Formalities Flashcards
What are the two methods of expressly creating a trust?
1) Settlor make a self-declaration of a trust 2) transfer to trustee to hold on trust
What are the justifications for requiring formalities?
1) Certainty and evidence
2) Protective/ cautionary
Simon Gardner’s “facilitative policy”.
Garner thought that we should facillitate what the settlor wanted. Formality requierments get in the way of this.
What is a constructive trust?
1) Imposed by the courts
2) arises by operation of law
3) arises automatically from the moment a certain circumstance occurs.
4) has nothing to do with the intentions of the parties to create a trust
Normally, a constructive trust is imposed because otherwise it would be unconscionable.
inter vivos
living people
Are inter vivos declarations of trust
other than property
formalities required?
No formalities.
Can be created orally.
Paul v Constance
Declaration of trust of personal property can be implied from conduct:
Inter vivos declarations of trust
Formalities required for land?
Yes
s53(LPA 1925)
If a inter vivos declaration of trust does not adhere to s53(1)(b) LPA 1925 then is it void?
iT IS NOT VOID.
S53(1)(b) deals with the issue of proof. It will still be a tist (not void), it just will not be enforced.
Taylor v Taylor [2017]
Purchase of property by father and son whose solicitor inserted a statement in the transfer deed that they were to be equitable joint tenants. Transfer deed only signed by the seller. Held: sufficient; the declaration of trust was by the seller, who was conveying as directed by the purchasers. Alternatively, there was later evidence in writing in a notice of severance of the equitable joint tenancy signed by father and son
Can you have a later document evidencing intention of trust (property is land)?
Yes - does not matter that declaration of trust is not made in writign, can have a document evidencing intent later.
Gardner v Rowe (1828)
An oral or informal declaration of land is valid but unenforceable NOT void, if it doesn’t comply with s53
settlor who transfers land to a trustee to hold onto trust for beneficiary. The declaration of trust is NOT made in writing – this does not matter (can have a later document evidencing intention of trust) but who signs it declaring such trust. Assumption is: the trustee who will sign the later evidence because settlor has given the property away so can no longer declare a trust in that property. This is obiter dicta.
Can a statute be used as an instrument of fraud?
NO! Court will enforce trust despite absence of writing in cases of fraud!
Court prepared to ignore requirement of writing IF they feel that it would be otherwise fraudulent.
Rochefoucauld v Boustead [1897]
CA
easy
Court prepared to ignore requirement of writing IF they feel that it would be otherwise fraudulent.
Oral testimonay is sufficient
, where the transferee of property has been party to an oral agreement that he will hold the property on trust before the property was transferred to him
Rochefoucauld v Boustead [1897]
CA
Rochefoucauld was the owner of estates subject to a mortgage for £25,000. She could not afford to pay the debt. In order to protect her interest, her friend, Boustead, orally agreed to buy the estates from the mortgagee and to hold them on trust for her, subject to her paying the purchase price and expenses. Boustead later claimed the trust was unenforceable.
CA held he did hold the estates on trust and could not rely on the lack of writing as that would be to use the statute as an instrument of fraud.
LJ Lindley : it is fraud on the part of a person to whom land is coneyed AND KNOWS it is so conveyed.
Bannister v Bannister [1948] CA
‘statute cannot be used as an instrument of fraud’
Widow orally agreed to sell two cottages to her brother-in-law on the understanding she could live rent free in one of them for as long as she wished. No mention in the conveyance. Evidence was such that she wouldnot have sold to brother in law, had there not been thisunderstanding. . She would not have sold to her brother-in-law at the agreed price otherwise.
CA held that there was a trust and that it would be fraud to rely on the absence of writing, relying, inter alia, on Rochefoucauld v Boustead.
Oral agreement in Rochefoucauld, was that it would HOLD ON trust for countess, in banister v banister there was no mention of a trust. This was irrelevant it was enough that the bargain included “a stipulation of some sufficiently defined beneficial interest in the property was to be taken by another”
Needs:
- a stipulation of some sufficiently defined beneficial interest in the property was to be taken by another”
What have Bannister and Rochefoucauld got in common?
1) Both CA cases
- agreement to hold on trust, or agreement that another will have beneficial interest
- No writing to prove this
- Because of cirucmsaatances, court was prepared to hold and enforce a trust.
- There is NO MENTION in either case of detrimental reliance, only mention on fraudlent behaviour.
Pre existing agreement. No case where agreement between transferor and transferee is that a third party should have rights in property AFTER transfer.
Lyus v Prowsa Developments Ltd
The exception applies where the purchaser agrees to give effect to the interests of a third party?
Agreement by purchaser to give effect to rights of third party which had not been registered under LRA. Judge relied on Banister v Banister
Binions v Evans [1972]
The exception applies where the purchaser agrees to give effect to the interests of a third party?
Denning prepared to hold purchaser bound by a contractual licence of a third party
De Bruyne v De Bruyne [2010] EWCA
recent case winch discussed Bannister v Bannister.
These cases do not depend on some form of detrimental reliance. The concept of fraud in equity is much wider and can extend to unconscionable or inequitable conduct in the form of a denial or refusal to carry out the agreement to hold the property for the benefit of the third party which was the only basis upon which the property was transferred.
What kind of trust was Rochefoucauld v Boustead and Bannister v Bannister
Express trust
Lindley LJ in Rochefoucauld v Boustead seems to support an express trust despite absence in writing.
But later cases have preferred to reach decision based on constructive trust.
Bannister v Bannister
Lyus v Prowsa Developments
De Bruyne v De Bruyne
TESTAMENTARY DECLARATIONS OF TRUST
formalities
s9 Wills Act 1937
If you incorporate a document into the will, is this okay?
Yes! as long as the document is in existence at the time the will was written AND it is possible to identify this document!
1) Existence
2) identification
What are secret trusts exceptions to?
The need for all details of the disposition to appear in the will.
They are enforced despite the failure to comply with s9 of the Wills Act
Definition: A testator leaves property to a person in his will intending that person (the legatee) to hold that property as trustee. The testator communicates that trust and/or its terms to the legatee outside the will.
Fully secret trust - on the face of the will there is an absolute gift to the legatee
Half secret trust – gift to legatee on trust in the will but no mention of the terms of trust
Re Gardner [1920]
A fully secret trust can also arise where the “trustee” inherits under the intestacy rules.
Knowing the particular person who will inherit under intestacy trules, the settlor can communicate with this person bit to hold it on trust for other people
Does a accidential non complance with s9 create a secret trust?
No! there must be Deliberate non-compliance with formality requirements for reasons of secrecy or indecisiveness.
Bannister v Bannister were not deliberately ignoring formalities, they knew there had to be writing. In secret trusts, it must be deliberate.
McCormick v Grogan
Re Snowden
Fully secret trust: intention
The testator must intend to impose a binding obligation on the legatee/trustee: McCormick
Must intend that the legatee hold that property as trustee, not enough to impose a moral obligation – this is certainty of intention issues. Intention to create a trust or merely moral obligation
Moss v Cooper (1861)
Fully secret trust: communication
Communication of intention can be oral or in writing; the legatee must accept the terms and silence can amount to acceptance.
Silence by legatee when communicated the obligation will be taken to amount as acceptance of this obligation.
Acceptance can be express, but also implied. Legatee must accept the terms – obligation.
Re Gardner [1920] 2 Ch 523, CA.
Fully secret trust
Communication can be before or after the execution of the will but must be before the testator’s death.
communication can be BEFORE or AFTER the execution of will but must be before death.
Re BoyesRe Boyes
Fully secret trust
Communication of: (i) fact of trust (ii) terms of trust (iii) property subject to the trust.
. The testator told the legatee verbally that he was to hold the property on trust and that he would send him a letter with the details. No such letter was sent. After the testator’s death letters were found amongst his papers setting out the terms of the trust. This was insufficient.
- Communciation of the terms of the trust had to take place BEFORE the testator’s death.
Re Keen [1937] Ch 236, CA
communication
Half secret trust. The testator gave the legatee a sealed envelope containing the terms of the trust which was not to be opened until the testator’s death. This was held to be sufficient as the legatee had the means of knowledge of which he could avail himself whenever it was necessary and proper.
Establishes that constructive notice of terms of the trust is sufficient. This is a half secret trust but likely that this principle will also apply to a fully secret trust.
Re Colin Cooper
- Half secret trust. The testator added a further sum to the initial legacy to legatee by means of a codicil to the will. There was no communication of this to legatee that there was a further property added to this. Held: no secret trust of the further sum. Testator might want to alter the property subject to trsut, this will not be effective unles there is further communication and acceptancein relation ot the additional property. Held: there needs to be further communication of THIS property.
Communication to co-owners - Farwell J in Re Stead
A tenant in common will only be bound by the trust if it was communicated to and accepted by him.
If one joint tenant (A) accepts the trust before a will is made, any other joint tenant (B) will also be bound.
If one joint tenant (A) accepts the trust after the will is made any joint tenant who has not accepted will not be bound.
Farewell said that one question can be asked in all cases: “did the acceptance of one co-owner induce the gift either to be made or not revoked?”
What do you need for a secret trust?
In fully secret and part secret trust you need:
1) intention
2) communication
3) acceptance
but in part secret trust there are differences making it more dififcult to establish.
Re Keen
Inconsistency with the will
Evidence inconsistent with the terms of the will is inadmissible
terms had been communicated before execution of the will but the will referred to communication after execution.
(But in fully secret trust, the evidence always contradicts the will).
Communication
Communication must be before or at the time of execution of the will. A testator should not be able to reserve the power to make a disposition by an unexecuted codicil and thus get round the requirements of the Wills Act).
Irvine v Sullivan
Fully secret trust: effect
If the requirements are fulfilled the legatee will hold on trust. He can be one of the beneficiaries and also will take any surplus:
: Re Boyes
Fully secret trust: effect
If there is communication of the fact of the trust but not the terms the legatee will hold the property on resulting trust for the testator’s estate:
Re Rees
Half secret trust: effect
The legatee cannot take beneficially, whether the testator so provides or in the event of any surplus, on the grounds that this would be inconsistent with the terms of the will
Legatee under half secret trust can never benefit whether he is held as a legatee or by any surplus. Justification is that this would be inconsistent with terms of the will because on terms of the will the person is to be a trustee. In Rees – testator specifically said that the legatee could keep any surplus after, court held: he could not.
Legatee under fully secret trust can be a trustee and beneficiaries under terms of trust and entitled to any surplus, but opposite has been held in half secret trust
If the requirements are not fulfilled the legatee will hold on a resulting trust for the testator’s estate.
Re Young
A beneficiary under a secret trust does not lose his beneficial entitlement by witnessing the will:
Testator left property to his wife on a half secret trust. A sum of money was to go to his chauffeur who had witnessed the will).
Can a legatee witness the will?
In a half secret trust = yes because the legatee is not a beneficiary, he is a trustee so s15 does not apply.
Fully secret trust: if you continue reasoning in Re Young – the legatee takes under the will and apparently takes beneficially under the will and then a trust is imposed on that legatee. So just looking at the will, the legatee is a beneficiary so s15 ought to apply. There is no authority on this.
Re Maddock
Cozens-Hardy CA suggested that a fully secret trust will fail if the legatee dies before the testator on the basis that the trust arises because of personal obligation imposed on the legatee.
Re Gardner
beneficiary predeceases the testator
held that the gift to a beneficiary under a secret trust did not lapse, based on an arguably unacceptable view that the trust arose at the moment of communication to the legatee.
Case is arguably wrong. Mr Justice Roma held: this was based on arguably erroneous reasoning. The starting point is that he said:
1) a gift to beneficiary under a secret trust is not a gift by will, so far no real problem, consistent with our cases which says secret trusts operate outside the wills act.
2) However, he went onto talk about the time when the beneficiary acquired the beneficial interest. The judge held: that the beneficiary acquired his interest at the moment the testator communicated his intention to the legatee. He said it was as if, at that moment, the legatee had executed a declaration of trust. He said that the trust arises/is created at the moment of communication and acceptance. Problem with this reasoning is that: you cannot have a trust of future property. At the time of communication and acceptance, the legatee did not have the property. He had a mere hope of inheriting. He would only acquire the property IF the testator dies without changing his will. So since you cannot have a trust of future property, how can the beneficiary have acquired rights? The trust would only be effective once the legatee acquired the property, he would only do that upon death of testator, at which point the beneficiary is dead. If Re Gardiner is wrong, interest in beneficiary would lapse, the legatee would hold on resulting trust for the legatees estate.
What happens if legatee revokes acceptance before testator’s death?
This depends on whether Re Gardner is correct as to when the trust arises. If Re Gardner is wrong will it then depend on whether T had time (or the capacity) to change his will?
If Re gardner is correct, the trust is in existence from moment of acceptance and legatee can no longer change his mind. However, more likely that Re Gardner is wrong and if it is wrong then the suggested outcome will vary with the precise facts. If testator is told of the change of mind, does not change his will, and dies a few years later, then it can clearly be argued that the testator accepted the revocation, accepted the fact legatee was not prepare to hold on trust or specific terms and therefore the will takes effect according to its terms.
What happens if legatee dies or renounces trusteeship after testator’s death?
If the legatee dies after the testator the trust will have been fully constituted at moment of death so will not fail.
If the legatee disclaimed after the testator’s death dicta in Re Maddock suggest the trust would fail because there is only a personal obligation imposed on the legatee whereas Lord Buckmaster in Blackwell v Blackwell expressed the view that a court would not allow the legatee to defeat the purpose by renouncing the legacy.
Competing dicta, Re Maddock trust would fail because simply personal obligation on trustee so if he refuses to carry it out cannot impose this obligation on anyone else. Preferable view is in Blackwell, logical because trust has become completely constituted at moment of death, beneficiary acquires beneficial interest at death. So the requirement of legatee to comply with trust should not matter.
McCormick v Grogan
What amounts to fraud in this context of secret trusts
Deceit/fraudulent inducement on the part of the legatee
Where legatee induces the testator to make a gift in his favour, on the basis that he will comply with testator’s wishes, it would be fraudulent to go back. But in most cases, the legatee initially intends to comply, rare case where deceit or fraudulent inducement.
Blackwell v Blackwell
What amounts to fraud in this context of secret trusts
Preventing the legatee from refusing to comply with the terms on which he acquired the property.
This is general, should have a reason from preventing him going back on his promise. In many cases, it had not been the legatee trying to go back on his promise. In many cases, the legatee had been happy to comply with his obligations, it has been someone else who claimed that the trust was invalid. In Blackwell, testator widow and son claimed trust failed because it trust failed, it would fall into residual and they would be entitled to it.
Banister v Banister
What amounts to fraud in this context of secret trusts
Preventing the legatee making a profit; inapplicable to a half secret trust.
trust imposed to prevent transferee to benefit personally by claiming trust was ineffective. This would justify enforcing a fully secret trust because if thi fails the legatee takes beneficiary, but does not justify a half secret rtrust because legatee is always a trustee so will not benefit if the trust fails.
Blackwell v Blackwell
Fraud on the beneficiaries
Intended beneficiaries will suffer loss if trust is ineffective. But the objection is that this is a circular argument. We are talking about beneficiaries suffering a loss,. But this question is talking about whether they are beneficiaries – has a trust been created in thir favour – in order to be suffcering a loss they need to be beneficiaries, but we say that because they are suffering a loss, they are beneficiaries.
What amounts to fraud in this context?
What amounts to fraud in this context?
Testator’s reliance?
Re Young, Re Gardner and dicta in Re Maddock.
The legatee takes the property under the will, but equity fastens a trust on his conscience.
Re Gardiner
a beneficiary predeceased a testator, the court in this case held that the trust was created from the moment of communication and acceptance. However, at the time, this cannot be right because legatee did not have any property at that moment. There cannot be a completely constituted trust until the death of the testator because all testator has to do is change his mind and write a new. Therefore, secret trusts do apply on death and arguably the wills act should apply.
If secret trust takes place outside will, does the wills act apply?
The mere fact that the trust takes effect outside the will does not mean that the Wills Act should not apply to it. This argument only works if there is the creation of a trust inter vivos. Surely the trust only arises on the testator’s death.
If there is an inter vivos trust does s 53(1)(b) LPA 1925 apply if the property is land? Re Baillie (1886) Accepted obiter that s53(1)(b) does apply.
But Ottaway v Norman [1972] Ch 69 - An orally creation trust of land was held to be valid.
Grey v IRC [1960] AC 1 HOUSE OF LORDS DECISION.
Beneficiary gives oral direction to trustee to hold on trust for another.
Mr Hunter (H) wanted to transfer shares to his grandchildren in a way to avoid stamp duty. Whole scheme was deliberate attempt to avoid s53(1)© and therefore stamp duty.
There were three steps to his scheme: (1) he created six separate trusts in favour of his grandchildren (without transferring shares); (2) he transferred the shares to the trustees of these trusts to hold as his nominees i.e. on a bare trust (so only 50p stamp duty) (trustees should hold the shares on a bare trust as nominees for H himself, not transferring the equitable interest, only the legal interest to the trustees, and they were holding for H; (3) he orally directed the trustees to hold 1/6 of the shares for each of the six trusts direction to hold for grandchildren rather than him. Five weeks later, by way of confirmation of the oral direction, the trustees executed six declarations of trust which H, although not expressed to be a party, also executed. The question for the HL was whether the oral direction was sufficient to transfer the beneficial interest in the shares from H to grandchildren.
HL gave “disposition” its natural meaning and held it includes a direction by the beneficial owner whereby the beneficial interest vested in him becomes vested in others.
Beneficial interest which Hunter had was transferred to children, so logically it was a disposition of beneficial interest even though he did it in a round abound way. Therefore, that disposition, oral direction was void. It needed writing – only the written confirmation that passed the beneficial interest and the law of stamp duty was passable
Vandervell v IRC [1967] 2 AC 291 House of lords decision.
Beneficiary directs trustee to transfer legal title to someone also intended to acquire the equitable interest
Vandervell (V) decided to endow a chair of pharmacology at the Royal College of Surgeons (RCS). He devised a scheme so as to avoid tax: his scheme was: (1) he would transfer some shares in Vandervell Products (VP) to RCS and to declare dividends on those shares to the amount required; these dividends was the amount he wanted to donate to RCS; idea was that he would then get the shares back once dividend declared. but (2) the transfer of the shares was to be subject to an option to repurchase the shares for £5,000 in favour of Vandervell Trustees (VT), a private company that acted as trustee for a number of trusts, including a trust for Vandervell’s children (VC). The shares were held by the National Provincial Bank (NPB) as nominee for V. V directed NPB to transfer the shares to RCS, subject the option, and dividends were declared in accordance with the scheme. The case was concerned with V’s liability to surtax on the dividends on the basis that he had not divested himself of all interest in the shares. Vandervell would be liable to serve tax on dividends unless he complete diversted himself of any interest in shares.
There were two grounds put forward by the Revenue: (i) the option was held on resulting trust for V argued held on resulting trust to Vandervell; and (ii) the equitable interest in the shares had not been transferred to RCS because of the lack of writing complying with s 53(1)(c). Decision against Vandervell.
HL held:
(1) The option was held on resulting trust for V as there had been no declaration of trust
(2) Section 53(1)(c) was inapplicable; the equitable ownership was transferred by the transfer; at the time of its creation V had not decided whether its beneficiaries should be his children or his employees. Therefore, he had not disposed of his whole beneficial interest in the shares and he was subject to surtax of shares by NPB to RCS and there was no need for a document signed by V complying with s 53(1)(c).
What is the narrow approach in
Vandervell v IRC
Lord Upjohn (with whom Lord Pearce agreed):
- provided there is an intention, the equitable interest passes with the legal itnerest.
Taylor v Taylor
Even though not signed form, it was signedby a person able to declare it.
Farther and son entered into an informal partnership when buying property. Son depended on a declaration made in document transferring legal ownership, which stated property on trust for father and son as beneficial joint tenants. Held: even though father and son had not signed the form, because it was signed by the seller, it complied with the legal requierments that a trust of land had to be evidenced in writing by a person able to declare it.
Rochefoucauld v Bousted
The written evidence must contain all the material terms of the trust, namely:
1) the beneficiaries,
2) trust property
3) nature of the trust
what is fraud?
A fruad arises if a person to whom the land was conveyed, subject to an oral udnderstanding that it was to be held on trist, seeks to deny the trust, and claims to be absolutely entitled to the land because the requisite formalities are lacking.
Rochefoucauld v Bousted
does s53(1)(b) have application in personal property?
No application to declarations of trust of personal property. An absolute owner may orally declare himself the trustee of such property without the need for any further formalities: Re Keyford
Can a beneficiary declare himself a trustee of his equitable proprietary interest?
Yes because beneficiary enjoys an immediate proprietary interest in the trust property and an equitable proprietary interest are capable of forming the subjec matter of a trust. So the beneficiary can create a sub trust by delcaring himself a trustee of his interest under trust
if there is a sub trust does s53(1)(b) apply?
Only if the trust rpoperty consists of “an interest in land”.
Do you need writing if a sub trustee “drops out of the picture?”
Where a beneficiary who declares a sub trust “drops out of the picture”, the reality of the transaction is that he has effected a disposition of his equitable interest under the trust to the intended sub-beneficiary, and therefore the transaction will be ineffecitve unless the declaration is effected in writing.
But if sub trustee has active duties to perform under the sub trust, he does not drop out of the picture and there is no disposition. Instead, a gennuine sub trusr arises. This would occur where a beneficiary creates a life interest of his interest under trust in favour of sub-beneficiary. Provided that the trust property is not land, in such circumstances there is no need for a declaration to be made in writing under s53(1)(c). A purely oral declaration of the sub trust will be sufficient.
if s53(1)(c) formality is not complied, does it act like s53(1)(b) in that it is not void, but only unenforcabke?
no! a failure to comply with s53(1)(C) rendered the purported disposition void.
Grey v IRC
HOL
Scope of disposition: should be given its “natural meaning”
Appalent held 18,000 shares on bare trust for Mr Hunter. Hunter orally directed them to hold the shares under 6 trusts in favour of his grandchildren. The trustees then executed a declaratin of trust to that effect.
Argued: without writing, the oral direction was void and ineffective. Trustees argued the transaction did no require a written instrument because there was no “disposition” within meaning of s53(1)(c).
HL - the work “disposition” should be given its natural meaning, so the oral direction to trustees had been a disposition and was void and ineffective to transfer the equitable itnerest in the shares to the children.
Re Danish Bacon Co
an equitable interest… subsisting at the time of the disposition
an employee had nominated someone to receive pension benefits if he died in pensionable serve. Megarry suggested in such circumstances that s53(1)(c) did not apply because the employee had been dealing with something that could never be him. He had no subsisting equitable interest in the benefits he was allocating.
Doe s53(1)(c) require that it is actually made in writing in comparasion to s53(1)(b) which requires onlyevidence in writing?
yes
Vandervell v IRC
HOL
S53(1)(C) does not have to be satisfied where beneficiary with a subsisting equitable interest under a bare trust directed the trustees to transfer the legal title to a third party and the transaction was completed.
V was the sole beneficiary of a bare trust of shares in his company. V wished to save tax on his gift. His scheme was to transfer shares in his company to the Royal College of Surgeans, and by declaring asufficiently large dividend on the shares. He therefore directed the trustee company to execute a share transfer form and pass it to him, leaving name of transferee blank. V then enterest the name of the Royal College of Surgeons as transferee. The collage was then registered as owner of the shares. In return, the college granted trustees an option to repurchase the shares.
HL held: writing was not necessary to effect a transfer of V’s equitable interest in the shares of the college. As beneficiary of a bare trust he was entitled to direct the trust3ees to transfer the legal title to the trust property, and there was no need for seperate disposition to transfer the equitable title.
Had it not been for the option to repurchase the shares, V would have had nor ights to recover any interest in the shares. RCS were the outright owners in law and equity of the shares. Nevertheless, V was able to avoid ad valorem stamp duty on the transfer of his equitable interest in the shares. The option to repurchase the shares granted by the College was, in absence of express declaration of trust, held on an automatic resulting trust for V.
Oughtred v IRC
HOL
Where a B enters a specifically enforceable contract to transfer a subsisting equitable interest under trust, that interest passes to intended transferee immediatel on making of contract by means of a constructive trust.
Shares in a private company, held on trust for Oughtred for life with remainder to her son. They entered an oral contract in which her son agreed to release his interestin the shares so his mother would absolutely be entitled to them. In return, she would transfer shares, to which she was already absolute owner to him. A deed of release was executed.
HOL - irrespective of constructive trust, the deed was a “transfer on sale” for the purposes of the stamp act so stamp duty was payable.
However, the oral contract gave rise to a constructive trust which effected a transfer of the remainder interest in the shares to Oughtred without the need for further writing.
Neville v Wilson
CA
Following Neville v Wilson where subsisting equitable itnerest is subject of an oral ocntract to transfer which gives rise to constructive trust, there is no need for writing in s53(1)(c) because constructive trust itself effects the disposition of the subsisting equitable itnerest to the transferee.
Trust of shares in company which were held by directors of company. Oral agreement reached between shareholders that assets should be divided among shareholders.
Could oral agreement give rise to constructive trust or void for failure to comply with s53(1)(c).
CA held: oral agreement produced a constructive trust of the shares.
Likely to only apply where oral contracts are specificall enforceable. In personal property, contracts are not specifically enforceable unless subject matter of contract is unique so a contract to transfer shares in a PUBLIC company is not though to give rise to a constructive trust
Do you need writing in s53(1)(c) if act of third party has the effect of extinguishing a subsisting equitable interest which has arisen under an automatic resulting trust.
In Vandervell v IRC. V failed to divest himself absolutely of his interest in shares because option to repurchase was held on resulting trust for him.
Ottaway v Norman
Mr Ottaway was to leave his house to another woman in his will, and then she left it to Norman on her will. Mr Ottaway’s son claimed the house had been left to the woman on the understanding that she would leave it to him on her death. He claimed a secret trust was created.
Subjection of property to a fully secret trust required three elements:
1) intention
2) communication
3) acceptance
Re Snowden
Intention
Intention to impose a purely moral obligation is insufficient. There must be shown that the testator intended to subject the secret trustee to a manadatory obligation to hol property for the benefit of the secret beneficiary
Re Boyes
Communciation of terms to trustee
Boyes left his estate by will. Prior to death he informed X to hold the property on trust, the terms of which he said he would communicate to him by letter. No communication of the terms which he said he would communicate to him by letter. No communication of the terms of the trust was made during the testator;s lifetime, but after his death. Held: secret trust had not been established.
Re Keen
CA
failure of communication before testators death prevents valid trust
communication must be consistent with the will (half secret trust)
Complete failure to communicate terms of trust before the testator’s death prevents creation of valid trust. BUT communication of terms by means of sealed evelope given to trustee DURING testator’s lifetime with the stipulation that it was not to be opened until after his death, will be sufficient to create a create trust.
Re Cooper
Secret trust will only affect property bequeathed to the intentded trustees to the extent that effective communication had been made.
Testator left money by will to two trustees. He had previously communicated the terms of trust to them both. He subsequently added a c odicle to the will, increasing the amount of gift but without communicating this alteration to trustees.
CA held: the increased gift was not held on secret trust but the initial money was.
Re Stead
Where the intended trust property is bequeathed to two or more person as tenants in common, a secret trust will only bind the respective shares of those tenants in common to who the testator had communicated the terms of the trust.
Thos eto whom the trust had not been communicated are entitled to receive their respective shares of the bequathed property absolutely.
Here Ms Stead left properrty to A and B as tenants in common. She informed A that £2000 was to be held on trust for C, but made no communication to B. Held: B took property free of any trust.
Where joint tenants, if communication was made to one of the joint tenants beforeexecuting the will, the would all be bound.
But rules expounded in Re Stead are incorrect because Farwell developed his reasoning from a misunderstanding of earlier cases cited as authority. Although this is still the law.
Suggested that instead of distinguishing between joint tenants and tenants in common, the question should be “whether the tesator was induced to make the joint bequest only because of the promise of some of those entitled that the property would be held on trust”.
Moss v Cooper
Silence will be taken to be an acceptance of thr trust. In Secret trusts.
Difference between communication of fully secret and half secret trust?
Fully secret = if testator made effective co mmunication of trust at any time before death = good
Half secret = testator must make communication to intended trustee before his will is executed.
Blackwell v Blackwell
obiter comments suggesting that communication must be before will is executed (
in half secret trusts)
Gold v Hill
man seperated from wife nominat3ed solicotr as beneficiary having communciat3ed to him that proceeds were to be held on trust for his partner and her children. Nomination took place after execution of his will.
Held:
Effect of failure of secret trust
Fully secret = intended secret trustees entitled to tak eproperty for himself absolutely. The trustee will only be required to hold propertyy on resulting trust for the tesator’s residuary legatees or next of kin if he admits that he was intended to receive property as trustee.
Half secret trust = he will hold property on resulting resut for either residuary legatees or next of kin.
Difference between fully and half secret trustee if he predeaceses the testator?
fully: Re Maddock - fully secret trust will fail if the trustee dies during the lifetime of the testator (following laws of succession)
Half secret: fact property bequeathed is intended to be subjec to a trust is apparent from will itself. Therefore, legatee was never intended to enjoy property left to him absolutely. Therefore, equity will not allow trust to fail for want of a trustee. Testators personal representative will act as trustee in his place.
Can someone revoke acceptance after the death of the testator
Despite contrary dicta in Re Maddock, in Blackwell v Blackwell, it suggested that a secret trust will not fail if the trustee disclaims the trust subsequent to the testators death.
This is logicval because the trust is constituted by operation of the testators will, thus crystallising the secret beneficiarys equitable entitlement ot the trust property. Since trust came into existence, it should not be allowed to fail for want of trustee.
Irvine v Sullivan
secret trustee from a secret trust was entitled to retain surplus of trust property.
secret trustee can benefit from secret trust
Re Rees’ Will Trusts
CA held in contrast to Irvine v Sullivan
That the trustee of a half secret trust was not entitled to assert any entitlement to such surplus as this was inconsistent to t eh will, which suggested that all property bequethed to him was subject to the trust.
Here the disccusion is doubted in Re Tyler’s Fund Trusts, as no logaical distinction between full secret trust (irvine v sullivan) and half secret. Perhaps it is significant that in Re Rees Will Trusts the trustee was the testators solicitor and a beneficial gift here was less likely.
Grey v IRC [1960] AC 1 HOUSE OF LORDS DECISION.
Beneficiary gives oral direction to trustee to hold on trust for another
Mr Hunter (H) wanted to transfer shares to his grandchildren in a way to avoid stamp duty. Whole scheme was deliberate attempt to avoid s53(1)© and therefore stamp duty.
There were three steps to his scheme: (1) he created six separate trusts in favour of his grandchildren (without transferring shares); (2) he transferred the shares to the trustees of these trusts to hold as his nominees i.e. on a bare trust (so only 50p stamp duty) (trustees should hold the shares on a bare trust as nominees for H himself, not transferring the equitable interest, only the legal interest to the trustees, and they were holding for H; (3) he orally directed the trustees to hold 1/6 of the shares for each of the six trusts direction to hold for grandchildren rather than him. Five weeks later, by way of confirmation of the oral direction, the trustees executed six declarations of trust which H, although not expressed to be a party, also executed. The question for the HL was whether the oral direction was sufficient to transfer the beneficial interest in the shares from H to grandchildren.
HL gave “disposition” its natural meaning and held it includes a direction by the beneficial owner whereby the beneficial interest vested in him becomes vested in others.
Narrow approach in Vandervell
Lord Upjohn (with whom Lord Pearce agreed): Provided there is an intention, the equitable interest passes with the legal interest
Wider approach in Vandervell
Lord Upjohn (with whom Lord Pearce agreed): Lord Upjohn gave another reason for the result in the case.
“[T]he object of [section 53(1)(c)], as was the object of the old Statute of Frauds, is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the beneficial owner wants to deal with the legal estate as well as the equitable estate.”
Why was there no need for a seperate document in Vandervell?
- Narrow approach where there is an intention tothis effect, equitable interest moves with legal; interest with no need for separate documentation. Where no agreement between judges is where you need A document or by whatever document passes for that property, the equitable interest passess with it
- WIDE APPRAOCH – LORD UJOHN- S53(1)9C) Is to prevent hidden oral interests where trustees don’t know who interests are. This was a bare trust, beneficiary communicated with trustees so not within section 53(1)(c).
What does the approaches mean for Grey?
settlor transferred shares to trustees on nomination for him and he gave an instruction to trustees that they should no longer hold on trust for him but on trust for his grandchildren. HL held: there did need to be writing complying with s53(1)© reality of situation was there was a disposition from hunter to grandchildren. Two reasons given by Vandevell and how they effect this:
Narrow approach – this is still correct, Vandervell does not effect Grey because on this analysis, on what is the perceived view of the facts in Grey, the legal interest is not moved, the trustees remain trustees throughout, hunter gains interest that equitable interest should move. No movement of legal interest, no document moving legal interest so narrow approach does not affect Grey.
Wider approach – if you have a bare trust, which we have here (trustees held as nominees for Hunter) and the sole beneficiary communicates with the trustees (so no hidden oral transaction for beneficial interest), then s53(!)© does not apply. This wider approach would seem that Grey would have been decided differently because no hidden oral transaction. Potential inconsistency between Vandervell and Grey.
(d) Beneficiary directs trustee to transfer legal title to other trustees to hold on different trusts
governed by Grey or Vandervell
Facts of Grey: Direction to trustees who held on trust for Hunter to hold for other beneficiaries instead, this is how HL treated it. But if you look closely at the facts of Grey, there was a direction to the trustees holding as trustees of a bare trust in favour of Hunter and direction to them, was hence force they should hold as trustees of the trusts in favour of the grandchildren. Although it was the same trustees, they were trustees of two different trusts, same people were in charge of the bare trusts but they held it in a different capacity, they had a different role so although same people they were different trustees in a way. It could be argued that Grey is the authority for this situation: where instruction to trustsees to transfer to other trustees to hold on trust, this is effectively what happened in Grey. We can distinguish Vandervell because in , the legal and equitable interest transferred to same person, RCS so we could take narrow approach to Vandevell and say it is limited to situation where equitable interest goes with legal interest where it is joined up and does not approach where equitable interest remains separate from legal interest. On the other hand, we can distinguish Grey because in Grey, the instruction only related to equitable interest and so we can say that it is different where the legal and equitable interest are dealt with together, this means we do not know what the law is here, where instruction to trustees to transfer to new trustees to hold on trust for beneficiaries, it could be Grey or Vandervell, we do not know.
Re Vandervell’s Trusts (No 2) [1974] Ch 269 COURT OF APPEAL DECISION
(e) Extinction of interest under a resulting trust
V directed VT to exercise the option (which, it had been decided, was held on resulting trust for him), which they did using £5,000 from the fund held on trust for VC. It was clearly the intention of V and VT that the shares be held on trust for VC; the use of the money from the VC trust would have otherwise have been a breach of trust; the intention was made clear in a letter to the Revenue one week after the exercise of the option. Four years later, V executed a deed by which he formally assigned to VT any interest that he might have retained in the option/ shares. The case concerned a dispute between V’s executors and VT as to the beneficial ownership of the shares (and the dividends declared on them) during that four year period and whether the beneficial interest in the shares could pass to VC without complying with s 53(1)(c),
CA held shares were held on trust for the children; section 53(1)(c) was inapplicable – there was no disposition of a subsisting beneficial interest, rather there was a declaration of trust.
Lawton LJ: judgment relied on fact, there were two different assets:
- Option
- Shares
Re Lasmar + Grainge v Wilberforce
Declaration of trust of an equitable interest
If B has no active duties does he effectively drop out of the picture so that s 53(1)(c) is applicable
Nelson v Greening & Sykes
- Declaration of trust of an equitable interest
More recent authority suggests (not binding) that B will never drop out of the picture:
Oughtred v IRC [1960] AC 206 HOUSE OF LORDS DECISION.
(g) Specifically enforceable contract to transfer
Under a settlement, shares in a private company were held by trustees on trust for O for life with remainder to her son, P. By an oral agreement made between O and P it was agreed that P would exchange his interest under the settlement for other shares in the company owned by O absolutely, to the intent that O’s life interest in the settled shares should be enlarged into absolute ownership. The aim was to transfer the equitable interest from P to O by a constructive trust to avoid stamp duty. Constructive trust arises authomatically so do not need documentation so do not need to pay stamp duty. The case was concerned with whether ad valorem stamp duty was payable on a later transfer of the shares by the trustees to O. The decision of the HL was that the document was subject to stamp duty irrespective of any constructive trust and of whether the beneficial interest had already passed pursuant to the oral agreement. Decision – IRRESPECTIVE of beneficial interest had already pass, stamp duty applied. Both Upjohn at first instance and Radcliff at HL commented on situation and took the view that the situation in s53(2) which is “this section has no effect…”, therefore, the purchaser of the shares became the effective owner of the shares, even if there was no writing.
Neville v Wilson
CA
Oughtred v IRC accepted by CA
Shares in U Ltd were held on a bare trust for J Ltd. J Ltd was dissolved. It was alleged that there had been an agreement between the shareholders of J Ltd for the informal liquidation of the company, whereby its debts and liabilities were discharged and the balance of its assets, including its equitable interest in the shares in U Ltd, were distributed to its shareholders. The question arose whether, if there had been such an agreement, section 53(1)(c) operated to render the agreement ineffective for lack of writing.
Of limited applicability: requires a valid contract (see section 2, Law of Property (Miscellaneous Provisions) Act 1989 for land) which is specifically enforceable.
