Week 2- Formality rules Flashcards
What does the Law of property act s53 s(1)(a) and (b) dictate?
S53(1)(a)-No interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law.
Law of property act 1925 s53(1)(b):
“a declaration of trust respecting the any land, or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will”.
As per s53(2), this applies only to express trusts, and “do not affect the creation or operation of resulting, implied, or constructive trusts”- further to this they apply to lifetime and testamentary (will-created) trusts, but usually cases are concerned with lifetime (inter vivos) trusts and dispositions of property.
What are formality rules and how do they differ to requirements?
What purpose do they serve?
Formality rules play evidentiary and cautionary roles, guiding and outlining the process towards an end goal, whereas requirements are constitutive and determine a subsequent transaction/ end goal.
Formality rules, especially in the context of land conveyance, have a cautionary purpose, in that they advert the parties to the importance of the transaction which they wish to engage in, and ensure they give due consideration to what they’re doing. The evidential role increases the efficiency of the court to enforce or reject the existence of a trust.
What is the equity maxim which justifies the exception to the rule under s53(1)(b)?
What situation is the maxim trying to prevent?
“equity will not allow a statute to be used as a cloak for fraud”
Where an oral agreement is made, not supported by writing, for a trust to be set up, with the land recipient rejecting the existence of a trust and rather asserting himself as outright owner of the land, rather than trustee for the conveyor as beneficiary- on reliance of the oral agreement a party has suffered a detriment or refrained from receiving a benefit.
What were the facts of Rochefoucauld v Boustead?
Facts- claimant was a mortgagor of land (coffee plantations) sold on mortgage to the defendant, who had orally agreed to hold the land on trust (as a trustee) for the mortgagor, allowing the claimant to pay the price of her mortgage and prevent her recently divorced husband from buying up the mortgage himself. The defendant sold the land for a profit, after selling many mortgages to various different titles to the land to different people, without notifying the mortgagor. The mortgagee sought account of the mortgagor’s dealings, claiming, as the beneficiary, the balance due from him in order to repay the mortgage on the land. He had made much more than the value of the mortgage which he was owed by Roche- and therefore she wanted to recover the excess of this, as beneficiary.
This was treated as an express trust, ascertainable from the oral agreement between the two parties.
Why was the equity maxim invoked in favour of the appellant in Rochefoucauld?
(note that the relevant statute was the statute of frauds, which was the predecessor of the law of property act)?
Significance- the statute of frauds (predecessor to the Law of property act) was relied upon by the defendant to claim that there was no trust, as no written evidence could be admitted to the court. The statute of frauds was disapplied in order to prevent fraud on the part of the defendant, who made a profit by claiming that the trust was not enforceable, and that it was instead an outright sale of the land with which he could do as he pleased- “equity will not allow a statute to be used as a cloak for fraud”
- The statute of frauds still allowed the court to allow the claimant to prove of an oral agreement that it was conveyed on trust for themselves, and therefore keep the land themselves, the case was therefore decided in favour of the claimant; the oral evidence having been admitted could only amount to an express trust, and so there was no need to artificially create a constructive trust.
- Note the constitutional implications of such a decision and the need to recognise the trust as constructive in order to circumvent this
Why is it now argued that the decision in Rochefoucauld also proceeded on the basis that the trust was constructive rather than express, indicative of a more modern approach to formality rules in trusts of land?
Who makes these arguments and what do they say about the way in which the constructive trust is created?
McFarlane: In order to avoid the constitutional implications of disapplying an act of parliament in order to prevent fraud on the part of the property recipient, as in Rochefoucauld, a constructive trust analysis avoids the reaches of s53(1)(b) and is imposed artificially by the courts.
“On the constructive trust analysis, the trust does not arise simply because the former owner of the property so intended; rather, the trust arises to prevent C’s reneging on the understanding subject to which he received the property. The trust is therefore constructive, and can arise without being manifested and proved by writing. It is thus possible to accept the view in Rochefoucauld that the trust is an express one for limitation purposes, as it was one that B (and C) intended to create, without admitting that the trust is an express one in the sense that this intention is by itself sufficient to create the trust.”
The limitation period changes depending on the nature of the trust which is why it was accepted to be an express trust for the purposes of the limitation period in favour of the appellant, even if it can now be understood as constructive. The limitation period applied to breaches of duty under tort or contract, and would be longer for the purposes of this transaction if ti was accepted to be an express trust.
What is the distinction between fraud in a narrow sense and fraud in the wider sense?
‘Fraud’ in the narrow sense of dishonestly inducing another to transfer/devise property (sometimes called actual fraud) and ‘fraud’ in the broad sense of ‘refusing to comply with an undertaking’. It seems clear that, in the present context, fraud is understood in the broad sense – see, eg, Bannister v Bannister, Re Gardner, Re Snowden.
How does Bannister v Bannister show the more modern approach to formality rules and the type of trusts which are said to arise?
Facts- A sold two houses to B for below market value, and there was an oral agreement that B would hold one of the houses on trust for A. B promised that A could remain in the cottage for life, even though B would hold title of the land. A would owe no rent. Despite their oral agreement, B attempted to evict A, his sister in law. There was no fraud in obtaining the conveyance; the intention of B was to enable A to hold beneficial interest in the property, unlike in Roche, where the defendant fraudulently profited off of the mortgage and failed to account to the plaintiff, having accrued enough profit to pay off Roche’s mortgage. This was fraud in the wider sense because it was a failure to comply with an agreed undertaking, although no deceit or dishonesty was made out regarding the procurement of any agreement.
Significance- the oral agreement was sufficient as evidence for the creation of a constructive contract, and the plaintiff had entered into the trust on the reliance that she would be awarded undisturbed possession of her cottage. It was this wider notion of fraud, a failure to comply with an undertaking, which sufficed for the imposition of a constructive trust in favour of the plaintiff. The lack of writing was immaterial for the purposes of s53 of the law of property act, with s53(2) being triggered, the written evidence rule under s53(1)(b) not being applicable here.
Scott LJ held that for a constructive trust:
1) The conveyance need not be obtained by fraud;
2) The transfer need not use technical language of a trust;
3) No weight needed to be given to the fact that the conveyance was at an undervalue. The fraud consists in the denial of the trust. The proprietary right was given to Mrs Bannister under constructive trust.
The plaintiff did not have a remedy under common law; rather Scott LJ allowed her claim on the basis that ‘equity will not allow a statute to be used as a cloak for fraud’- it would be fraudulent for the defendant to evict the plaintiff and deny the oral agreement of acting as a trustee to the plaintiff for life, thereby allowing undisturbed possession. In construing the trust as a constructive trust, they are circumventing s53(1)(b) because under s53(2), the written rule does not apply to constructive trusts (nor implied or resulting trusts). No written evidence could be adduced, and yet the oral agreement made the trust enforceable, in order to prevent the fraudulent act of eviction after the plaintiff had relied on an oral promise totally against this.
What does Ong v Ping 2017 show about the evidential role of formality rules, specifically those contained within the LOPA 1925??
Facts- a mother had bought a house on trust for 3 respondents. She failed to sufficiently quantify the worth of the property which she wanted to hold on trust for the beneficiaries, although she did sign the trust deed for her solicitor; it seemed as though she had set up a trust for virtually nothing. The judge found that it was the mother’s expressed wish that she would hold the house on the basis of a trust; that on 14 December 1985 there was clarity as to the intended beneficiaries; that the terms of the trust became defined on 14 April 1986; and that although Sch.1 defined no trust property, the mother had executed the deed intending the trust property to be the house.
Significance- The mother had manifested an intention to create a trust, as per Paul and Constance. With regards to the Law of property act 1925 s53(1)(b), the express trust had to have a signature of evidence if the trust was going to be enforced in court. Whilst the trust deed may not satisfy this evidence, her cover letter was adduced as the sufficient evidence of intention, as it linked the trust to the house in a way which her, when taken with her trust deed, validated and showed a sufficient intention to manifest a trust. The combination of evidence sufficed for compliance with the Law of property act, which in turn allowed the trust to be enforced for her children.
As Sir Colin Rimer put it, “What can she have thereby intended to acknowledge other than that the house was an asset of the trust?” For the evidence to be valid, the property which was to be held on express trust had to be identified.
What does s9 of the Wills act 1837 require/ provide?
S9- Signing and attestation of wills
(1) No will shall be valid unless—
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either— (i)attests and signs the will; or (ii)acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness), but no form of attestation shall be necessary
What do s15 and s20 of the Wills act dictate?
S15 Gifts to an attesting witness to be void.
If any person shall attest the execution of any will to whom or to whose wife or husband any beneficial devise, legacy, estate, interest, gift, or appointment, of or affecting any real or personal estate (other than and except charges and directions for the payment of any debt or debts), shall be thereby given or made, such devise, legacy, estate, interest, gift, or appointment shall, so far only as concerns such person attesting the execution of such will, or the wife or husband of such person, or any person claiming under such person or wife or husband, be utterly null and void, and such person so attesting shall be admitted as a witness to prove the execution of such will, or to prove the validity or invalidity thereof, notwithstanding such devise, legacy, estate, interest, gift, or appointment mentioned in such will.
S20 No will to be revoked but by another will or codicil, or by a writing executed like a will, or by destruction.
No will or codicil, or any part thereof, shall be revoked otherwise than as aforesaid, or by another will or codicil executed in manner herein-before required, or by some writing declaring an intention to revoke the same, and executed in the manner in which a will is herein-before required to be executed, or by the burning, tearing, or otherwise destroying the same by the testator, or by some person in his presence and by his direction, with the intention of revoking the same.
What does s25 of the wills act provide?
S25 Residuary devise (property left by the term of a will) shall include estates comprised in lapsed and void devises (those which have sought to be left but have been rendered void under a prior/ different will fall within the residue of the estate).
Unless a contrary intention shall appear by the will, such real estate or interest therein as shall be comprised or intended to be comprised in any devise in such will contained, which shall fail or be void by reason of the death of the devisee in the lifetime of the testator, or by reason of such devise being contrary to law or otherwise incapable of taking effect shall be included in the residuary devise (if any) contained in such will.
What is the difference between secret and half-secret trusts?
Secret trust- contrary to the provisions of the wills act, secret trusts make seemingly outright dispositions of property in a will, accompanied by non-attested letters or written instructions to the recipient to deal with the trust property in a particular way- they are still enforceable notwithstanding a failure of compliance with the formalities with the wills act. The terms may be communicated to the trustee after the execution of the will, so long as this is prior to the testator’s death eg by providing a letter to be opened upon the death of the testator by the legatee (so long as the legatee knows that the contents of the letter and the nature of the obligation being imposed upon him).
Conversely, half-secret trusts will note the existence of a trust in favour of a trustee, for example a solicitor, accompanied by instructions unattested to outside of the will documents. The terms of the half-secret trust must be communicated to the trustee before the execution of the will for the court to hold it as valid/ enforceable.
What advantages do secret wills give to the testator?
- A secret trust as often undertaken in the modern concept avoids the formalities of the Wills act, whilst still being enforceable by the courts. The testator retains future powers to make gifts which do not have to comply with the wills act, so long as the obligation on the intended trustee to distribute to beneficiaries is communicated to the legatee and accepted by the legatee prior to the death of the testator, even if these instructions are given after the will is concluded- more flexibility/ autonomy to decide how to deal with the trust property afterwards- historically they were even more beneficial in upholding the reputation of disgraced men.
- Not only may a secret trust arise where A makes B his legatee, but where B is made the executor, where B is made the executor by default, or where B inherits the legacy where A dies intestate (without a will), as supported in Re Gardner and Re Young- the acquisition of property in another way will still make B hold on trust for someone else.
What is the significance of McCormick v Grogan with regards to secret trusts?
Facts- testator purported to leave all his property to Mr Grogan, as well as providing a letter containing a list of several people along with the amounts of money that they should receive, including £10 to Mr McCormack. The letter also provided instructions which said that Mr Grogan “was not to act strictly with the foregoing instructions” and so the disposition of the property was left to the judgement of Grogan. McCormack sought to recover his £10 despite this clause. McCormick was also told that “as it is not my wish that you should say anything about this document, there cannot be any fault found with you by any of the parties, should you not act in strict accordance with it”- further evidencing that Grogan was not legally bound by the trust and therefore it was not enforceable.
Significance- it was held that no secret trust had been set up for McCormack, and that the letter did no more than provide instructions and guidance as to how Grogan might like to dispose of the property.
Even if it was considered a legal obligation, no evidence that Grogan had accepted it, as per requirement 3. Shows importance of 3 requirements for secret trusts
-Also endorsed fraud theory
What are the 3 requirements of a secret trust?
1) Testator must intend that the legatee receive the property subject to a legal obligation. Often the legatee instructed to hold the legacy on trust for a secret beneficiary, but equally applicable where he holds subject to secret conditions or charges.
2) The obligation to hold must be communicated to the legatee.
- The obligation that the legatee will so become the legatee (and therefore receive the property) must be communicated to him prior to the testator’s death but can be done after the execution of the will. If the legatee receives the property as an absolute gift under the will, unaware of the intentions of the testator to make him a trustee, then no secret trust has been created, but a resulting trust will be made for the legatee to hold on trust for the estate.
- If the settlor communicates an intention to make the legatee a trustee but doesn’t tell him the terms of the trust before his death (ie how he is to distribute the property and hold on trust for whom), he will be a trustee for the estate, rather than allowing the legatee, who was only meant to be a trustee, to instead become the outright owner (prevention of unjust enrichment). A resulting trust is therefore set up, the legatee holding the estate on trust for the next of kin; prevents the legatee avoiding the intentions of the testator, knowing he should be trustee but not knowing who for.
- Communication can be oral or in writing, such as in a sealed envelope not to be opened until the death of the testator, but only where the legatee knows that the envelope contains instructions as to how he is to act as legatee, and the details of the trust.
- What must be communicated: 1) The trust 2) The terms 3) the property to be held on trust.
3) The legatee must in turn accept his obligation ie not reject the existence of the obligation- this can be implied through silence “acquiescence either by words or consent by silence”
What is the fraud theory and who endorsed it in what case?
The fraud theory, in line with the maxim that equity will not allow a statute to be used as a cloak for fraud, is one justification for secret trusts; the requirements of the wills act would allow a recipient of property to deny the existence of his obligations for his own unjust personal gain, if the courts weren’t to recognise and enforce secret and half secret trusts
Lord Westbury: “My lords, the jurisdiction which is invoked here by the appellant is founded altogether on personal fraud. It is the jurisdiction by which a court of equity, proceeding on the ground of fraud, converts the party who has committed it into a trustee for the party who is injured by that fraud… the court of equity has, from a very early period, decided that even an act of parliament shall not be used as an instrument of fraud; and if in the machinery of perpetrating fraud an act of parliament intervenes, the court of equity, it is true, does not set aside the act of parliament, but it fastens on the individual who gets a title under that act, and imposes upon him a personal obligation, because he applies the act as an instrument for accomplishing a fraud. IN this way the court of equity has dealt with the statute of frauds, and in this manner, it deals with the statute of wills.”
What is the fraud theory and who endorsed it in what case?
The fraud theory, in line with the maxim that equity will not allow a statute to be used as a cloak for fraud, is one justification for secret trusts; the requirements of the wills act would allow a recipient of property to deny the existence of his obligations for his own unjust personal gain, despite intentions expressed otherwise than in the will that the recipient be bound to hold the property on trust for other beneficiaries than himself.
McCormick v Grogan:
Lord Westbury: “My lords, the jurisdiction which is invoked here by the appellant is founded altogether on personal fraud. It is the jurisdiction by which a court of equity, proceeding on the ground of fraud, converts the party who has committed it into a trustee for the party who is injured by that fraud… the court of equity has, from a very early period, decided that even an act of parliament shall not be used as an instrument of fraud; and if in the machinery of perpetrating fraud an act of parliament intervenes, the court of equity, it is true, does not set aside the act of parliament, but it fastens on the individual who gets a title under that act, and imposes upon him a personal obligation, because he applies the act as an instrument for accomplishing a fraud. IN this way the court of equity has dealt with the statute of frauds, and in this manner, it deals with the statute of wills.”
Which secret trusts theory is endorsed in Cullen v AG for Ireland 1866 and what is the reasoning for the theory?
Dehors the will theory- according to the judgement in Cullen, secret trusts are not testamentary dispositions for the purposes of the Wills act s9, and therefore are not caught by its requirements/formalities concerning writing.
Facts- the appeal was against the imposition of tax for the apparently charitable trust set up by Fitzgerald- she made two people her executors, setting out the terms of the trust in letters separate from her will, asking that they both hold the residue of her property on trust, “to be disposed of in a manner and for the purposes I shall direct; thinking it better to do so than mentioning in my will”; the instructions were that the residue of her estate be put toward an institution which educated female children. The appellant, one of the two intended trustees, took the property, and held that it was exempt from the stamp duty.
Significance- The trust was not attested to as the law required, but could nonetheless be enforceable as a trust, as per Lord Westbury. As there was no actual trust set out in the will, the secret trust was nonetheless enforced due to the intentions set out and communicated to the executors in the letters sent by Fitzgerald to them both. Both executors accepted the trust for the bequeathed fund, and so it is exempt from the requirements under the wills act 1837 s9- because it operated under the “dehors the will theory” evidence that courts will still enforce trusts in the absence of formalities- secret trusts aren’t testamentary dispositions for the purposes of the wills act, according to the dehors the wills theory.
What is the significance of Blackwell v Blackwell regarding half secret trusts?
Significance- Viscount sumner: “Why should equity forbid an honest trustee (in a half secret trust) to give effect to his promise, made to a deceased testator, and compel him to pay another legatee (residuary legatee or the next of kin), about whom it is quite certain that the testator did not mean to make him the object of his bounty? Why should equity, over a mere matter of words, give effect to them in one case and frustrate them in the other?”
“The whole topic is detached from the enforcement of the wills act itself”
HST are not valid unless the trust obligations are communicated to the secret trustee before or at the time of the execution of the will.
What was the significance and facts of Re Gardner (No 2) and what effect did it have on the theories of secret trusts, specifically the validity of the dehors theory?
It seems to undermine the dehors the will theory because it confirmed that secret trusts need not be fully constituted- if the dehors theory is true, then its secret trusts involved an inter vivos disposition of property, yet if it is not constituted then there has been no disposition at all. in Re Gardner no 2, the beneficiaries estate was entitled to 1/3 of the share under the secret will, notwithstanding the fact that the beneficiary died prior to the death of the testatrix, and therefore the trust had not taken effect at all.
Facts- A testatrix by her will, dated April 23, 1909, bequeathed all her real and personal estate to her husband for his use and benefit during his life, “knowing that he will carry out my wishes.” Four days after the date of her will she signed an unattested memorandum expressing her wish that “the money I leave to my husband” should, on his death, be equally divided among certain named beneficiaries. She died in 1919 possessed of personal estate only, and her husband died five days later. After his death his wife’s will and the memorandum were found in his safe, and there was parol evidence that shortly after the execution of the will the testatrix had said, in his presence, that her property after his death was to be equally divided between the named beneficiaries, and that he assented thereto. One of the three beneficiaries died prior to the death of the testatrix, and her estate wished to claim for her proportion of the property.
Significance- The estate was entitled to 1/3 of the share- the decision also held that secret trusts, unlike express trusts, need not be fully constituted.
If this was a will rather than a secret trust then the beneficiary, who died in the lifetime of the testatrix, would not be entitled to receive property to their estate; but in the case of a secret trust, operating outside the mechanism of wills, it was payable.
-It is somewhat difficult to explain because prior to the actual will being executed, the testatrix could have amended the will in order to exclude the third beneficiary’s estate from acquiring, ie after her death. The trust had not actually arisen until the property was vested in the trustee, ie the husband. She could revoke her instructions to the trustee prior to her death, and thereby exclude the beneficiary.
How does Ottoway v Norman show that secret trusts are not express trusts?
Facts- A lived with his housekeeper, B, in a house which he owned. A was a widower and had a son C by his former marriage, and A and B had for many years lived as man and wife. A made a will in which he left the house to B absolutely. There was clear evidence that, both before and after the will was made, A had informed B and C that his intention was that B should have the house for her life and that C should have it thereafter, and that B had always agreed. Immediately after A’s death B made a will leaving the house to C. B later changed her will and left the house to D. After B’s death C claimed the house from B’s executor under a secret trust.
Significance- The bungalow and its contents were held on trust by B through A’s will for C, and that upon B’s death, C was entitled to the bungalow and its contents. A had always made it clear that C would become owner when B died. C was entitled to claim the house as a secret trust from B, who had held on trust for C after A’s death, under a secret trust. The claim for all the money however was rejected, as this was not the intention of A.
Only parol evidence was admitted, and the trust of land was upheld in favour of the beneficiary, despite the formality requirements of the Law of property act 1925- if it was an express trust, a written deed would be required, which was not provided in this case.
What is the significance of re Young 1951 with regards to the wills act, specifically s15, and how this operates with regards to secret trusts?
Facts- testator made a bequest to his wife, with the obligation that, upon her death, she would do as he instructed her to do with the property. This included a requirement that she would leave £2000 to the chauffeur, who had witnessed the will. Under s15 of the wills act, a witness to a will cannot be given a gift, in order to prevent fraud or duress.
Significance- Danckwerts J held that the witness had not forfeited his chance to obtain the legacy as a beneficiary- the trust in his favour was not a trust by will but one created separately and imposed upon the legatee.
“The whole theory of the formation of a secret trust is that the Wills Act has nothing to do with the matter because the forms required by the Wills Act are entirely disregarded, since the persons do not take by virtue of the gift in the will, but by virtue of the secret trusts imposed upon the beneficiary, who does in fact take under the will.”
-The Chauffeur was a beneficiary under a secret will created by young, and the will which he attested to did not make him a beneficiary; his beneficial interest derived from the trusts imposed on the widow as opposed to by the will- it was outside of the scope of the wills act as a result, specifically s15 which prevents attestors receiving property under will. Appears to support the dehors the will theory
What does the law of property act 1925 s53(1)(c) say and what is its application?
Law of property act 1925 s53(1)(c)
“A disposition of an equitable interest or trust subsisting (remaining in effect) at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will”
Applicable to interests in land and in personal property, as well as to lifetime and testamentary dispositions (during life or after death)- all the cases concern lifetime dealings because compliance with the wills act also involves s53(1)(c) automatically.
Exam questions will often query the accuracy of the application of s53(1)(c) in the case law
