Equity and Trusts

1. Equity and Trusts Creation of express trusts 2: constitution of trusts

2. Requirements for a valid trust In Lecture One on express trusts the first three requirements of express trusts were outlined: • capacity • formalities • requirement of certainty The fourth requirement is constitution: (i) by settlor declaring himself trustee OR (ii) by settlor transferring property to trustees Also will consider the effects of non-constitution and possible remedies.

3. A trust must also be constituted Trust is not constituted until legal title to the trust property has been effectively transferred to trustees using appropriate formalities Following also applies to gifts – gift must be transferred to donee.

4. Turner LJ in Milroy v Lord (1862)4 De GF & J 264 “… in order to make a voluntary settlement valid and effectual, a settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property …” Different types of property will require different formalities to be observed in order that the property may be effectively transferred.

5. “ …the nature of the property comprised in the settlement”Chattels For chattels there must be delivery + intent to give or a deed of gift.

6. Land Unregistered land: must be transferred by deed +registered at LR Registered land: must be transferred by land registry transfer + registered.

7. Shares Shares must be transferred by (usually) stock transfer form + registration on company’s books In Milroy neither form nor registration had happened. Transfer by deed ineffective an trust not constituted.

8. Equitable interests S53(1)(c) LPA 1925 must be transferred in writing

9. Future property e.g. possibility of receiving something under a will cannot form subject matter of a trust

10. Remedies If trust not constituted then beneficiaries receive nothing because nothing to enforce. Will wish to show trust is constituted or another remedy.

11. Remedies Possible remedy: construe failed transfer as valid declaration of trust. e.g. if settlor executes document setting up trust of Blackacre but omitted to transfer Blackacre to trustees then he might be said to have self declared as trustee. Self-declaration as trustee involves no transfer because the legal title is already in the trustee – it is really a declaration that the legal owner is no longer beneficial owner.

12. Milroy Settlor had intended to make a transfer of assets to trustees the court would not construe this as evidence by the settlor as evidence of his declaration of self as trustee. “… if the settlement is intended to be effectuated by one of the modes to which I have referred, the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.”

13. Equity will not perfect an imperfect gift In Milroy neither the appropriate transfer form nor registration on the company’s books had been carried done and purported transfer by deed was ineffective. Trust was not constituted.

14. Position so far When settlor creates a trust by declaring himself trustee – providing capacity formality certainty are satisfied – this will, be sufficient But – if settlor must transfer property to trustees then trust is incomplete until the property is transferred. Failure to constitute a trust can be fatal to the expectations of the intended beneficiaries. There are though some possible exceptions to the rule that equity will not perfect and imperfect gift.

15. Doctrine of every effort For this rule to constitute an incompletely constituted trust “a settlor must have done everything which … was necessary to be done in order to transfer the property” The only acceptable reason for non-constitution must lie with a third party. See Re Rose [1952] 1 All ER 1217. R executed two transfers of shares – one to his wife and one to trustees on trust. Transfer were executed in required form in March 1943. R sent the forms and share certificates to the company registrar and they were registered in June 1943. R died five years later but less than five years after shares were registered. If effective date of transfer was June ’43 estate duty was payable if March ’43 it was not. CA held R had done all in his power to vest the shares in the transferees and they could perfect their title by obtaining registration. Gift complete in March ’43 and no estate duty was payable.

16. Re Fry Compare with Re Fry [1946] 2 All ER 971 treasury consent was necessary before registration but had not been obtained.

17. Mascall v Mascall (1984) 50 P & CR 119 Father executed transfer of house to son. Gave it to him with land certificate. They argued and father sought declaration that transfer ineffective because son had not sent documents to land registry. Gift was complete – father had done everything within his power to effect the transfer.

18. Pennington v Waine [2002] EWCA Civ 227 A wished to transfer 400 of 2000 shares in private company to H. Sep 1998 signed transfer form and sent to P – an accountant in the firm which audited the company’s books but acting as A’s agent for the transaction. P failed to pass the form to the company or H. But P did write to H that A wanted H to be a director of the company. H signed consent form to become director. P also told H that he was to transfer 400 shares of A’s shares to him and that H need do nothing. A died in 1998 leaving H her shares which totalled 51% of company. H name not on company register the shares still belonged to A. Residuary bens took action. J concluded A had transferred the whole beneficial interest to H – that A was trustee therefore. On appeal bens argued transaction incomplete without delivery of share transfer form to H or company.

19. Pennington v Waine [2002] EWCA Civ 227 Appeal dismissed. Delivery of stock transfer form could be dispensed with in some circumstances. A had intended immediate gift to H who was informed of it therefore unconscionable for A to withdraw the gift once H signed the consent form. Also unconscionable for executors to refuse to hand H share transfer after her death.

20. Pennington Pennington controversial. See Milroy to effect a voluntary settlement “a settlor must have done everything which … was necessary to be done in order to transfer the property” Note maxim: equity will not perfect an imperfect gift set against the doctrine of every effort: if donor has done everything in their power, the gift is complete in equity. Where the beneficial interest is transferred to the donee, legal title is held on trust by the donor for the donee. BUT – in the doctrine cases delivery was necessary. In Rose gift was complete when the donor executed share transfers and delivered them. Arden LJ in Pennington: maxim “equity will not perfect an imperfect gift” include insuring that donors did not act unwisely. Furthered by permitting donors to change their minds anytime before the gift is completely constituted – a paternalistic objective. BUT there are policy considerations in favour of holding gift completely constituted: effectuating the clear continuing intention of donor and preventing unconscionable behaviour by donor, an incomplete gift is constituted if it is unconscionable for donor to change their mind.

21. Pennington A had made gift of own free will, had signed the share transfer form, delivered this to P to secure registration, H told about gift, also that he need do nothing himself, H had also agreed to become a director of the company, once H signed consent form too late for A to change mind and recall gift. Was delivery necessary per Re Rose? No could be dispended with.

22. Pennington Was delivery necessary per Re Rose? No could be dispended with in some circumstances. Stage reached in Pennington where unconscionable to recall gift. Delivery of share transfer was therefore unnecessary.

23. Position after Pennington • Position changed from the gift is perfected in equity when the donor has done everything necessary that they should do to • Gift is perfect in equity when it is unconscionable for the donor to change his mind • Despite rule in Rose et al completion of all formalities is unnecessary.

24. Pennington – further criticism T Choithram International SA v Pagarani [2001] All ER 492 cited in Pennington as support. See Browne-Wilkinson: although equity will not assist a volunteer it will not strive officiously to defeat a gift. Pagarani’s words “I give to the foundation” included him as trustee therefore legal title was held by donor himself – only needed him to transfer title to other trustees. Unconscionable for Pagarani to refuse to transfer to other trustees.

25. Pennington Pennington is very different – statement that unconscionable for A to revoke gift is too broad.

26. The rule in Strong v Bird (1874) LR 18 Eq 315 • Rule applies to perfect an imperfect gift. • Applies also to proposed transfers to trustees • Where incomplete gift and donor appoints donee as executor then on donor’s death gift is complete when executor acquires legal title.

27. Strong v Bird • Rule originally applied only to debts • In Strong def borrowed £1k from stepmother – shared his house for £200 per quarter board. Agreed discharge by -£100 each quarter. Deductions paid for two quarters full amount on third quarter continued this until death four years later • Def sole executor. At common law appointment of debtor as executor discharged the debt. Strong applied rule in equity provided evidence testator until death intended to release debtor • Extended in Re Stewart [1908] 2 Ch 251 to ineffective gifts.

28. Requirements • Intention to make immediate inter vivos gift • of specific existing property • Intention continues to donor’s death • Donee becomes donor’s executor.

29. Re Ralli’s WT [1964] Ch 288 • Questionable extension of Strong • H covenanted to transfer existing after acquired property to trustees of her marriage settlement. H had interest in remainder in father’s residuary estate. Mother had life interest. H died 1956. Mother four years later. Trustee of father’s will also trustee of H’s marriage settlement. • Q: did trustee hold fathers estate on terms of F’s will or H’s marriage settlement? • Held: T held on trusts of marriage settlement – T in possession of property – sufficient to constitute trust. How T acquired title irrelevant.

30. Ralli’s WT Contrast Re Brook’s STs [1939] Ch 993

31. Donationes mortis causa Donationes mortis causa – gifts made in contemplation/conditional on death – death bed settlement. Lifetime gift that could perfect an imperfect gift rather than an imperfect trust.

32. Cain v Moon [1896] 2 QB 283 DC Three requirements for DMC: • Gift made in contemplation of death • Gift is conditional on death of donor • Delivery of subject matter to donee with intention of parting with dominium

33. DMCs Donor must have contemplated death at time of gift Gift still valid if death by unexpected means See Wilkes v Allington [1931] 2 Ch 104 Also Re Dudman and whether DMC possible in contemplation of suicide.

34. DMCs Circumstances must show gift conditional on death + revocable on recovery Can infer conditional quality of gift.

35. DMCs • Must be delivery + intent to part with dominium over object (I.e. power or control handed over) • How delivered varies: chattels must be control or means of getting control e.g. keys tow here the property is held. Re Craven’s Estate [1927] Ch 431 one of three keys insufficient • Compare Woodward v Woodward [1995]where donor too ill to use retained keys to car • See also Sen v Headley [1991] Ch 425 CA.

36. DMCs Choses in action must be transferred by relevant document essential indicia or evidence of title: e.g.bank deposit pass book

37. DMCs DMCs of land possible Donor must hand over relevant documents.

38. DMCs • Chattels: donees title perfected on donors death. Delivery sufficient. • Chose in action and land: title not complete until donor’s PRs perfect the gift by the necessary means.

39. Proprietary estoppel • PE can result in constitution of trust/gift • Donor of imperfect gift stands by while donee spends money on subject matter/ or suffers other detriment on basis of interest equity may perfect the gift • PE: developing doctrine • Essentials: assurance, reliance on representation, detriment. Owner then prevented from asserting rights • Wide discretion on remedies • Basis of doctrine : unconscionable conduct • Dillwyn v Llewelyn (1862) 4 De GF & J 517 father gave land for son to build house – father then compelled to convey land. • See also Pascoe v Turner [1979] 2 All ER 945 CA.

40. Contractual remedy for unconstituted trusts Must be contract with settlor with person seeking enforcement a party e.g. contract between settlor and trustee in deed. Will recite intent to create trust, transfer property, duties of trustees etc Bens can be parties but unusual – especially where bens volunteers.

41. Covenants • Gratuitous statements by settlor cannot be enforced • Formal promises are different e.g. covenants • Covenant is a promise contained in a deed.

42. Marriage settlements • NB position in equity and at common law • Equity not concerned with settlor’s promise • If consideration provided equity will enforce promise to settle on trust • If not then equity will not assist a volunteer • Equitable remedy – specific performance • What is consideration? Money or money’s worth + in equity “marriage consideration” (agreements to settle made on consideration of marriage – spouses and issue are parties and can enforce e.g. Pullan v Coe [1913] 1 Ch 9. Next of kin cannot: see Re Plumptre’s Marriage Sett. (1910) 1 CH 609.

43. Covenants to settle • Covenants is promise in deed • Party to deed may sue even though no conventional consideration • Entering into deed is in itself consideration • Covenants by deed not recognised by equity • Remedy: common law damages

44. Recap • In equity money or money’s worth or marriage consideration is required remedy is specific performance. Covenants not recognised without additional consideration • At law consideration: money or money’s worth (but not marriages). Remedy: damages. Covenants by deed are specially treated.

45. Cannon v Hartley [1949] Ch 213 Separation agreement between wife, husband, daughter. Agreement that if husband came into property from mother he would transfer it on trust for the wife for life and thereafter to the daughter. Husband did not transfer. Wife died and daughter sought to enforce. Held: trust not constituted/she was volunteer/ entitled to common law damages damages equalling amount of assets not settled.

46. Canon v Hartley • Canon can be used to constitute any gift/trust even where beneficiary is volunteer but is party to contract • Could Hartley assist volunteer beneficiaries not parties to contract? • Trustees would have to take action on beneficiaries behalf • Could trustee sue for damages? • Courts do not think trustees should not enforce indirectly by contract that which they cannot enforce directly.

47. Position of trustees • Are trustees prevented from taking action • Re Pryce [1917] 1 Ch 234 should trustees sue to enforce covenant to settle after acquired property? Court held no. Beneficiaries were volunteers and (as above) trustees could not be directed to enforce. • Followed in Re Kay’s Sett. [1939] Ch 329 • See also Re Cooke [1965] Ch 902.

48. Position of trustees • Trustees cannot be compelled to sue (what about rights of parties to contract to sue?) • But consider remedies: not specific performance. Damages but what measure? … Trustees have lost nothing • Cavendish Browne’s Sett. Trusts [1916] WN 341 trustees sued for volunteer beneficiaries obtained damages to value of real estate. No discussion of volunteers. But case is pre-Pryce etc. (cases of future property). Cavendish concerned specific property I.e. measurable loss. • Was Cavendish a “trust of the promise case” see below.

49. Position of trustees • If trustees get damages these are held on trust. But who for? • If beneficiaries then equity ids assisting volunteer • So damages on RT for settlor? A purely circular position.

50. Contracts (Rights of Third Parties) Act 1999 Under privity third party cannot enforce a contract to his benefit Act has changed position. S1(1) person not a party to contract may enforce term of contract if (a) contract expressly provides that he may or (b) the term purports to confer a benefit on him.