Unit 4 - Completely and Incompletely Constituted Trusts PDF

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Summary

Full notes and wider reading notes on the constitution of trusts; actions of trustees in incompletely constituted trusts, etc. ...

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Completely and Incompletely Constituted Trusts Intro 1. A. B.

Two methods of trust creation: Settlor declares himself as trustee Settlor makes declaration of trust and transfers property to trustees

Formalities vary according to type of property and method of creation There must be sufficient certainty of intention on the part of the settlor to create a trust 

Jones v Lock – The courts will not hold that an owner has declared himself as trustee of his own property, unless his intention to create a trust has been expressed.

An incompletely constituted trust is known as a covenant to settle.

A failed attempt to create a trust by method B will not be treated as a trust under method A. Milroy v Lord (1862) 4De GF & J 264: “…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 the 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.”

Requirements to create a trust by method B Settlor (S)

Trustee (T)

Beneficiary (B) Milroy v Lord, Turner LJ: “To render a voluntary settlement effectual, the settlor must have done everything which according to the nature of the property comprised in the settlement, was necessary in order to transfer the property and render the settlement binding on him.”

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Re Rose [1952]: the donor had transferred the shares in the proper form, but had died before the company had lodged them appropriately. There was no tax due, and the court held that the transfer had taken place, as the donor had done everything in his power to transfer the shares.

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Mascall v Mascall (1985): confirms the principle in Re Rose. 1

Incompletely constituted trusts (Covenants to Settle) Settlor declares an intention to create a trust by method B, but fails to transfer the property to the trustees. Whether or not the trustees can force the settlor to transfer the property depends on whether the beneficiaries have given consideration for the settlor’s promise to settle the property. A beneficiary who has given no consideration is known as a volunteer. 

Re Ellenborough: the court will not give effect to a mere gratuitous expectancy.

Where a beneficiary has given consideration The beneficiary is not a volunteer. (i)

At Common Law

Consideration means some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. If consideration is given then the beneficiary can compel the trustees to sue for damages for breach of covenant, such damages to be held on the trusts declared.  (ii)

Consideration may include money/money’s worth; marriage etc. In Equity

Consideration includes value as at Common Law. It also includes “marriage consideration” i.e. pre-nuptial agreements to settle property made in contemplation of marriage. Spouses, issue of the marriage and probably step-children are treated as having given consideration. Family Law Reform Act 1987

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Pullan v Koe [1913] 1 Ch 9: marriage is consideration in equity, and children (issue of marriage) are part of such.

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Re Plumptre’s Marriage Settlement [1910] 1 Ch 609: next of kin are not included in marriage consideration, and have no right of enforcement upon the covenant.

If consideration is given, the beneficiary can compel the trustees to bring an action for specific performance (to recover the actual “trust property”) or bring an action themselves if the trustees refuse.

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Where a beneficiary has given no consideration The beneficiary is a volunteer. (i)

At Common Law

Where the settlor has promised in writing under seal to settle property i.e. the settlor has covenanted then –  

Where the beneficiary is a party to the deed of covenant, the beneficiary can sue on the covenant for damages. Cannon v Hartley: the beneficiary may sue at common law where they are a party to the deed. (However, when prop is after acquired, they have no remedy in equity; AA prop cannot form the SM of a trust, and B is a volunteer).

Action available to trustees? Where the beneficiary is not a party to the deed of covenant, can the trustees sue the settlor on the covenant on behalf of the beneficiary? The cases indicate that the trustees should not take this action. 

Re Pryce: trustees were advised not to sue the wife for a covenant of future property; the B’s (NoK) were volunteers and outside of marriage consideration.

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Re Kay: followed (reluctantly) the decision in Re Pryce.

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Re Cook’s Settlement Trust: a son entered into a covenant (by deed) with his father and trustees. He covenanted that if certain paintings were sold in the future and during his lifetime, the proceeds would be transferred to the trustees, for the benefit of various members of Francis’ family (the father was not included as a beneficiary).

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Beswick v Beswick [1967] 2 All ER 1197 HL

If the trustees, instead of seeking directions, simply sued on the covenant, would any damages be purely nominal? 

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Re Cavendish-Browne’s Settlement Trust: in an action for specific property, the Ts could obtain substantial damages. Jackson v Horizon Holidays Limited: in an action for breach of contract, damages could include losses suffered by third parties (Bs not a party to the covenant). Woodar Investment Developments v Wimpey: criticised above decision; damages should represent the losses suffered by the trustees, not the beneficiaries.

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Trusts of promises: Can a beneficiary hold on trust the right to sue? I.e. a chose in action? 

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(ii)

Fletcher v Fletcher: the son of the deceased sought to enforce a deed executed by settlor. Trustees were not aware of it, refused to execute. However, the Court compelled Ts to act, as S had subjected himself to a liability in law. Re Schebsman (after Fletcher): suggests that far more conclusive evidence will be required to demonstrate that the settlor really did intend to settle the benefit of a covenant, before finding a trust of a promise.

In Equity

The general principle is - “Equity will not assist a volunteer”. Equity will not assist volunteer beneficiaries to force the settlor to transfer property so as to completely constitute a trust. Equity will not allow volunteer beneficiaries to benefit indirectly from ‘trust property’ where the trust has been incompletely constituted. Exceptions to the general principle (a)

Rule in Strong v Bird

Strong v Bird (1874): When a donor makes an imperfect gift during his lifetime, and the donee is subsequently appointed as the donor's executor or becomes the donor's administrator on intestacy, the gift is perfected because the donee obtains legal title to the donor's property, including the subject matter of the intended gift, in the donee's capacity as executor or administrator. Four conditions: 1. The donor must have intended to make an inter vivos gift. 2. Such donative intention must have persisted until the donor's death. 3. The donee is appointed the donor's executor (or administrator, Re James [1935] Ch 449) 4. The subject matter of the intended gift must have been capable of enduring the death of the donor Re Ralli’s Will Trust [1963] 3 All ER 940 (b)

Gifts made in contemplation of death

Donatio mortis causa

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Re Craven’s Estate [1937] Ch 423 (i)

The gift must be in contemplation (not necessarily in expectation) of death.

(ii)

The gift must be conditional on the donor’s death.

(iii)

The donor must part with dominion (not mere physical possession) of the subject matter of the gift.

Sen v Headley [1991] 2 All ER 636 Staniland v Willott (1852) 3 Mac & G 664 (c)

Proprietory estoppel

Dillwyn v Llewellyn (1862) 4De GF&J 517 If A makes a representation to B about B’s existing or future legal rights and B acts to his detriment in reliance on that representation, an equity arises in favour of B. Pascoe v Turner [1979] 1 WLR 431 (d)

Rule in Fletcher v Fletcher

Fletcher v Fletcher (1844) 4 Hare 67 The settlor’s promise itself is the subject matter of the trust which the trustees hold for the beneficiaries. Re Schebsman [1944] Ch 83 Beswick v Beswick [1968] AC 58 (iii)

Statutory Exceptions

Contracts (Rights of Third Parties) Act 1999

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