#2533 - Formalities - Trusts and Equity

Formalities

Formalities for the declaration of an express trust

Justification: Why is it necessary to insist on formal requirements? Settlor may have made everything clear (intentions and objects) but it could still fail for want of a formality.

• Trustee must be able to perform his/her duties correctly.

• B must be certain as to their actual interest in the property. Prevent T’s fraud.

• If courts intervene they must act correctly in relation to competing interests.

• Must be clear who has the benefit of the property for tax purposes.

+ Fuller (1941): He identified three justifications for legal formalities:

• Evidentiary function: Need enduring proof in writing of the existence of the trust. We want writing so that the trustee cannot renege upon the trust and harm the beneficiary, and third parties (i.e. successors in title of the original trustee or the trustee in bankruptcy) need to know the existence and how the beneficiary owned the property.

• Cautionary function: All formalities involve ritual so make the transaction operable. If you impose rituals people become more conscious about what they are doing and deliberate about the significance of the transaction, i.e. execution of a will.

• Channelling function: if you impose a certain formal requirement on one kind of transaction you will know that it is that particular type of transaction that it being entered into and identified (not really relevant here because for a trust you do not need the word ‘trust’ so the channelling functions here are slight).

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1. Testamentary Trusts

S.9 Wills Act 1837; Wills Act 1837, s. 9 – The will must be:

• In writing

• Signed by the testator, or someone acting at his direction in his presence; and

• In the presence of 2 witnesses who sign and attest the will in the testator’s presence.

Any later amendments made by codicil must also comply with these requirements. If the trust is in the will, and the will is void for informality, then the trust is void. This applies whether the property left is land or personal property.

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2. Inter vivos trust of personal property

There are no special formal requirements for the declaration of a valid and enforceable trust of personal property. Formalities only apply to interests in land. Intention is all important.

• Paul v. Constance [1977]; Joint enterprise bingo players. Mr C told Mrs P ‘it is as much your money as mine’. That was adequate to create a trust. Intention inferred.

• Jones v. Locke (1865); failed to find sufficient certainty. Would not impose trust to achieve justice. Equity will not assist a volunteer.

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3. Inter vivos trust of an interest in land

An express trust of an interest in land can be declared orally or in writing, but until it is in writing it is unenforceable so the intended beneficiaries have no claim.

Why treat land differently?

• Traditionally it is the most socially, economically and politically important type of property, so it matters that much more who has a claim to it.

• Policy of certainty and clarity is vital.

• Dealing in land is often slow and involves lawyers so requiring formality is less likely to get in the way.

Creating a trust at the outset - S.53(1)(b) LPA 1925: ‘a declaration of trust respecting 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’.

• The evidence required by s.53(1)(b) does not need to be in the form of a deed. Written evidence signed by the settlor will suffice – email analogy to e-conveyancing.

• Gardener v Rowe (1828); the written and signed evidence of the trust can be provided at a later date. Here there is a gap between validity and enforceability.

• Unlike s.53(1)(c) the written evidence must be signed by the settlor. It cannot be signed by an agent.

(a) vs. (b) – (a) refers to ‘no interest in land’; (b) relating specifically to declarations of trusts regarding land. Usually (b) involving (a) – a creation of interest in land (purpose trusts may be an exception). If the trust fund consists of land the beneficiary gets interests in land. So (a) and (b) appear to both apply to (b), but both concern different formality requirements. Also the non-compliance problems are diff – noncompliance with (a) = interest void. (b) failure the trust is only unenforceable by the B, but is not void.

Significant points of construction:

• Note the distinction between para (b) which imposes the formalities for the declaration of a trust at the outset and para (c) which imposes the formalities for the disposition of an interest under a trust already created.

• Does para. (a) apply to the creation of an interest in land by the declaration of a trust?

• The difference in effect between non-compliance with para. (a) and para. (b).

  • Gardner v. Rowe (1828);

Facts: Involved a trust declared over the lease of a mining property. In 1812 a lease is granted to the lessee (W). As soon as the lease was created he declared a trust for the benefit of Rowe (R). In 1813 Aug, W creates a written dec of trust in relation to same lease – he is confirming the prior oral declaration of trust he made to R in the previous year. Issue: Between the initial declaration and the execution of the deed, W had become bankrupt so all his property was assigned to his trustee in bankruptcy. Does the trustee in bankruptcy take subject to the trust of the lease? Was the trust of the lease valid at the time W (the alleged trustee) became bankrupt?

Decision: The purely oral declaration of trust was valid, but unenforceable by the B. It did not fall into the estate of the trustee in bankruptcy. = para (b) matters. The rule about invalidity of interests does not actually apply to para (b) cases where this is a declaration of trust orally.

• Could a valid declaration of a trust of land be made by an agent of the legal proprietor of the estate? (a) mentions agents, (b) does not. No authority where an agent can declare a trust on behalf of his principal. But once the principal is dead there is no way that the agent could execute a trust as it is a personal relationship.

• Who is the person “able to declare the trust” of the land? Possibilities:

- A declares himself or herself a trustee of land for B. Clearly here A is the person who is able to declare the trust because A would be the beneficial owner of the legal estate. Who otherwise, but for the trust, would be in a position to declare it?

- A transfers land to B to hold on trust for C. Whose signed writing do we need? It could be A or B. The only reason that B became owner of the property was because A transferred it to him, so evidence coming from A is good enough. It can also come from B’s evidence. Written evidence from either will make the trust enforceable by C.

As to B, see Mountain v. Styak [1922] N.Z.L.R. 131; No written evidence came from A, but there was signed writing admitting to the exist of the trust by B. It is a declaration or admission against the interest of B to admit the interest in on trust, because otherwise he would own it. So this is regarded as good evidence.

• What kind of written evidence do you need? The signed writing need not of itself amount to the formal declaration of trust. It may be no more than secondary evidence of the existence of the trust. Must the person who declares the trust make the signed writing at the same time as the trust is declared?

  • Gardner v. Rowe (1828); formal trust interest does not need to be contemporaneous with the instrument. All you need is signed writing. It does not need to be a formal trust instrument, any signed writing from A or B will do to show the trust even if it is not contemporaneous.

• The effect of subs. 2: the formality provisions only apply to the declaration of express trusts - trusts which arise from the expression of one person’s intention to create it. Section does not affect the creation or operation of resulting or constructive trusts.

Avoiding the formalities of s.53(1)(b) – The rule that a statute may not be used as an instrument of fraud

A trust may arise to give effect to the settlor’s informally expressed intention to create a trust. Its effect is to prevent the transferee from relying on the formality provisions by taking a personal benefit.

• E.g. A transfers land to B to hold on trust for A. If it turns out there is no signed writing the would-be trustee can then stand on there right under s.51(b), so he takes. Exceptions comes in. When the would-be trustee expressly relies upon formality provisions to renege upon the unwritten trust bargain a resulting trust will pop of to stop person benefitting from their fraud. This will often give the intended B everything they would have got otherwise.

• Rochefoucald v Boustead [1897];

Facts: Would-be settlor (A) transferred land to B as security for her debts. The understanding was he was to hold the land as a trustee for her only as long as she was still indebted. A did not declare the trust in writing. B then sold the land conveyed by trust and kept the proceeds for himself – does not account for them to A.

Decision: B’s attempt to defraud A failed because: 1) There was still surrounding...