Ch5 Flashcards
Briefly describe what is required to constitute a trust;
A trust is constituted or perfect when the trustee holds the interest in property (legal or equitable) that is to be held in trust.
A trust would not come into existence until the title is transferred to the trustee
Identify and explain two reasons as to why a trust must be constituted.
(1) Trustees Can’t Carry out Obligations with Respect to Property the Trustee Does Not have Control Over
e.g., can’t distribute income or capital from the property without control over it and can’t care for the property or invest funds unless one has control over the property or funds
a trust imposes an obligation to deal with trust property with terms of the trust – a trustee can not deal with the trust property according the terms of the trust unless the trustee has tittle to the property.
(2) Equity will Not Perfect an Imperfect Gift
courts will not complete an imperfect gift (no SP for gratuitous deeds - need consideration for SP)
- gift has three requirements (1) that the donor express an intention to make the gift (2) the donor delivers the property; and (3) the done accepts the gift
- Why did equity take this approach? delivery may serve to confirm the intention or show seriousness of the donor’s expressed intention – not every promise leads to a legal obligation to do what one promised
where promise expressed in a deed these functions of delivery seem less significant – but loss to promisee through reliance on a promise in a deed (and possible unjust enrichment of the promisor if reliance by promisee enriches promisor) can arguably be effectively compensated by a remedy of damages
Reasonable reliance can arguably be compensated with damages for out of pocket costs incurred in reliance on promise.
as long as the donee has not acted in reasonable reliance on the promise, it may have seemed sensible to courts not to enforce a promised gift.
issue comes up in trust context where intention expressed to create a trust but property not put in hands of trustee → trustee and supposed beneficiary both wonder if they should sue to force conveyance.
Describe three ways in which a trust can be constituted.
The settlor can transfer the intended trust property to another person to hold as trustee;
The settlor can declare herself to be a trustee with respect to property she owns
A third but less common way is to have a third party transfer property to the trustee that is intended to be the subject matter of the trust
Describe how legal interests in land can be transferred to a trustee.
(1) Legal Interests
key message is to use proper method of transferring the particular type of property
Land
various systems – e.g., abstract system (transfer by deed), registry system (transfer by deed and a good idea to register), land titles system (may have a statutory form of transfer or transfer by deed with application form for registration)
Describe how legal interests in chattels can be transferred to a trustee
Chattels
normally by transfer of possession but may also be done symbollically (ie keys) or by document – e.g., a bill of lading (or possibly by deed in which the donor makes an unambiguous statement of intent to give the chattel to the donee and donee has given consideration for the promise to transfer title)
Specific performance of promised transfer would only be given if damages not sufficient.
Describe how legal interests in chooses in action can be transferred to a trustee
Choses in action
transferred by assignment (“legal assignment” under s. 36 of the Law and Equity Act (which requires a written document signed by assignor as well as notice to debtor, trustee or other from whom assignor is entitled to receive or claim the debt))
OR equitable assignment (which normally requires no specific form unless specific form required by statute or per agreement such as corporate articles or by-laws) –Person must just indicate clearly that an assignment is being made. Can be gratuitous (ie no consideration needed) but can only gratuitously assign existing rights not anticipated future rights – anticipated future rights can only be assigned contractually
With choses in action you take subject to the equities - the assignee who has gotten the assignment goes to sue the person who owes the obligation and they say the problem is that the reason I committed to that obligation is that there was duress… that would be a defense. Or that you already paid assignor, that is set off. Mistake, misrep etc. would be defenses so you have to take subject to those types of claims.
Describe how legal interests in negotiable instruments can be transferred to a trustee
Negotiable Instruments
transferred by negotiation – that requires endorsement of the negotiable instrument in favour of another person or in blank
One of the nice features w these is that the person who acquires this and pays for it as a purchasor for value with no notice of pre-existing claims of defense, then those claims cant be made against them (takes free of any equities or defects)
Describe how legal interests in securities can be transferred to a trustee
Securities are investment instruments, a bundle of rights.
They are choses in action but transfer may be modified by statute – securities transfer statutes often make securities transfer similar to transfer of negotiable instruments (transferee takes free of adverse claims transferee does not have notice of – protects purchasers)
The B.C. Securities Transfer Act refers to a “protected purchaser” as a purchaser of a security who gives value, does not have notice of any adverse claim to the security and obtains control of the security
The person who can exercise securities rights is the person w the name registered
Problem is that if u own publicly traded securities you wont be registered, only beneficial ownership. So in a sense the person who is registered might be described as the legal owner bc they are entitled to enforce the rights of the shares.
Certificated securities → if your name is registered and appears on certificate then u fill out form of assignment and take certificate and send to company secretary who rips up the security and writes up new one w name of purchaser/new registered person.
Certificated security nay be in bearer form or registered form
Bearer = person who has possession of certs is the owner of the security
Registered = indicates on face the name of owner, their contact info is also in securities register maintained by issuer.
Corporate legislation often requires registered form and only registered holder can exercise share rights. Registered ownership is thus sometimes referred to as legal ownership since it is only that owner who can enforce the rights against tghe corp. w/o this legislation anyone who could demonstrate ownership could enforce rights (incl those who show possession in bearer form or registration on issuers register)
A certificated security can be endorsed by a person whose name appears on cert and in the security register in favour of another person (the endorsee) who can then delier endorsed cert to corporation secretary with documentation requesting that a new cert be issued in name of endorsee and that endorsees name should be entered in register.
For uncertificated securities the title can be transferred by a form f instruction from the registered owner to transfer the security. Title to uncertificated securities is by registration on securities register
Endorsing is a process so usually shares and debentures are held in name of a nominee owner whose name appears on register and nominee just keeps bookkeeping entry of who it is holding for. Used to be banks now it is Canada Depository for Securities.
Describe how equitable interests can be transferred to a trustee
(2) Equitable Interests
a person who has an equitable interest in property can constitute a trust of that equitable interest by:
(i) assignment of the equitable interest to a trustee on trust for the proposed donee;
(ii) declaration by person that he or she is a trustee of the equitable interest for the proposed donee;
(iii) an instruction to existing trustees to hold the equitable interest in favour of the new intended beneficiary
What are the legal principles in Milroy v Lord and Paul v Constance?
1.Transfer of Property to Another
- Milroy v Lord: shares were never properly transferred to Lord as trustee and therefore the trust was not constituted – the settlor must do everything he can to effect the transfer – the court will not give effect to the intention by substituting one mode for another mode intended
The intended mode was to make Lord a trustee of the shares, therefore it was to transfer the property to Lord and the court will not substitute another- it was not Medley’s intention to declare himself the trustee
Lord was given a power of attorney by the shares were never transferred to him to act as trustee.
Shares were never legally vested in Lord – therefore agent, not trustee
Key point: Settler must do everything he can to effect transfer. Modes are gift (not subject to trust, to another person on trust, or self declaration of trust. The court wont sub one mode of transfer for another.
- Re Rose: where the settlor does everything he could have done to transfer the shares, a trust will be found. He and Mrs Rose had signed the certificates and the fact that the registration itself could not be done without approval was a matter out of control of Mr. Rose. Here everything was done to transfer equitable interest the transfer of legal interest was out of his control
- Declaration of Self as Trustee
Here, no transfer of property is necessary.
The element of transfer or delivery is missing (thus no evidence corroborating and showing indication of deliberation is there)
Court says that where it is argued that there was intent to declare oneself a trustee, clear evidence of that intention is required.
- Paul v Constance: no technical words are necessary to declare oneself a trustee – it is the intent - self declaration of trust requires clear evidence. (here non interested bank manager corroborated)
- Watt v Watt: gift requires the delivery. Keys of boat delivered not enough. However, the written note operated as a declaration of trust - expressed intent.
