Section 53(1) (c) - lecture nore PDF

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Formalities Section 53 1(c) provides a disposition of an equitable interest subsisting at the time of the disposition must be in writing signed by the person disposing off the same or by his agent there unto lawfully authorized in writing or by will. Non-compliance makes the disposition ineffective. The principle function of section 53 1(c) of the Law of Property Act 1925 appears to be that of protecting trustees (Gardner). The section is intended to ensure that the location of the equitable interest is clear and manifest so that the trustee’s are able to determine who the beneficiaries are. The requirement of writing plainly assists the process. It also ensures that trustees do not commit fraud. Fiscal considerations have also been introduced which has resulted in a detailed exploration of the scope of the section. Stamp duty is payable on instruments, transferring property or an interest in property but not if transfer can be effected orally and this therefore is also relevant in determining whether a transaction is a disposition or not. The meaning of the phrase disposition of equitable interest has given rise to difficulties. Everyone familiar with the law of trusts knows about the complexities that lie behind the seemingly innocuous provisions of section 53 1(c) of the Law of Property Act 1925. Section 53 1(c) has given rise to important cases. However, most of these are of recent vintage and decided in the last 20 years or 50. These cases have classified some points regard the scope of section 53 1(c) but still some aspects regarding the meaning of disposition remains uncertain and controversial. Although it is clear that disposition is to be given a wide natural meaning such it would enjoy in every day use (Grey v IRC) it is clear that the meaning is not the same as the meaning of disposition is Section 205 of the Act (Re paradise Motor Company Ltd). It is therefore more profitable to examine various situations especially those covered by case law in order to determine what will and what will not amount to a disposition so as to require writing as a formality under section 53 1(c). There is no disposition of a subsisting equitable interest when legal owner with full beneficial ownership makes a declaration of trust. He is not regarded as having two estates one legal and the other equitable (Westdeutsche Landes Bank v Islington Be). The equitable and the beneficial interest is merged or subsumed in the legal estate and will pass automatically when the legal estate is transferred (Vandervell v IRC). If he declares a trust this creates a new equitable interest and so it's not a disposition. Secondly where trustee’s hold property on a trust for a beneficiary and pursuant to his direction transfer the property to a third party absolutely legal and beneficial ownership then the beneficiary's interest is extinguished and the third party obtains full legal and equitable ownership. In such a case there is no disposition of the equitable interest requiring compliance with section 53(1) (c) (Vandervell v IRC). Section 53(1) (a) of the Law of Property Act 1925 provides that for purposes of land the direction must be in writing and land must be transferred by deed or by entering the transferee’s name in the title.

Disclaimers are exempt from section 53 1(c) despite being included in the definition of a conveyance within section 205. A disclaimer involves a conscious decision on the part of the person not to take the interest in the property. There is no positive intention to transfer the interest to any specific person. The effect is that the property is required by another person but without any conscious decision to transfer the beneficial interest to another. A disclaimer operates by a way of avoidance and not by a way of disposition (Dankwerts Lord Justice in Re Paradise Motor Company Ltd). Pettit has criticized this as unfortunate because Lord Justice Dankwerts did not give any explanation why a disclaimer will not be regarded as a disposition despite being included in section 205. Surrender on the other hand is a disposition (Newton Housing Trust) despite comments to the contrary. Surrender involves the extinguishment of a subsisting equitable interest and according to J G Munroe extinction is not a disposition. However, Meagher, Gummow and Lehare do not accept this suggestion by Monroe. Therefore it remains controversial as to whether surrender should be treated as a disposition or not. Section 53 1(c) only applies to beneficial interests that actually exist of the date of the disposition. Nominations by staff pension fund holders, who will become entitled to benefits under the pension fund after the deaths of the pension holders, are not dispositions within section 53 1(c) (Re Danish Bacon). We must now consider the four modes of dealing with equitable interests in properly summarized by Romer Lord Justice analyzed in (Timpson's Executors v Yerbury) whether they are dispositions or not. The person entitled to the equitable interest a. Can assign it to the third party directly or b. Can direct the trustees to hold the properly on trust for the third party or c. Can contract for valuable consideration to assign the equitable interest to him or d. Can declare himself to be a trustee for him of such interest). Where a person makes a direct assignment of his equitable interest to another this constitutes a disposition with section 53 1(c) of Law of Properly Act 1925. It will accordingly be void if not in writing. Direction to trustee to hold on trust for a third party is a disposition. This point arose in Grey v IRC where the House of Lords unanimously held that this was a disposition and any attempt to avoid writing so that stamp duty may not be paid, would fail. Where a person transfers his subsisting equitable interest under a contract this may or may not amount to a disposition within section 53(1(c). This will depend upon whether the trust property is such regarding that a specifically enforceable contract can be made or not. In Oughtred v IRC Up John Justice at first instance and Lord Radcliffe in the House of Lords took the view that where the trust property is such regarding which a specifically enforceable contract can be made it is transferred. The interest passes by a way of a constructive trust without the need for further writing. This view was accepted by Megarry Justice in Re Holts Settlement and recently adopted by the Court of Appeal in Neville v Wilson.

The view taken by Lord Radcliffe has been criticized that it allows assignments informally and secretly with resulting difficulties to trustees in ascertaining their beneficiaries, the very mischief which section 53 1(c) was designed to prevent. The argument in favor of this view is that the parties have declared no trust and equity chooses to impose a constructive trust and constructive trust does not truly constitute a transfer (Lord Cohen). The fourth situation identified by Romer Justice is where the original beneficiary declares a trust of his beneficial interest. Here the courts seem to have drawn a distinction between genuine declarations of a sub trust and transactions which though declarations of sub trust are in substance a disposition of the equitable interest if the sub-trust declared is a bare trust so that the sub trustee has no active duties to perform then this will constitute a disposition. In Grey v IRC Up John Justice used the language the sub trustee disappearing from the picture. On the other hand if he has active duties to perform it will not constitute a disposition. Brian Green has criticized this view taken in Grainge v Wilberforce and by Up John Justice in Grey v IRC. He states that subsection makes no destruction between entire and part of the equitable interest and the view taken by Up John is incorrect. Recently in Nelson v Greening and Sykes Lawrence Collins LJ said that the authority of Grainge v Wilberforce was not binding on this court and rejected the idea that a self declaration of trust by a beneficiary causes him to drop out of the picture therefore on this view it may be argued that in case of all sub trusts writing is not required. Lastly, the extinction of a subsisting equitable interest under a resulting trust by the trustees themselves transferring the equitable interest to a third party without the direction of the beneficiaries is not a disposition....