54 terms

Constitution of a Trust

in addition to complying with the requirements of certainty and statutory formality, in order to create a valid trust there is a third requirement that the trust must be 'completely constituted'. This requirement concerns the vest of the trust property in the trustees. A trust is completely constituted when the trust property is vested in one or more of the trustees for the benefit of the beneficiaries. There are, of course, formalities which differ between different types of property. Const…
Milroy v Lord
This case created the strict and settled approach to the principle that the settlor must effectively constitute the trust. There must be a declaration and there must be an effective transfer.

In this case, Milroy wanted to transfer shares in a company to Lord. With regards to the shares, the settlor had to satisfy two requirements: (a) must send a transfer form to the company; and, (b) the transfer must be authorised by the company through a register. Milroy failed on both steps and thus the trust had not been constituted.
Re Cole
A chattel requires delivery; merely showing is not enough.
Critique of Milroy v Lord
The rule was unforgiving as often the validity of a trust depended on third parties who were often unaware of the urgency of the matter. Indeed, often transfers are made in foresight of an early demise!
the burdens of trusteeship should not be imposed in any other situation than where there is a clear manifest intention.
Re Fry
applied the settled case of Milroy v Lord to the detriment of the claimant. In this case the settlor only failed to complete the form, despite the clear intention to complete it. Moreover, he had not obtained the treasury's consent with regards to the transfer. The key fact here was that the purported disposition could yet have been prevented.
Re Rose
This case aired a great deal of judicial creativity, stretching Milroy v Lord to its limits.

Some commentators talk of the rule of no return - the idea that the intention to transfer could not be undone. In such a scenario, courts are more confident when upholding decisions which haven't necessarily satisfied all formalities.

In Mascall v Mascall the settlor issued a transfer to his son. However, relationships between them deteriorated and the settlor wished to go back on his previous decision. It was decided, however, that the settlor had done everything beyond his control and thus the gift had been constituted. Most importantly, however, the son had not sent the form to the Land Registry and thus had not yet acquired legal title!
Mascall v Mascall
the settlor issued a transfer of unregistered land to his son. The son had not sent the form to the Land Registry and thus had not yet acquired legal title. The relationships between them deteriorated and the settlor wished to go back on his previous decision. It was decided, however, that the settlor had done everything beyond his control and thus the gift had been constituted. The case, then, relied on the principle in Paul v Paul, yet sits uncomfortably with the notion that a trust is only effectual at the point of constitution.
Re Rose (criticism)
The case made a number of theoretical difficulties. In Rowlandson's case it was called a 'gloss' on the general principle. McKay also criticises it most notably for its ability to dispose of the indispensable rights of the company.
Rowlandson's case
Re Rose was understood as a "gloss" on the general principle of Milroy v Lord
Re Rose has the potential to dispose of the indispensable rights of the company
Re Rose (facts)
In this case the settlor had completed the transfer form necessary and sent it to the company for registry. However, the company, as is often the case, took three months to register the transfer. Unfortunately, the settlor passed away within that period. The court, however, underlined how the settlor had done all that was necessary that she could have done.
Choithram International v Pagarani (facts)
This case can be construed in two ways: in many respects stretched the principle too far, or simply falling upon the fact the duality of ownership occurs automatically where the settlor himself declares trustee. In this case the settlor intended to transfer property to charity before his death. He was on his death bed when he intended to make such transfer and made an oral declaration that he was going to do so. He made no mention of such a transfer in his will.
Choithram International v Pagarani
The court upheld the trust. He executed the deed himself, becoming one of nine trustees of the intended charity.

The court said that whilst equity will not perfect an imperfect give, it will not strive officiously to defeat a trust.

The court in this case construed the settlor's intention as not being an intention to transfer on death but instead as an intention to declare himself as trustee at that moment. He showed an intention to transfer on his death not during his lifetime. BUT the court held that his conscience had been affected and it would be unconscionable to deny the trust.
Pennington v Wade
Jill martin notes that the principle that the donor must do everything in their power to the point of no return is not strictly absolute.

This case involved the agent, a solicitor, failing to send the transfer form off to the company. The court, however, distinguished this case in that they claimed the donor intended to have immediate effect of the transfer, rather than on her death as is customary. the court of appeal held she had demonstrated a continuing intention that her nephew would obtain the benefit of her shares and become director. On that basis it would've been unconscionable for her to go back on the transfer.
Pennington v Wade (criticism)
Jill Martin notes that from looking at the facts, it is difficult to disagree that as Halliwell notes, the courts have been given an unfettered discretion to give effect to ineffective transactions if it would be unconscionable not to do so.

of course we must ask ourselves: what happens if the settlor changes their minds; at what point should equity consider that it would be unconscionable for the disponor to recant her intention to make the gift? But doesn't clearly state that intention? Are they going to be forced to enforce that trust if they don't want to? Not forgetting the case of Mascall v Mascall.
Zeital v Kaye
this case arguably saw a return to orthodoxy as the rules in Milroy were applied. However, it is still looking at the intention. It shows that each case must be looked at individually.
Curtis v Pulbrook
Lord Justice Briggs said that he was very unclear as to what the policy was in these cases. He said that when you trace this development it is unclear what Pennington and Choithram are trying to do. However, of course, there is only one way, that being, to focus on intention.

Tanna v Tanna - as soon as you find intention, the court will try to validate it.
Covenant to Settle
Often, amongst the various agreements between the settlor and trustee lies a covenant to settle. Through the covenant to settle there are ways in which the trustee of beneficiary may still be able to enforce the trust even if it wasn't formerly constituted. There are potential remedies under the common law and Equity.
Beneficiary's Equitable Remedy
in equity an intended beneficiary has a right under the incompletely constituted trust if she has given consideration. This includes, as often it has done, marriage considerations.

Equitable remedies are specific performance . We apply the maxim equity treats as done, that which ought to be done. So equity will put parties in a position they should be in if the contract had gone ahead.
Pullan v Koe
court said that they could sue on the contract or any issue from the marriage. "Issue" here meaning the children of the marriage.
Beneficiary's Common Law Remedy
An action for damages at common law can be taken where the intended beneficiary is a party to the contract. These are much more popular as there is no requirement of consideration.

Originally this fell under the privy of contract, however, now it falls to Section 1 of the Contracts (rights of third Parties) Act 1999 (non-retrospective).
Contracts (rights of third parties) Act 1999
In accordance with the act, a beneficiary can sue if the contract provides that the beneficiary has rights or purports to give them a benefit. However, there must be no contrary intention in that contract. The contract does not have to name the beneficiary, but by virtue of their class. In addition, that individual does not need to be in existence at the date of the contract.
Cannon v Hartley
They entered into a separation agreement involving the wife, daughter and husband. The husband agreed in the contract to transfer half of any property he might later acquire to be held on trust for the wife and daughter. After he signed into this he came into an inheritance but refused to transfer half of it on the trust for the wife and the daughter. This formed an incompletely constituted trust. There was no remedy in equity because there was no consideration. However, the court held there was a remedy in the common law because the intended beneficiaries were party to the contract. They were entitled to sue on it, but virtue of being party to that contract.
Cannon v Hartley (principle)
despite not having consideration, third parties can find a remedy. This remedy is personal, not specific performance.
Trustee's Equitable remedy
in equity, again, a trustee can enforce a contract if he or she has given consideration.
Beswick v Beswick
Mr Beswick had a coal merchants company. He assigned this to his nephew. On the understanding that the nephew would employ Mr Beswick for the rest of his life and on his death £5 per week would be paid to Mr beswick's widow. In there there is a classic trust. Mr Beswick is getting a lifetime interest. Mr Beswick is holding a trust, his wife being a beneficiary and the nephew being the settlor.
The nephew later refused to pay the widow. However, the court held Mr Beswick had provided consideration.
Trustee's Common Law remedy
Questions have arose as to whether trustees can sue on contract. They have the ability to, but they don't get anything from doing so. Part of the problem is a clash of common law and equitable principles.
Trustee's Common Law remedy (2)
The most cogent but fundamentally flawed reason for trustees to sue upon a contract is that if you are a trustee you have a duty to act for your beneficiaries and failing to do is considered a breach and personal liability follows. However, the trustees are taking this action because the contract was broken. If the contract was broken there is no trust. If there is no trust then there is no duty in the first place.
Re Pryce
In this case the intended trustees asked for directions from the court about a trustee's duty to bring action under the common law. The Court, sidestepping the real focus of the question, said trustees "ought not to sue".
Re Cavendish-Brown Trust
They were successful and did receive substantial damages. However, the reasoning is unclear. Moreover, what follows is fundamentally flawed. In the event of a failed disposition, a resulting trust should arise, reverting the property back to the settlor or his estate. The effect of this is, of course, to place the property back in the same situation as it would have been prior to the action.

Alternatively, some academics hold that the damages reconstitute the trust. The personal damages become the trust property and are held on trust for the beneficiaries.
Re Cavendish-Brown (trust of a promise)
Alternatively, a trust may be constituted when the "property" is understood differently. Contracts create duties, and by corollary, rights. A right of action is in as of itself property, normally understood as a chose in action. The right to sue on a contract is a form of property as a right to purchase is in Vandervell. As such, an alternative approach would be to bring an action upon the promise to the property. This has been coined, a trust of a promise. That right to sue is property, and is in the hands of the trustee as soon as the contract is enforceable.
Re Cavendish-Brown (trust of a promise limitations)
A trust of a promise is a partial solution. It doesn't allow the settlor to change his or her mind, even prior to constitution; the rule has the effect of interfering with the freedom of contract. Thus, the courts show a reluctance to enforce promises.
Tomlinson v Gill (Trust of a promise)
the courts are reluctant to enforce a trust of a promise. The courts have laid down a set of fairly stringent requirements for a fully constituted trust of a promise to be effective. These are laid out in Tomlinson v Gill
Re Schebsman
There must be a clear and manifest intention to create a trust of a promise and not a normal trust. A trust of a promise remands the benefit of the covenant as the subject-matter or the trust.
Re Kay's Settlement
The court have shown unwillingness to develop the area of trust of a promise.
Re Ellenborough
The property must be in existence at the time the covenant is made; after-acquired property is not enough.
Re Ellenborough (2)
An expectancy - inheritance etc. - cannot constitute a trust of a promise. However, Wright holds that the subject matter was incorrectly classified as future property. Rather, it should have been held as a present debt, payable in the future.
Re Cook's Settlement Trust
After-acquired property also unable to form a trust of a promise - any property you may receive after the date of the contract.
Strong v Bird
An exception to the principle that equity will not perfect an imperfect gift. If the settlor dies and the trust is incomplete, the court will look to the will. If the will states that the intended trustee is also the executor of the will, then that will be sufficient to constitute a trust. The trust must, however, be inter vivos, otherwise it would fail on formalities.
Strong v Bird (rationale)
Watts holds that this case illustrates how facts can sometimes combine fortuitously to perfect an imperfect gift. Indeed, the case is underpinned by the notion that, per his role as executor with all legal title of the estate flowing to him by virtue of the will, the inter vivos trust has been 'inadvertently' perfected.
Cain v Moon
This case set out the requirements for the principle donatio mortis causa: first, the gift or donation must have been in contemplation, though not necessarily in expectation of death; secondly, there must have been a delivery to the donee of the subject matter of the gift; and thirdly, the gift must be made under such circumstances as to show that the thing is to revert to the donor in case he should recover.
Birch v Treasury Solicitor
The property that signals the transfer via donatio mortis cause can be anything that signals possession. In this case it was a building society cheque book.
Sen v Headley
In this case the old romantic placed a key to the deeds of his house to his lover in her bag before he died. It was held to constitute a sufficient intention.
Taylor Fashions
Held that a settlor will be estopped from refusing to constitute a trust where she has assured the beneficiary of an interest, and the beneficiary has relied upon this assurance to their detriment.
Cobbe v. Yeoman (facts)
The claimant, a property developer, made an oral "in principle" agreement to buy the defendants land, contingent on the planning permission which he sought thereafter. The planning permission cost him in excess of a quarter of a million pounds. The claimant was aware that there was no binding contract yet he spent his time and money on the potential project.
Cobbe v Yeoman (held)
It was held that the claimant's expectation was always subject to a contingency and as such it did not amount to proprietary estoppel.
Cobbe v Yeoman (critique)
The case placed a particularly restrictive gloss on the old law of estoppel. McFarlane et al. commented that the decision to some extent sapped the utility out of the principle.
McFarlane and Roberts (Cobbe)
Cobbe sapped the utility out of the principle
Thorner v Major (facts)
The then deceased estate holder, previously "a man of few words", owned a farm upon which the claimant worked for twenty nine years, unpaid. There was a clear intention that the deceased intended to hand the farm over to him. This was evident as it was impliedly the contract of work, and also, prior to the deceased demise, a number of events held that that was his intention. Moreover, he had previously written the claimant into the will to inherit the farm, however, he had revoked the will prior to his death in response to a fall out he had with another potential legatee under it.
Thorner v Major (Held)
It was held that the claimant should receive the property under the principle of proprietary estoppel. It was "clear enough" that that was his intention.
Thorner v Major (principle)
Distinguishing this case from Cobbe, it is clear that the court look heavily upon the intention of the settlor, but are weary of stepping too far. It is suggested that Cobbe was confined to commercial contexts, where the legal ramifications of particular actions are all the more clear. The facts of this case are no doubt authority for a finding of unconscionability; the deceased was certainly unaware of the importance of the relevant formalities. Moreover, with the claimant working there unpaid, the 'cost' so to speak, was greater. This case, therefore, reinstated flexibility onto the rule (McFarlane and Roberts)
McFarlane and Roberts (Thorner v Major)
The case reinstated flexibility into the rule of proprietary estoppel.
Re Rose (constructive trust?)
It is suggested that this principle is in general terms best understood as a form of constructive trust in the modern context, as it has latterly been explained by the Court of Appeal, even though the manner in which Lord Evershed MR explained it in Re Rose was as an equitable acceptance of the unconscionability of the donor purporting to retain the shares and any dividends paid under them once he had completed and sent off the share transfer forms. Equity accepts that the equitable ownership of property passes to anticipated donee of property when the intended donor has done everything which was necessary for him to do to effect such a transfer. Consequently, the legal title remains in the donor while the equitable title remains in the donee. This happens by operation of law and not by the will of the parties because the donor intended to make a gift or to declare an express trust, neither of which were completed. In consequence, it is suggested that a constructive trust arising by operation of law is the best explanation of this phenomenon.
Alistair Hudson
such is the business of equity: to mollify the extent of the common law and of statute. Therefore, there is no necessary surprise that the court should use the Rose principle to achieve the "right" result. What is problematic is knowing at what stage there is sufficient inequity on the facts so as to justify the transmission of title in equity. It seems to me that even the Rose case itself is unconvincing in this regard, as I suggested above.