Equity and Trusts
Creation of express trusts 2:
constitution of trusts
Requirements for a valid
trust
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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.
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.
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.
“ …the nature of the property
comprised in the settlement”
Chattels
For chattels there must be delivery +
intent to give or a deed of gift.
Land
Unregistered land: must be transferred
by deed +registered at LR
Registered land: must be transferred
by land registry transfer + registered.
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.
Equitable interests
S53(1)(c) LPA 1925 must be transferred
in writing
Future property
e.g. possibility of receiving something
under a will cannot form subject matter
of a trust
Remedies
If trust not constituted then beneficiaries
receive nothing because nothing to
enforce.
Will wish to show trust is constituted or
another remedy.
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.
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.”
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.
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.
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.
Re Fry
Compare with Re Fry [1946] 2 All ER
971 treasury consent was necessary
before registration but had not been
obtained.
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.
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.
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.
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.
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.
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.
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.
Pennington – further criticism
T Choithram International SA v Pagarani [2001] All ER
492 cited in Pennington as support. See BrowneWilkinson: 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.
Pennington
Pennington is very different – statement
that unconscionable for A to revoke gift is
too broad.
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.
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.
Requirements
• Intention to make immediate inter vivos
gift
• of specific existing property
• Intention continues to donor’s death
• Donee becomes donor’s executor.
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.
Ralli’s WT
Contrast Re Brook’s STs [1939] Ch 993
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.
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
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.
DMCs
Circumstances must show gift
conditional on death + revocable on
recovery
Can infer conditional quality of gift.
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.
DMCs
Choses in action must be transferred by
relevant document essential indicia or
evidence of title: e.g.bank deposit pass
book
DMCs
DMCs of land possible
Donor must hand over relevant
documents.
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.
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.
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.
Covenants
• Gratuitous statements by settlor cannot
be enforced
• Formal promises are different e.g.
covenants
• Covenant is a promise contained in a
deed.
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.
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
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.
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.
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.
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.
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.
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.
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.
Contracts (Rights of Third
Parties) Act 1999
By ss2 ss1(b) does not apply if on
proper construction of contract the
parties did not intent the term to be
enforceable by third party
Contracts (Rights of Third
Parties) Act 1999
• S1(3) third party must be expressly
identified in contract by name as
member of class or as answering a
particular description
• Third party need not exist at time of
contract (e.g. unborn children/future
spouses)
Contracts (Rights of Third
Parties) Act 1999
• Remedy is damages
• Open to question whether under S1(5)
this means specific Trusts of the
promise
Contracts (Rights of Third
Parties) Act 1999
• Third party could now enforce covenant
to obtain damages
• Specific performance may also be
available
• Act does not apply to covenants made
before 1999 Act came into force.
Trusts of the promise
Where settlor enters into covenant can covenant
itself be subject matter of trust?
See Fletcher v Fletcher (144) 4 Hare 67 if settlor
intended to make the promise the subject of the
trust then this constitutes a trust of the promise.
Here settlor covenanted to pay £60k on trust for
his illegitimate sons. One volunteer son sought to
enforce. Court held that covenant held on a fully
constituted trust.
Trusts of the promise
• Trustees of the covenant hold on trust
that of which the contract comprises i.e.
the benefit (a chose in action).
• Problem: was there really a trust of the
promise in Fletcher?
• Fletcher decided when precatory words
sufficient for trust and this was
obviously what the settlor had intended.
Trusts of the promise
• Fletcher would now be decided differently
• Now need clear intention to create trust of benefit
of the covenant
• See Re Shebsman court held no trust of benefit of
contract is to be implied even where contract
stated to be for benefit of third party. Settlor must
manifest intention to create trust of benefit of
covenant e.g.: pending the transfer of the trust
property benefit of the covenant shall be held by
the trustees of the settlement.
Trusts of the promise
• No successful cases since court changed its
view on intention
• But was Re Cavendish Browne an example of
trust of benefit of covenant?
• Fletcher was raised in Re Cookes where it
was stated not to apply to after acquired
property – i.e. there cannot be a trust of future
property (but without authority).
Don King Productions Inc v
Warren
• Recent case: Don King Productions Inc v Warren [1998] 2
All ER 608
• Don King and Frank Warren entered into partnership
agreement. Partners to hold all promotion and
management agreements relating to partnership to benefit
of partnership absolutely. Warren entered into another
agreement for own benefit. Court held that this was held
on trust for partnership
• In effect each was a trustee of their management
contracts so any profits from promotion contracts (at time
or future) on trust for partnership (contrary to Re Cooke
supra).
Conclusion
• BUT - it is still necessary for settlor to
intend to create such a trust
• Since C(RTP)A 1999 (supra) covenants
to settle and Fletcher are of less
importance