3 - Constitution of trusts Flashcards
Milroy v Lord
CA
Turner LJ: Pointed out that there are three methods of making a gift of property:
- Outright transfer/gift
- Transfers of property to trustee to hold on trust for intended beneficiary.
- Self-declaration of trust
When the trust is fully constituted that is final, the settlor cannot change her mind unless he has the power to do so.
In order to render a voluntary settlement valid and effectual, the settlor must have:
- “Done everything which, according to the nature of the property, was necessary to be done”
in order to transfer the property and render the settlement binding upon him.
“There is no equity in this court to perfect an imperfect gift”
Therefore, if the settlement is intended to be effectuated by one of the modes (transfer, declaration etc). The court will not hold that the intended transferor to have done so another way (e.g if the transferor wanted to transfer by declaration, the courts will not, if it is invalid, hold that the transfer occurred by some other mode.
““I take the law of this court to be well settled, 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 upon him.”
Paul v Paul
CA
Where a trust is completely/fully constituted it has full legal effect and the settlor cannot reclaim the property even if the beneficiaries are volunteers unless he has reserved a power to do so.
What is the effect of failure of the settlor to take necessary steps in creating trust or transferring rpoperty?
A trust will only be completely constituted where title to the trust property is in the trustees.
An ineffective assignment of property can only be regarded as a promise to assign.
- If there is no consideration given for a promise, equity will not enforce it.
In an attempted transfer of land or shares there are a number of steps which must be taken to fully transferring legal title to land or shares, if any steps are not completed the gift will be ineffective and trust will not be fully constituted.
Equity will not assist a volunteer, if consideration has been given, the situation is different.
In order for there to be a fully constituted trust, the legal title to that property must have been transferred to intended done/trustee.
What happens if there is a self-declaration of trust, but no effective declaration of trust?
Then the settlor remains fully legal and beneficial owner of the property
What happens if the settlor transfers to trustees to hold on trust?
Need:
- effective transfer of title to trustees
- effective declaration of trust.
If there has been an effective transfer of title to property, then for an intended outright gift, the gift is complete.
For an intended transfer on trust, then if no effective declaration of trust, the trustees will hold on resulting trust for the settlor.
If there is not an effective assignment of title to the intended trustee/beneficiary then ownership remains with the settlor, the settlor has no obligations and if it is an intended transfer on trust, the trust will be described as non constituted.
We are talking about voluntary transfers by way of gift to trustees to hold on trust.
LJ Turner judgment: but 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 there is an attempt to transfer title which is imperfect, no gift would have been made, no trust would have been created. The intended beneficiary will have no rights because LJ Turner put it: “equity will not perfect an imperfect gift”. Equity will not enforce gracious promises or not assist a volunteer. Equity will not enforce a settlor/donor to complete a gift or constitute a trust.
What are the formalities for the transfer of title for land?
There must be a deed (s52(1)).
The LRA 2002, s27 provides that certain transfers, including the transfer of a registered estate must be completed by registration to be effective at law so the conveyance of a registered fee simple needs to be effected by both a deed and then by registration. Otherwise it will not be effective by law.
If all paperwork is in order, the land register does not have the power to refuse to register the new owner - it does it automatically, but must be done before legal title passes.
1) deed - s52(1) lpa 1925
2) registration - s27 LRA 2002
Dispositions of an equitable interest: must be made in writing - s53(1)(C).
How to transfer shares?
Shares:
- Complete a stock transfer form (STF)
- Send the STF to the company, along with share certificates
- Directors of a company need to register the new owner in the register of shares.
The transfer of legal ownership only takes place when all these steps have been complied with.
Unlike the situation with land, a transfer of owner of shares is not always automatic.
How to transfer shares in a private company?
The directors will usually have the power to refuse to register a transfer. The company’s articles of association will likely contain restrictions on assignment of shares.
How to transfer shares in a public company?
can only refuse to register new owner in limited circumstances. Therefore, this is practically automatic.
Today, many shares are held electronically in CREST and the transfer of these are slightly different, rather then stock transfer form, transfer is by instruction but entering into company’s register is still essential.
Can you transfer future property which people do not own yet?
This includes property you hope to inherit. There is no right to this property - it is a mere expectancy.
Re Ellenborough
It is not possible to assign or make a declaration of trust of future property.
Attempt to create a settlement of future property could only operate as an agreement in equity when that transfer of the property was received. An agreement maybe enforceable but only if consideration is received.
Facts: Settlor executed a voluntary settlement by deed in favour of trustees of property to which she might become entitled on the death of her brother. When she inherited, she refused to transfer the property to the trustees. Held: The deed could not operate as a grant but only as an agreement in equity to transfer.
Milroy v Lord
CA
A voluntary transfer of legal title is ineffective both at law and in equity where something remains to be done by the transferor.
Facts: Voluntary deed of transfer of shares by the settlor to a trustee on trust for his niece. However, title was transferable only by entry in books of bank. No entry was made before the settlor’s death. Held: ineffective transfer.
The legal Title had not passed because there was no entry in the books - something remained to be done to transfer legal title. It was a voluntary transfer so equity would not enforce settlor to complete the transfer. To apply this to land and shares, every step must have been taken: correct form of transfer (i.e. stock transfer form with shares, deed with land), then must have been registered under LRA or under company. If any steps not taken, then legal title will not pass, even if settlor complied forms, until registration that new owner has taken it, legal title will not be transferred.
Are the three methods of Turner LJ in Milroy v Lord mutually exclusive?
LJ Turner, those three methods to make a transfer of property are mutually exclusive.
If transferor wants to make an outright gift, he will not be held to have made a declaration of trust.
an ineffective transfer will not be given effect as a self-declaration of trust.
Jones v Lock
Father put a cheque in the hand of his nine-month old son saying, “I give this to baby for himself”. He did not endorse the cheque as required. Held: he did not declare himself trustee, he was intended to make an outright gift, not a self declaration.
Richards v Delbridge
Owner of leasehold premises endorsed the lease with “This deed and all thereto belonging I give to E”. E was his nephew. Ownership could only pass by means of a deed of transfer. Held: clear intention was to make an outright gift, no intention to hold as trustee.
Pappadakis v P
Form used for attempted transfer of life policy was for a transfer to trustees on trust. Documentation was incomplete. Held: by using this form, the intention shown was to transfer to trustees to hold on trust, no intention to make a self-declaration of trust.
T. Choithram v Pagarani
PC decision
Shows the exception to the general rules. But the decision is on a limited point and argubaly not relevant in majority of cases.
An incomplete transfer to trustees to hold on trust was effective where the settlor was one of the trustees.
Lord Browne-Wilkinson to the effect that “although equity will not aid a volunteer, it will not strive officiously to defeat a gift”.
Facts: While donor was ill, he executed a trust deed establishing a foundation and appointed himself as a trustee. He then stated orally that he wished to give all his money to the foundation, including shares in another company. He told the company that he would transfer the shares to the foundation. The donor at a board meeting reported orally that he established a foundation and had gifted all his wealth to it. The shares were not transferred; transfer forms were not executed. An action was brought by members of his family who claimed to be entitled to the donor’s estate on his intestancy.
Lord Browne-Wilkinson: Looked at the intention of the donor - which methods in Milroy v Lord did he intend to use to transfer his wealth?
“The judge and the Court of Appeal understandably took the view that a perfect gift could only be made in one of two ways, viz (a) by a transfer of the gifted asset to the donee, accompanied by an intention in the donor to make a gift;” (two methods in Milroy v Lord).
“In case (a), the donor has to have done everything necessary to be done…If the donor has not done so, the gift is incomplete since the donee has no equity to perfect an imperfect gift “.
“This case falls between the two common-form situations mentioned above. Although the words used by TCP are those normally appropriate to an outright gift –‘I give to X’ - in the present context there is no breach of the principle in Milroy v Lord… The foundation has no legal existence apart from the trust declared by the foundation trust deed. Therefore the words ‘I give to the foundation’ can only mean ‘I give to the trustees of the foundation trust deed to be held by them on the trusts of the foundation trust deed’. Although the words are apparently words of outright gift they are essentially words of gift on trust”
T. Choithram v Pagarani [2001] 1 WLR 1, PC decision
Effect of decision
- PC took the view that although on the face of it he seemed to be making an outright gift, when looking at facts it looked as if to transfer ownership of property to trustees on trust and this was a trust.
- Nothing exceptional about this case so far as it is about deciding true intention of the transferor.
Problem of this case is that ownership of the shares had not been transferred to the foundation. Go to last para to see how they solve this.
Shah v Shah
[2010]
CA
This case shows that the prima facia intention agreed, was not wha the court ended up concluding was the intenions.
Important:
- letter said
- “as from today”
- declaration
- The letter said “I am… holding”, not i am assigning, or i am giving.
Showing that this was a trust
Facts: the intended transferee of shares was provided with a stock transfer form but not the share certificate = not sufficient to transfer any interest in the shares. The form was accompanied by a letter saying that the shares are being held.
At first sight, it looked like an intended gift of shares as the new owner was not registered as owner so legal title had not transferred.
CA held: CA interpreted the letter as showing an intention to give an immediate interest in the shares.
What did
Arden LJ
in Shah v Shah (CA) say?
Arden LJ referred to the certain words in the letter and reference to the word “declaration”. In light of this, he believed that there was intention to give immediate rights in the shares and because legal ownership would only pass once the new owner was registered in the company books, then the only way immediate ownership would pass is if there was a declaration of trust. Thus, the letter was interpreted as adeclaration of trust so rights passed to intended beneficiary.
“Here there is no doubt that D manifested an intention that the letter should take effect forthwith: see the words ‘as from today”… . Judged objectively, did the words used convey an intention to give a beneficial interest there and then or an intention to hold that interest for M until registration? D used the words ‘I am …. Holding’ not “I am … giving”. . Accordingly D must be taken in law to have intended a trust and not a gift. Added to that, as Norris J points out, he calls the document ‘a declaration’ in his letter, which is more consistent with its being a declaration of trust than a gift.”
Re Rose
[1952]
CA
Principle established: If a settlor/transferor has done all that it is obligatory for him to do but something remains to be done by a third party, the transfer will be ineffective at law but effective in equity.
Facts: Settlor had executed voluntary transfers of shares in favour of his wife beneficially and in favour of trustees on certain trusts in the form required by the company’s articles. He gave the transfers and the share certificates to the trustees (for themselves and as agent for his wife) in March. The transfers were only registered by the directors in the company books at a later date (June). The court had to consider for tax reasons at which date the transfers were effective. Held: transfers valid and effective in equity in March.
Held:. If transfers were effective in March, no estate duty would be payable on death of settlor, but if effective in June, estate duty was payable. CA held: at that date in March, the settlor had done everything in his power to do everything necessary for him and him alone to do in order to transfer shares. There was nothing else the settlor could personally do to pass ownership of the shares. Therefore, he could not change his mind and fine for trustees and the wife to apply for registration in company books (not something the settlor had to do).
Re Rose Lord Evershed adopted as a correct statement of the law an excerpt from a judgment in an earlier case (also called Re Rose) in which Re Fry was described as turning on the fact that the transferor had not done everything in his power to transfer title. It does not therefore seem to be arguable that Re Fry would be decided differently in the light of Re Rose; it is possible that it might be decided differently in the light of Pennington v Waine.
According to Re Rose, what must the settlor have done?
Transfer will be effective IN EQUITY, but not in law, if the settlor has done everything necessary for him to do to transfer ownership.
What did Jenkin’s in Re Rose say?
That the settlor could not have demanded the documents back
Mascall v Mascall
CA
(after Re Rose)
Browne-Wilkinson LJ -
“If, on the other hand, the donee has under his control everything necessary to constitute his title completely without any further assistance from the donor, the donee needs no assistance from equity and the gift is complete. It is on that principle, which is laid down in Re Rose, that in equity it is held that a gift is complete as soon as the settlor or donor has done everything that the donor has to do, that is to say as soon as the donee has within his control all those things necessary to enable him, the donee, to complete his title.”
What was necessary for the settlor to have done everything he could?
Re Rose - the settlor must have completed the necessary documentation and sent all the documentation to the third party or the donor gives all the documents to the donee who can then send them to the third party
Jenkins J in Re Rose said settlor could not have demanded the documents back
Arden in Pennington v Waine commented that by delivering the documents, to either the donee or the company, the donor then loses control over whether the transfer is completed and this is essential. Settlor doesn’t have to do everything he COULD have done, but everything he and he alone can do.
Why was Re Rose decided the way it was?
Re Rose in context of transfer of shares.
- Only the settlor as owner of the shares has to do: Settlor must complete and sign CORRECT form of transfer.
- This ground that Re Rose distinguished Milroy v Lord because in Milroy v lord, the wrong form was used.
- Having completed correct form, the settlor must then provide everything necessary for registration of the new owner of the shares. Settlor must provide:
- transfer form and share certificates.
The new owner cannot be registered unless the company has share certificates, these can be provided to the company or someone who will then provide them to the company.
Milroy v Lord
Settlor must complete and sign CORRECT form of transfer. This was the ground that Re Rose distinguished Milroy v Lord because in Milroy v lord, the wrong form was used.
Pennington v Waine
The transfer form was not handed over. It was duly completed (filled in and signed) but kept by donor’s agent. So Re Rose was not satisfied.
Zeital v Kaye
[2010]
CA
Share certificae was missing so transferor had not done everything in his power because he could have applied for a duplicate certificate. So Re Rose was not satisfied.
Re Fry
Facts: Transferor lived in the US. He had executed the transfers and sent them to the company but the company could not register them unless Treasury consent was obtained. Transferor had sent the relevant application forms but consent had not been obtained at his death.
Held: the transferor had not done all that was required at his death because it was necessary to obtain (not just apply for) consent.
- The Treasury might have acquired extra information from him which he could have refused to give or consent might never have been obtained, though that was unlikely.
Can Re Rose and Re Fry be reconciled?
Re Rose looks for the consent of the directors and in Re Fry, it is looking for the consent of Treasury.
Similarity?
In Re Fry, the treasury might have asked for further information but so might have the directors in Re Rose.
Distinction
The only way in which a distinction can be made is: on the basis that the director’s consent in Re Rose was the absolute final consent that needed to be given and that unless the directors had refused their consent within a specific period, they would have HAD TO register as a new owner of the shares.
Mascall v Mascall
The principle of Re Rose applied in a tranfer of registered land.
Facts:
A father wished to transfer land to his son. He made and gave him a deed of transfer and the land certificate. Then they fell out, and the father changed his mind. The son had not yet gone through with the registration at HM Land Registry. The father argued that it was still his property.[1]
Judgment: property belonged to the son in equity, and was held on constructive trust for the son by the father, because the father had done everything in his power to make the transfer effective. Although without registration, legal title had not passed, title had passed in equity and the father could not take back his agreement.
Is there an imposition of a constructive trust due to Re Rose principle?
Re Rose, Evershed MR - Evershed MR talks about a trust “arising” not being created. Terminology appropriate for constructive trust
Pennington v Waine, Arden LJ - she does refer to imposition of a constructive trust.
Is Re Rose consistent with Milroy v Lord?
Milroy v Lord – where he intended to make an outright gift, it was not be interpreted as a self-declaration of a trust.
CA in Re Rose held: a trust can arise, donor can hold property on trust, but it is not an express trust.
Comments in Re Rose take the view that a constructive trust arises (Evershed MR) and both Evershed MR (Re Rose) and Arden LJ (Pennington v Waine) held that a constructive trust is not inconsistent with Milroy v Lord.
This distinction may be valid: the courts are not reinterpreting the donor’s intention, they say his actions are such that a trust arose.
In theory, Re Rose may not be inconsistent with Milroy v Lord, to the extent that the courts do not reinterpret the intentions, but the ultimate outcome of Re Rose is that the donor becomes a trustee, even though he never intended to become a trustee, this outcome is contrary to the donor’s intention. He never intended to subject himself to the obligations of being a trustee. However, this is the outcome. To this extent, Re Rose is inconsistent with Milroy v Lord.
Milroy v Lord said that where the transferor attempts to make outright gift, the courts will not give effect to it by reinterpreting it as a self-declaration of trust. Re Rose imposes a constructive trust on the transferor, even though the transferor never intended to be a trustee (with all the obligations imposed). Nevertheless, he ended up being a trustee and holding this on trust.
- What if the directors had refused to register the transferees as the new owners of the shares? Re Rose
In Re Rose, the CA was only involved in the interim period – the transferor had taken all the steps HE needed to do in March. In June, the new owner was registered in company books. By the time the case came to court, legal title had past. The only issue for the court was that interim period - from the period he took all the necessary steps to when legal title was passed.
Outcome: although he was a trustee, he was only a trustee from March to June. However, the reasoning of the CA in Re Rose was not limited to such a situation.
It would appear that the principle in Re Rose applies even if the directors of the company refused on justifiable grounds to register the new owner. In this situation, the transferor would remain a trustee indefinitely.
Therefore, it has been suggested that principle in Re Rose should be limited to two situations:
- Where there is an automatic right for the transferee to be registered as new owner
- This is the case where you transfer registered land or transfer shares IN A PUBLIC COMPANY
- In any situation like Re Rose, where the final steps to transfer legal title have been taken.
On this basis, Re Rose is inconsistent with Milroy as the transferor never intended to be a trustee, the principle in Re Rose should only apply where trusteeship is only for a limited period.
Does the imposition of a constructive trust make sense?
Re Rose involved an imposition of constructive trust on the transferor. Constructive trusts are imposed where it would be unconscionable otherwise. The unconscionability is usually found in detrimental reliance or in some unfair benefit. But in circumstances covered by Re Rose, what is there to make it unconscionable for transferor to change his mind? There is no question of the transferor unfairly benefiting, no requirement for the transferee to have acted in reliance to his potential detriment. The case is different to the majority of cases imposing constructive trust – more of a technical rule rather than rule based on unconscionability.
Pennington v Waine
CA
A transfer will be effective in equity when it would be unconscionable for the transferor to recall the gift, even if the transferor has not done everything he is required to do to complete the transfer.
Facts of
Pennington v Waine
CA
Facts: Ada wanted to transfer 400 of her shares in a company to her nephew H, and to make him a director of the company which required H to hold at least one share in the company. Ada signed a share transfer form and the company’s auditors wrote to H to inform him of the share transfer, asking that he complete the prescribed form of consent to act as a director. H was also told he need take no further action. H signed the form and it was countersigned by Ada.
But the auditors never gave it on to the company for the registration of shares before Ada died. The other people who stood to inherit argued that unlike Re Rose, Ada had not done all she could have, because she had not handed the completed transfer form to Harold or the company. Harold contended that the shares were held on trust for him, so that the transfer must be completed.
Ada died having executed a will but made no mention of the 400 shares because she thought she had disposed of them. An action was brought to determine whether there had been a valid equitable transfer of the shares.
Held: transfer was effective in equity. Re Rose could not be applied but CA held: it was effective in equity and that Ada and her personal representatives, held the shares on constructive trust for H. This is a step further than Re Rose.
What did Arden LJ say in Pennington v Waine?
Arden LJ -
Referred for two reasons that gift was effective in equity:
- Ada had a clear and continuing intention until her death to make that transfer
- It would otherwise be unconscionable.
What then are the relevant facts here?
- A made the gift of her own free will
- She not only told H about the gift and signed a form of transfer which she delivered to Mr Pennington for him to secure registration: her agent also told H that he need take no action. In addition H agreed to become a director of the Company
- If A had changed her mind in my judgment the court could properly have concluded that it was too late for her to do this as by that date H signed the form.
Why can Arden LJ’s reasoning be criticised in Pennington v Waine?
- It would otherwise be unconscionable
- She relied heavily on judgment of PC in Choithram for the relevance of unconscionability in this area. However, this is a misreading (Arguably) of what the PC said in Choithram.
- The PC did not say that a trust arose because otherwise it would be unconscionable.
- Unconscionability was not a reason for decision in Choithram, rather the CA is saying that since we can see that Choithram is a trustee, since we have found a declaration of trust, he cannot do back on it. In Choithram, the reference to unconscionability only came into place once the court already found the existence of a trust. Whereas Lady Arden in Pennington v Waine creates a trust on grounds of unconscionability so her reasoning (reliance in Choithram is suspicious).
Her biggest criticism is her reliance on unconscionability because unconscionability is too vague, it is too uncertain. Why would it be unconscionable if the gift was not effective in equity. Arden gave no indication in judgment as to what amounts to unconscionability, all she did was consider what amounts to unconscionability on the facts.
What was it on the facts of Pennington v Waine which made it unconscionable (For a CT to be imposed?)
- Signed transfer form
- (this is not enough, we saw this in other cases)
- Told H she would make a transfer
- (but simply telling someone they are going to make a gift would not be unconscionable
- H was told he does not have to do anything further
- (but he could not have done anything more, he could have asked for the share certificate, but she did not have to).
- Arguably only factor which made in unconscionable to change her mind was that he agreed to be a director of the company that he agreed to take on obligations in reliance on the transfer.
Which judge believes that the principles in Pennington v Waine should be seen on the basis of detrimental reliance?
Mr Justice Briggs in case of Curtis v Pulbrook
Does the reference to unconscionability in Choithram v Pagarani support its use by Arden LJ?
Lord Browne- Wilkinson In Choithram said:
There can in principle be no distinction between the case where the donor declares himself to be sole trustee for a donee or a purpose and the case where he declares himself to be one of the trustees for that donee or purpose. In both cases his conscience is affected and it would be unconscionable
Curtis v Pulbrook
First instance decision, unclear if higher courts will accept
Mr Justice Briggs’ analysis of Pennington v Waine is that it is the detrimental reliance giving rise to the constructive trust - but this was not said in Pennington v Waine. Arden LJ only spoke of unconscionability, she did not rely on detrimental reliance.
Briggs J -
On its facts, Pennington v Waine appears to have been an example of a sufficient detrimental reliance by the donee.
Why is there potential detriment that H was agreeing to be a director of a company?
(If detriment is required)
By agreeing to be a director, he is potentially liable if he does something wrong.
If a benefit to a transferor may be enough to impose a constructive trust, can we say A benefits by H being a director? Can we say it was unconscionable because she gained a benefit from it? Clearly, we do not know the effect of Pennington v Waine, it could be far reaching if we are only looking for idea of unconscionability.
We do not know: if the directors refused to register H as the owner of shares, would there still have been a constructive trust? What effect does Pennington v Waine have on Re Fry if what we are looking for today is unconscionability? As with Re Rose, Pennington v Waine imposes a constructive trust upon a transferor who never intended to be a trustee. The case is difficult to justify in theory, but its effect makes it justifiable. It is arguable that you can justify the decision on policy grounds.
Can argue that the rules of an effective constitution of trust or gift are too strict and ought to introduce flexibility. Undoubtedly, Arden LJ did refer to policy considerations: policy underlying basic rules and policy underlying her decision.
Far reaching impact: Look for unconscionability
Narrow reaching impact: look for detrimental reliance. (Briggs)
What does both Arden LJ and Briggs make clear?
- They wanted to give effect to the clear and continuing intention that the law is there to have certain effects but if, on the case, you do not need protection (where donor does not want to change his mind) then the transfer should, arguably be effective.
We have references to “clear and continuing intention” in older cases such as (Jones v Locke – father give a cheque to son), Richards v Delbridge, in both these cases little doubt of clear a continuing intention, no aim by the transferor of changing his mind - this intention continued until deaths of transferor. But in these cases, the intended transfer was ineffective. So In Pennington v Waine, the courts are shifting away from protection to a position where protection is not required, we need to be more flexible.
What are the two alternative grounds for Pennington v Waine?
- Ada and the auditor, although the auditor kept the STF, they actually held that STF as agents for H because:
- They told H of gift
- Told H he did not need to do anything further
So they became agents for H, so it was as if the STF had been given to H. The share certificate was already with the company so on this analysis, Re Rose was satisfied. Although Halliwell thinks this strentches the concept of ahency beyond its normal limirs.
- Lord Justice Clarke took different approach:
His view: the signing of the transfer form, on its own, effected a valid equitable assignment. But arguably this reasoning is wrong because Ada was the sole owner of the property, this was not a case where there was a separate equitable interest which could have been assigned by writing in s53(1)(c) LPA. A person who is the sole owner of the property is regarded as owning the whole, they own one composite interest. Arguable for there to be an assignment of equitable interest only, you need to separate that equitable interest from legal, which would require a declaration of trust which there was not. Therefore, his reasoning is arguably insupportable.
Pearce and Barr also believe that it directly contravenes Re Rose itself(where no trust was found).
What did Clark LJ think about Pennington v Waine?
- Lord Justice Clarke took different approach:
His view: the signing of the transfer form, on its own, effected a valid equitable assignment. But arguably this reasoning is wrong because Ada was the sole owner of the property, this was not a case where there was a separate equitable interest which could have been assigned by writing in s53(1)(c) LPA. A person who is the sole owner of the property is regarded as owning the whole, they own one composite interest. Arguable for there to be an assignment of equitable interest only, you need to separate that equitable interest from legal, which would require a declaration of trust which there was not. Therefore, his reasoning is arguably insupportable.
Re Brooks’
Fortuitous vesting of legal title
There is conflicting authority as to whether a trust will be completely constituted if the trustee acquires legal title other than by transfer by the settlor.
Re Brooks’ ST is authority that the trust is not constituted; Re Ralli’s WT [1964] Ch 288, in which Re Brooks was not cited, contains dicta that it is on the basis the trustee now has the legal title and neither the settlor nor her personal representatives could assert an equity against him.
Authority that acquisition of legal title does not complete constitute the trust. Clear from the case that the court’s view was that the trustees must acquire legal title by act of the settlor not by some other means.
Re Brooks’ ST:
Facts
Facts: Settlor executed a voluntary settlement in favour of a trustee of any interest he might be appointed under his parents’ marriage settlement. A sum was later appointed to him, by which time the trustee had also become the trustee of the parents’ marriage settlement. Question whether the trustee held the property as trustee of the parents’ marriage settlement and was under an obligation to give the sum to settlor because appointment to settlor under the marriage settlement or whether he held it on the terms of the settlor’s voluntary settlement, as settlor said he would transfer property on trust to the trustee (that it would be held on these terms).
Held: the settlor could demand from the trustee the sum appointed to him and could not be compelled to transfer to the trustee the funds. There was no trust. did not constituted the voluntary settlement, settlor could demand transfer of property to him. As it was a voluntary settlement (gift, as was not fully constituted settlor was not required to transfer property into trust, there was no trust.
Re Ralli’s WT:
Contray view to Re Brooks’ ST was expressed OBITER here. Re Brooks was not cited in this case.
View expressed in Re Ralli was that the trustee had acquired the legal title and the settlor was unable to assert a right to that property against the trustee.
Facts: Settlor’s marriage settlement contained a covenant to settle existing and after-acquired property. One of the trustees (T) was later appointed a trustee of the will of the settlor’s father under which the settlor acquired an interest under father’s will. T became the sole surviving trustee under each (marriage settlement and fathers will. Again intended trustee had actually acquired legal title of property intended to be transferred on trust but not due to settlor’s acts
Held:. Actual decision was on the basis that there was an independent declaration of trust by the settlor in the marriage settlement. So when settlor acquired settlors property, there was a trust fully constituted. Had there not been a desperate declaration by trust of settlor, the could said obiter: it was irrelevant how, and in what capacity, T became the legal owner of the property. There was no need to invoke the assistance of equity for specific performance of the covenant because T had the legal estate and it was therefore irrelevant that the beneficiaries were volunteers. The sole question was who could assert an equity against T. The settlor could not have done so because of the covenant and neither could her personal representatives.
What was the reasoning for the decision in Re Ralli’s WT?
The moment T became legal owner of property, he held it on trust of the marriage settlement and it could not be claimed by either settlor or settlor’s personal representatives because once the trustee had the legal estate, the sole question was who could assert an equity against a trustee. Who had a right to claim that property in the hands of the trustee. And the Court expressed the view (inconsistent with Re Brooks) that the settlor and their representatives could not asset a right of property in hands of trustee because the settlor had covenanted to transfer property on trust. So the only person in any rights of property, once in hands of trustees, were the beneficiaries under marriage settlement. This was because the legal title had been fortuitously invested in the trustee in another capacity because there was no need to seek specific performance of the covenant. If someone else was appointed as trustee of the father’s will, the trust would have been incompletely constituted. This was the result purely because trustee under marriage settlement was also trustee under the father’s will. Reference as made by the court to the case of Strong v Bird.
Should acquisition of legal title by mere chance, rather than the act of the settlor, be relevant?
It was pure chance in Re Ralli that the father chose to appoint the same person as the trustee of his will as his son had already chosen in the marriage settlement.
So why should mere chance of the same person be appointed in two different capacities make the trust completely constituted? The outcome may be acceptable if the settlor has a role in the appointment. If the settlor appointed the trustee in another capacity where he gets the legal title because here we can say it is still settlors acts which means legal title gets to the trustee.
Should the principle be limited to where the trustee knows of the connection between the trusts?
PENNER
Practical problem: the reasoning in Re Ralli was that the settlor who was, on the face of it, intended to benefit under his father’s will, was not permitted to enforce that right because of a covenant in another settlement. And Penner has pointed out that this seems wrong where you have a professional trustee because professional trustees will be acting for a number of different trusts. At any one moment they cannot be expected to remember any one terms of the trust and therefore to know whether a beneficiary under one trust cant enforce their rights in the terms of another trust. He argues that IF dicta in Re Ralli is to be followed, it should only be where trustees know that there is a connection between the trust.
What is the rule in strong v Bird?
Principle
The rule in Strong v Bird is often referred to as an exception to the equitable principle that equity will not help those voluntary. But instead it is better to see it as comparable to Re Ralli and another example of a fortuitous case.
Rule applies: Where a donor intends to make an immediate lifetime gift of specific property and that intention continues to his death, the appointment of the donee as the executor of the donor’s will or as administrator of the donor’s intestate estate will perfect the gift.
If the donee is appointed either as executor of the donor’s will or administer this appointment perfects the gift.
Facts of
Strong v Bird
Strong v Bird was actually a case involving the release of a debt; the rule was applied to a gift in Re Stewart [1908] She orally released a debt but was ineffective, but the step mother appointed the debtor as her sole executor and it was held: as a consequence of this appointment, the debt was released. Although strong v bird involved a release of debt, it was applied in case of gift in re steward.
What are the 3 requirements for Strong v Bird to be effective?
3 requirements for Strong v Bird to be effective:
- Donor must intended to make a lifetime gift
- Not apply where intention is to make and testatory gift. (Re Steward
- This intention to make a lifetime gift must have intended right up and until donor’s death.
- Donor must believe right up till his death that he has made a gift. If change of mind, the doctrine does not apply. (Re Gonin)
- Donee must have been appointed as either executive or administrator of donor’s estate so acquire legal estate in question.
- Donee does not need to be sole executor or administrator only as long as he is ONE of these (Re Stewart)
- Appointment of administrator is sufficient (Re James)
Re Gonin
Daughter brought a claim against her mother’s estate based on an intention to make gift of land; however, the mother later wrote a cheque in favour of her daughter instead which was taken to show a change in intention (though cheque was not found until after death and was ineffective).
In fact, the gift of money was ineffective, and was ineffective but showed intention to make gift of land had not continued until death so strong v bird did not apply.
Re James
- The fact that all that seems to be necessary for the rule in Strong v Bird to apply is that done acquires the legal estate on the donor’s death. That, according to Re James does not need to be because the donor has appointed the donee as executor, it can be simply because the donee has become administrator of the donor’s estate. There is a distinction between appointment of executor and administrator because appointment of executor is the choice of the deceased, they choose who should be appointed as executor so donors chose as to who acquires legal estate. But appointment of administrator is an act of law, not the deceased. Because of this Mr J Walton in Re Gonin expressed doubt that rule should apply to an administrator rather than an executor.
What did Walton J in Re Gonin say?
He said it was fine if the donor intends donee to become legal owner - we can accept this because the donor has meant the donee has meant to get the legal title, but if extended to administrators, it could be a mere chance if the donee is the first person asked to be administrator, so he is arguing that it should not extend to that extent.
In Re Ralli – it is the same issue, should it be the mere chance that the intended donee gets the legal estate which is sufficient or should we limit fortuitous vesting where donor or settlor has a role in the donee/trustee getting the legal title. It could be argued that when a testator is writing his will and choosing his executors, it still is a matter of chance where the donor is appointed as executor because the testator probably doesn’t have ruling in strong v bird in mind when choosing executors.
BUT VIRGO says that this rule is fine.
What were all the cases about the ruling in Strong v Bird involved?
And can it be extended?
They all involved: outright gifts/ release of debts.
But there is no reason why in principle it should not be extended to an intended lifetime gift to trustees.
Can you extend the rule in Strong v Bird?
All the cases about the ruling in Strong v Bird have been outright gifts or release of debts in them. In principle, there is no reason why it could not extend to an inten\ded lifetime gift to trustees which is ineffective, but trustee was appointed as executor.
Reasoning: justification is that the done has got the legal estate, no longer needs assistance of court to acquire the legal estate. So equity does not need to assist a volunteer because volunteer has got the legal estate. This reasoning was made clear in Strong v Bird and Re James.
Will Equity will grant a remedy to an intended assignee/beneficiary who has provided valuable consideration.
Yes
What will an ineffective assignment/transfer of property be regarded as?
A promise or agreement to assign.
What happens if there is a purported outright gift and consideration is given?
You cannot transfer or create a trust of future property. BUT if you attempt to assign future property and consideration has been given, it is regarded as a promise a contract to assign to future property.
If valuable consideration is given, then contract and equity will enforce the contract to assign.
An express promise to transfer in future for valuable consideration will be enforceable.
Re Ellenborough.
An attempted assignment of future property will also be regarded as a promise/agreement to assign
What formalities need to be complied with if we talk about a contract?
If the promise relates to land there must be writing complying with section 2, Law of Property (Miscellaneous Provisions) Act 1989.
What are the remedies if valuable consideration has been provided to enforce a promise to assign/create a trust?
Where there is valuable consideration so the beneficiary can force completion of the promise, then the remedies available will be either:
- Specific performance
- Damages
When will specific performance be available?
Specific performance is only available to property where damages would be inadequate. If specific performance is appropriate, the settlor will hold the property on constructive trust. If the settlor does not have the property at the time the promise is made (promise to transfer future property) then there is no property initially which can be held on constructive trust but from the moment donor/settlor acquires the property, it will be held on constructive trust for the intended donee/transferee (Pullan v Koe)
Pullan v Koe
If the settlor does not initially have the property, it will be impressed with a trust in favour of the assignee as soon as it is acquired by the settlor
Held: the £285 was impressed with the trust the moment the wife received it, equity looks upon that as done which ought to be done.
Pullan v Koe
Facts
Facts: Marriage settlement with covenant by husband and wife to settle the wife’s after-acquired property of a value greater than £100. She received £285 which was partly invested in bonds. Action by trustees.
Held: from the moment it was received the £285, the money was specifically bound by the covenant and therefore subject in equity to a trust in favour of all persons within the marriage consideration.
Held: the £285 was impressed with the trust the moment the wife received it, equity looks upon that as done which ought to be done. The trust was constituted by way of constructive trust the minute the covenant could be performed.
What is crucial for Pullan v Koe?
crucial issue: this promise is only enforceable only IF valuable consideration has been given for it.
Where there was an intended gift, there is no consideration. However, what most of the cases in this area have been concerned with (where valuable consideration) are cases involving marriage settlements because valuable consideration does not just include money but also marriage consideration. Most of the cases concern covenants in marriage settlements to transfer after acquired property.
Re Plumptre’s Marriage Settlement
Marriage consideration exists where a promise is made before and in consideration of marriageThose within the marriage consideration include the parties to the marriage, their children and remoter issue. Next of kin are mere volunteers.
Who falls outside marriage considerations?
Next of kin.
Who can enforce the covenant?
Settlements promises made in contemplation to marriage. Not applied if settlement created after marriage, it is only in contemplation, just before a couple get marred. Where marriage settlement in these circumstances then certain people are regarded as within marriage settlement and these are regarded as having given valuable consideration.
Who sought to enforce the covenant in Pullan v Koe?
The children
Re Plumptre
Anyone who is not within marriage consideration will not be able to enforce a promise, they will be volunteers and equity will not assist a volunteer and it is relevant where someone has given consideration but rather people seeking to enforce the promise have given consideration
If consideration has been given, what next?
Even if someone has given consideration, that is not enough to make the promise enforceable. Consideration must have been given by the intended beneficiary who is trying to enforce. In re Plumptre, it was the next of kin who were trying to enforce the promise/covenant. Next of kin are not within the marriage consideration.
Re Plumptre
A promise will not be enforceable in favour of a beneficiary who has not given consideration, even if someone else has
Facts: Marriage settlement with covenant by husband and wife to transfer after-acquired property to the trustees. Wife died and husband held property acquired by her as her administrator. There were no children, so, after husband’s death, the next of kin would be entitled to the trust property. Action by trustees to ask, inter alia, whether they should take steps to enforce the covenant on behalf of the next of kin. Held: Next of kin could not enforce the covenant and therefore trustees were not bound to take any steps to obtain transfer of the property. Next of kin tried to enforce covenant. Held: they could not, even though there were people who had provided consideration, those who were seeking to enforce covenant had not.
Re Cook
A promise will not be enforceable in favour of a beneficiary who has not given consideration, even if someone else has.
Facts:Settlement made pursuant to agreement between settlor and his father which contained a covenant to settle on trust for his children the proceeds of sale of any picture received from his father and sold during his lifetime. Consideration was provided by father. Held: the beneficiaries were not parties to the covenant and had given no consideration so they could not enforce it. Undoubtedly consideration for this covenant had been given by the father, however it was the beneficiaries of the settlement who sought to enforce the covenant, they had given no consideration, therefore they could neither enforce the covenant nor require the trustees of the settlement to enforce the covenant.
What happens where one beneficiary has given consideration?
If a beneficiary who has given consideration sues, then the trust will, at the order of the court, become fully constituted for the benefit of all beneficiaries. So as long as the beneficiary who sues has given consideration, all beneficiaries will benefit from the court order, even those beneficiaries who have not themselves given consideration.
What happens if the trustee has given valuable consideration?
If the trustee (but not the beneficiary) has provided valuable consideration can he sue for specific performance for the benefit of the beneficiary and thereby fully constitute the trust for the benefit of the beneficiaries? There is no direct authority.
Beswick v Beswick
If the trustee (but not the beneficiary) has provided valuable consideration can he sue for specific performance for the benefit of the beneficiary and thereby fully constitute the trust for the benefit of the beneficiaries? There is no direct authority:
Facts:
Mr Beswick had sold his business to his nephew. The agreement contained a promise by the nephew to pay a pension to Mr B’s wife. After Mr B’s death, Mrs B sued as his personal representative and was awarded specific performance of that promise on the basis damages would be an inadequate remedy as Mr B had suffered no loss.
Damages would be to compensate for Mr B’s loss and he had suffered no loss. Clearly here this was an example of effectively a party to an agreement – Mr B’s personal representative – suing to enforce a promise for which that party had given consideration, but suing to enforce it for the benefit of somebody else. It could be argued that this is comparable with a trustee suing in order to fully constitute a trust for the benefit of the beneficiaries.
Re Cook.
Will the Beswick v Beswick be applied in this context? This case suggestes that it would not be applicable in this area
Facts: In Re Cook the fact that someone had given consideration was irrelevant.
Will Beswick v Beswick be applied in this context?
Re Cook. In Re Cook the fact that someone had given consideration was irrelevant.
The other problem in the application of Beswick v Beswick is Mr B was not a trustee. Going to look at cases shortly where the courts have prevented trustees from suing where the aim is to benefit a volunteer beneficiary.
Re Ellenborough, Re Brooks’ ST.
Equity does not regard a deed/seal as consideration,so specific performance will not be available if the covenant is voluntary. However, a covenant is effective at law and there may be a right to damages.
Therefore, merely because a promise is contained in a deed does not make it enforceable in equity. Equity always looks for valuable consideration for a promise to be enforceable. However, a covenant – a promise in a deed – is effective at law. So if there is a promise to transfer or settle property which is contained in a deed, then in theory there is a right to sue on that covenant at law. Although specific performance will not be available because it is an equitable remedy, there may be a right to damages.
Cannon v Hartley
First instance clear decision
Covenants to transfer
If a settlor covenants to transfer property to trustees to hold on trust, then, any party to the covenant can sue for damages for breach of that covenant
Can a beneficial enforce the covenant?
The trustee will normally be a party to the covenant, but sometimes the beneficiary will be a party to the covenant, and if this is the case, the beneficiary can sue for damages at law even if the beneficiary is a volunteer. An action can be brought whether it relates existing or future property.
Cannon v Hartley
facts
Facts: Voluntary covenant in deed of separation between husband, wife and their daughter that the husband would settle certain after-acquired property on trust for his wife and daughter. Held: as a party to the covenant, daughter was entitled to damages for its breach. However, this is rare that a beneficiary will be a party to a covenant to settle.
How can a beneficary enforce a covenant?
If they are a party to the covenant: Cannon v Hartley.
If not, they can enforce it via the Contracts (Rights of Third Parties) Act 1999.
What are the problems with a beneficiary enfocing the covenant throguh the C(RTP)A 1999?
A covenant to settle property undoubtedly is to the benefit of the beneficiary. On the face of it, the beneficiary may be able to sue directly under subsection 1, unless subjection 2 applies. This only applies to contracts entered on or into after 11th May 2000. Also, some doubt which courts need to resolve, the act refers to “contracts” and some academics question whether a covenant is a contract.
Can a trustee enforce the covenant, as a party?
Prima facie a trustee still has the right to sue as a party to the covenant even if the property is to be held for the benefit of someone else.
The trustee will almost certainly be a party to a contract to settle property. At first sight, as a party, the trustee can sue even though the covenant is not for trustees’ benefit, but for someone elses.
There are a number of cases where the trustee can ask for directions from the court as to whether they should bring an action for the benefit of the volunteer beneficiaries. They are all first instance decisions (chancery division of high court: Re Pryce) and Re Kay’s Settlement.
Re Pryce
Covenants
Covenants to settle property
Prima facie a trustee still has the right to sue as a party to the covenant even if the property is to be held for the benefit of someone else.
However, it has been held that the trustees ought not to sue.
The judge held that the trustees ought not to sue. The reasoning was that the beneficiaries were volunteers, they could not themselves sue, and if the trustees sued it would give the beneficiaries indirectly what they could not get directly.
Re Kay’s Settlement
Covenants to transfer or settle property
Prima facie a trustee still has the right to sue as a party to the covenant even if the property is to be held for the benefit of someone else.
But they have been directed not to sue.
The judge felt bound by Re Pryce but went further and actually directed the trustees not to sue.
Re Cook
covenant
The beneficiaries cannot force them to sue . The judge therefore held that volunteer beneficiaries cannot force the trustees to sue.
Is the position in Re Pryce, Re Kay’s Settlement and Re Cook justifiable?
If the beneficiaries are volunteers and not party to covenant, then they cannot sue, they also cannot force trustees to sue. If we allowed trustees to sue, then it indirectly assists volunteers and leaves the decision in the hands of the trustees, the trustees have the choice whether or not to sue.
Arguably, it would be wrong that the rights of beneficiaries should be held the whim of the trustees. If the trustees were allowed to sue, and hold them on trust, this contravenes the basic rule that it is for the settlor to completely constitute a trust.
If there is a covenant, but the beneficiaries are party to it, it is unlikely that the trustees will actually sue because in practise most trustees seek leave of court to sue and will be told not to do it.
But in theory, there is no reason for the trustee to not seek leave of court and should simply sue on the covenant, if this were to happen then there are issues relating to the available remedies. These are issues that remain unanswered by the court and may never be answered if trustees do not take initiative and sue.
If a trustee did sue, what would be the measure of damages and who would be beneficially entitled to them?
If the trustee is suing, is measure of damages his personal loss, if so, the damages will be zero. Penner argues, on the other hand, that the remedy for breach of covenant is the agreed sum, there is support for this in the Re Cavendish Browne ST.
Re Cavendish Browne’s ST
CANADIAN DECISION
If a trustee did sue, what would be the measure of damages and who would be beneficially entitled to them?
The trustee was awarded substantial damages. The covenant related to specific property, so damages could be measured. The position might be different if the covenant did not relate to specific property or related to after acquired property. Held: the damages were held by the trustee on trust for the intended beneficiary.
Is Re Cavendish Browne’s ST correct?
There are theoretical difficulties with this.
Lee (1969) saysThe trustee is clearly not intended to benefit personally, so the argument could be made that the only possibility is that the damages for breach of covenant are held on resulting trust for the settlor so what is the point in suing?
Another possibility is to draw a comparison with fortuitous vesting and to say that when the trustee receives damages for breach of covenant then this fully constitutes a trust.
There are lots of problems in the way a trustee sues for breach of covenant, some may never be resolved because the courts have indicated that a trustee should not to sue, so we may never get resolution of measure of damages. There is one case which may help potential beneficiaries: Fletcher v Fletcher – situation where trust of the covenant. The covenant itself is property, it is an asset.
Re Cook
Can a covenant to settle future property be held on trust?
Re Cook considered the issue as to whether a covenant to settle future property can be held on trust and suggested that that is impossible. However, arguably the dicta in Re Cook is wrong, because even if the covenant deals with future property, the covenant itself is in existence. The promise in the deed exists, even if it is only a promise to transfer future property. So that covenant itself should be seen as capable of being held on trust.
Fletcher v Fletcher
There can be a completely constituted trust of the benefit of the covenant itself,we are not talking about a completely constituted trust of property which should be transferred under trust, but the beneficiary has an equitable interest in the covenant and therefore the beneficiary can either demand the trustee sues to enforce covenant or the beneficiary can seek to enforce it himself.
Re Plumptre, Re Pryce, Re Cook
There can be a completely constituted trust of the benefit of the covenant itself : Fletcher v Fletcher. Although the courts are reluctant to find this
What are the exceptions to the rule that equity will not assist a volunteer?
- The rule in Strong v Bird
- Proprietary estoppel
Assuming the three first instance decisions of : Re Pryce, Re Kay and Re Cook are not affirmed by the higher courts, what are the consequences of allowing a trusteecovenantee to sue upon the covenant at common law?
Beswick v Beswick - Penner thinks this avenue for specific performance would not be avaibale as this is an equitable remedy. Penner thinks it is clear that he would not be able specifically to enforce the covenant in favour of the beneficiary, that is to obtain an order that the covenantor transfer the property on trust to him, because an order of specific performance is an equitable remedy and the trustee is a volunteer.
Penner distinguishes Beswick v Beswick because in that case we are considering both the trustee and the beneficiary are volunteers, so this equitabl remedy is unavailable.
Although the CA in Re Rose did not find unconscionability, what did the CA said would have been unconscionable?
The court suggested that it would be unconscionable if Mr Rose had kept any dividends that accrued after he had executed the deed of transfer.
Penner’s responce to Walton J’s suggestion in Re Gonin that Strong v Bird should be restricted to executors?
Penner believed that the rule in Strong v Bird created an unprincipled lottery, because one canot truly suppose that the appointment of a person to be one’s executor indicates anything about the testator’s intention to perfect imperfect gifts. People will not have the rule in Strong v Bird in mind when instructing.
He said the rule has nothing to recommend it and the HL has never affirmed it; the UKSC should overrule it the first chance it gets.
What did Re Pryce say about allowing trustees to enforce a covenant to settle in favour of the next of kin?
The court said tht they should not enfoce a covenant to settle in favour of a next of kin who were volunteer beneficiaries.
What was the difference between Re Fry and Re Rose?
The deceased had sought to transfer shares to his wife and another, to be held on trust but there was a delay in registering the change in share ownership. For tax purposes, it was necessary to determine if the transfer was effective to dispose of his legal interest or if it continued until the new ownership was registered. The shares were held in a private company, which had the power to refuse to register someone as a shareholder. The deceased and the transferees were themselves directors of the company, and thus the people with that power.
The only thing left was for the new shareholders to be registered in the company register. Although directors had the power to refuse to register the change of ownership, this case contrasted with Re Fry because Mr Rose was one of the directors and the other directors were the intended recipients of his shares. What if Rose had changed his mind about the transfer? Would there have been any means to force him – as director – to register the change of ownership?
