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Equity & Trusts I Revision Notes

Equity and Trusts (University of Lincoln)

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Equity & Trusts Notes

Equity - The quality of being fair and impartial. The value of shares.

Trusts - An arrangement whereby a person (trustee) holds property as its nominal owner for
the good of one or more beneficiaries.

A History of Equity & Trusts

Kings Bench Courts of Chancery

Norman Conquest Lord Chancellor Judicature Acts

1066 1873 & 1875

The origins of the common law go back as far as 1066 when the Norman conquest introduced
a new system of law for England. Towards the end of the thirteenth century, judges in English
Courts developed the common law (a system of accepting and deciding cases based on
principles of law shaped in preceding cases) two main courts were responsible for
administering law. Frustrated individuals would petition the king and ask for his case to be
heard who felt he had not received justice. The Chancellor, by way of delegation from the
King dealt with justice to be given in individual cases without regard for the common law
principled, this became the basis for equity. The idea of two sets of courts that is the common
courts and the Courts of Chancery, gave rise to procedural problems for potential litigants in
the nineteenth century. Common law courts did not have equity jurisdiction, and the Court of
Chancery did not have the right to interfere with a decision of the Common law courts. To
overcome this the Judicature Acts 1873 & 1875 were enacted. Under the 1873 Act the old
higher courts were abolished and a new Supreme Court of Judicature was created consisting
of the High Court of Justice and the Court of Appeal. The establishment of a single Court of
Appeal above the High Court simplified the varied procedures of appeal in civil cases.

Equity will not suffer

Equity looks to Equity
a wrong to be without Equity acts in
the intent rather follows the
a remedy. personam.
than the form. law.

He who seeks equity must do equity. Where there is equal equity the
Equitable Maxims
law shall prevail.

Equity looks He who comes Where the

on as done with equity must equities are Delay defeats equities.
that which come with clean equal, the
ought to be hands. first in time
Equality is
shall prevail.
equity.
Equity imputes an intention
to fulfil an obligation.

Beneficiaries
(Equitable
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Trustee Settlor
(Legal Title) (By Will)

Beneficiaries
(Equitable
Title)

Trusts
Main uses of trusts

 Tax Savings (as a gift)

 Hold land for Minors
 Hold funds for charitable or non charitable purposes
 Hold pension funds for employees
 Enable two or more persons to own land
 Decide disputes to property by constructive or resulting trusts

Types of Trusts

o Express private trust - Inc. Secret trusts, constructive trusts.

o Secret Trusts - Person who is the settlor, may not want other
to know about the particular beneficiary. For example, a child
resulting from an affair.

o Purpose Trusts and Unincorporated Associations - No

named person who can claim the beneficiary right to the trust.
Unincorporated trusts = A company or sports club.

o Charitable Trusts - For a trust to be charitable purpose trust, a

specific purpose must be specified. Further, the purpose needs to
be able to fit into one of four categories recognised as exclusively
charitable. Those categories are: trusts for the relief of poverty,
trusts for the advancement of religion, trusts for the

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advancement of education and trusts for other purposes

beneficial to the community.

o Resulting Trusts - A resulting trust is a creation of an implied

trust by operation of law, whereas an express trust is created by
the intention of the disposer. The beneficial interest results to, or
jumps back to, the settlor who created the trust. The idea behind
resulting trusts is; person X gives property to person Y and then Y
holds it on a trust for X.

o Constructive Trusts - Arises by operation of law, doesn't look

at the intentions of the parties. For example, since 1940's co-
habitation has increased without marriage. Constructive trusts
can deal with issues surrounding this.

[Tinsley v Milligan 1994] - Miss Tinsley sought possession of a house that was solely in her
name. Her relationship with her partner, Miss Milligan, had come to an end. Miss Milligan
had been living there and had contributed to the purchase price. It had been in Tinsley’s name
alone when they bought it, as a way of claiming more in social security. Milligan later
repented and confessed to the benefit fraud. Then Tinsley moved out and sought possession
of the house, arguing she was solely entitled. Miss Milligan pleaded that it was the common
intention that the property should belong to both of them. The House of Lords held that
because Miss Milligan could invoke the presumption of a resulting trust without relying on
the illegal purpose, she did have a share in the house.

Gift/Power/Trust Spectrum

GIFT POWER OF POWER OF DISCRETIONARY FIXED TRUST

APPOINTMENT TO APPOINTMENT TRUST
I give the A NON-TRUSTEE TO A TRUSTEE £100,000 to be £100,000 to be
sum of divided among such divided equally
£100,000 to £100,000 to such of £100,000 to such of my nieces and among my
X. my grandchildren as of my nephews as nephews as T shall children.
T, acting in her T may select and, think fit.
personal capacity, in default to
may select and, in selection, to my
default of selection, residuary
to my residuary
beneficiaries.

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The Three Certainties

[Knight v Knight 1840] =

Certainty of
intention

Certainty of the
subject matter

Certainty of the
objects

Certainty of intention (Is a trust intended?)

Certainty of intention means that the person who is given the property shall hold it on trust,
i.e., it is evidence that the settlor intended to impose a binding obligation that the property
was to be held on trust.

Precatory words

Precatory words do not create a trust, precatory words are words such as request, hope, desire
which do not impose a trust and where the recipient can keep the property as a gift. Where
imperative words express a command or a duty to do something.

[Wright v Atkyns 1823] - “the words must be imperative

For example:

a) John by will leaves £1000 to Albert and says that he would like Albert to look after his
children. (Not Trust)
b) John leaves £1000 to Albert on trust for his children. (Trust)

[Lambe v Eames 1871] - The Testator had left his estate to his widow, "to be at her disposal
in any way she may think best, for the benefit of herself and her family" The Court held that
the gift was an absolute gift to the widow and not a trust.

Modern approach to precatory words - Following Lambe v Eames it of general

understanding that precatory words will not create a trust.

Loose Conversations

[Jones v Lock 1865] - “I give this to baby and I’m going to put it away for him”

[Paul v Constance 1977] - “this money is as much yours as mine”

Question of fact

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[Re Kayford Ltd 1975] -

[Don King Productions Inc v Warren 1999] -

Certainty of subject matter (What property is to be subject and what are the beneficial
interests?)

It is a requirement that the subject matter be certain. There is no point in creating a trust by
showing certainty of intention if we do not know what property is to be held on trust.

1. Describing the property effectively enough:

[Palmer v Simmonds 1854] - Henrietta Rosco, the settlor, said she wanted to create a trust for
various people over her property, and then to ‘leave the bulk of my said residuary estate. Held
that because the court could not be sure which parts of the residue were meant to be held on
trust, the trust failed. The term "bulk" was too uncertain for the court to determine what was
meant.

[Re Golay 1965] - Executors under a will were directed to allow a beneficiary 'to enjoy the
use of one of my flats and receive a reasonable income from my other properties' Although
the word reasonable seemed too uncertain the gift was upheld as the court assumed that it
referred to the beneficiaries previous standard of living.

2. Considering the type of property:

Tangible property must be segregated:

[Re London Wine Co Ltd 1986] - Buyers of wine could not establish a trust of particular
bottles in their favour as the bottles had not been segregated or identified in any way and so
could not claim any priority over the other creditors by saying that particular bottles of wine
were held on trust for them.

Intangible property impossible to segregate:

[Hunter v Moss 1994] - An oral declaration of a trust of 5% of the issued shares of a
particular private company was held to be sufficiently certain even though no particular
shares had been identified as subject to the trust. It was held that the intangible property are
all the same provided that the shares are of the same class and there will be no need to
identify what particular shares are to be held on trust.

3. Extent of beneficial interest

[Boyce v Boyce 1849] - the trust in favour of the second beneficiary was void as it was
uncertain what property the trust applied to.

Exceptions to uncertainty of subject matter:

1. Discretionary trusts
2. Fixed trusts

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Effect of uncertainty of subject matter:

Certainty of Objects (Who are the beneficiaries of the trust?)

There is a requirement that the beneficiaries of a trust, known as the objects, be certain. The
rules differ depending on the type of trust. For example:

Charitable trust Non-charitable trust

(objects no need be certain) (Objects must be certain)

Fixed Trusts Discretionary trusts

4 Consistuent Elements to certainty of objects:

1. Conceptual certainty - refers to the way in which the settlor has described the objects
(beneficiaries) of the trust. He may refer to them by name e.g. James, or he may refer to them
by concept, e.g. niece, sister in law. Or he may refer to them as a class of objects e.g.
employees or a company. Whatever method of description used the settlor must have defined
the objects with a meaning which is understood by the trustee. Conceptual certainty requires
the trust objects to be defined by dictionary meaning. Conceptual certainty is fundamental to
the validity of any type of trust. There will be few problems of conceptual certainty in respect
of beneficiaries who are named individuals or referred to as a term such as 'my sons'.
Problems will however arise where the settlor defines the objects with reference to a class
which is vague.

[Re Leek 1969] -

2. Evidential certainty - Evidential certainty refers to the range of possible beneficiaries or

objects in the aforementioned class and an inability to identify the full range of objects. The
class of objects may be defined with certainty so that the trustee understands in whose favour
the trust should be exercised. However, a trustee may still find himself facing evidential
uncertainty, suppose a settlor directs that a fund is divided equally among the employees and

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ex employees of a company. 'employees and ex-employees' has a set meaning and is therefore
conceptually certain; however because the trustee is required to distribute equally he would
need an accurate list of all such employees, which would be a near impossible task. The same
result will arise where a trust is created in favour of relatives of a settlor, 'relatives' is
conceptually certain but there may be evidential problems as to which.

3.Ascertainability - Where the objects of a trust are conceptually certain and there are no
evidential problems in identifying the full range of beneficiaries, the trustee may face the
problem of ascertainbility. The trustee may well know he has 10 beneficiaries; however he is
unaware of the whereabouts and continued existence of one or more of the beneficiaries. If
this is the case, the courts provide the option to apply for a Benjamin order established in Re
Benjamin, which allows the court to presume that the beneficiary predeceased the settlor, in
which case the gift to that beneficiary is to lapse and the trustee is required to equally
distribute the gift among the remaining beneficiaries.

4. Administrative workability - The objects of the trust may be defined with certainty so that
the trustee knows exactly whose in favour the trust should be exercised, however the problem
may be that the size of the potential beneficiaries may be so hopelessly wide that the trustee
could not realistically apply his mind to the size of the group.

[Re Badens Deed Trust] - 'the definition of beneficiaries may be so wide as not to form
anything like a class, so that the trust is administratively unworkable.'

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Effect of uncertainty = property held on resulting trust for the settlor.

Curing uncertainty

This can arise in two situations:

1) Where there is uncertainty of a particular fact. A third party can be made judge of this.
[Re Tucks Settlement 1978] - A chief rabbi was made judge of whether a person was of
Jewish blood.

2) Gifts subject to conditions precedent.

[Re Barlow’s Will Trusts 1979] - A will directed that a friend of the testator should be
allowed to purchase any of her paintings. The court held that a friend was a person who had
met the testator frequently when circumstances allowed on a social and no business occasion.
On this basis the gift was allowed to stand. Gifts subject to conditions precedent are subjects
to less strict tests than those in discretionary trust.

Formalities of a trust
There are 5 requirements for a valid trust

1. Capacity (not a minor or mentally incapacitated)

2. The Three Certainties
3. Trust not against public policy of defraud creditor
4. Perpetuity Rules Met
5. THE NESSECARY FORMALITIES

The necessary formalities

A trust may satisfy all elements of certainty, but its enforceability may depend on formal
requirements. Formality is concerned with the issue of whether the creation of the trust
requires recourse to writing in some form or another. The basic rule is that a trust of pure
personal property can be created without any recourse as long as an intention to create a trust
is shown, however a trust of land will require manifestation and proof in writing in order to
be valid.

The law frequently requires that transactions that manipulate property interests should be
marked with some formality. Above all, it requires that the transaction should be embodied in
a permanent form, such as writing. So far as making trusts is concerned, however, the basic
rule is that no formalities are required.

Exceptions:

A Will - When the trust is to come into effect on the settlor’s death, it will be made through
the medium of his will: and wills must be in writing, signed by the testator, and attested by
two witnesses.

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Trust of land - Where the subject matter of the trust is land, then even if it is to come into
effect in the settlor’s lifetime (inter vivos), it must be put in writing and signed by the settlor.
(There are no formality requirements in respect of resulting or constructive trusts, however).

Disposition of beneficial interests - Formalities concerning dispositions of the beneficial

interests existing under them; in particular, where a beneficiary transfers his interest to
someone else. Such a disposition must be made in writing, and signed by the person making
it.

FORMAL REQUIREMENTS FOR...

1. A Trust of Pure Personality

A deceleration of trust in respect of personal property can be made orally. Therefore a trust of
painting or shares in a company need not require any formality.

[Paul v Constance 1977] - Mr Constance has separated from his wife and lived with a Mrs
Paul. In 1973 Mr Constance received a sum of £950 representing compensation for injuries
he had suffered at his place of employment. Both Mr Constance and Mrs Paul agreed that the
money should be placed in a bank account. The account was opened in Mr Constance name
primarily because he did not want to open a joint account. For a period of 13 months money
was deposited to the account by both parties. When Mr Constance dies, his wife took over the
administration of his estate, Mrs Paul brought an action against Mrs Constance. Held: had
manifested an intention over a long period of time that the money in the account was as much
hers as it is the settlor's.

2. Testamentary Trusts

A testamentary trust is a trust which arises upon the death of the testator. sometimes referred
to as a will trust or trust under will. A trust which is intended to take effect on the death of a
person must comply with the formal requirements of a will set out in the Wills Act 1873:

a) it is in writing and signed by the testator, or by some other person in his presence
and by his direction;

(b) it appears that the testator intended by his signature to give effect to the will; and

(c) the signature is made or acknowledged by the testator in the presence of two or
more witnesses present at the same time; and

(d) each witness either: (i) attests and signs the will; or (ii) acknowledges his
signature, in the presence of the testator (but not necessarily in the presence of the
other witness), but no form of attestation shall be necessary.

3. Trusts of Land

Section 53(1)(b) of the Law of Property Act 1925 requires that a declaration of trust
respecting any land or any interest therein must be manifested and proved by some writing.

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Absence of writing makes trust unenforceable rather than void and this section does not
prevent the creation of resulting, implied or constructive trusts.

Does not have to be in writing initially along as it can later be proved by written evidence for
enforcement:

 Rochefoucauld v Boustead [1897]

 Bannister v Bannister [1948]
 Lyus v Prowsa Developments [1982

4. Disposition of Equitable Interests

What is a disposition of an equitable interest?

For a disposition of an equitable interest there are five formalities required under S53(1)(c):

"A disposition of an equitable interest or trust subsisting at the time of the disposition,
must be in writing signed by the person disposing of the same, or his agent thereunto
lawfully authorised in writing or by will."

A disposition of an equitable interest or trust subsisting at time of disposition must be in

writing signed by the person disposing of the same or his agent lawfully authorised in writing
or by his will. Failure to do so makes purported disposition void. Equitable interest stays
where it is. So although no formality is needed to make an inter vivos trust of anything other
than land, formality is required to make a disposition of a beneficial interest arising under it,
whether land is involved or not. The rule also applies, apparently, whether the beneficial
interest in question arises under an express trust, or a resulting or constructive trust.

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Also under S53(1)(c):

4 Types:

1) Direct Assignment of Equitable Interest to a Third Party

2) Direction to Trustee
3) Contract for Valuable Interest to Assign an Equitable Interest
4) Declaration by Equitable Owner of Him/herself as Trustee (creating a sub-trust)

1) Direct Assignment of Equitable Interest to a Third Party

Instead of directing the trustee to hold the equitable interest for another, a beneficiary under a
trust may request the trustee to transfer the legal title to a 3rd party.
a) If assignor is beneficially entitled - s53(1)(c) does not apply because he creates the
beneficial title and retains the legal title.
b) Where assignor only holds equitable title - the section must apply if there is a
“disposition”

2) Direction to Trustee to hold on trust for another

A) Equitable owner direct B) Direction by beneficiary with C) Declaration of New Trust

trustees to hold property on trust equitable interest to trustees to with Assent of Beneficiary.
for another: transfer trust property to third
person. Equitable + Legal title  Re Vandervell Trusts
 Grey v IRC [1959] (No 2)
 Neville v Wilson  Vandervell v IRC
[1967]

[Grey v IRC 1959] - In 1949 Mr Hunter created 6 trusts, one in favour of each of his 5
grandchildren and the sixth in favour of his then existing and possible after-born
grandchildren. On 1 February 1955 H transferred 18,000 ordinary shares in a company to
each of the trustees of each of these trusts. On 18 February 1955 H orally and irrevocably
directed the trustees to hold the shares transferred to them on 1 st February as to six blocks of
3,000 shares each. On 25 March 1955 by way of confirmation of the oral direction, the
trustees executed 6 declarations of trust which H, although not expressed to be a party, also
executed.

[Vandervell v IRC 1967] - Tony Vandervell was a wealthy racing car manufacturer with a
company called Vandervell Products Ltd. He wanted to donate to the Royal College of
Surgeons, to establish a chair of pharmacology. He also wanted to avoid paying tax on the
donation. However, since the Royal College of Surgeons was a charity it was not liable to pay
tax on any income. Vandervell orally instructed his trust company to transfer 100,000 shares
in Vandervell Products Ltd to the Royal College of Surgeons, with an option for the trustees
to purchase back the shares back for £5000. He then instructed the company to declare

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a dividend on the shares. So while the shares were in the possession of the Royal College of
Surgeons, it paid out £145,000 in dividends up to 1961. Vandervell had hoped this would
mean that he would avoid tax. Unfortunately, in 1961, the Inland Revenue made a claim for
tax on the transfer. The Inland Revenue argued that Vandervell retained an equitable interest
in the shares. They were still his, even though the shares were possessed by the College, he
had the option to get them back. They also argued his oral instruction to the trust company
was not capable of transferring the equitable interest, because it did not comply with the
formality requirements specified in Law of Property Act 1925 section 53(1)(c). This section
requires signed writing to evidence the existence of a disposition. So he should be liable to
pay tax on the value of those shares.

[Re Vandervell Trusts No.2] -

3) Contract for Valuable Interest to Assign an Equitable Interest

[Oughtred v IRC 1959] - involved a contract for transfer of a beneficial interest in shares in a
private company. Under a trust created some time ago, trustees were holding 200,000 shares
in a private company on trust for Mrs Oughtred for life and thereafter for her son Peter. In
addition Mrs Oughtred entered into an oral contract with Peter assigning his reversionary
interest to her. The net effect of this arrangement was to make Mrs Oughtred the absolute
owner of the 200,000 shares. In 1956 a deed of release was executed by Mrs Oughtred, the
trustees and Peter which stated, inter alia, that since 18 June the trustees were holding the
200,000 shares for Mrs Oughtred and going to transfer the legal title to her thereby ending the
trust of settlement. The shares were transferred to Mrs O who as promised in the oral
declaration transferred the 72,700 shares to nominees for Peter.The question in court was
whether the deed attracted ad valorem stamp duty on the ground it was a transfer or property
on sale of Peters interest. Held: it was the oral agreement that made Mrs O the absolute oner
of the 200,000 shares and as soon as the oral contract had been made by Mrs. O and Peter,
Peter became a constructive trustee of his interest in favor of his mother.

4) Declaration by Equitable Owner of Him/herself as Trustee (creating a sub-trust)

Trust that follows another trust so that the beneficiaries of the main trust become
the trustees of the derived trust. For example, A and B manage a trust fund for C and D who,
in due course, declare themselves to be the trustees of the same trust fund for the benefit of
their own children. Also called derivative trust.

The reason for formality requirements:

 Much less controvertible than if they had been left oral.

 Writing forces people to give closer attention to it than if they were making it orally

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 It is useful for the people actually involved in the transaction.

 Important for others with whom they in turn deal.

 The certainty provided by formality also allows transactions to be observed by state

agencies, because it makes them more visible. This in turn allows the government to
regulate both the transactions themselves and the state of affairs that results from
them.

Constitution of a Trust
A trust is constituted when the legal title to the trust property is vested in the trustees.
A trust is unconstituted when the legal title is not vested in the trustees.

Situation one Situation two

Fred transfers £1000 into a trust account Fred promises Tim & Ted that he
in the name of his two trustees (Tim & Ted) will transfer £1000 into the trust
to be held on the terms of a trust which account for Aaron and Charlotte
he has declared for his two children, Aaron but fails to do so.
and Charlotte.
In situation one the trust is said to be constituted.

Implications first brought out in:

[Milroy v Lord 1862] - Thomas Medley held shares in a company called the Bank of
Louisiana, and wished to transfer them. The bank required the shares be transferred according
to regulations in the company constitution. He wanted to give them to his niece, Eleanor
Milroy. He signed a deed in Louisiana with Samuel Lord, for Lord to hold 50 shares on trust
for Eleanor. He also gave Lord a power of attorney to receive dividends on the shares and to
comply with the
company constitution’s
formalities. Lord did not
actually do it. Thomas
Medley lived for three
years after signing the
deed with Samuel Lord,
in which Samuel Lord
was receiving dividends
and passing them on.
When Thomas Medley
died the shares still

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remained in his name. Eleanor Milroy claimed that the shares belonged to her. Stuart VC held
that a trust had been created for Eleanor, and the decision was appealed.

"Equity will not assist a volunteer"

Volunteer - A person who has not provided any consideration for a promise.

In the given situation are Aaron and Charlotte volunteers? Yes as there is no evidence of their
having provided consideration for Fred's promise to transfer £1000 for their benefit. However
the point that equity will not assist a volunteer is not the end of the matter.

Methods of constituting a trust

1. A self declaration of trust

2. Transfer the subject matter to the trustees.
3. An outright gift

1. Self deceleration of trust

The first way a trust can be constituted is by declaration of self as a trustee. That is, where a
settlor declares that he holds property on trust for a beneficiary.

Example:
Jason has £1000 in a bank account and says to his son Christopher "I am now the trustee of
this money for you".

[Jones v Lock 1865] - A father returned from a business trip without a gift for his son. When
the family told him off, he put a £900 cheque in the baby’s hand, and said "look you here I
give this to baby; it is for himself and I am going to put it away for him, and will give him a
great deal more along with it" The wife said the baby might tear it, and the father said, ‘it is
his own, and he may do what he likes with it’. He locked it in the safe and died six days later.
It was argued that although there was never an outright transfer, because he had not actually
endorsed the cheque by signing it, there was a trust of the cheque for the baby. The Court of
Appeal held that there was no trust, because the father’s intention was an outright transfer.
They refused to perfect an imperfect gift through a successful declaration of trust.

[Richards v Delbridge 1874] - Mr Richards employed a member of his family, Edward, in his
business. He wished to hand over the business to Edward and evidenced his intention to make
this gift by endorsing on the lease of the business premises a short memorandum: "This deed"
that is the deed of leasehold -- "and all thereto belonging I give to Edward from this time
forth with all the stock in trade." However, the gift failed because it was imperfect. Held:

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There was no express declaration of trust it was intended as an outright gift and not to be held
on trust.

[Mascall v Mascall 1985] - A father wished to transfer land to his son. He made and gave him
a deed of transfer and the land certificate. Then they fell out, and the father changed his mind.
The son had not yet gone through with the registration at HM Land Registry. The father
argued that it was still his property. Held: that the property belonged to the son in equity, and
was held on trust for the son by the father, because the father had done everything in his
power to make the transfer effective. Although without registration, legal title had not passed,
title had passed in equity and the father could not take back his agreement.

[T Choithram International v Pagarini 2001] -

2. Transfer the subject matter to the trustees

Settlor Trustee

Beneficiary

Where a settlor intends to create a trust by appointing a trustee in favour of the beneficiary, he
must transfer the subject matter of the intended trust property to the trustee. The manner in
which the trust subject is transferred to the trustee depends primarily on the type of property
in question. Where the property is something like a painting or diamond, the trustee must
hand over possession in order to convey the legal title. Where the subject matter is land, the
settlor must transfer land in accordance with the requirements of the Land Registration Act
2002, which requires a deed followed by registration.

[Re Fry 1946] -

What if the settlor does all he/she can to constitute the trust?

[Re Rose 1952] - The settlor executed a deed transferring shares in a private company to a
trustee. It was enough that the settlor had done everything in his power to make the transfer
binding and this was when the deed was executed. Although directors or a private company
have discretion to refuse transfer, at the moment the deed was executed the settlor had done
all within his power to make the transaction binding upon him.

Incompletely constituted trusts

A settlor must do everything in his power to constitute the transfer of property to the intended
trustee. Where no such transfer has taken place the trust is incompletely constituted and the

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beneficiary has no trust in his favour. The question which arises at this stage is what action
can the beneficiary take to get the trust constituted?

If a settlor has not transferred the property to trustees or declared him/herself as trustee then
the trust is incompletely constituted and cannot be enforced by an intended trustee or
beneficiary. However, if the Settlor has COVENANTED IN A DEED TO TRANSFER
TRUST PROPERTY there may be a way for the trust to be enforced.

Enforcement of the covenant (agreement) by Enforcement of the covenant

the beneficiary: by the trustee:
1. Where consideration has been 4. Trustee party to the covenant
given by the beneficiary 5. Action on the covenant after
2. The beneficiary is a party to the the Contracts Rights of Third
covenant Parties Act 1999
3. Benefit of the covenant may be
the subject matter of a trust

1. Where consideration has been given by the beneficiary

Because equity will not assist a volunteer if the beneficiaries have not provided consideration
then equity will not assist them. Consideration in equity has a wider meaning than in common
law because equity also includes marriage consideration.

Marriage Consideration - Equity will regard people who come within a marriage (e.g.
husband, wife & kids) as having provided valuable consideration.

[Re Densham 1975] - concerned a dispute as to the ownership of a matrimonial home. Whilst
the husband was the sole legal owner of the house, his wife had contributed towards the
purchase price and they had also agreed that ownership should be jointly shared. Goff J held
that, in consequence of the agreement, the wife was prima facie entitled to a beneficial half
share in the ownership of the house by way of a constructive trust, and that through her direct
financial contribution to the purchase price she was also entitled to a ninth share of the
beneficial ownership by way of a resulting trust. However, because the husband was
bankrupt, she was held unable to assert any entitlement by way of the constructive trust,
because it was not a settlement made for ‘valuable consideration’ and therefore void against
his trustee in bankruptcy.

2. The beneficiary is party to the covenant

If the beneficiary is a party to the deed, there may be a right to sue for breach of promise.

[Cannon v Hartley 1949] - The father upon the breakdown of his marriage covenanted to
make provisions for a daughter by settling property expected later to be acquired under the
will of his parents. When he finally received the property he refused to transfer the property
as agreed. But since the daughter was a party to the covenant, she was able to enforce the
contract at common law and obtain substantial damages. She was privy to the covenant.

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3. Benefit of the covenant may be the subject matter of a trust

[Fletcher v Fletcher 1844] -

5. Action on the covenant after the Contracts Rights of Third Parties Act 1999

Exceptions to the rule that 'equity will not assist a volunteer'

1. The rule in Strong v Bird 1874

2. Self declaration pending transfer to trustees
3. Donatio Mortis Causa
4. Proprietary Estoppel

1. Rule in Strong v Bird

[Strong v Bird 1874] - Bird borrowed money from his step-mother, who was living with him.
Bird agreed to pay back the loan through reduced rent from her. She started to pay reduced
rent, but mostly continued to pay full rent until she died. Upon death, Bird was appointed (in
her will) as the executor of her estate. The issue arose whether Bird was to pay back the loan.
Held: The appointment of Bird as the executor was an evidence that the loan to Bird was a
gift to him. This is because the executor is responsible for calling in debts to the testator's
estate, It would be ridiculous for the executor to sue himself for the debt.

Where there is an intention to make an immediate gift , or to release a debt and the intention
continues until the death then the appointment of the donee as executor perfects the
gift/releases the debt.

3. Donatio Mortis Causa

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A Donatio Mortis Causa is a lifetime gift which is conditional upon, and which takes effect
upon death.
This exception applies where a gift is made:
 in completion of death - the donor must have been contemplating death more
practically then reflecting we all die someday. Commonly donations made mortis
cause are made in reference to a particular illness.
Wilkes v Allington - the donor was suffering from an incurable disease, made a gift in
the knowledge that he didn't have long left to live; he had an even shorter time then he
imagined. Held: the gift remained valid..
 where the subject matter of the gift, or means of control of it, or some essential
indication of title was delivered to the donee - A Donatio mortis causa will not be
valid without a delivery of the property to the donee with the intention of parting with
the dominion over it. It will not suffice if the property is handed over merely for safe
custody.
 where there was an intention to make the gift conditional on death

4. Proprietary Estoppel
It has long been established promissory Estoppel works as a shield not a sword. Meaning
where one person has been led to act upon the statement of another, he can prevent the other
from acting inconsistently with his statement. Receiving modern formulation in Ramsden v
Dyson and Willmott v Barber which can have the effect of creating a proprietary interest in a
volunteer although there was no valid gift or trust in his favour.

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Secret Trusts
Secret Trust - A secret trust is a trust which arises when property is left to a person under a
will on the understanding that they will hold the property as trustee for the benefit of
beneficiaries who are not named in the will.

Half-secret trust - The performance of a fully secret trust is to some extent dependent on the
integrity of the beneficiary who has agreed to act as the secret trustee. There is always a
danger that the secret trustee will ignore the trust and take the property left to him by will for
his own benefit and refuse to apply it to the intended secret beneficiary. This danger will be
avoided if the testator indicates in his will that the recipient of the request is not intended to
take the property absolutely, but as a trustee. By this means the identity of the ultimate
beneficiary remains concealed, but the beneficiary named in the will is clearly seen to be a
secret trustee.

Confusion over secret trusts?

A trust intended to take effect in the lifetime of a testator must comply with the certainty and
satisfy the formal requirements found in s.53 (1) of the Law of Property Act 1925. Once this
has been done the trust is said to be constituted and the beneficiary requires an equitable
interests in the subject matter of the trust.

A trust which is intended to take effect after the death must comply with the formal
requirements of s.9 of the Wills Act 1837. This section requires that a will be made in writing,
signed by the testator and witnessed.

One particular type of trust which does not fit with of these categories is a secret trust. A
secret trust is created during the life of a settlor but does not come into operation until after
the death of the settlor. This creates a rather bizarre state of affair as trusts which are intended
to take effect after the death of a testator must comply with s9 of the Wills Act 1837, a secret
trust need not comply with any formal requirements of the s.9 of the Wills Act 1837

Theoretical justifications of secret trusts

1. Fraud Theory
2. Dehors the will

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1. Fraud Theory Maxim - "equity will not allow a statute to be used as an engine of
fraud"

The earliest justification for the enforcement of secret trusts turned on the question of fraud.
Where a legatee had received property in a will on the understanding that he would hold it for
the benefit of another person, allowing him to retain the property absolutely on the face of the
will would allow him to benefit from his own fraud.

The fraud justification or enforcement of secret trust was explain in McCormick v Grogan:
"the court has, from a very early period, decided that even an Act of Parliament shall not be
used as an instrument as fraud; and that equity will fasten on the individual who gets a title
under that Act, and impose upon him a personal obligation, because he applies the Act as an
instrument for accomplishing a fraud."

McCormick v Grogan - In 1851, the testator had left all of his property by a three-line will to
his friend Mr Grogan. He died in 1854, with only a few hours to live he sent for Mr Grogan
and told him that his letter and will would be found in his desk. The letter named various
intended beneficiaries and intended gifts to them. The letter concluded with the words "I do
not wish you to act strictly on the foregoing instructions, but lave it entirely to your own good
judgement to do as you think would, if living, and as the parties are deserving. An intended
beneficiary who Mt Grogan thought it right to exclude sued. Held: although in principle the
courts will enforce secret trusts, the terms of the letter in this particular case were not such
that equity would impose on the conscience of Mt Grogan and the secret trust alleged would
not be enforced.

2. Dehors the will

Another justification for the enforcement of secret trusts centres on what has been described
as 'dehor theory' 'dehor' meaning to operate outside of something, thus, a secret trust is said to
dehor the will and operate outside the will and thus not conflicting with the Wills Act 1837.
Under the ‘dehors the will’ theory, secret trusts are regarded as inter vivos declarations of
trust by the testator; the only atypical feature is that the trusts are not constituted, i.e. the
property is not transferred into the hands of the trustee, until the testator’s death, through his
will. Therefore secret trusts operate outside the will, and therefore the Wills Act has no
application.

This theory was first articulated in Blackwell v Blackwell where the courts had to consider
the validity of a half secret trust.

Blackwell v Blackwell [1929] -

Re Young [1951] -

Re Snowden [1979] -

The requirements for a fully secret trust

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The requirements for a fully secret trust were explained by Brightman J in Ottaway v Norman
[1972] as:

1. Intention to create a trust - same as in an express trust

2. Communication of the secret trust - May take place at any time before
testator’s death even after date of will. If there is no communication the
intended trustee will take absolutely if he/she did not know of any trust.
However if he/she knew he was to be trustee but was not aware of the terms,
he/she will hold on resulting trust for the estate.

McCormick v Grogan [1869] Oral or written evidence can be

brought to contradict the terms of
Wallgrave v Tebbs [1855] the will and prove the existence of
the trust
Moss v Cooper [1861]

3. Acceptance of the secret trust - This can be express or inferred from silence of
intended trustee. There must be an express refusal if the intended trustee does
not want to act.

Moss v Cooper [1861] -

* If the testator makes any changes to subject matter of a secret trust then those changes must
be communicated to the secret trustee. Re Colin Cooper [1939].*

More than one secret trustee:

Requirements for a half secret trust

Same rules for half secret as secret trusts EXCEPT COMMUNICATION of half secret trust
must be made before the will is made or at the time it is executed.

Blackwell v Blackwell [1929] - a testator left a sum £12,000 in a codicil to five persons to
invest and to "apply the income...for the purposes indicated by me to them" Before the
execution of the codicil, the testator has communicated the terms of the trust to all five
individuals who had duly accepted the terms of the trust. The residuary legatees of the
testator argued that there was no trust in favour of the objects on the grounds that parole
evidence was inadmissible to establish the trust intended by the testator. Held: such evidence
was admissible to establish a trust in favour of the objects and a valid half secret trust had
been created in favour of the objects

Re Keen [1937]

Rawston v Freud [2014]

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Failure of secret trusts

Fully Secret - Intended secret trustee will take property absolutely – only can be resulting
trust if he admits he was intended to be trustee.

Re Colin Cooper [1939]

Half Secret - Trustee must hold property on resulting trust as trust is evident from terms of
will.

Re Huxtable [1902]

Re Gardner

Purpose Trusts - The Beneficiary Principle

A trust which is set up to achieve a non - charitable purpose rather than to benefit a human
beneficiary. Trusts for charitable purposes are also technically purpose trusts, but they are
usually referred to simply as charitable trusts.

It is an essential requirement of trust law that a trust is created in favour of a human

beneficiary. Where a trust is created for a mere purpose or non-human objects, the trust is
said to be one of imperfect obligation and prima facia void.

The principle objection to purpose trusts is that there is no one capable of the enforcing the
trust against the trustee. It is an essential requirement of a trust that the trustee be compelled
to execute the trust and the court can control the execution of that obligation.

x Lack of scrutiny

x No-one with locus standi to enforce

x Improper behaviour can go unchallenged or even unnoticed

Non-charitable purpose trusts and charitable trusts

The law of trust makes a distinction between

non-charitable purpose trusts and charitable
trusts. Non-charitable trusts are prima facia
void for lack of enforceability.

Objections to purpose trusts

1. The Beneficiary Principle

The beneficiary principle was originally articulated in Morice v Bishop of Durham:“Every

trust must have an object; there must be somebody in whose favour the court can decree
specific performance.”

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2. Uncertainty

Non-charitable trusts are often clouded with uncertainty in terms of their purpose . A good
example of this is in Re Endacott.

Re Endacott - A testator left a large sum of money to the North Tawton Devon Parish Council
for the purpose of 'providing some useful memorial to myself'. The same reasoning was
applied as in Re Astors Settlement Trusts where it was explained that many of the purposes,
e.g. the maintenance of relations between nations, was too vague.

3. Perpetuity

Purpose trusts in their very nature will violate the common law rules relating to perpetuity, as
it ties up property for too long.

Mussett v Bingle [1876] - Testator left £300 for building a monument and £200 to be
invested, and the income to be used for the maintenance of the monument. The court upheld
the gift of £300 but declined to uphold the £200 on the grounds it was void of perpetuity.

4. Public Policy

Capricious, or fanciful “useless” purposes are void as a matter of public policy.

McCaig v University of Glasgow [1907] - Money for memorials to family “a sheer waste of
money”

Brown v Burdett [1882] - An old lady, Anna Maria Burdett who lived
in Gilmorton, Leicestershire demanded in her will that her house be boarded up with "good
long nails to be bent down on the inside", but for some reason with her clock remaining
inside, for twenty years. She directed her trustees to visit the house every three months to see
that the trusts were effectually carried out, and if any trustee neglected this they should lose
their entitlements under the will. Bacon VC cancelled the trust altogether, and held that the
twenty year term was invalid for the house, yard, garden, and outbuildings. He said "I think I
must "unseal" this useless, undisposed or property".

Resulting Trusts

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Resulting Trust - Where the donor or settlor transfers the property but does not rid himself
completely of the interest, and so the beneficial interest jumps back or results back to the
settlor who created the trust

Vandervell v IRC - See Earlier

Types of Resulting Trust

Automatic Resulting Trusts Presumed Resulting Trusts

Arise automatically in In these situations it is presumed that

the person did not intend to make a gift
cirumstances where an express of the property or money unless there is
trust failed for some reason, a clear intention that they did so intend.
e.g. appropriate formalities. In such circumstances a resulting trust
arises and the transferor or the person
An automatic resulting trusts making the contribution retains or takes
was also said to arise in a share in the beneficial interest.
cisumstances where some or Most typically, a presumed resulting
all of the beneficial interes trust was said to arise where a person
voluntarily transfers property in the
remained undisposed od under name of another or purchases property
the express trust. in the name of another.

Westdeutsche Landesbank Girozentrale v Islington BC [1996] - Lord Browne-Wilkinson

Disagrees with Automatic resulting trusts - and said in the second case of automatic rsulting
trusts it may be in fact that the courts do or at least should assess the intention of the
transferor.

Air Jamaica v Charlton [1999] - Lord Millett Preferred the Automatic resulting trust,
approving Vandervell - because the provision failed under the rules against perpetuity - thw
law would fill in the gap left by the failyre. In the vast majority of cases the transferor will
not habe provided for what should happen in the event of a failure. the prospect of failure will
not have intended to retain the benefiicla interest. The alternatice bona vacantia - would not
have been the intention . Th law therefore responds to the presumed inention of the
transferoro.

unincorporated associations - surplus funds

The problem of the ownership of surplus funds often occurs if an unincorporated association ceases to
exist.

Automatic Resulting Trusts

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1- Re Ames Settlement [1946] - Void marriage settlement

2 - Re Diplock [1951]

2 - Re Astor’s Settlement Trusts [1952]

3 - Vandervell v IRC [1967] - Failure to dispose of beneficial interest

4 - Barclays Bank v Quistclose Investments Ltd [1970]

4 - Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1984]

Presumed Resulting Trusts

Dyer v Dyer [1788] -

Burns v Burns [1984] -

Curley v Parkes [2004] -

The presumption of advancement - A presumption of resulting trust can be rebutted by the

counter-presumption of advancement. The presumption of advancement infers a donative
intent on the part of the person transferring property or purchasing property in the name of
another. The Presumption only applies in special relationships:

 Father & Child

Bennet v Bennet [1879]

 Husband & Wife

Re Eykyn’s Trusts [1877]

Where a husband transfers money or other property into the name of his wife only, then
the presumption is that it is intended as a gift… to the wife absolutely Malins

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 Persons standing in loco parentis

Bennet v Bennet [1879]

Presumption of advancement not allowed:

Mother and child - Bennet v Bennet (1879); Goss v French [1975]

Wife to husband - Mossop v Mossop [1988]

Cohabiting coupes/mistresses - Rider v Kidler (1805); Diwell v Farnes [1959]

Abolition?
…the father is under [an] obligation fro the mere fact of his being the father… no evidence
is necessary
s199 Equality to show the obligation to provide… that is part of his duty.
Act 2010
Jessel MR
(1) The presumption of advancement (by which, for example, a husband is presumed to
be making a gift to his wife if he transfers property to her, or purchases property in
her name) is abolished.

Not yet in force

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