Equity: Three Certainties, Formalities and Constitution

Re Barlow's WT [friends can claim paintings]

"Friends" in a discretionary trust is too uncertain as there are a "great range of meanings" depending on context Browne-Wilkinson - reasonable friendship test Minimum requirements: 1) long-standing relationship 2) social relationship (not business) 3) frequently meet

What happens where a trust fails for lack of certainty of subject-matter?

1) Property uncertain? No trust 2) If 'trust' is grafted onto a gift - donee takes the gift absolutely (Sprange v Barnard; Palmer v Simmonds) 3) If beneficial interests are uncertain, there will be a resulting trust (Boyce v Boyce)

Two types of Implied Trusts

1) Resulting Trust (to B for life - B dies) 2) Constructing Trust

What are the three essential elements of an Express Trust?

1) The Three Certainties 2) Formalities 3) Constitution

Brand new trusts

1) of land - 53(1)(b) LPA 1925 2) of other property - no formalities (Paul v Constance)

What formalities apply? H declares he is holding his flat on trust for J?

53(1)(b)

What formalities apply? A gives his equitable interest in some shares to B

53(1)(c)

What formalities apply? K declares a sub-trust of the whole of his equitable interest in some paintings for L

53(1)(c)

Gift

A transfers absolute ownership to B (i.e. there is no division of the equitable interest and legal title)

Mac-Jordan Construction Ltd v Brookmount Erosion Ltd

A trust of an unidentified section of chattels (tangible property) will fail e.g. MONEY, whereas a trust of an unidentified section of intangible property, such as shares, is valid. FACTS: Building contract provided part of price would be retained and held by employer as trustee for builder - employer became insolvent - builder claimed retention money - no trust - no fund set up, so no identifiable assists impressed with a trust

Re London Wine Co (Shippers) Ltd

A trust of an unidentified section of chattels (tangible property) will fail e.g. WINE BOTTLES, whereas a trust of an unidentified section of intangible property, such as shares, is valid. Unidentifiable and uncertain in this case. Tangible. Purchasers bought wine kept in warehouses. When company went insolvent, was impossible to say which bottles belonged to which customer as they had not been segregated or identified in any way. The customers could not claim priority over other creditors by saying that particular bottles of win were held on trust for them.

Hunter v Moss [shares]

A trust of an unidentified section of chattels (tangible property) will fail, whereas a trust of an unidentified section of intangible property, such as shares, is valid. Clearly identifiable. Intangible. Left 50/950 shares. They cannot vary in quality so passable as trust property. (Re Harvard Securities follows this but Neuburger criticses heavily)

McPhail v Doulton [admin.unworkability]

Administrative Unworkability. Fails when class is "hopelessly wide"

R v District Auditor ex parte West Yorkshire Met. CC

Administrative Unworkability. Money left on trust to "the inhabitants of West Yorkshire." This is simply unworkable so fails.

Boyce v Boyce [cottages]

Beneficial Entitlements. Must be capable of determination. "Maria to choose, others to Charlotte." Because Maria died in the testator's lifetime before she could choose. Consequently the trust in favour of Charlotte was void - it was uncertain what property the trust applied to. The Testator should have added a fall-back mechanism if Maria could not choose.

Re Golay's Will Trusts

Beneficial Entitlements. Must be capable of determination. The Testator directed his executors to allow B to 'enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties'. Arguable uncertainty regarding 'which flat' but this was no raised as an issue in the case. The question arose regarding 'reasonable income' - held that it is definable - can measure against market rate that a housekeeper could expect. Objective yardstick. (The Courts are used to manipulating the concept of "reasonable") The gift was held valid.

Re Steele's Will Trust

CASE: Identical words from an older case may however be interpreted in the same way i.e. the earlier decision should be followed unless it is clearly wrong

Shelley v Shelley

CASE: The court followed the interpretation given to words

Re Hamilton

CASE: The words in each document are interpreted in their own context, rather than according to previous cases

Re Goldcorp Exchange Ltd

CASE: There was no identifiable property (a BULLION) here on which any trust could attach.

Failure to comply with the three certainties

Can render the disposition void

Paul v Constance [bingo players]

Certainty of Intention - evidence - words and/or conduct Technical words are not required and can be made orally. In this case, the court judge found an intention to create a trust whee a man had told his cohabitant that the money in his bank account was "as much hers as his" and ordered half the money to be paid to her after his death rather than pass to his wife. Had Mr C done something which was equivalent to declaring himself a trustee of the moneys in the account for himself and Mrs P in equal shares? Although cannot pinpoint a specific moment of declaration, the discussions on numerous occasions between the parties constituted an express declaration of trust.

Re Kayford

Certainty of Intention - wording - Equity looks to the intent rather than the form. A trust can be created without using the words 'trust' or 'confidence' or the like: the question is whether in substance a sufficient intention to create a trust has been manifested

Morice v Bishop of Durham

Certainty of objects. Must have identifiable, ascertainable beneficiaries to enforce the trust.

Re Sayer

Certainty of subject-matter The court should adopt a 'practical and common sense' approach, and that which would be used by a particular settlor setting up such a fund

Lambe v Eames

Certainty of wording Property had been left by the testator to his widow 'to be at her disposal in any way she may think best, for the benefit of herself and her family' [the widow gave part of the assets by will to someone who was not a member of the family]. Held - the widow was absolutely entitled to the property and could make a valid gift to anyone. Imperative words vs Precatory words - Modern cases lean against finding a trust where precatory words are used

Comiskey v Bowring-Hanbury

Certainty of wording. "In full confidence she will [leave] it to such of my nieces as she thinks fit" - Imperative (imposing obligation). Therefore, a trust. In this case, there was context. The entire will was available which included provisions which intended that the children would receive a benefit.

Re Adams & Kensington

Certainty of wording. "To my wife in full confidence that will do what is right between my children" - Precatory (expressing hope). Therefore, no trust. If intention uncertain, the Donee (the would-be trustee) takes free of the trust. In this case, there was an isolated provision as there was no context. There was therefore no trust, simply a gift.

Public Trustee v Butler

Choice of words when determining objects - deserving vs promising Morritt C held that a power to appoint income to help 'the deserving material hardship cases amongst my relatives' was void due to uncertainties flowing from the use of the word 'deserving', though use of the word 'promising' in a power to use income to provide scholarships for promising relatives did not create uncertainties

Neville v Wilson [private shares]

Contract for valuable consideration. Probably does have to comply with S53(1)(c). BUT in this case, there was a contract for shares in a private company. i.e. something unique. Special performance given in this situation, which creates a constructive trust. Formalities suspended like in Hodgson v Marks per s53(2)

3) Certainty of objects

Define: Beneficiaries

2) Certainty of subject matter

Define: The property subject to the trust

1) Certainty of intention

Define: Words or intention to create a trust

McPhail v Doulton [Re Baden]

Discretionary Trusts: use is/is not test. "Can it be said with certainty that any given individual is or is not a member of the class" (Lord Wilberforce) Left money to former employees and their relatives. Is it possible to say whether any given individual is or is not within the class? So the trustee can choose Bs without breaching the trust. Conceptual certainty only. (Re Gulbenkian applies this test of powers of appointment.)

Re Baden (no2)

Discretionary trust: In order for a trust to be valid, there must be conceptual certainty. Once the class, as a concept, is certain, it is merely a matter of evidence as to whether someone is or is not within it per McPhail v Doulton. Brightman J: Conceptually certain. Sachs LJ: Onus on claimant to prove he is within the class. Evidence needed. Nonetheless, conceptual certainty. (Preferred) Stamp LJ: No "don't knows", consider "descendants of a common ancestor" - but considered "next of kin", a narrower meaning. Must be able to define start and finish in accord with Lord Wilberforce's test. Every person must be identified (?) Megaw LJ: "substantial number" = conceptually certain (?) Therefore, out of the three approaches - Sachs LJ is the most pragmatic and sensible. Megan's is not in line with McPhail. Stamp is very harsh and relies on playing semantic games - treating relatives as next of kin.

s53(1)(c) LPA 1925 [dealings with equitable title]

Disposition of a subsisting (already created) EQUITABLE interest (whether chattel or land) must be: 1) In writing. 2) Signed by settlor or agent. If not, is VOID.

"Equity will not assist a volunteer"

EM Definition: If you want to enforce a gift, Equity will not assist (i.e. if there is no consideration for yourself, you require nothing in return, therefore you have done nothing to gain equity's intervention)

"He who comes to equity must come with clean hands" (if you seek remedy in Equity, you must be acting 'properly')

EM: Argyll v Argyll

"Equity looks on as done that which ought to be done"

EM: If you wish to set up a trust, but you have forgotten to use the correct formalities, then Equity may assist you

Vandervell v IRC

EXCEPTION S53(1)(c) does not apply if absolute beneficial owner directs bare legal owner to transfer to a third party. The legal and beneficial interest will move together. FACTS: Mr V was the beneficiary under a bare trust of shares. He wanted to endow the RCS with the shares. He directed the shares be transferred to the RCS. At the same time an option to purchase the shares was granted to a trust company, for the benefit of his grandchildren. When the option was exercised, the resulting trust ceased to exist. The property now held for the children was a new trust which did not require formalities. 1) Not a disposition 2) s53(1)(c) only catches dealings with an equitable interest separate from legal title 3) Trust collapses and both legal and equitable title pass to the intended recipient

Re Rose [gift of shares]

Exception to Milroy: The S/D must have done everything in their power 'irrevocably to transfer ownership' Mrs Rose did everything properly but died before registration. If rule applies, the incomplete legal title transfer creates a Constructive trust in favour of the recipient, thus forcing completion of the legal title transfer. Need to have: 1. Use correct method. 2. Do all can in one's power. 3. Put the method beyond one's control i.e. documentation must end up in hands of person/institution capable of effecting legal title transfer Therefore - where the transferor has done all in his power to make the transfer, and the only fault is a third party inaction, over which the transferor has no control, equity will perfect the transfer

s53(2) LPA 1925

Exempts implied trusts from the need for writing

Precatory words

Express a hope or a wish "To A hoping he will use it for B" = NO TRUST

Milroy v Lord

Failure to Constitute. Done everything necessary to be done. -Equity will not assist a volunteer. -Equity will not perfect an imperfect gift. -Equity will not treat a gift as a self-declaration of trust. (there are exceptions that are heavily criticised) Turner LJ - "In order to render a voluntary settlement valid and effectual, the settlor must have done everything which, accordingly 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". i.e. where the settlor has done everything within their power, equity may regard the transfer as complete He may do this by: i) outright gift (constitution applies) ii) transfer of legal title to T to hold on trust (con. applies) iii) self-declaration of trust (no con. - no movement of LT)

IRC v Broadway Cottages

Fixed Trusts: use the "list" test. It must be possible to draw up a complete list of all beneficiaries in the class. Conceptual and evidential certainty.

Three certainties - Step 2 - Subject-matter

For there to be a valid trust, it must be certain what property is subject to the trust. If it is not clear, how is a person to know what property they are to control as trustee in the interests of the beneficiary? It must be certain: a) what PROPERTY is subject to the trust b) what PART OR SHARE OF THE PROPERTY each beneficiary is entitled to where there is a fixed trust as opposed to a discretionary trust (i.e. beneficial entitlements)

Timson's Executors v Yerbury [disposition]

Four options when disposing of an equitable interest: 1. Assign it directly to 3rd party: must comply with 53(1)(c) LPA. 2. Direct trustee to hold for a 3rd party: must comply with 53(1)(c) LPA. 3. Contract for valuable consideration (NOT ON COURSE) 4. Can declare self trustee of the equitable interest for a 3rd party.

Re Barlow's WT [friends can claim paintings]

Gifts subject to condition precedent. Definition of "friend" unclear but is not a trust. Rather a series of individual gifts.

Re Allen

Gifts subject to condition precedent. The test for certainty in the case of gifts is less strict than the Barlow test. Valid if one person can satisfy condition 'on any reasonable basis'

Remainderman

Has a contingent interest i.e. they are entitled to the property subject to a condition which may or may not be met

Three certainties - Step 1 - Intention

Has the settlor shown a clear intention to create a trust?

Academic views on sub-trusts

Hayton: 53(1)(c) only applies if the original beneficiary drops out, retaining no benefit or duties Green: All sub-trusts involve parting with some beneficial interest so 53(1)(c) always applies Penner: All sub-trusts involve the declaration of a new trust, so 53(1)(c) never applies

Settlor

He who sets up the Trust and is the owner of the property

Chattels

How to transfer. Deed; or 1) Intention to make a gift coupled with 2) actual delivery (Re Cole) accompanied by the transferor intending to transfer them

Constituting Bills of Exchange

How to transfer. Must be endorsed: Jones v Lock

Transferring equitable interests

How to transfer. Signed writing in accordance with s53(1)(c) LPA

Constituting Shares

How to transfer. s.1 Stock Transfer Act 1963: a stock transfer form must be filled in and sent with the old share certificates to the company.

Constituting Bank Account

How to transfer. s136 LPA 1925: (a bank account is a debt; a chose in action.) Must give signed written notice to the debtor i.e. bank.

Constituting Land

How to transfer. s52 LPA 1925: deed. s1 LP(MP)A 1989 - written, signed, witnessed by at least one independent witness, describe itself as a deed, be delivered ss4/27 LRA 2007 - Registration Registered - Transfer Unregistered - Conveyance Lease - Deed must be used unless it is a short lease not exceeding 3 years Assignment - To transfer an existing lease Equitable interest transfer - Settlor must comply with s53(1)(c) LPA

General rule of Constitution

If an attempted transfer of property to trustees is imperfect, the trust is not completely constituted and, as equity will not assist a volunteer, no effective trust is created

These trusts are implied by conduct (i.e. actions or words) and require no formalities

Implied Trusts (Resulting and Constructing)

Imperative words

Impose a clear, legally binding obligation "To A to hold for B's benefit" = TRUST

Summary of Grey v IRC; and Vandervell v IRC

In Grey v IRC, G attempted to transfer only an equitable interest, therefore he had to comply with s53(1)(c) and the disposition had to be in writing. However, in Vandervell v IRC, the HoL explained that where the equitable interest and the legal interest are transferred to the same individual there is no need to comply with s53(1)(c), thereby establishing an exemption to the general rule that writing is required.

What happens if there is no uncertainty of subject-matter?

It is still a valid trust if: 1) Trustees are given a discretion to determine the beneficial interests; 2) The maxim 'equality is equity' is applied; 3) The settlor lays down an effective determinant as in Re Golay ("reasonable income") Note: "residue" of an estate is ascertainable, and therefore certain

Application of the Milroy v Lord principle that Equity will not perfect an imperfect gift (two cases)

Jones v Lock - £900 cheque - not endorsed therefore no property transferred - absolute gift only Richards v Delbridge - lease endorsed but not legally signed therefore no effective transfer - absolute gift only

Hodgson v Marks [lodger] s53(2), LPA 1925.

New Implied Trust. If can prove an implied trust (resulting or constructive) it will trump s53(1)(b) An old Lady took a lodger called Evans who got his name on her land deed by wooing her with fruit. Evans sold the house to Marks and disappeared. Established that was a resulting trust for the lady (Mrs Hodgson) and was binding on Marks as it is an implied trust. She didn't mean to give it all to him so a 'presumed resulting trust'.

s53(1)(b) LPA 1925

New Trust: An express declaration of trust land: - Must be manifested and proved by some writing by the testator - Must be signed. Failure to comply with this section will render the declaration of trust UNENFORCEABLE, rather than void

Paul v Constance - Declaration

New Trust: Inter Vivos Trusts of property other than land. Can be "without deed, without writing, without formality of any kind." i.e. can be declared informally

Section 9, Wills Act 1837

New Trust: Testamentary trusts (a trust on death) must be: a) In writing and signed by the testator. b) In the presence of two witnesses. c) Each witness must attest and sign the will in the testator's presence.

Do the beneficiaries need to be told of the trust by the settlor?

No - the settlor must make it clear to the trustee who the beneficiaries of the trust are, but the beneficiaries do not need to be told.

What formalities apply? C creates a new trust of shares for D?

None

What formalities apply? E holds a house on bare trust for F, F tells E to make G the absolute owner?

None - Vandervell exception

Palmer v Simmonds

Property itself must be clearly defined - a quantifiable amount must therefore be specified. The wording "the bulk of my estate" to specified persons - not cleary defined. Too subjective. If subject matter uncertain, there is no trust. Therefore, the beneficiary takes the property absolutely.

Sprange v Barnard

Property must be clearly defined. It is important to construe the words used in their particular context. In the testatrix will - "for my husband TS, to bewill him £300...for his sole use; and at his death, the REMAINING PART OF WHAT IS LEFT, that he does not want for his own want and use, to be divided between..." her brothers and sisters. TS was entitled absolutely (gift) - there was no certainty as to property. It was not certain that any property would be left at the widower's death, let alone what it would be. I.e. it was not clear what property the trust was to 'bite' on, so the subject-matter was uncertain. No trust. A trust create rights and duties at the moment of its creation, and must therefore be certain at the moment of its creation, so at the date the will takes effect it needs to be certain how much is to be divided between whom upon death.

Evidential certainty

Refers to the extent to which the evidence in a particular case enables specific persons to be identified as members of the class. Is there any evidence to categorically prove... (e.g. a birth certificate or a DNA test!)

Conceptual certainty

Refers to the precision of language used by the settlor to define the class of persons whom he intends to benefit

Pearson v Lehman Bros

Shares are intangible property and are all the same. This case approved the tangible/intangible distinction in Hunter v Moss.

Rochefoucauld v Boustead

Statute cannot be used as an instrument of fraud - a Trustee cannot use lack of compliance with statutory formalities to commit a fraud The need to prevent fraud outweighs the compliance with 53(1)(b)

Knight v Knight

The Three Certainties are: 1. Certainty of intention 2. Certainty of subject matter 3. Certainty of objects

Fixed Trust

The beneficiaries are clearly identified

What if there is no document creating a trust?

The court must look at the words and/or conduct of the parties to see if there was an intention to create a trust.

Beneficiaries

The owner(s) in Equity Has the Equitable Title Has rights and benefits enforceable in court

Trust

The ownership is split between T and B T has a duty to carry out the terms of the Trust and B can compel the trustee to exercise power B has an equitable title (Apply Saunders v Vautier for B to become absolute owner)

Trustee

The person in whom the settlor puts his trust The owner in Common Law Has particular powers and duties Has the duty to abide by the terms laid down by the settlor

Curtis v Luken

The rule in Saunders v Vautier also applies where there are multiple beneficiaries, so long as they are all in agreement and sui juris

Re Gulbenkian's Settlement Trusts

The test for certainty of powers of appointment was laid down by the HoL in this case. Lord Upjohn - "The power is valid if it can be said with certainty whether any given individual is or is not a member of the lass and does not fail because it is impossible to ascertain every member of the class"

Discretionary Trust

The trustees have been given a discretion to decide who the beneficiaries are

Power

There is no duty to exercise this - it is simply a favour of the remaindermen/beneficiaries. There are no proprietary rights

Equitable Maxims

These are the foundational elements of the Equity system

Re Adams; and Comiskey v Bowring-Hanbury

These two cases emphasise the importance of construction of the particular words and circumstances and that phrases such as "in full confidence" may or may not impost a trust. The crucial factor is whether the CONTEXT of the will as a whole indicates that this was the testator's intention

Three certainties - Step 3 - Objects

Thirdly, in order for a trust to be enforceable, the objects of the trust i.e. the beneficiaries, must be certain.

Saunders v Vautier

This case outlines the following rule: The sole legatee of a vested interest can demand immediate payment of the capital sum of the legacy even though the will expressly states that the executor should postpone payment and accumulate income. The sole legatee must be sui juris.

Express Trusts

This type of trust is expressly set up by the settlor - i.e. they have a clear intention to create a trust

Once the three certainties have been established, what is the next step?

To create an equitable title i.e. declaration of a trust, there may be certain formalities which must be complied with.

Definition of Constitution

Transfer of Legal Title from one party to another. The Settlor must vest the property in the Trustees. It is not enough to simply declare the trust. Where trust property is vested in the trustees, the trust is said to be 'completely constituted' and it is then binding on the settlor, who cannot change their mind and revoke the trust. Death: Constitution takes place via the will. Legal title vests in the executor. Life: Gifts, transfers on trust.

Self-declaration of trust - s53(1)(c) or not?

Where a beneficiary under an existing trust declares himself as trustee of his equitable interest for X, B is in effect creating a sub-trust but the position on the application of s53(1)(c) is uncertain If the sub-trust is a: New trust - s53(1)(c) does not apply; only s53(1)(b) if it relates to land Bare trust - B drops out and T holds directly for X = a disposition of B's equitable interest to X to which s53(1)(c) might well be held to apply (Grainge v Wilberforce (cf Zeital v Kaye)) Discretionary trust - A for life, remainder B - A retains benefit, not a disposition and 53(1)(c) does not apply. A new trust.

Precatory or Imperative words - trust or no trust?

Whether words impose an obligations (trust) or merely express a wish (no trust) is a question of construction in each case

If the trust does not have certainty of object - does the trust fail?

Yes, but the trustees will hold the property on resulting trust for the settlor or his estate (Vandervell v IRC)

Re Cole

[CASE] A transfer of chattels not by deed requires a delivery of the chattel with unequivocal words of transfer to be valid FACTS: A husband took his wife through the home and said 'look, it is all yours'. On his bankruptcy she claimed legal ownership of the furniture

Grey v IRC

[CASE] An attempt to make an oral disposition of a subsisting equitable interest is void for want of writing T'or wanted to transfer beneficial interest without attracting Stamp Duty. He made an oral declaration that the ben. interest was to be held for his grandchildren. He claimed that the docs which stated this merely confirmed the oral transfer. HoL held - transfer allowed as subsequent deed complied with 53(1)(c). Wrong decision?