1. Certainties, Formalities and Constitution Flashcards
The Three Certainties (The 3Cs)
In order for a settlor’s trust to be valid (and enforceable), the following THREE CERTAINTIES must be met (Knight v Knight):
- INTENTION
- SUBJECT MATTER
- OBJECTS
The 3Cs: INTENTION (to create a trust)
A settlor must demonstrate an intention to create a trust through (Paul v Constance):
- WORDS
- CONDUCT
The 3Cs: Intention - WORDS
The words used must substantially manifest a sufficient intention to create a trust (Re Kayford).
- ‘Trust’ or ‘confidence’, while suggestive, are neither essential/conclusive in determining a settlor’s intention.
Words must be IMPERATIVE, not precatory.
- IMPERATIVE WORDS
- – Such words impose an obligation.
- – EG: (Comiskey v Bowring-Hanbury) - Property given “in full confidence” that spouse would do as he would have, yet, in absence of her choice, [he] “I direct” that it should be divided amongst nieces.
- PRECATORY WORDS
- – Merely express a hope/wish.
- – EG: (Lambe v Eames) - Property at “disposal” of spouse to handle “in any way she may think best”.
- — (Re Adams & Kensington) - to spouse “in full confidence” that would “do what is right as to the disposal”.
- — (Re Hamilton) - “I wish them to bequeath”.
Words should be examined in the context of the whole document (Re Hamilton per Lindley LJ)
The words “I am as from today HOLDING 4000 shares” [for you] were held to constitute a trust, not a gift (Shah v Shah).
The 3Cs: Intention - CONDUCT
In some circumstances, conduct can constitute a declaration of trust.
- (Paul v Constance) - Repeated assurances that an account was “as much yours as it is mine” & instruction that money goes to the same person after death.
A MONEY TRANSFER can give rise to a trust iff:
- it does not relate to a debtor/creditor relationship (Azam v Iqbal). AND either,
- the transfer is to another person who is required to keep the money segregated (Azam v Iqbal)
- the money is combined with other money, all of which is held for a set purpose, with each transferor owning their contribution percentage (Re Lewis’s of Leicester Ltd).
- money transferred to a separate account for a specific purpose (Re Kayford).
Money paid into an overdrawn account of a company in liquidation will NOT constitute a trust (as creditor/debtor), will be distributed to creditors (Moriarty v Various Customers of BA Peters).
The 3Cs: SUBJECT MATTER (property)
TWO aspects of the property must be certain:
- The trust property itself
- The beneficial entitlements
TRUST PROPERTY
- must be certain when trust is CREATED.
- Property can be tangible (chattels):
- – This must be identifiable
- – (Re London Wine cf. Re Goldcorp Exchange)
- or intangible
- – no requirement to be identifiable.
- – includes share, so long as of same class (Hunter v Moss; Pearson v Lehman Brothers).
Following were NOT clear statements as to the TP:
- “the remaining part of what is left” (Sprange v Barnard)
- “anything that is left” (In the Estate of Last)
- “the bulk of my estate” (Palmer v Simmonds)
BENEFICIAL ENTITLEMENTS
- The amount to which the Bs are entitled must be sufficiently clear.
- – “A R income” was sufficiently clear (Re Golay’s Will Trusts).
- Where the certainty of the property depends on a conditions precedent yet it never occurs, the property remains uncertain (Boyce v Boyce).
The 3Cs: OBJECTS (beneficiaries)
Bs must be ascertainable (Morice v Bishop of Durham), the Ts must be informed by SETTLOR of who the Bs are. No need to Bs to be informed. The test depends on whether the trust is FIXED or DISC..
FIXED TRUST (Settlor determines what Bs are to receive) TEST = the 'list test' (IRC v Broadway Cottages) - All Bs must be individually identifiable. The T must be able to draw up a complete B list. - Both conceptual (class) AND evidential (specific person) certainty are necessary.
DISC. TRUST (discretion given to T'ees as to what Bs shall receive) TEST = the 'is/is not test' (McPhail v Doulton). - Must be possible to determine whether an individual is or isn't with the specified class. So ONLY conceptual certainty needed. - Test has been interpreted in three ways, no clarification as to correct one (Re Baden's Deed Trusts (No. 2)): --- SACHS LJ: Concept. C needed + an individual seeking to be in the class must PROVE it. --- MEGAW LJ: no concept. C needed if a substantial number of individuals are identifiable in the class. --- STAMPE LJ: ALL individuals within the class must be identifiable.
The trust must NOT be void for administrative unworkability (R v District Auditor ex p West Yorkshire CC) - The class of individuals must NOT be too large for the T'ees to be able to exercise their duties.
“Friends” is NOT conceptually certain (Re Lloyds Trust Instruments).
The 3Cs: Powers of Appointment and Gifts
Powers of Appointment
TEST: the ‘is/is not’ test (Re Gulbenkian’s Settlement Trust)
— It must be possible to determine conclusively whether an individual is or is not within the class.
— A T for relatives who were “deserving material hardship” was uncertain, “deserving” could not be clearly defined (Public Trustee v Butler).
- Administrative unworkability does not apply to powers (Re Manisty’s Settlement)
- Friends is NOT concept. certain (Re Gulbenkian’s Settlement)
- Note that an invalid T will NOT be treated as a power (Re Shaw).
Gifts
- Where gifts are made to a CLASS, concept. certainty will exist if one or more individuals can be determined to be in that class (Re Allen)
- – “Friends” can therefore be concept. certain (Re Barlow’s Will Trust)
The 3Cs: Consequences of Uncertainty
Consequences vary depending on what about the trust is uncertain.
INTENTION - the donee will take the property absolutely (Lassence v Tierney)
SUBJECT MATTER - varies:
- Unc. about property itself - T will be void.
- Unc. about B entitlement - Resulting T to settlor (Boyce v Boyce)
- Unc. T attached to a gift - donee will take the gift absolutely (Sprange v Barnard; Palmer v Simmonds)
OBJECTS - A resulting trust to the settlor (Vandervell v IRC)
CONSTITUTION (CON)
There are three possible methods of transfer (Millroy v Lord)
- Outright gift
- Transfer on Trust
- Self-declaration
For a trust to be properly constituted, the trust property must be vested in the Tees. Constitution concerns the transfer of legal title.
CON: Requirements
Outright gift
- Legal title must be transferred to the donee(s).
Transfer on Trust
- A valid declaration of T is required, AND legal title must be transferred to T’ee(s).
Self-declaration
- A valid declaration of trust is required.
VALID DECLARATIONS OF TRUST
In order to be valid, a declaration of T must satisfy:
- the 3Cs, AND
- any relevant formality requirements
Note, constitution only applies to the transfer of LEGAL title, not to the declarations of trust.
CON: Legal Title AT LAW
For legal title to pass correctly at law, requirements depend on the type of property being transferred.
SHARES
- 3 requirements for valid share transfer (Stock Transfer Act 1963):
- – Transferor must complete a stock transfer form
- – That form must be sent with share certificate(s) to company’s registrar
- – transferee must be registered as new shareholder in company’s register of members
- Legal title will ONLY pass at this final stage.
LAND
- 2 requirements for valid land transfer:
- – must be by deed (s52(1) LPA)
- —– deed must be signed by grantor, clear on face, attested and delivered (s1 LP(MP)A)
- —– Endorsing the original deed to the land will be insufficient, a separate, new transfer deed must be used.
- – Registration (s27 LRA)
CHATTELS
- Chattels require:
- – Intention to make a gift, AND
- – Delivery - either delivery (and acceptance) to the recipient (Re Cole), OR, delivery by deed (Jaffa v Taylor)
EQUITABLE INTERESTS
- Transfer must be in WRITING, SIGNED by transferor (or their agent) AT THE TIME of the disposition (s53(1)(c) LPA)
MONEY
- Actual delivery is required
- – A cheque will not constitute delivery of money until it has cleared.
CHOSES IN ACTION (debts or savings accounts)
- Transfer of a chose in action requires writing and notice to the debtor (s136 LPA)
CHEQUES
- Require endorsement by the transferor (Bills of Exchange Act 1882)
- – This requires that the transferor sign his name on the back of the cheque, a mere declaration of a gift will not suffice (Jones v Lock)
CON: Legal Title IN EQUITY
If legal title not passed AT LAW, then consider whether they may pass IN EQUITY.
GR: equity will NOT perfect a transfer that has not met the necessary formal constitution requirements (Milroy v Lord), according to the EMaxims that E will not:
- Perfect an imperfect gift (Richards v Delbridge)
- Treat as a declaration (Jones v Lock) - E will not treat a failed gift/transfer on trust as a declaration of a trust.
- Assist a volunteer (someone who has provided no consideration)
CON: Legal Title in Equity - EXCEPTIONS
There are 5 EXCEPTIONS that allow legal title to pass IN EQUITY.
- The Re Rose Rule
- Unconscionability
- The Strong v Bird Rule
- Donatio Mortis Causa
- The Choithram v Pagarani Rule
CON: Legal Title in Equity - Exceptions - Re Rose
The Re Rose Rule
The transferor must have fulfilled 3 requirements:
- Used correct transfer method
- Done “everything within his power” to effect the transfer
- – Failure EGs: (Re Fry) failing to obtain treasury consent as required by law.
- – (Zeital v Kaye) Handing over a stock transfer form but no share certificates.
- Put matter completely beyond their control
- – Giving all documentation to donee (or donee agent) will suffice (Mascall v Mascall)
- – Giving all documentation to OWN agent will not suffice unless UNCONSCIONABLE (see unconscionability).
Also applies to transfer of land (Mascall v Mascall)
CON: Legal Title in Equity - Exceptions - Unconscionability
Established by (Penningnton v Waine)
A gift or declaration will be perfect where it would be “unconscionable” to deny its operation (Pennington v Waine per Arden LJ)
“Unconscionability” not defined, but likely requires:
- Assurance or representation by transferor to the donee that nothing more had to be done, AND,
- Detrimental reliance by donee on that ass/rep.
NB: (Pennington v Waine) is likely to be confined to own/similar facts (Zeital v Kaye).
