#15705 - Constitution Short - Trusts and Equity

THE LAW ON CONSTITUTION OF TRUSTS

EFFECTUAL AND INEFFECTUAL TRANSFERS

1. Modes of disposing property: three modes identified in Milroy v Lord [1862]: Medley tried to transfer shares to his niece (Milroy) but did not comply with requirements of Bank of Louisiana, instead transferred them to Lord to hold on trust for Milory; Medley died with the company formalities incomplete; Turner LJ: the transfer was incomplete, so the trust was not constituted)

• Transfer of legal ownership beneficially — if B provides no consideration and A fails to transfer, B generally can’t rely on equity. (If there’s consideration contract law).

• Transfer on trust— A transferring to B to hold on trust for A or C

• Declaration of self as trustee

2. Constitution of the express trust

• Method 1: declaration of self as trustee

  • Key issue is whether A intended to declare self trustee: see for example Jones v Lock [1865]: Jones placed 900 cheque in hand of child and said that he was “going to put it away for him.” Lord Cranworth: there had been no gift to the baby: “the case turns on the very short question of whether Jones intended to make a declaration that he held the property in trust for the child.”

  • Where A intends others to be trustee as well as himself, no need to transfer title to the others too. Pagarani [2001]: donor established a philanthropic foundation on a trust; appointed himself one of the trustees then stated orally that he gave all his estate to the foundation. TCP died before deposit balances and shares had been transferred to the foundation. Lord Browne-Wilkinson (PC): this was a perfectly constituted self-declared trust and he was “bound by the trust and must give effect to it by transferring the trust property into the name of all the trustees.”

• Method 2: vesting of title in trustees

  • Formalities might be required here —e.g. deed / registration in land; stocks by appropriate form of transfer and registration of title in share register. As long as the trustee receives legal title, the trust will be constituted, regardless of the reason why the title is vested. Re Rali’s Will Trusts [1964]: H covenanted to transfer property she received under her father’s will to the trustees of her marriage settlement. She never assigned this interest to the trustees; the property eventually vested in H after her death. The trustee of H’s marriage settlement and the trustee of her father’s will was the same person, so he was in the latter capacity holding on trust for her an interest which she should have assigned to him in the later capacity. Buckley J: the trust in favour of the marriage settlement had become completely constituted (by transfer) “the means by which he became so have no effect upon the quality of his legal ownership.”

3. Incompletely constituted trusts

• Failed trusts: ‘equity will not assist a volunteer’

  • Milroy: See above.

• Failed gifts: ‘equity will not perfect an imperfect gift’

  • Richards v Delbridge [1874]: settlor attempted to assign a lease of business premises to his grandson (R). He gave the lease certificate to R’s mother to hold on his behalf. The settlor died and his will made no mention to the premesis. Jessel MR: there was an imperfect gift to the grandson and, in the absence of a deed, there was no transfer. No trust had been created because “for a man to make himself a trustee there must be an expression of intention to become a trustee.”

FUTURE PROPERTY AND COVENANTS TO SETTLE

1. Covenants to settle

• Where A hasn’t transferred title to B, but has covenanted to settle property either on a new or existing trust for C (beneficiary). C is not usually in a position to enforce this

2. Contracts (rights of third parties) act 1999

• s.1(5): If a contract “purports to confer a benefit” (s.1(1)(b)) on a third party, “there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).”

• This applies to contracts entered into after May 11^th 2000.

• Has the effect of treating C (a volunteer and third party) as if he is a party to the agreement. C has a clear claim for damages, but there is a question as to whether C can claim an equitable remedy.

• NB: there may be situations where it is preferable for C to find a trust and not rely on the Act: i.e. a trust, once constituted, is irrevocable, but a C’s rights under the Act might be extinguished by the parties to the covenant as provided for in s.2.

3. Definition of volunteer

• Equity doesn’t treat a covenant in deed differently from any other covenant, even though this is a means for volunteers to enforce in contract law. I.e. being a party to a deed is sufficient consideration in law but not in equity.

• Consideration is defined more widely than at CL. E.g. includes ‘marriage consideration’ and ‘issue’ of marriage (i.e. children) but not next of kin. Pullen v Koe [1913]: wife covenants to settle after-acquired property of 100 and over; receives gift of 285 from her mother; does not transfer to trustees (paid to husband, invested in bonds). Trustees claim bonds on behalf of children (beneficiaries of marriage settlement). Swinfen Eady J: when the money was received by the wife, equity assumed that it had already been transferred to the trust by virtue of the wife’s covenant. Equity recognised that consideration had been given under the marriage settlement, so C was entitled to specific performance of the D’s promise to settle.

• Re Cook’s —third party consideration doesn’t enable beneficiaries to enforce covenants

4. Property acquired in the future

• Problem: A covenants to settle property on trust, but hasn’t yet acquired the property and merely expects to receive it in the future. Not a valid trust: at time of declaration, there’s no property to be held on trust — Re Ellenborough [1903]: Emily law was entitled to property under the will of her brother (Lord Ellenborough). Before his death, Em voluntarily covenanted to convey her anticipated inheritance to trustees upon trust. Em then changed her mind and did not transfer. Covenantees then brought an action. Buckley J: no trust was created —at common law, a trust to transfer future property isn’t valid even if there’s consideration. However, where consideration is provided “equity treats as done what ought to be done.” [the trust will then be constituted if the property is actually transferred —i.e. if, here, Em had actually acquired the property].

  • Question: Can B or C compel A to convey property to B by treating the declaration of trust as an enforceable covenant to transfer property? Two scenarios:

• Where beneficiary has given consideration:

  • Equity treats as done what ought to be done. So consideration means equitable interest is created (property will be held on constructive trust for covenantee – Pullan v Koe).

  • C.f. equity cannot help a mere volunteer — Re Kay’s settlement

• Where beneficiary is party to the covenant under a deed: Beneficiary volunteer cannot claim specific performance. But can claim damages at CL (see above on consideration difference).

• Damages don’t constitute the trust, but are an award for breach of contract.

• Cannon v Hartley [1949]: a father, on divorce, covenanted under deed (parties were wife and daughter) to make provisions for a daughter by settling property he expected to inherit from his own parents. He later received property and refused to transfer as promised. Romer J: Since daughter was “a direct covenantee under the very covenant upon which she is suing” she was able to obtain substantial damages. No specific performance of the trust was possible, however, because equity does not recognise a deed as consideration.

• Trustees cannot be compelled to sue: Re Pryce [1917]: a marriage settlement contained a covenant to settle the wife’s after-acquired property for life (remainder to husband, then issue, then next of kin). Husband gave his wife 4,700 in 1906. The husband died the following year and the trustees wanted to determine whether they should enforce the covenant (i.e. compel the wife to settle the money). Eve J: the trustees ought not to enforce the covenant. The trust was imperfect. The next of kin were volunteers (not covered by marriage settlement) and could not maintain an action to enforce the covenant or compel the trustees to apply for damages.

• Trustees cannot sue in their own right? Re Kay’s Settlement [1939]: an unmarried settlor voluntarily executed a settlement of property to herself for life (then to her unborn children) —the settlement constituted a covenant to settle any after-acquired property. The settlor late received property which fell within the covenant. She refused to settle. Simmonds J: the children were volunteers, because there was no marriage consideration here. Therefore they have no right to enforce the covenant and the trustees ought to be directed not to take any proceedings to enforce the covenant.

• Re Cavendish Browne’s Settlement Trusts [1916]: Facts: By a voluntary covenant made between the settlor and the trustees, the settlor covenanted that she would transfer to the trustees property to which she was entitled under the will of two others. The covenant included a power of revocation. The settlor died intestate without having exercised the power of revocation. Her administrators applied by summons to determine whether damages were payable for breach of the covenant. Held: the trustees were entitled to recover substantial damages from the...