Formalities and Resulting Trusts Flashcards
Law of Property Act 1925, s 53
Disposition of property
Grey v IRC [1960] AC 1
Case: Authority for proposition that where beneficiary gives direction to trustee to hold benefit on trust for third party, this is a disposition; H creates 6 settlements in favour of 6 grandchildren; H transfers legal title in company shares to Ts; One of these trustees Mr Grey; Shares to be held on express bare trust for H… On 18th Feb 1955 H gives oral direction to T to hold H’s equitable interest in the shares on 6 trusts for grandchildren… On 25th March 1955 T executes written documents
Decision: The HL had to decide what amounted to a disposition for the sake of 53(1)(c); “If the word ‘disposition’ [in section 53(1)(c)] is given its natural meaning, it cannot, I think, be denied that the direction given by Mr Hunter, whereby the beneficial interest in the shares theretofore vested in him became vested in another or others, is a disposition”.
Rule: Diverted from ownership to beneficial or equitable ownership of another, present and future then disposition
Quote: “Something had to happen to that equitable interest in order to displace it in favour of the new interests created by the direction: and it would be at any rate logical to treat the direction as being an assignment of the subsisting interest […]” per Lord Radcliffe (obiter)
Oughtred v IRC [1960] AC 206
Case: T held 200,000 shares in WJ&S Ltd (a private company); on trust for O for life, remainder to P absolutely; O also held 72,700 shares in WJ&S Ltd absolutely; On O’s death, estate duty would be payable on the settled property and her estate; 18 June 1956 O and P orally agree that O would transfer her 72,700 shares; P would release his remainder interest in the 200,000 shares; 26 Jun 1956, agreement implemented in 3 stages: (1) transferred her shares to P (2) T, O and P execute deed of release (i.e. shares now to be held on trust for O absolutely and intention to transfer to O) (3) T transfer shares to O absolutely by deed (IRC chooses as instrument for assessing tax)
Decision: HL that there had been a disposition of an equitable interest requiring writing; the transfer of even bare legal title to the 200,000 shares had value for the purposes of liability to stamp duty
Vandervell v IRC [1967] 2 AC 291
Case: (Distinguish from Grey); V wanted to endow a Chair at the RCS (at expense of £150,000); NPB held shares in VP Ltd on bare trust for V; V intended to transfer 100,000 shares in VP Ltd to RCS; Dividends would be declared to finance the Chair; VTL would have option to repurchase shares for £5,000; Direction to transfer legal title to a TP
Decision: Failed to properly effect his disposition, as in writing required by s.53(1)(c); Distinct from Grey, which required a direction for trustee to transfer equitable interest to another person (that is a disposition of a subsisting equitable interest); Legal title remains with the trustee; V was the real grantor of the option NOT the RCS; V had granted the option to VT Ltd to be held on trust; VT Ltd had legal title to the option (as a property right) but no mention of who owned equitable title in the option; No express provision had been made for the declaration of trusts of the shares that were to be purchased by VT Ltd; Express trust void for lack of objects; VT Ltd held option (as property right) on resulting trust for V; V finally caught!
Rule: The HL held that section 53(1)(c) did not have to be satisfied where a beneficiary with a subsisting equitable interest under a bare trust directed the trustees to transfer the legal title to a third party and that transfer was completed; what makes it different to Grey is direction by beneficiary to transfer legal title to a third party and not their subsisting equitable interest
Quote: “Where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of the intention of A in making the transfer whether B was to take beneficially or on trust and, if the latter on what trusts. If, as a matter of construction of the document transferring the legal estate, it is possible to discern A’s intentions, that is an end of the matter […] But, if, as in this case […] the document is silent, then there is said to arise a resulting trust in favour of A.” per Lord Upjohn
Re Vandervell (No 2) [1974] Ch 269 (Megarry J)
Case: In 1961, V instructed VT Ltd to exercise the option (as he wanted to get rid of shares and avoid tax); V orally directed VT to hold the repurchased shares on trust for V’s children; The trustees used £5,000 from a trust already established to benefit children; Dividends transferred to children’s trust fund; VT treated the shares as being held on trust for the children and paid dividends to their settlement; in 1965 V executed deed of release; V transferred to VT Ltd his equitable interest in the shares; V expressly declared the shares were to be held on trust for his children; V died in 1967 and made no further provision for his children in the belief that they were well provided for under the trust
Decision: Quite unreal that in substance the college provided the option; When failed disposition it automatically reverts; Yet cannot see how an intention not to get the shares back can negative a RT; Does not see how the donor’s intention not to have beneficial interest can prevail when the RT is automatic - “That issue is, in essence, whether the trustees who hold the option on trust for X will hold the shares obtained by exercising that option on trust for Y merely because they used Y’s money in exercising the option. Authority apart, my answer would be an unhesitating No. The option belongs to X beneficially, and the money merely exercises rights that belong to X. Let the shares be worth £50,000, so that an option to purchase those shares for £5,000 is worth £45,000, and it will at once be seen what a monstrous result would be produced by allowing trustees to divert from their beneficiary X the benefits of what they hold on trust for him merely because they used Y’s money instead of X’s.” per Megarry J
Quote: On automatic resulting trust - “A transfer to B is made on trusts which leave some or all of the beneficial interest undisposed of. B automatically holds on a resulting trust for A to the extent that the beneficial interest has not been carried to him or to others.” per Megarry J
Re Vandervell (No 2) [1974] Ch 308 (CA)
Decision: VT Ltd used £5,000 of children’s money to acquire share = breach of trust unless shares intended to be for children’s settlement; VT wrote letter to Revenue declaring expressly that the shares “will henceforth be held by them upon the trust of the [children’s] settlement”; All the dividends received by VT were paid to the children’s settlement and treated as part of the funds of the settlement
Quote: On automatic resulting trust - “the beneficial interest must belong to or be held for somebody so if it was not to belong to the donee or be held by him in trust for somebody it must remain with the donor” per Lord Reid
“In October and November 1961, the trustee company exercised the option. They paid £5,000 out of the children’s settlement. The Royal College of Surgeons transferred the legal estate in the 100,000 ‘A’ shares to the trustee company. Thereupon the trustee company became the legal owner of the shares. This was a different kind of property altogether. Whereas previously the trustee company had only a chose in action of one kind – an option – it now had a chose in action of a different kind – the actual shares. This trust property was not held by the trustee company beneficially. It was held by them on trust. On this occasion a valid trust was created at the time of the transfer. It was manifested in clear and unmistakable fashion. It was precisely defined. The shares were to be held on the trusts of the children’s settlement.” per LordDenning MR
Westdeutsche Landesbank v Islington LBC [1996] AC 669
“Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A’s intention to make an outright transfer […] (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest” per Lord Browne-Wilkinson
o AKA: (A) PRESUMED (intentions of the parties) resulting trust and (B) AUTOMATIC resulting trust
o Presumption easily rebutted: counter presumption of advancement, intention of outright transfer
Stack v Dowden [2007] UKHL 17; [2007] 2 AC 432
Decision: Gift presumed due to intention of relationship e.g. father transfers property to child (presumption that intention that child would retain property absolutely) N.B. this is still only a presumption which can be rebutted
Rule: Counter-presumption of advancement
Quote: “The presumption of resulting trust is not a rule of law. According to Lord Diplock in Pettit v Pettit [1970] AC 777, 823H, the equitable presumptions of intention are ‘no more than a consensus of judicial opinion disclosed by reported cases as to the most likely inference of fact to be drawn in the absence of any evidence to the contrary.’ Equity, being concerned with commercial realities, presumed against gifts and other windfalls (such as survivorship). But even equity was prepared to presume a gift where the recipient was the provider’s wife or child”. per Baroness Hale
Lohia v Lohia [2001] WTLR 101,
Rule: Establishes that the presumption of a resulting trust on a voluntary conveyance of land has been abolished by s.60(3) Law of Property Act 1925. It was not suggested that this proposition precludes a party to the conveyance from relying on evidence from which a resulting trust may be inferred
Re Vinogradoff [1935] WN 68
Case: V transferred £800 stock into her name and granddaughter’s; V dies and presumption of RT
Decision: Granddaughter held shares on trust for V’s estate; Granddaughter was only 4 years old so not intended as trustee but rather recipient for gift
Rule: RT can be presumed for personal property (e.g. shares, money)
Abrahams v Trustee in Bankruptcy of Abrahams [2000] WTLR 593
Case: Wife paid own share and share of estranged husband in purchase of lottery ticket
Decision: All winnings held on trust for wife
N.B. If husband had paid for wife’s share - presumption of advancement would have applied (transfer from husband to wife is a special category where presumption of advancement arises)
Re Ames’ Settlement [1946] Ch 217
Case: Trust for marriage settlement; Marriage declared null and void for non-consummation
Decision: Held on resulting trust for initial failure
Rule: Initial failure of an inter vivos express trust (intended yet fails to be established at the outset will be held on trust for the settlor)
N.B. failed testamentary trust = distributed as part of testator’s residuary estate
Re Abbott Fund Trusts [1958] Ch. 300
Case: Subscriptions constituting fund for relief of two ladies who were deaf and mute; No provision made as to disposal of surplus (controversially rationalised as a valid purpose trust because identifiable individuals who benefitted)
Decision: Subscriptions were never intended to be an absolute gift so RT of remaining fund for subscribers
Re Gillingham Bus Disaster Fund [1959] Ch 62
Case: Fund established for injured bus crash victims then to other worthy causes; Public contribution to fund comprised mainly of street collections (but also some identified subscribes); Arguable a purpose trust on Re Denley construction
Rule: General principle is that where money is held on trust and the trusts declared do not exhaust the fund it will revert to the donor or settlor under RT - “The resulting trust arises where that expectation is for some unforeseen reason cheated of fruition, and is an inference of law based on after-knowledge of the event.” per Harman J
Neville v Wilson [1996] 3 All ER 171 (CA)
Case: Shareholders of JEN (a private company, when looking at CT; is it unique property… specific property) purportedly entered into oral agreements in which JEN Ltd’s equitable interest in 120 shares in U Ltd (Private company) were to be distributed to the shareholders of JEN Ltd rateably according to their existing shareholders
Decision: CA held that the effect of each individual agreement was to constitute the shareholder ‘a constructive trustee for the other shareholders’ but did s.53(2) oust the writing requirement of s.53(1)(c)? “Just as in Oughtred v IRC the son’s oral agreement created a constructive trust in favour of the mother, so here each shareholder’s oral or implied agreement created an implied or constructive trust in favour of the other shareholders. Why then should no sub-s (2) apply? No convincing reason was suggested in argument and none has occurred to us since. Moreover, to deny its application in this case would be to restrict the effect of general words when no restriction is called for, and to lay the ground for fine distinctions in the future. With all the respect which is due to those who have thought to the contrary [Lords Denning and Cohen in Oughtred], we hold that sub-s (2) applies to an agreement such as we have in this case.” per Nourse J
Rule:
Active - so.53(1)(c) applies
Passive - is required, as B has ultimately tried to dispose of equitable interest, s.53(1)(c) applies, ergo writing is required
