Trusts arising by operation of law

Question 1

Resulting trusts

Answer 1

Property is held on trust for the person who transferred it or contributed to its acquisition.

Question 2

Three situations in which resulting trusts arise

Answer 2

(1) Where a transfer on trust wholly or partially fails but the property has been transferred to the trustee
(2) Where a person gratuitously transfers property to another person
(3) Where a person pays all or part of the purchase price for an asset
- The trust in (1) is called an ‘automatic’ resulting trust.
- The trusts in (2) and (3) are called ‘presumed’ resulting trusts.

Question 3

Automatic resulting trusts

Answer 3

• arise where there has been some sort of failure in the creation of a transfer on trust.
• they are effectively a default position which returns the beneficial interest to the settlor, giving them Saunders v Vautier rights and thus the ability to collapse the trust and either retain the property or re-attempt the intended express trust.
• e.g. if a trust fails for uncertainty of objects, uncertainty of subject matter, non-compliance with the beneficiary principle, if a non-charitable purpose does not fall within a recognised exception

Question 4

Failed attempts to create an express trust that will not produce a resulting trust

Answer 4

• If the trust fails to due lack of constitution (i.e. legal title has not passed to the trustee) there is nothing to result back to the settlor. They already have the property. If an implied trust is to arise in this situation it will be a constructive trust which perfects the failed trust.
• Even if a trust has been validly created, it may still fail subsequently, e.g. if it overruns the perpetuity period and has still not vested and there is no gift-over, if a non-charitable purpose trust can no longer be carried out and there is no gift-over; in both cases, the property is held on a resulting trust for the settlor’s estate.
• A self-declaration of trust which fails for uncertainty of objects or subject matter will simply have no effect.
• A testamentary trust which fails for uncertainty of objects or subject matter will be void.
• If property is left to an individual in a will, and it is concluded that there is insufficient certainty as to whether they are intended to be a trustee, the effect of the provision will be a straightforward gift to that individual.
• The position is more complicated if the legal owner of property transfers that property to a third party during their lifetime and it is concluded that there is no intention to create an express trust. If there is evidence that the transferor intended a gift, then that is the effect of the transfer. If there is no such evidence, it is likely that there will be a resulting trust but it will be properly categorised as a presumed resulting trust.

Question 5

Presumed resulting trusts

Answer 5

• Presumed resulting trusts arise in situations where a transfer is gratuitous and there is no evidence that the transferor intended the recipient to receive the property as a gift. They arise by way of a presumption that the transferor or contributor intended to create a trust.
• The presumption can be rebutted by evidence that the transferor or contributor’s actual intention is inconsistent with the creation of a trust.
• Another situation in which a presumed resulting trust will arise is where, rather than transferring an existing asset to someone else, a person pays all or part of the purchase price for a new asset, e.g. A purchases shares and has them registered in B’s name. As with the previous examples, B will hold the shares on resulting trust for A unless it can be shown that this was not A’s intention
• The analysis is more complicated in situations where the purchase price for an asset is provided by more than one person. There are two situations to consider here:
  (1) A and B both contribute towards the purchase price of an asset but B becomes the sole legal owner.
  (2) A and B both contribute towards the purchase price of an asset. A contributes more than B but they become joint legal owners of the asset.
• Again, in the absence of evidence to the contrary, a presumed resulting trust will determine A and B’s respective equitable interests. Regardless of how legal title is held, A and B will be treated as having equitable interests which reflect their respective contributions to the purchase price.

Question 6

Most common type of presumed resulting trust

Answer 6

• Situations involving joint ownership of land
• Legal title to land can only be held (i) by a sole legal owner or (ii) up to four legal owners as joint tenants.
• This means that the legal ownership of the land may not reflect the intended beneficial ownership. Joint legal owners will therefore often hold the land on trust for themselves, with their equitable interests reflecting the true beneficial ownership of the land.
• It is preferable to declare an express trust over the land which makes the beneficial entitlement clear. In the absence of an express trust, an implied trust may arise to determine the equitable ownership
• Presumed resulting trusts are not used to determine beneficial entitlement to land acquired jointly as a family home. Such cases involve the use of common intention constructive trusts.

Question 7

Constructive trusts

Answer 7

‘A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property […] to assert his own beneficial interest in the property and deny the beneficial interest of another.’

Question 8

3 most common constructive trust situations

Answer 8

(1) Institutional constructive trusts
(2) Election of constructive trusts as remedy
(3) Common intention constructive trusts

Question 9

(1) Institutional constructive trusts

Answer 9

• arise automatically in response to a particular event.
• e.g.:
• (a) Constructive trusts imposed to prevent fraud
• (b) Constructive trusts imposed to perfect an imperfect gift or trust
• (c) Constructive trusts imposed to compel parties to perform a specifically-enforceable contract (known as ‘vendor-purchaser constructive trusts’)
• (d) Constructive trusts imposed over profits made in breach of fiduciary duty

Question 10

(1) Institutional constructive trusts - (a) Prevention of fraud

Answer 10

• Constructive trusts arise to correct unconscionability. This means that they will be automatically imposed in situations where the legal owner of property fraudulently attempts to deny a third party’s beneficial interest.
• A common example is the situation where a legal owner of property tries to rely on non-compliance with statutory formalities to deny the existence of a trust.
• There are a number of well-established categories of constructive trust which affect the operation of a will and result in trusts which do not strictly comply with s 9 Wills Act 1837.
• The other statutory provision which a legal owner might seek to use as an ‘instrument of fraud’ is s 53(1)(b) LPA 1925.
• As a basic rule, a trust of land which is not evidenced in signed writing will be unenforceable. However, this can result in situations where property has been transferred into the hands of an intended trustee, who seeks to use non-compliance with s 53(1)(b) to deny the intended beneficiary’s interest.
• In such cases, a constructive trust may arise which does not require such signed writing (s53(2) LPA 1925).

Question 11

(1) Institutional constructive trusts - (b) Perfection of imperfect gifts or trusts

Answer 11

• involves an intended gift or transfer on trust which has not been properly constituted.
• As a basic rule, a failure to properly vest legal title in an intended donee will render the gift ineffective. Similarly, an intended transfer on trust is not properly constituted (and therefore void) unless and until the settlor transfers legal title to the intended trustee.
• Equity will therefore not treat an intended gift or transfer on trust as a self-declaration of trust in order to perfect the imperfect transaction. This is known as the rule in Milroy v Lord.
• However, there some exceptions to the rule in Milroy v Lord which involve equity treating the transaction as effective before the transfer of legal title has been completed. Broadly, these will apply where the transferor does everything in their power to effect the transfer, at which point it becomes unconscionable for the settlor or donor to resile from the transaction. In such cases, the transferor will hold the property on a constructive trust for the intended transferee pending the completion of the legal transfer.

Question 12

(1) Institutional constructive trusts - (c) Vendor-purchaser constructive trusts

Answer 12

• when parties enter into a specifically-enforceable contract. The most common examples are contracts for the sale of land or for the sale of shares in a private company.
• the product of the specifically-enforceable contract and the equitable maxim that equity treats as done what ought to be done. As the vendor ought to transfer the property to the purchaser, equity regards them as having done so. The vendor becomes a trustee for the vendee.

Question 13

(1) Institutional constructive trusts - (d) Breach of fiduciary duty

Answer 13

• The receipt of profits in breach of fiduciary duty; breaches of the no-profit rule give rise to a constructive trust.
• The imposition of a constructive trust in such cases can be very useful to the principal because it gives them a proprietary right.
• This satisfies the Re Diplock requirements for equitable tracing (i.e. a fiduciary relationship and an equitable proprietary interest) and the principal can therefore trace into substitute property representing the unauthorised profit.

Question 14

(2) Election of constructive trusts as remedy

Answer 14

• If a claimant can identify the traceable proceeds of a breach of trust or fiduciary duty they can elect between (i) a personal claim or (ii) a proprietary claim against the asset itself.
• The choice of proprietary claim will depend on the circumstances but in some cases the claimant will wish to assert (i) beneficial ownership of the asset (if it has been acquired using exclusively the claimant’s money) or (ii) a proportion of that asset (if it has been acquired using a mixed fund).
• By asserting beneficial ownership, the claimant asks the court to declare that the asset is held on constructive trust for them.
• The claimant has an equitable proprietary right throughout the tracing process. The constructive trust is just the means of asserting that right at the end of the process.

Question 15

(3) Common intention constructive trusts

Answer 15

• Much of the law in this area has arisen in cases involving disputes over land occupied as a family home by unmarried couples.
• Two scenarios, both of which involve the claimant seeking to argue that, despite the absence of an express trust over the property, the legal ownership of the land does not reflect its true beneficial ownership:
  (1) The land is registered in the sole name of the defendant but the claimant is seeking to establish that they also have an equitable interest in that land.
  (2) The land is registered in joint names but the claimant argues that they are entitled to a share of the land worth more than 50%
• In both cases, the common intention constructive trust is imposed to reflect the shared intention of the parties, based on their conduct in respect of the shared home. It is a very flexible form of trust, which takes into account all the circumstances of the case.

Question 16

Constitution

Answer 16

• Constitution refers to the transfer of legal title from one party to another.
• A transfer on trust requires the legal title in the property to be vested in the trustees. This is known as ‘constituting’ the trust.
• Transfer of legal title is also required for a gift to be made from a donor to a donee.
• A self declaration of trust does not require any movement of the legal title as legal title to the property is already vested in the settlor. This means that the trust is automatically constituted when the trust is declared.

Question 17

Testamentary v lifetime constitution

Answer 17

• If a trust is created in a will (a testamentary trust) then constitution will take place via the will. After the death of the testator, their personal representatives must obtain legal title to the testator’s estate.
• When they are ready to distribute the estate, the personal representatives must ensure that legal title is transferred to the recipients of any testamentary gifts and the trustees of any testamentary trusts.
• In a lifetime trust (also known as an inter vivos trust), legal title must be transferred using the correct method. This will vary depending on the trust property.

Question 18

Transferring legal title

Answer 18

• Registered Land transfers must be made by deed under s 52(1) LPA 1925 and registered with the Land Registry under s 27 LRA 2002. Legal title passes on registration.
• Shares in a private company are transferred by the transferor signing a stock transfer form and sending it with the share certificate to the Company’s registrar (s 1 Stock Transfer Act 1963). Legal title passes on registration.
• Choses in action (eg debts and money in a bank account) are transferred by notice in writing to the debtor or to the bank (s 136 LPA 1925). Legal title passes once notice has been received.
• Chattels (including physical cash) may be transferred either (i) by deed of gift or (ii) by delivery of the chattel with evidence of the transferor’s intention to transfer it (Re Cole)
• Cheques (and other bills of exchange) in favour of the transferor may be transferred to a third party (i.e. someone other than the named payee) by the transferor endorsing the cheque by signing their name on the back according to the Bills of Exchange Act 1882

Question 19

Effect of constitution

Answer 19

• The effect of constitution is that the disposition is irrevocable.
• Once a trust is constituted the settlor ceases to have any beneficial or legal interest in the trust property.
• The same is true of gifts. Once the donee has legal title, the donor has no more rights to that property and cannot ask for it to be returned.

Question 20

Failed constitution

Answer 20

• If trust property is not vested in the trustees, the trust is incompletely constituted and is therefore void.
• In the case of a gift, if legal title has not passed to the donee, the gift is imperfect and the donor can change their mind.
• Usually no consideration is given in the creation of a trust and so the beneficiary of a trust and the recipient of a gift are both volunteers. ‘Equity will not assist a volunteer’ by compelling the settlor/donor to transfer legal title to the trustee/donee.
• The leading case on constitution is Milroy v Lord establishing that ‘equity will not perfect an imperfect gift’ or treat a failed gift as a self-declaration of trust.

Question 21

Milroy v Lord

Answer 21

• FACTS: The settlor intended to transfer shares to Lord to be held on trust for the Claimants. The settlor completed a voluntary deed but did not comply with the correct method for the transfer of legal title in the shares.
• In order to transfer legal title to the shares and properly constitute the trust, it was necessary to complete the appropriate transfer form and send it to the company registrar who would then register the new owner. Instead, the settlor simply handed the share certificates to Lord (i.e. the intended trustee). The settlor died several years later and there was a dispute as to the ownership of the shares.
• HELD: The trust was not constituted, despite the settlor’s intention to create one, as legal title to the shares had not vested in Lord. The settlor had not completed the process of transferring legal title and Equity would not treat him as if he had.

Question 22

The Rule in Milroy v Lord

Answer 22

Three methods of transferring property:

(1) An outright gift
(2) A transfer on trust
(3) A self declaration of trust
- the transferor must do “everything necessary” to effect the intended disposition by following the correct method for transferring legal title.
- If they fail to do so, equity will not perfect the disposition.
- If a donor intends to make a gift but fails to transfer legal title, they will not be treated as having made a self-declaration of trust. The transferor did not intend to take on the obligations of trusteeship and should not be treated as having done so.
- Similarly, if a settlor fails to constitute a transfer on trust, they will not be interpreted as holding the trust property for the intended beneficiary.

Question 23

Jones v Lock

Answer 23

FACTS: A father returned from a business trip without a gift for his baby. He produced a cheque for £900 payable to himself and putting it into his son’s hands said: “I give this to baby; it is for himself”. He put the cheque in a safe saying it was put away for his son. He died shortly afterwards. As he had not endorsed the cheque, legal title to it had not transferred to the son.

HELD: The court rejected the argument that he had declared himself a trustee of the cheque. It was clear that he had intended an absolute gift. The £900 could not be transferred to the baby and passed to his estate under the will.

Question 24

Richards v Delbridge

Answer 24

FACTS: A grandfather wanted to assign a lease to his grandson who was a child at the time. He endorsed the lease with a memorandum stating: ‘This deed and all thereto belonging I give to Edward from this time forth.’ He later died. Endorsement on the lease was ineffective to assign the lease. It was necessary to use a separate deed. The gift had therefore not been validly constituted.

HELD: As in Jones v Lock, the grandfather had intended to make an outright gift and so, applying the rule in Milroy v Lord this could not be treated as a self declaration of trust.

Question 25

Constitution and certainty of intention

Answer 25

• Constitution is intrinsically linked with certainty of intention.
• If legal title to property has not been transferred to a trustee (for a transfer on trust) or to a donee (for a gift), the court needs strong evidence that the owner intended to declare themselves a trustee. The court must be satisfied that the owner intended to take on the onerous obligation of trusteeship and divest themselves of beneficial ownership.

Question 26

Choithram v Pagarani

Answer 26

FACTS: A businessman decided to establish a charitable trust, appointing himself as one of a number of trustees. The trust was validly established by deed. The settlor orally declared that he held all his estate on trust for the charity but did not transfer legal title to some of his shares into the joint names of his co-trustees, meaning he remained the sole legal owner of those shares on his death. The court therefore needed to determine whether the shares were held on trust for the charity or if they passed under his will.
HELD: The fact that the settlor had not transferred legal title to all the trustees did not prevent the shares being held on the terms of the trust. This was because he was one of those trustees and it would be ‘unconscionable’ for him to deny that the shares were subject to the trust.

Question 27

Exceptions to the rule in Milroy v Lord

Answer 27

(1) Principle in Re Rose
(2) Fortuitous Vesting
(2) Donationes Mortis Causa

Question 28

Fortuitous Vesting

Answer 28

• In some cases a failure to perfect the intended recipient’s title may be cured if they obtain legal title through another route. This exception is called fortuitous vesting.
• This will usually occur because the intended recipient of a gift is also the personal representative of the transferor’s estate.

Question 29

Origins of Fortuitous Vesting - Strong v Bird

Answer 29

FACTS: Bird had borrowed money from his step-mother. He had agreed to repay her by instalments. He paid two instalments but she then orally agreed to forgive the debt. An oral release of debt is ineffective at law and so on her death Bird still owed her estate the money. On her death, Bird was appointed executor of her estate.
HELD: ​The debt was released at common law by Bird’s appointment as executor because, as the legal owner of the estate, he was both creditor and debtor. But this did not prevent equity from enforcing the debt. ​
However, Jessel MR held that equity would not enforce the debt if the creditor appointed the debtor as their executor and had manifested an unchanged intention during their lifetime to forgive the debt.

Question 30

Extension of the rule in Strong v Bird

Answer 30

• Re Stewart extended the principle in Strong v Bird to perfect imperfect gifts.
• This case also confirmed that Strong v Bird will apply even if the intended recipient is one of several executors.
• The following conditions must be met:
  (1) There must be an intention to make an immediate gift (Re Freeland)
  (2) The intention must continue until the donor’s death (Re Gonin)
  (3) The intended donee becomes an executor (or one of the executors) of the donor’s estate (Re Stewart)

Question 31

Extension of the rule in Strong v Bird - Requirement (1) An immediate gift

Answer 31

Re Freeland
FACTS: The Claimant, Mrs Jackson claimed that Mrs Freeland had given her a Hillman motor car. As the car was not in running order, Mrs Freeland agreed to give it Mrs Jackson when it was back on the road. Several months later, Mrs Freeland wrote to her saying that she had lent the car to another friend (Mrs Rodgers) for a few months but that she was not going back on her word to let Mrs Jackson have it. Mrs Freeland died having appointed Mrs Rodgers and Mrs Jackson as her executors.
HELD: There was no intention to make an immediate gift to Mrs Jackson. It follows that the gift must also relate to existing, not future (or later acquired) property.

Question 32

Extension of the rule in Strong v Bird - Requirement (2) Continuing intention

Answer 32

• In Re Gonin a mother intended to pass her house to her daughter but incorrectly developed the belief that she could not transfer the house to her. She therefore wrote a cheque for £33,000 in favour of her daughter in lieu of transferring the house.
• The mother died without a will (intestate). The daughter was appointed as administrator of the mother’s estate and attempted to claim the house under the rule in Strong v Bird.
• By writing the cheque, the mother had changed her intention and so there was no continuing intention to give the house.

Question 33

Extension of the rule in Strong v Bird - Extension to administrators

Answer 33

• If a person dies without making a will, they are said to die intestate. On their death, an administrator is appointed by the court in order to administer their estate.
• In Re James, the rule in Strong v Bird was held to apply where the donee was appointed administrator.

Question 34

Donationes Mortis Causa

Answer 34

• A gift made in contemplation of death (traditionally known as a ‘donatio mortis causa’ or ‘deathbed gift’)
• This exception is utilised in circumstances where a person contemplates their imminent death and wishes to leave their property to another person but does not have time to execute a will. They may also not have time to effectively transfer legal title and if they don’t know when they are going to die, they might not want to part with the property just yet.
• It is an anomalous exception which only applies in very specific circumstances i.e. where the donor does not have time to make a valid lifetime disposition or create a valid will transferring the property to the intended recipients. They also must comply with strict conditions.

Question 35

Conditions for valid Donationes Mortis Causa

Answer 35

(1) The gift is made in contemplation (though not necessarily expectation) of death from an identifiable cause which the donor believes to be imminent (King v Dubrey)
(2) The gift is conditional on death (i.e. it is not intended to be fully effective until then and can be revoked before death)
(3) There is delivery of the property; the donor must part with ‘dominion’ (control) of the property by handing it, or something which represents title (not simply possession) to the donee (Sen v Headley)

Question 36

Donationes Mortis Causa - King v Dubrey

Answer 36

• It was argued that an elderly woman had made a deathbed gift of her home to her nephew 4-6 months before she died. She also attempted to gift the home to him in a number of invalidly executed wills.
• The Court of Appeal held that she had no reason to anticipate dying immediately. The gift had not been made in contemplation of death. Moreover, the fact that she had made subsequent wills was inconsistent with the idea that she had already disposed of her property.

Question 37

Donationes Mortis Causa - Delivery and passing of dominion

Answer 37

• In the case of a chattel, delivery (with intention) is sufficient to pass title to the donee and they will be entitled to keep the property after the donor’s death. However, for other types of property (such as land, shares or bank accounts) more must be done to transfer title.
• A valid DMC does not require full transfer of legal title provided the donor parts with control (‘dominion’) of the property
• Passing of dominion can also be constructive as Sen v Headley illustrates:
  FACTS: A man dying from terminal cancer told his friend that his house was hers, giving her the keys to a steel box which contained the title deeds to the house.
  HELD: The Court of Appeal held that there was a valid DMC of the house by constructive delivery of the title deeds via the keys to the steel box. The fact that she had keys to the house would not alone be enough as this represents a right of access rather than ownership.

Question 38

Milroy v Lord exceptions: Re Rose

Answer 38

• Following Milroy v Lord the general rule is that equity will not perfect an imperfect gift. This means that a disposition will fail unless legal title has been vested in the intended recipient. According to Turner LJ the owner must do: “everything necessary to be done”.
• This has subsequently been interpreted to mean that the transferor must do everything within their own power to transfer legal title.
• In Re Rose, CoA held that a transfer of shares was effective in equity once the transferor had done “everything in his power” to vest the shares in the transferees.

Question 39

Re Rose

Answer 39

• FACTS: Two transfers of shares were executed by Mr Rose on 30 March 1943: One by gift to his wife and the other to trustees to be held on trust for his wife and son. The transfers needed to have been effected before 10 April 1943 if estate duty was to be avoided on Mr Rose’s death in 1947. The transfers and share certificates were delivered to the company registrar but were not registered until 30 June 1943. Legal title to the shares did not therefore pass until 30 June 1943 and so after the key date of 10 April 1943
• ISSUE: Could equity intervene and hold that the equitable title had passed to the transferees prior to 10 April 1943 to avoid the payment of estate duty?
• HELD: The Court of Appeal held that no estate duty was payable. The transfers were effective in equity when Mr Rose had delivered the correct transfer documentation to the Company registrar.
• This case established that Mr Rose held the legal title on constructive trust for the recipients (pending registration of legal title). At this point, the intended transferees had the equitable interest. They were found to hold the equitable interest because:
  (a) The correct method of transfer had been used
  (b) The transferor had done everything within his own power to effect the transfer (when he sent the documentation to the Company registrar)
  (c) The documentation ended up in the hands of the person capable of effecting the legal transfer (in this case, the company’s Registrar)

Question 40

Extension of Re Rose: Mascall v Mascall

Answer 40

• the Re Rose principle was applied to the gift of registered land from a father to his son. The father handed the son the signed transfer deed and land certificate, which was sent by the son’s solicitors to the Stamp Office. The father and son quarrelled and the father wanted to revoke the gift. The transfer had not yet been registered and so legal title had not yet passed.
• Applying Re Rose:
  (a) The correct method of transfer had been used (a signed transfer deed).
  (b) The father had not done everything within his power to effect the transfer because he had not sent the transfer deed and land certificate to the Land Registry. Was giving them to the son enough?
  (c) The documentation had therefore not ended up in the hands of the person capable of effecting the transfer.
  HELD: the gift was complete in equity and so could not be revoked by the father. The fact that the documents had not yet been sent to the Land Registry did not prevent the gift being complete in equity. By sending the documents to his son, the father had given the intended transferee everything he needed to complete the transfer for himself
  -established that is not necessary for the transferor to send the documents to the person capable of completing the transfer.

Question 41

Main principle to remember for the Re Rose exception

Answer 41

If the correct method of transfer has been used, the transfer will be irrevocable if the transferor puts the matter beyond their own control. (In Mescall v Mescall, by giving the documentation to the son, the father had put the matter beyond his own control and the gift was therefore irrevocable.)

Question 42

Re Rose: Putting matters beyond control of transferor

Answer 42

• if the transferor had sent the documents to their own agent, such as their solicitor or their accountant, that would not be sufficient as agency is revocable.
• Re Fry offers an example of a situation where the matter was within the control of the transferor. The transfer of shares required consent from the Treasury because the transferor was domiciled abroad. This was not obtained before the transferor’s death and so the transferor was ineffective.
• A further example can be found in Zeital v Kaye. Here the owner of an absolute equitable interest in a shareholding had not done everything in his power to transfer his interest when he handed over the stock transfer form signed by the registered shareholder but not the share certificate.

Question 43

Pennington v Waine

Answer 43

• Under the principles in Re Rose and Mascall v Mascall, the transfer documents must either have been sent off for registration or delivered to the donee in order for the disposition to be irrevocable.
• In Pennington v Waine, the transfer documents remained with the transferor’s own agent. Despite this, the Court of Appeal indicated that equity would perfect an imperfect gift in any situation where it would be unconscionable for the donor to resile from it.
• Ada should have done all in her power to transfer ownership of shares to Harold. However:
  (a) she had not given the documents to the Company Registrar;
  (b) she had not given the documents to Harold or his agent.
• Arden LJ said that there could be no comprehensive list of factors that make it ‘unconscionable’ for the donor to change his mind. It was relevant that:
  (a) Ada made the gift of her own free will
  (b) She told Harold about the gift and signed the transfer form which she gave to Mr Pennington to secure registration
  (c) Mr Pennington told Harold he need take no further action
  (d) Harold agreed to be director, which he could not do without holding a share
  (e) Ada had countersigned the form of consent for Harold’s directorship

Question 44

When can Pennington v Waine be applied?

Answer 44

• Obiter comments suggest it will only be followed where the facts are similar to Pennington itself. The decision may be better explained by the doctrine of proprietary estoppel.
• Proprietary estoppel arises if there is:​
• (1) an assurance (Harold was assured that Ada would give the shares to Harold)
• (2) reliance (Harold relied on this assurance by becoming a director)​
• (3) detriment (He took on the burdens of directorship)​
• ​In such cases, the court has a discretion to award the remedy which it considers most appropriate. Thus, unlike the rule in Re Rose, a proprietary estoppel does not necessarily give rise to a constructive trust.​

Question 45

The effect of failing to comply with s53(1)(b) LPA 1925

Answer 45

• Section 53(1)(b) LPA 1925 provides that “a declaration of trust respecting any land…must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will”.
• The trust will be unenforceable unless and until s53(1)(b) is satisfied.
• “Some writing”: There is no prescribed form for the written evidence. All that is needed is something in writing which provides evidence of:
• The settlor’s intention to create the trust
• The terms of the trust
• “Signed by some person who is able to declare such trust”: Although the signature will usually be that of the settlor, it is arguable that the trustee (being the legal owner) can also provide the written evidence. This point is not settled and it is preferable to seek directions from the court in situations where the trustee considers doing so.
• “By will”: Section 53(1)(b) expressly provides for the possibility that a trust of land is created by will. As long as the will is validly executed i.e. complies with s 9 Wills Act 1837, this will be sufficient to satisfy s 53(1)(b).

Question 46

Unenforceable trusts

Answer 46

• s53(1)(b) is an evidential requirement. Non-compliance renders the trust unenforceable rather than void.
• An unenforceable trust exists from the moment it is declared but the beneficiary cannot enforce their rights unless and until s53(1)(b) is satisfied.
• A void trust does not come into existence at all.
• Once the trust becomes enforceable the beneficiaries can enforce their rights in respect of the period between declaration and satisfaction of s53(1)(b).
• e.g. a life interest trust of land which is declared in January but evidenced six months later, in June: The life tenant is entitled to the income produced by the land between January and June.

Question 47

Failure of formalities

Answer 47

• If the formalities are never satisfied, the trust will simply not become enforceable. This gives the settlor an opportunity to change their mind about parting with beneficial ownership of the property.
• In the absence of any facts rendering it unconscionable for the settlor to deny the existence of the trust (such as a proprietary estoppel claim) the beneficiary will not be able to assert any interest in the land.
• If the settlor changes their mind about a gratuitous transfer on trust, and makes no attempt to constitute it, the trust will not only be unenforceable for non-compliance with s 53(1)(b) but also void for lack of constitution.
• The position is more complicated in cases where there has been a legal transfer of the land but no evidence satisfying s 53(1)(b) LPA 1925.
• Rochefoucauld v Boustead: The court recognised the intended express trust despite the lack of formalities
• Bannister v Bannister: The court recognised a constructive trust over the land (which is exempt from s 53(1)(b) by virtue of s 53(2) LPA 1925)
• Hodgson v Marks: The court recognised a resulting trust over the land (which is also covered by s 53(2) LPA 1925)

Question 48

Rochefoucauld v Boustead

Answer 48

FACTS: The claimant mortgaged land, which the mortgagee then sold to the defendant on the basis of an oral agreement that the defendant would hold it on trust for the claimant.
HELD: The defendant could not rely on the lack of writing to deny the existence of the trust as this would be using the Statute of Frauds 1677 as an instrument of fraud. The court therefore enforced the trust on the basis of the evidence of the oral declaration.

Question 49

Bannister v Bannister

Answer 49

FACTS: The defendant sold a cottage to the claimant on the faith of an oral agreement that the claimant would hold it on trust for her, and allow her to continue living there rent free, for the rest of her life. The parties subsequently quarrelled and the claimant tried to evict the defendant.
HELD: the claimant held the cottage on constructive trust for the defendant. To hold otherwise would be to allow the defendant to use the statute as an instrument of fraud.

Question 50

Hodgson v Marks

Answer 50

FACTS: An elderly widow transferred her house into the name of her lodger on the basis of an oral understanding that the lodger would hold the house on trust for the widow, with the living arrangements remaining the same. The lodger then sold the house to a third party purchaser, who sought to evict the widow. During the course of the sale negotiations, the purchaser visited the house on one occasion. He saw the widow but did not query who she was or what interest she had in the house.
HELD: The land was held on a resulting trust for the widow. It was analysed as an automatic resulting trust on the basis that the express trust had failed. Although the purchaser did not have knowledge of the trust the widow was in actual occupation. She had an overriding interest and the purchaser therefore acquired the land subject to the trust.

Question 51

Failure of formalities: three party situation

Answer 51

what happens if either:

• the trustee seeks to deny the existence of the trust and keep the property for themselves?
• the settlor seeks to deny the existence of the trust and requests the return of the property?
• In these situations, it would be best to seek directions from the court.