an imperfect gift.
• Applies also to proposed transfers to trustees
• Where incomplete gift and donor appoints donee as
  executor then on donors death gift is complete
  when executor acquires legal title.

27
Strong v Bird

• Rule originally applied only to debts
• In Strong def borrowed 1k from stepmother
  shared his house for 200 per quarter board.
  Agreed discharge by -100 each quarter.
  Deductions paid for two quarters full amount on
  third quarter continued this until death four
  years later
• Def sole executor. At common law appointment of
  debtor as executor discharged the debt. Strong
  applied rule in equity provided evidence testator
  until death intended to release debtor
• Extended in Re Stewart 1908 2 Ch 251 to
  ineffective gifts.

28
Requirements

• Intention to make immediate inter vivos gift
• of specific existing property
• Intention continues to donors death
• Donee becomes donors executor.

29
Re Rallis WT 1964 Ch 288

• Questionable extension of Strong
• H covenanted to transfer existing after acquired
  property to trustees of her marriage settlement.
  H had interest in remainder in fathers residuary
  estate. Mother had life interest. H died 1956.
  Mother four years later. Trustee of fathers
  will also trustee of Hs marriage settlement.
• Q did trustee hold fathers estate on terms of
  Fs will or Hs marriage settlement?
• Held T held on trusts of marriage settlement T
  in possession of property sufficient to
  constitute trust. How T acquired title
  irrelevant.

30
Rallis WT

• Contrast Re Brooks STs 1939 Ch 993

31
Donationes mortis causa

• Donationes mortis causa gifts made in
  contemplation/conditional on death death bed
  settlement.
• Lifetime gift that could perfect an imperfect
  gift rather than an imperfect trust.

32
Cain v Moon 1896 2 QB 283 DC

• Three requirements for DMC
• Gift made in contemplation of death
• Gift is conditional on death of donor
• Delivery of subject matter to donee with
  intention of parting with dominium

33
DMCs

• Donor must have contemplated death at time of
  gift
• Gift still valid if death by unexpected means
• See Wilkes v Allington 1931 2 Ch 104
• Also Re Dudman and whether DMC possible in
  contemplation of suicide.

34
DMCs

• Circumstances must show gift conditional on
  death revocable on recovery
• Can infer conditional quality of gift.

35
DMCs

• Must be delivery intent to part with dominium
  over object (I.e. power or control handed over)
• How delivered varies chattels must be control or
  means of getting control e.g. keys tow here the
  property is held. Re Cravens Estate 1927 Ch
  431 one of three keys insufficient
• Compare Woodward v Woodward 1995where donor too
  ill to use retained keys to car
• See also Sen v Headley 1991 Ch 425 CA.

36
DMCs

• Choses in action must be transferred by relevant
  document essential indicia or evidence of title
  e.g.bank deposit pass book

37
DMCs

• DMCs of land possible
• Donor must hand over relevant documents.

38
DMCs

• Chattels donees title perfected on donors death.
  Delivery sufficient.
• Chose in action and land title not complete
  until donors PRs perfect the gift by the
  necessary means.

39
Proprietary estoppel

• PE can result in constitution of trust/gift
• Donor of imperfect gift stands by while donee
  spends money on subject matter/ or suffers other
  detriment on basis of interest equity may perfect
  the gift
• PE developing doctrine
• Essentials assurance, reliance on
  representation, detriment. Owner then prevented
  from asserting rights
• Wide discretion on remedies
• Basis of doctrine unconscionable conduct
• Dillwyn v Llewelyn (1862) 4 De GF J 517 father
  gave land for son to build house father then
  compelled to convey land.
• See also Pascoe v Turner 1979 2 All ER 945 CA.

40
Contractual remedy for unconstituted trusts

• Must be contract with settlor with person
  seeking enforcement a party
• e.g. contract between settlor and trustee in
  deed. Will recite intent to create trust,
  transfer property, duties of trustees etc
• Bens can be parties but unusual especially
  where bens volunteers.

41
Covenants

• Gratuitous statements by settlor cannot be
  enforced
• Formal promises are different e.g. covenants
• Covenant is a promise contained in a deed.

42
Marriage settlements

• NB position in equity and at common law
• Equity not concerned with settlors promise
• If consideration provided equity will enforce
  promise to settle on trust
• If not then equity will not assist a volunteer
• Equitable remedy specific performance
• What is consideration? Money or moneys worth
  in equity marriage consideration (agreements to
  settle made on consideration of marriage
  spouses and issue are parties and can enforce
  e.g. Pullan v Coe 1913 1 Ch 9. Next of kin
  cannot see Re Plumptres Marriage Sett. (1910) 1
  CH 609.

43
Covenants to settle

• Covenants is promise in deed
• Party to deed may sue even though no conventional
  consideration
• Entering into deed is in itself consideration
• Covenants by deed not recognised by equity
• Remedy common law damages

44
Recap

• In equity money or moneys worth or marriage
  consideration is required remedy is specific
  performance. Covenants not recognised without
  additional consideration
• At law consideration money or moneys worth (but
  not marriages). Remedy damages. Covenants by
  deed are specially treated.

45
Cannon v Hartley 1949 Ch 213

• Separation agreement between wife, husband,
  daughter.
• Agreement that if husband came into property
  from mother he would transfer it on trust for the
  wife for life and thereafter to the daughter.
  Husband did not transfer. Wife died and daughter
  sought to enforce.
• Held trust not constituted/she was volunteer/
  entitled to common law damages damages equalling
  amount of assets not settled.

46
Canon v Hartley

• Canon can be used to constitute any gift/trust
  even where beneficiary is volunteer but is party
  to contract
• Could Hartley assist volunteer beneficiaries not
  parties to contract?
• Trustees would have to take action on
  beneficiaries behalf
• Could trustee sue for damages?
• Courts do not think trustees should not enforce
  indirectly by contract that which they cannot
  enforce directly.

47
Position of trustees

• Are trustees prevented from taking action
• Re Pryce 1917 1 Ch 234 should trustees sue to
  enforce covenant to settle after acquired
  property? Court held no. Beneficiaries were
  volunteers and (as above) trustees could not be
  directed to enforce.
• Followed in Re Kays Sett. 1939 Ch 329
• See also Re Cooke 1965 Ch 902.

48
Position of trustees

• Trustees cannot be compelled to sue (what about
  rights of parties to contract to sue?)
• But consider remedies not specific performance.
  Damages but what measure? Trustees have lost
  nothing
• Cavendish Brownes Sett. Trusts 1916 WN 341
  trustees sued for volunteer beneficiaries
  obtained damages to value of real estate. No
  discussion of volunteers. But case is pre-Pryce
  etc. (cases of future property). Cavendish
  concerned specific property I.e. measurable loss.
  
• Was Cavendish a trust of the promise case see
  below.

49
Position of trustees

• If trustees get damages these are held on trust.
  But who for?
• If beneficiaries then equity ids assisting
  volunteer
• So damages on RT for settlor? A purely circular
  position.

50
Contracts (Rights of Third Parties) Act 1999

• Under privity third party cannot enforce a
  contract to his benefit
• Act has changed position. S1(1) person not a
  party to contract may enforce term of contract if
  
• (a) contract expressly provides that he may or
• (b) the term purports to confer a benefit on
  him.

51
Contracts (Rights of Third Parties) Act 1999

• By ss2 ss1(b) does not apply if on proper
  construction of contract the parties did not
  intent the term to be enforceable by third party

52
Contracts (Rights of Third Parties) Act 1999

• S1(3) third party must be expressly identified in
  contract by name as member of class or as
  answering a particular description
• Third party need not exist at time of contract
  (e.g. unborn children/future spouses)

53
Contracts (Rights of Third Parties) Act 1999

• Remedy is damages
• Open to question whether under S1(5) this means
  specific Trusts of the promise

54
Contracts (Rights of Third Parties) Act 1999

• Third party could now enforce covenant to obtain
  damages
• Specific performance may also be available
• Act does not apply to covenants made before 1999
  Act came into force.

55
Trusts of the promise

• Where settlor enters into covenant can covenant
  itself be subject matter of trust?
• See Fletcher v Fletcher (144) 4 Hare 67 if
  settlor intended to make the promise the subject
  of the trust then this constitutes a trust of the
  promise. Here settlor covenanted to pay 60k on
  trust for his illegitimate sons. One volunteer
  son sought to enforce. Court held that covenant
  held on a fully constituted trust.

56
Trusts of the promise

• Trustees of the covenant hold on trust that of
  which the contract comprises i.e. the benefit (a
  chose in action).
• Problem was there really a trust of the promise
  in Fletcher?
• Fletcher decided when precatory words sufficient
  for trust and this was obviously what the settlor
  had intended.

57
Trusts of the promise

• Fletcher would now be decided differently
• Now need clear intention to create trust of
  benefit of the covenant
• See Re Shebsman court held no trust of benefit of
  contract is to be implied even where contract
  stated to be for benefit of third party. Settlor
  must manifest intention to create trust of
  benefit of covenant e.g. pending the transfer of
  the trust property benefit of the covenant shall
  be held by the trustees of the settlement.

58
Trusts of the promise

• No successful cases since court changed its view
  on intention
• But was Re Cavendish Browne an example of trust
  of benefit of covenant?
• Fletcher was raised in Re Cookes where it was
  stated not to apply to after acquired property
  i.e. there cannot be a trust of future property
  (but without authority).

59
Don King Productions Inc v Warren

• Recent case Don King Productions Inc v Warren
  1998 2 All ER 608
• Don King and Frank Warren entered into
  partnership agreement. Partners to hold all
  promotion and management agreements relating to
  partnership to benefit of partnership absolutely.
  Warren entered into another agreement for own
  benefit. Court held that this was held on trust
  for partnership
• In effect each was a trustee of their management
  contracts so any profits from promotion contracts
  (at time or future) on trust for partnership
  (contrary to Re Cooke supra).

60
Conclusion

• BUT - it is still necessary for settlor to intend
  to create such a trust
• Since C(RTP)A 1999 (supra) covenants to settle
  and Fletcher are of less importance