The Three Certainties Flashcards
What are the three certainties for ensuring a trust is valid and enforceable?
Knight v Knight:
Intention
Subject matter
Objects
In which ways may a settlor show intention to create a trust?
Words or conduct
3C - intention - what 2 conditions must ‘words’ have in displaying intention to create a trust?
(1) The words must substantially manifest a sufficient intention to create a trust (Re Kayford)
(2) Words must be imperative rather than precatory (Lambe v Eames)
(1) The words must substantially manifest a sufficient intention to create a trust - words which are not essential or conclusive in determining settlor’s intentions?
Technical words, i.e. ‘trust’, ‘confidence’
(2) Words must be imperative rather than precatory - imperative words?
Words that impose an obligation
‘in full confidence’ usually precatory (Re Adams and Kensington)
but if coupled with an imperative ‘direction’ they become imperative (Comiskey v Bowring-Hanbury)
(2) Words must be imperative rather than precatory - precatory words? Plus 3 examples.
The words that express a mere hone or wish
Ex:
Property left at the ‘disposal’ of a spouse to deal with ‘in any way she may think best’ (Lambe v Eames)
Property given in ‘full confidence’ that the spouse would ‘do what is right as to the disposal’ (Re Adams and Kensington)
‘I wish them to bequeath (Re Hamilton)
How must words be interpreted?
In their context (Re Hamilton). It is only appropriate to interpret identical words from older cases in the same way if the whole document is worded in a similar way. In this case the earlier decision should be followed unless it’s clearly wrong (Re Steele’s Will Trust)
Will a transfer of money give rise to a trust?
Not unless it is:
1) segregated (Azam v Iqbal) or
(2) transferred for a specific purpose (Re Kayford
Will money that is paid into the overdrawn account of a company in liquidation constitute a trust?
No, it will be distributed to creditors (Moriarty v Various customers of BA Peters)
Are the words ‘I am as from today holding 4,000 shares in the company for you’ a trust or a gift?
Trust (Shah v Shah)
What is conduct?
Repeated assurances that a bank account was ‘as much yours as it is mine’ and an instruction that the money in the account was to go to the lover after death was sufficient to constitute an express declaration of trust (Paul v Constance)
Certainty of subject matter - what are the two aspects of the property that must be certain?
The trust property itself
The beneficial entitlements
What two things can property be?
Tangible (Chattels)
Tangible property must be identifiable (Re London Wine). It will be identifiable if it has been segregated (Re Goldcorp Exchange)
Intangible (i.e. dematerialised shares)
There is no requirement that intangible property be identifiable
Intangible property includes shares as long as they are shares of the same class (Hunter v Moss)
3 examples of statements that were not sufficiently clear re trust property.
‘The remaining part of what is left’ (Sprange v Barnard)
‘Anything that is left’ (In the Estate of Last)
‘The bulk of my Estate (Palmer v Simmonds)
What is beneficial entitlement?
The amount of property to which the beneficiaries are entitled must be sufficiently clear
A ‘reasonable income’ was held to be sufficiently certain (Re Golay’s Will Trust)
Where the certainty of the property depends on a conditions precedent and that condition never occurs the property will remain uncertain (Boyce v Boyce)
What 3 conditions ensure that there is no uncertainty of subject matter?
1) Trustees are given a discretion to determine beneficial interests; or
2) It is possible to apply the maxim ‘equity is equity’; or
3) The settlor lays down an effective determinant as in Re Golay
Residue of an estate is ascertainable, and therefore certain
What is certainty of objects?
The beneficiaries of a trust must be ascertainable (Morice v Bishop of Durham)
The trustees must be informed by the settlor who the beneficiaries are
Note: no requirement for the beneficiaries to be informed
The type of trust will determine the level of certainty required
Which types of trusts are covered under certainty of objects?
Fixed interest trusts, discretionary trusts.
Certainty of objects - discretionary trusts, what is it and test
Discretion is given to the trustees as to what the beneficiaries are to receive
The test ‘is / is not test’ set out in McPhail v Doulton is used
It must be possible to determine conclusively whether an individual is or is not within the class
The test has been interpreted in three different ways in Re Baden’s (no 2) and it is not clear which is the correct approach
- Sachs LJ stated conceptual certainty was required and an individual seeking to be in a class must prove he is within it
- Megaw LJ stated no conceptual certainty was required as long as a substantial number of individuals in the class are identifiable
- Stamp LJ stated all the individuals within the class must be identifiable Trusts will be void for administrative unworkability (R v District Auditor ex p West Yorkshire CC)
How large should the class of individuals be for a trustee to be able to exercise his duty? 2 examples
Not be too.
‘Friends’ is not conceptually certain enough (Re Lloyds Trust Instrument)
‘Relatives’ is conceptually certain enough (Re Baden’s Deed Trusts (no 2))
Powers of appointment - test
The ‘is / is not test’ (Re Gulbenkian’s Settlement Trusts)
A trusts for relatives who were ‘deserving material hardship’ was uncertain as ‘deserving’ could not be sufficiently clearly defined (Public Trustee v Butler)
Administrative unworkability does not apply to powers (Re Manisty’s Settlement)
‘Friends’ is not conceptually certain (Re Gulbenkian’s Settlement)
Note: an individual trust will not be treated as a power (Re Shaw)
Gifts
Gifts with a condition precedent are gifts made to a class
Where gifts are made to a class, conceptual certainty will exist if one or more individuals can be determined with that class
‘Friends’ can, therefore, be sufficiently certain for a gift (Re Barlow’s Will Trust) – anyone who could prove by any reasonable test that they had been a friend of the testatrix was entitled to exercise the object
What is constitution and what does it concern?
For a trust to be properly constituted, the trust property must be vested in the trustees. Constitution concerns the transfer of legal title
Determine what the parties are attempting to achieve and which transfer method has been attempted
What are the 3 possible methods of transfer?
Milroy v Lord;
Outright gift
Transfer on trust
Self-declaration
What are the requirements for outright gift?
Legal title must be transferred to the donee
What are the requirements for transfer on trust?
A valid declaration of trust is required, and
Legal title must be transferred to the trustee
What are the requirements for self declaration??
The settlor retains legal title and holds it on trust for the beneficiary
Constitution does not apply as there is no movement of legal title
A valid declaration of trust is required
What conditions must a valid declaration of trust satisfy?
The three certainties
Any relevant formality requirements
Note: constitution only applies to the transfer of legal title stage
Determining whether the legal title has passed at law: on what objects?
Shares, land, chattels, equitable interests, money, choses in action, cheques.
Determining whether the legal title has passed at law: shares
Three requirements for a valid shares transfer (s 1 Stock Transfer Act 1963)
The transferor must fill out a stock transfer form
The stock transfer must be sent with the share certificate to the company’s registrar
The transferee must be registered as the new shareholder
Legal title will only pass when the transferee is registered as the new owner by the registrar
Directors of a private company may refuse to register the transfer (Re Rose)
Determining whether the legal title has passed at law: land
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(1) Transfer must be by deed (s 52(1) LPA)
The deed must be signed by the grantor, clear on its face it’s a deed, attested and delivered (dated) (s 1 LP(MP)A 1989)
Endorsing the original title deed to the land will be insufficient, a separate transfer deed must be used
(2) Registration (s 27 LRA 2002)
Determining whether the legal title has passed at law: chattels
Chattels require a clear and unequivocal intention to make a gift (Glaister-Carlisle v Glaister-Carlisle) and
Delivery, either:
Actual delivery to the recipient (Re Cole), or
Delivery by deed (Jaffa v Taylor)
Determining whether the legal title has passed at law: equitable interests
The transfer of an equitable interest must be in signed writing (s 53(1)(c) LPA 1925)
Determining whether the legal title has passed at law: money
Actual delivery required
A cheque will not constitute delivery until it has cleared
Determining whether the legal title has passed at law: choses in action
Requires writing and notice to the debtor (s 136 LPA 1925)
Determining whether the legal title has passed at law: cheques
Cheques require endorsement by the transferor (Bills of Exchange Act 1882)
Endorsement requires that the transferor sign his name on the back of the cheque; a mere declaration of a gift of a cheque will not suffice (Jones v Lock)
Title passing at equity: what equity will NOT do
Generally equity will not perfect a transfer that has not met the necessary formal constitutional requirements (Milroy v Lord) according to the equitable maxims that equity will not (apply each of these to the facts):
(1) Perfect an imperfect gift (Richards v Delbridge)
(2) Equity will not treat a failed gift or failed transfer as a declaration of trust (Jones v Lock)
Jones Lock – J declared he was going to give a check to his baby but died without endorsing the cheque. No transfer and not a self-declaration of trust
Richards v Delbridge – Grandfather declared that the deed to a leasehold property belong to a minor before dying but didn’t assign by a separate deed – no trust
(3) Assist a volunteer; someone who has provided no consideration
Exceptions to equity not perfecting transfers that have not met the necessary formal constitutional requirements
The rule in Re Rose, Unconscionability, fortuitous vesting, donatio mortis causa, the rule in Choithram v Pagarrani, Proprietary estoppel
What is the rule in Re Rose
The transferor must have:
(1) Used the correct method of transfer
(2) Done ‘everything within his power’ to effect the transfer
The following meant the transferor had not done everything in his power:
Failing to obtain Treasury’s consent (Re Fry)
Failing to hand over the share certificates (Zeital v Kaye)
(3) Put the matter completely beyond his control
Giving all relevant documentation to the donee or the donee’s agent will suffice (Mascall v Mascall)
Giving the documentation to one’s own agent will not suffice unless the transferor has acted in such a way or to such an extent that it would be ‘unconscionable’ to deny the transfer (Pennington v Waine)
The rule applies to transfers of land (Mascall v Mascall)
Re Rose about share transfers
Unconscionability
(Pennington v Waine)
A gift or declaration will be perfected where it would be unconscionable to deny its operation (Pennington v Waine)
Unconscionability has not been defined but see how close it is to the facts of Pennington v Waine
Transferor made an assurance to the transferee that he would become the director of a company, that she would transfer him shares and that he needed to take no further action. The transferor signed the stock transfer form, gave it to her agent and the transferee took on the responsibilities of being a director. Held: it would be unconscionable to allow the transferor to change her mind
Unconscionability will likely require:
- An assurance or representation by the transferor to the donee that nothing more need to be done, and
- Detrimental reliance by the donee on that assurance or representation
Fortuitous vesting
(Strong v Bird)
The donor intends to make a gift during his lifetime but fails to vest the legal title in the donee, the gift may be perfected if legal title fortuitously becomes vested in the donee
The rule applies to gifts (Re Stewart) where:
(1) The donor intends to make an immediate gift (Re Freeland)
An intention to make a future gift not sufficient.
Re Freeland – said she would give car to a friend but allowed another to use it in the meantime, not immediate
(2) The donor’s intention remains unchanged until his death (Re Gonin)
(3) The donee obtains legal title to the gift as the executor (or one of several executors) (Re Stewart) or as administrator (Re James) of the donor’s estate
Where all three of the requirements are fulfilled, legal title will be perfected where a trustee obtains legal title by any legitimate means
Rule in Strong v Bird extended by analogy to trusts (Re Ralli)
Donatio mortis causa
Cain v Moon states a gift made on contemplation of death will be valid if it is:
(1) Made in contemplation of imminent death
(2) Conditional on the donor’s death
It will be valid if the donor survives
(3) The donor makes actual or constructive delivery of the property to the donee
Constructive delivery requires handing over of control of the property to the donee
For chattels this requires handing over the means of obtaining the chattel, i.e. keys to a box containing the chattel
For choses in action this requires handing over the indicia of title, i.e.
For a house the title deeds must be handed over (Sen v Hartley – keys to a box containing deeds sufficient)
A savings account requires that the bank deposit book (Birch v Treasury Solicitor) or savings account book (Re Weston) is handed over
Cheques cannot be the subject matter of a donation causa (Re Beaumont) unless they are actually delivered, in which case there is no requirement that it is endorsed (Re Mead)
The rule in Choithram v Pagarani
An imperfect gift to a beneficiary of a trust will vest in the trustee of the trust where:
The owner himself is one of several trustees of the trust, and
He has manifested an intention to make a transfer of property to the trust
Proprietary estoppel
Occasionally used to give effect to imperfect gifts (Gillett v Holt)
Requires an assurance, and detrimental reliance so that it would be unconscionable to go back on the assurance
What types of transactions are possible using formalities?
(1) Declaration of trust
- Testamentary (in wills) trusts
- Trusts of land
- Inter-vivos declarations of trust
(2) Disposition of a subsisting equitable interest
There are four ways in which a beneficiary can dispose of his equitable interest (Timpson’s Executors v Yerbury)
- Direct assignment to a third party
- Directing the trustees to hold the property on trust for the third party / transfer on trust (Re Chimes)
- Contracting for valuable consideration (i.e. selling the interest)
- Self-declaration of (sub) trust
(3) Disclaiming a beneficial interest
Lifetime (inter-vivos) declarations of trust
Words and / or conduct will suffice (Paul v Constance) unless writing is specifically required
Case that goes with no formalities being required for implied trusts?
Hodgson v Marks
How will an interest be subsisting?
If before the disposition legal and equitable ownership have been separated. It, therefore, applies where a beneficiary wishes to transfer his equitable interest in a trust to someone.
Case for 4 ways of disposing of an equitable interest?
Timpson’s Executors v Yerbury
General rule for transfer on trust
it must be in writing and signed by the disponor at the time of the disposition (s 53(1)(c) in Grey v IRC)
3 exceptions to the general rule for transfer on trust
Exception 1: In Grey v IRC a later confirmatory deed intended to confirm what had already been granted orally was interpreted as a transfer deed by the court
Exception 2: where an absolutely entitled beneficiary instructs a trustee to transfer legal title to a third party with the intention that the equitable title should also pass, then the legal title and the equitable title pass together, an oral instruction will suffice and s 53(1)(c) does not apply (Vandervell v IRC)
The legal estate will carry the equitable interest with it
Exception 3: The disposition of the equitable interest in shares of a public company
Under s 38(5) Uncertificated Securities Regulations 2001 s 53(1)(c) does not apply to dispositions of the equitable interest in the shares
Exception to general rule for contract to assign?
where the contract is specifically enforceable (Neville v Wilson). This means that the interest is held on constructive trust for the assignee. There are no formality requirements for a constructive trust (s 53(2)) so there is no requirement for writing
What is the Hayton Theory?
Where the beneficiary of an existing trust declares themselves trustee of their beneficial interest for another, the formalities will depend on whether the original beneficiary retains any active duties
If he has no active duties the new trust will be a bare trust (the individual is absolutely entitled to the capital and income) (Grainge v Wilberforce; Re Lashmar)
Where the beneficiary retains active duties in the trust or declares a trust over part of his equitable interest (Onslow v Wallis) this is likely to be treated as a declaration of a new trust so s 53(1)(c) won’t apply
What is the Penner theory?
The original beneficiary can never drop out of the picture so s 53(1)(c) should never apply (Zeital v Kaye)
What is the Green theory?
A declaration of sub-trust will always constitute an effective disposition of an equitable interest so s 53(1)(c) should always apply (Nelson v Greening and Sykes)
How may one disclaim a beneficial interest?
If a beneficiary does not want his beneficial interest he may disclaim it without any requirement for writing as it does not constitute a disposition.
Two requirements must be met (Re Paradise Motor Co)
The beneficiaries intention to disclaim must be clear, and
The beneficiary must be aware of the subject matter which is disclaiming
