Week 3) Constitution of trusts and promises to settle Flashcards
What are the three modes of making a gift outlined in Milroy v Lord 1862 by Turner LJ?
The three modes of making a gift were given in Milroy v Lord 1862 by Turner LJ
1) An outright transfer of legal title (or outright assignment of subsisting equitable interest)
2) A transfer of legal title to a trustee to hold on trust, A to B to hold on trust for C.
3) A self-declaration of a trust- this constitutes a trust automatically, whilst any other constitution of trust eg a settlor transferring to B to hold for C, he has to both declare the trust and effectively transfer the title to B in order for it to be valid.
What is the primary equity maxim relevant to the constitution of trusts and modes of gifting, and how is it split into two further equity maxims?
“Equity will not assist a volunteer” is the maxim which dictates the question of ownership in the event that a trust is not properly constituted. It is comprised of two strands:
1) Equity will not enforce a gratuitous promise- overreach of the part of the law and intruding on relations between individuals with no sufficiently strong basis for doing so. Would undermine formality rules if equity were to step in to enforce every promise.
2) Equity will not perfect an imperfect gift.
Why are equity maxims often quoted to prevent undermining Fullers justifications for formality rules?
To encourage compliance with formality rules, if equity was to step in to assist every volunteer (those who do not give consideration) or perfect every imperfect gift, then formality requirements become redundant.
Facts and significance of Milroy v Lord 1862??
What rule is explained by LJ Turner in relation to one possible way of explaining the imperfect gift, and hence the failure of the trust?
Facts- The uncle wished for Lord to hold shares on trust for his niece, giving him the share certificates. This did not suffice as a transfer of title for the shares, as it did not comply with the bank’s constitution (no entry into the books of the bank was made in order to transfer title to the trustee, so Lord was not the effective trustee as the shares were never registered in his name). Lord was given a power of attorney to transfer the uncles shares (this included transferring them to himself, so he the power to make himself the owner of the shares even though the uncle had failed to do so), and further, there was a power to receive dividends from the shares, and pass them to the plaintiffs, sometimes through the Uncle and sometimes directly. When the uncle died, he had bequeathed a legacy of £4000 to the niece, as well as the shares in the Bank of Louisiana.
Significance- held that there was no valid trust constituted by the uncle and Lord, and although Lord had the powers of attorney to effectively vest the shares in himself, he failed to do so. The niece sought to recover title of the shares. The disposition of the shares failed as an imperfect gift from the uncle to Lord
-Lord Justice Turner: “I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settler 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 and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift. The cases I think go further to this extent, that 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 [275] declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust. These are the principles by which, as I conceive, this case must be tried.”
Facts and significance of Jones v Lock 1865 regarding what an imperfect gift may look like and the boundaries of the courts in coming to the aid of volunteers?
Jones v Lock 1865 1 Ch App 25:
Facts- incomplete gift of a substantial cheque from father to baby by placing the cheque in the baby’s hand and telling him “I give this to baby for himself”. It was held that no valid gift or trust had been set up of the cheque for the baby.
Significance- Lord Cranworth: “If I give any chattel that, of course, passes by delivery, and if I say, expressly or impliedly, that I constitute myself a trustee of personality, that is a trust executed, and capable of being enforced without consideration. I do not think it necessary to go into any of the authorities cited before me; they all turn upon the question, whether what has been said was a declaration of trust or an imperfect gift. In the latter case the parties would receive no aid from a Court of equity if they claimed as volunteers. But when there has been a declaration of trust, then it will be enforced, whether there has been consideration or not. Therefore, the question in each case is one of fact; has there been a gift or not, or has there been a declaration of trust or not?”
“It was all quite natural, but the testator would have been very much surprised if he had been told that he had parted with the £900 and could no longer dispose of it. It all turns upon the facts, which do not lead me to the conclusion that the testator meant to deprive himself of all property in the note, or to declare himself a trustee of the money for the child”- he had neither gifted it outright to the son, nor could any construction of the facts lead to the conclusion that he made a self-declaration of a trust in favour of the son.
Facts and significance of Richards v Delbridge regarding the equity maxim “equity will not perfect and imperfect gift”?
Facts- D, in possession of a leasehold business and stock-in-trade wanted to gift this all to his grandson shortly before his death, E, an infant. “This deed and all thereto belonging I give to E. from this time forth, with all the stock-in-trade.” The lease was then delivered to E.’s mother on his behalf.
Significance- Held that no valid trust had been set up in favour of the grandson.
Sir G. Jessel: “The principle is a very simple one. A man may transfer his property, without valuable consideration, in one of two ways: he may either do such acts as amount is law to a conveyance or assignment of the property, and thus completely divest himself of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on trust, as the case may be; or the legal owner of the property may, by one or other of the modes recognised as amounting to a valid declaration of trust, constitute himself a trustee, and, without an actual transfer of the legal title, may so deal with the property as to deprive himself of its beneficial ownership, and declare that he will hold it from that time forward on trust for the other person. It is true he need not use the words, “I declare myself a trustee,” but he must do something which is equivalent to it, and use expressions which have that meaning; for, however anxious the Court may be to carry out a man’s intention, it is not at liberty to construe words otherwise than according to their proper meaning.”
Why can T Choithram international SA v Pagarani be considered the turning point in the role of the court of equity in aiding (or not) volunteers in receipt of an imperfect gift?
What did Lord Browne-Wilkinson say with regards to this point, and why can this be considered detrimental in the wider context of the role of the court of equity?
T Choithram International SA v Pagarani 2001 2 ALL Er 492: in the context you can infer the intention as a self-declaration of trusts- the trust is immediately constituted. No reliance on unconscionability, so Pennington and Waine has clearly misinterpreted this.
Facts- A rich businessman sought to transfer almost all his wealth on trust before he died. Having executed a deed of trust establishing a charitable foundation and appointing himself as one of the trustees, he orally declared that he was transferring his wealth to the foundation. It was contended whether he could be taken to have vest the trust property in all the trustees through a self-declaration of trust even though there had been no transfer of trust property to all the intended trustees; he merely made up one of an array of intended trustees, only self-declaring a trust in favour of himself.
Significance- The Court found in favour of the businessman, construing the oral declaration of a gift as self-declaration of a trust, and because he was himself a trustee, this constituted the trust, despite failing to comply with the necessary documents to transfer the legal title to the rest of his trustees.
Lord Browne-Wilkinson said that the words “I give to the foundation” could only mean “I give to the trustees of the foundation trust deed to be held by them on the trusts of the foundation trust deed”. There could be no difference between saying that the donor declared himself a sole trustee for a done or purpose and the case where he declared himself as ONE of the trustees for that done or purpose- it would be unconscionable to suggest that his gift had been. This is the creation of the benevolent construction idea which is expressed in Pennington v Waine.
-The turning point as to the equity maxim appears to be when Brown-Wilkinson said “although equity will not aid a volunteer, it will not strive officiously to defeat a gift” which shows the courts leaning towards a less paternalistic approach, as mentioned by Halliwell.
What are the facts of Re Rose and what is the Re Rose principle?
What is a principal problem with the Re Rose principle, which is echoed in Mascall v Mascall?
The Re Rose principle is that a trust can be fully constituted (enforceable by the courts) so long as the testator has done everything in his power to legally pass the property to the trustee or beneficiary- in the mean time, a constructive trust will be set up in favour of the donor, with the volunteer or recipient as trustee.
Re Rose 1952 Ch 499:- this impedes on the autonomy of the donor and there doesn’t seem to be a good reason why the donor should be bound. They may change their mind prior to their death, if there is a testamentary disposition, or prior to the recipient registering property in their name, if it is an inter vivos disposition.
Facts- Rose properly executed a share transfer form and delivered it with its certificate to his wife, entitling her to have the shares registered in her name. The CA held that in equity, “such a gift is valid from the time that the donor does everything he is obliged to do to transfer the shares”- known as the Re Rose principle. The IRC sought to claim duty from the wife for the time between the share transfer was executed (the death of the husband) and the point at which she became legal owner and registered the shares in her own name. There was a term of contract that Mrs Rose had to accept and take the shares subject to conditions, which she had to agree upon- resulting from the fact that the shares were in an unlimited company rather than a limited company. It’s important to note that in this case, the shares were in fact registered, it was just contended when they were actually registered.
He wanted to make his wife outright owner of one batch of shares, and wanted to transfer another batch of shares to hold on trust.
There could not be a transfer of legal title until registration and equity cannot do this- it instead invokes a constructive trust on the donor, from the moment he had done everything in his power to effect the transfer.
How does the Re Rose principle operated on the facts of Re Rose, and how was it distinguished from Milroy v Lord as per Justice Jenkins in Re Rose?
Why does a ‘power analysis’ of the woman’s position in Re Rose make it inconsistent with Milroy v Lord?
In distinguishing this case from Milroy v Lord, and holding in favour of the plaintiff, the CA said that the uncle had not done all that he was meant to do to gift the shares to the trustee on trust for his niece. In this case, as the plaintiff had done all that was required to transfer title, he held the shares on trust for the volunteer until she, his wife, had registered the shares in her own name. If dividends were accrued between the share transfer form being completed, and the wife declaring the shares in her own name, the donee (husband) holds the dividends on trust for the wife.
LJ Jenkins: “In Milroy v. Lord the imperfection was due to the fact that the wrong form of transfer was used for the purpose of transferring certain bank shares.” – Presumably he was referring to the deed poll (A DEED POLL ONLY BINDS ONE PERSON AND EXPRESSES ONLY AN INTENTION RATHER THAN A PROMISE). “The document was not the appropriate document to pass any interest in the property at all.”- Justice Jenkins in Re Rose explaining that this was the correct understanding of Milroy v Rock, whereas Turner in this case had proceeded on the basis that the uncle had not done all that he could to divest himself of all interest in the shares.
Evershed MR: “I agree that if a man purporting to transfer property executes documents which are not apt to effect that purpose, the court cannot then extract from those documents some quite different transaction and say that they were intended merely to operate as a declaration of trust, which ex facie they were not; but if a document is apt and proper to transfer the property - is in truth the appropriate way in which the property must be transferred - then it does not seem to me to follow from the statement of Turner L.J. that, as a result, either during some limited period or otherwise, a trust may not arise, for the purpose of giving effect to the transfer.”…
-IN EFFECT, AN IMPERFECT GIFT CANNOT BE CORRECTED THROUGH EMPLOYING A TRUST, BUT A PERFECT GIFT CAN BE SUBJECT TO AN INTERMEDIATE TRUST TO CATALYSE AND SAFEGUARD THE TRANSACTION
Also, the power analysis, which says that the wife had the power to make herself the owner of the shares, and would become owner from that point onwards. However, in Milroy v Lord, Lord also had an express power of attorney to register himself as trustee/ legal owner of the shares, and therefore this would make this inconsistent with the decision in Milroy.
What were the facts of Mascall v Mascall 1985 and how do they show the application of the principle in Re Rose? What is the potential problem with the decision?
Facts- The father had executed a complete gift to his son by executing the registered land transfer document and handing it to him, with the land certificate. The father re-claimed the land certificate because he no longer wanted to gift the land to his son, having fallen out with him.
Significance- in applying Re Rose, the transfer had taken effect when the two documents were simultaneously provided to the Son, and the transfer was enforced. The gift was complete in equity and he was ordered to hand over the land certificate in order that the son completes the registration of the legal title in his own name. Held, dismissing P’s appeal, that P had done everything in his power to transfer the house to D. He had intended to do it. He had executed the transfer and handed over the land certificate. P was not obliged to register D’s title at the Land Registry, that obligation lay upon D. The transfer and land certificate were documents belonging to D that P had no right to retain. In the circumstances there was in equity a completed gift in D’s favour.
LJ Lawton: “But, in the course of the 1952 case, Lord Justice Jenkins pointed out that the statement that a failed transfer cannot be construed in any circumstances as a trust was a statement which was much too wide. He qualified the proposition by saying that, if the effect in law is that the donor holds the legal interest for the benefit of the donee, in those circumstances there is a trust to which the court will give effect.
In my judgment, that is the situation here. The father had done everything in his power to transfer the house to his son. He had intended to do it. He had handed over the Land Certificate. He had executed the transfer and all that remained was for the son, in the ordinary way of conveyancing, to submit the transfer for stamping and then to ask the Land Registry to register his title.
Why is unconscionability also a threat to the equity maxims relating to imperfect gifts?
Unconscionability: the expansion to the exception that equity will not perfect an imperfect gift- it is recognised that Pennington v Waine represents the “unfettered discretion according to the individual judge’s notion of what is fair in any particular case” that was feared in Milroy v Lord
What 3 ways do Penningotn v Waine (reiterated in Curtis v Poolbrook) recognise as cases where the court will perfect an imperfect gift, contrary to the principle, and which of the three situations does Pennington v Waine represent?
IN CURTIS V POOLBROOK: “In Pennington v. Waine , Arden LJ (with whom Schiemann LJ agreed) identified three routes by which, in the context of a defective voluntarily transfer of shares, the court might avoid the rigorous application of the principle that equity will not compel the completion of an imperfect gift, in the absence of a valid declaration of trust. She described all three as methods whereby a court of equity might temper the wind to the shorn lamb. The first is where the donor has done everything necessary to enable the donee to enforce a beneficial claim without further assistance from the donor: see paragraphs 55 to 56 and Rose v. Inland Revenue Commissioners [1952] Ch 499 . The second is where some detrimental reliance by the donee upon an apparent although ineffective gift may so bind the conscience of the donor to justify the imposition of a constructive trust: see paragraph 59. The third is where by a benevolent construction an effective gift or implied declaration of trust may be teased out of the words used: see paragraphs 60 to 61, apparently based upon Choithram International SA v. Pagarani [2001] 1 WLR 1 . On its facts, Pennington v Waine appears to have been an example of a sufficient detrimental reliance by the donee, who had agreed to become a director of the subject company upon an assumption that he had received an effective gift of qualifying shares in it: see paragraphs 64 and 66.”
Facts of Pennington v Waine?
Facts- A shareholder correctly completed a share transfer form in favour of her nephew, but instead of passing this to the company for registration, they delivered it to an auditor. She had also told her nephew that she intended to make him a shareholder and intended therefore to transfer him the shares. On this evidence, the nephew became a director of the company (it was required that he be a shareholder before being appointed as a director of the company). The actual shareholder died before the transfer was completed with the relevant formalities.
Significance of Pennington v Waine?
Significance- the CA held that the shares were held on trust for the nephew, as a beneficiary, even though she had not done all in her power (as testator) to divest herself of all interest in the shares. The basis for this decision seems to be that all that was required for this trust to arise was that there was an intention to make the nephew a legal owner of the shares, and that the execution of the transfer form is intended to have immediate effect in circumstances where it would be “unconscionable” for the transferor to go back on their promise. Unconscionable means not right or reasonable.
The approach of Lord Arden: “56. That exception was extended in Rose v Inland Revenue C [1952] Ch 499 and other cases by holding that for this exception to apply it was not necessary that the donor should have done all that it was necessary to be done to complete the gift, short of registration of the transfer. On the contrary it was sufficient if the donor had done all that it was necessary for him or her to do.”
A benevolent interpretation of words is not incompatible with the equity maxim “equity will not perfect an imperfect gift” because in construing the intention and acts of the donor, it can sufficiently be said that they sought to make a gift, as in T Choithram, as explained below.
61. “Accordingly the principle that, where a gift is imperfectly constituted, the court will not hold it to operate as a declaration of trust, does not prevent the court from construing it to be a trust if that interpretation is permissible as a matter of construction, which may be a benevolent construction. The same must apply to words of gift. An equity to perfect a gift would not be invoked by giving a benevolent construction to words of gift or, it follows, words which the donor used to communicate or give effect to his gift.”
What principal criticism arises under the principle of unconscionability in pennginton v Waine??
What aspects of the facts of the case seemingly justified the unconscionability approach?
Unconscionability has no underlying unified principle, too arbitrarily enforced if not reined in by other cases.
Intention, nephew was told about it and told not to take any further action, and then subsequent reliance upon this by the nephew as well.
