Resulting Trusts and Constructive Trusts

Like a constructive trust, a resulting trust arises by operation of law, although unlike a constructive trust, it gives effect to intention - Justin Santiago

Both constructive and resulting trusts differentiate themselves from express trust which arises because a right-holder has manifested an intention that a trust come into existence. In the case of constructive and resulting trusts the intentions are not expressly stated.

This statement in this question is derived from Lord Browne-Wilkinson's judgement in Westdeustsche Landesbank Girozentrale v Islington LBC (1996) where his view was that all resulting trusts arise because of a presumption that the transferor intended to create a trust for himself. This statement supports the argument that resulting trusts are the result of an intention not to create a trust. This thinking is also reflected in the Privy Council case of Air Jamaica v Charlton 1999, where Lord Millet said: “But [a resulting trust] arises whether or not the transferor intended to retain a beneficial interest - he almost always does not - since it responds to the absence of any intention on his part to pass a beneficial interest to the recipient.”

This argument was put forward in the recent theses of Birks-Chambers that the the key to the resulting trust was not the intention to create a trust, but the intention of the donor not to benefit the recipient.

The statement by Lord Browne-Wilkinson however shows a flawed approach at looking at intention by means of deducing a presumed intention. To presume an intention would be going against the fundamentals of trust. To create a trust the intention must be manifested or expressed and the the courts have placed increasing importance on the intention of the parties when determining whether there is a trust or not. The perceived artificiality of presumed intentions in the resulting trust doctrine has led courts to move away from it affirmed by the House of Lords in Stack v Dowden [2007] UKHL 17; [2007] A.C. 432.

The use of the term "resulting trust" in such a case is a misnomer in itself. The orthodox theory of resulting trusts contained in Vandervell v IRC states that where it was said that the beneficial interest must belong to or be held for somebody; so if there was an evidential gap in this respect it was not to belong to the donee or be held in trust by him for somebody, it must remain with the donor. However such a notion is false as an equitable interest arises only at the point where the trust arises. It must be questioned whether there is such a thing as a beneficial interest that can be retained. Beneficial interests are created in the hands of the beneficiary who holds the trustee to account for his exercise of those rights : DKLR Holding Co (No 2) Ltd v Commissioner of Stamp Duties. There is therefore no retention of anything.

The argument of Birks and Chambers, that the fact “presumed” in such circumstances is that the transferor did not intend to benefit the transferee, was shown to be based on a number of misunderstandings. First, gratuitous transfers outside the relationships of advancement are not “apparent gifts”, only ambiguous transfers. Secondly, suspicions are not the same things as presumptions, and in any case, equity is not “suspicious” of gifts. Thirdly, it is not possible for equity to “presume” that “apparent” gifts are not gifts, for “not-gift” is at best a legal conclusion from proved facts, not a fact in itself. Fourthly, a “presumption” of “not-gift” cannot be a “presumption” of “non-beneficial transfer” for the law does not recognise a notion of non-beneficial ransfer distinct from transfers on declared trusts or as security. And fifthly, no satisfactory explanation was given as to why, assuming there is such a thing as a “non-beneficial transfer”, the law should respond to its “proof” by the raising of a trust for the transferor. For these reasons, the argument that there should, by a logical extension of the traditional resulting trusts, be resulting trusts in the generality of cases of unjust enrichment is unsustainable.

Constructive trusts on the other hand might be regarded as an approach based on outcomes and result rather than principle or sound theory, as indicated by the statement of Sir Peter Millett (in (1995) Trust Law International, 35) that ‘... the language of constructive trust has become such a fertile source of confusion that it would be better if it were abandoned’. While not all reaction has been so extreme, much academic and judicial commentary has advocated restraint in the employment of the constructive trusts as a panacea for lack of a clear intention to establish a trust and the need for certainty.

Constructive trusts arise by operation of law and is imposed by the court as a result of the conduct of the trustee and therefore arises quite independently of the intention of any of the parties. The types of constructive trust :-

a. Constructive trusts arising on a specifically enforeceable contract for the sale of a title to land or known as Vendor – Purchaser Constructive Trust by William Swadling

The moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser. There must be a valid contract of sale and and the contract must be one of which a court of equity will grant specific performance.

b. Constructive trusts arising when equity perfects an imperfect gift – donor done everything within his power to make the gift of perfect.

Infiltration of Trusts into Commercial Law

What differentiates the Quistclose trust from other trusts, is the existence of the specific purpose for which the sums on credit must be applied, and the failure of which gives rise to the trust. - Justin Santiago

Quistclose Investments Ltd v Rolls Razor Ltd held that a trust situation could arise in situations where money that is owed becomes the subject matter of the trust provided that the money had been segregated for the purpose of repaying the debt. The extra ingredient required to elevate a loan to such a Quistclose trust is an intention that the money advanced be used for a particular purpose rather than being at the general disposal of the borrower. In Quistclose itself this extra ingredient was supplied by the bank's stipulation that the loan be employed in paying a dividend to shareholders.

However there are other differences between a Quistclose trust and a normal trust. Following Knight v Knight (1840) 3 Beav 148 a trust is created if the words used are imperative and if the property and objects (i.e. persons intended to be benefited) are sufficiently identified. This dictum is usually reduced to the phrase that the three certainties must be present: certainty of intention, subject matter and objects.

To determine certainty of intention we have to examine the words and conduct of the proposed settlor to see if these conform to an intention to create a trust.This is provided by the requirement that the money be used only for the stipulated purpose.
Furthermore there was segregation of the loan monies from the borrowers' other assets.

As for certainty of subject matter it is the debt that is clearly the subject matter.

The difference of a Quistclose trust lay in its lack of certainty of objects The 'beneficiary principle' requires of a trust that it have ascertainable human beneficiaries in order to be valid : Morice v Bishop of Durham. The permitted exceptions are charitable trusts and a limited number of non-charitable purpose trusts. At first sight the Quistclose trust appears to offend against the beneficiary principle. The trust seems to fall into the category of non-permitted purpose trust, the purpose of which is to pay off a debt.

The Quistclose trust has been argued to be a resulting trust in favour of the person who originally advanced the credit, and the person to whom the sums were advanced holds them as trustee. The resulting trust occurs because the purpose of the trust to pay dividends to shareholders could not be fulfilled.

Additionally proof that the Quistclose turst it is not an express trust is the lack of formality requirements of section 52(1)(b) of the Law of Property Act 1925 which requires that a declaration of a trust must be manifested and proved by some writing and signed by some person who is able to declare a trust.

Secret Trusts

Is there any coherent argument for the admission of non-conforming evidence in the case of secret trusts? - Justin Santiago

The law requires that for a disposition to be effective and that the equitable interest is assigned to the beneficiary it must be in writing according to S53(1)(c)of the Law of Property Act 1925. The Wills Act 1837 also only allows last wishes to be made in writing, signed by the testator and signed by two people who have witnessed the testator's signature formally.

Secret trusts involve making an oral declaration without the details being made public save only to the person who is asked to put into effect those wishes. In the case of fully secret trusts there is no trust at all because for all intents and purposes it is an absolute gift to the legatee.

Apart from not fulfilling the written requirement, secret trusts also bypass very fundamental trust requirements such as the requirement for imperative words, evidence of acknowledgement by the trustee of the terms of the trusts and the trustee also being the beneficiary :-

Trusts need to consist of imperative words and have objects that are certain.

In the case of half secret trusts the trust consists of precatory words and also is not clear on the objects.

Trusts must be manifested by means of an acknowledgement that the trustee be bound by the terms of the trust : Ottoway v Norman. In the case of both fully secret and half secret trusts there is no evidence of acknowledgement that the secret trustee by bound by the terms of the trust.

In the case of fully secret trusts because the secret trustee is the beneficiary there is a wide scope for fraud as the trustee could claim that he would take of the gift absolutely.

Several justifications for allowing secret trusts have been put argued by several theories in defence of secret trusts such as the fraud theory and the dehors the will theory to justify their justify their admission. However it seems that these theories are mainly used to the testator to make such a disposition as he or she pleases without the details being made public as in the case of transfer of property to a mistress or an illegitimate child. Two theories which are frequently cite are the fraud theory and the dehors the will theory :-

The Fraud Theory

The fraud theory states that secret trusts would be enforced by a court of equity in favour of a secret beneficiary on grounds that equity will not permit a statute to be used as an instrument of fraud. The fraud theory supposes that the purpose of the fraud would either be for the trustee to take the gift absolutely for his personal gain and to deny the secret beneficiary or to disappoint the wishes of the settler (expanded fraud theory : Blackwell v Blackwell).

The Dehors (Outside) the Will Theory

The dehors the will theory states that the the secret trust operates outside the testator’s will and should not be regarded as testamentory trusts at all. This is exemplified by the rule that in probate law is that the will does not take effect until the testator's death. Therefore, if a named beneficiary is not alive at that time, his estate is not entitled to anything. However, in Re Gardner, the secret beneficiary's estate was held to be entitled to the deceased beneficiary's interest under the half-secret trust. This supports the view that the trust comes into existence `dehors the will', but does not explain when the trust was constituted. In any case, this decision is out of line with normal probate rules.

There is a further third theoretical justification that the doctrine of secret trusts is part of the law on incorporation by reference which states that a document can be incorporated into a will by being referenced in the will, but only if the document exists at the time the will is executed. However secret trusts is about oral testimony and hence this theory has been rejected.

Private Purpose Trusts and Unincorporated Associations

No principle has perhaps greater sanction of authority behind it than the general proposition that a trust by English law, not being a charitable trust, in order to be effective, must have ascertained beneficiaries – per Lord Evershed MR in re Endacott. How accurately does this statement represent the present law relating to the dedication of property to private purposes? - Justin Santiago

The requirement of ascertained beneficiaries fulfills one the certainty objects test and thus would go towards validating the trust. A private purpose trust fails to indicate an individual or individuals or a clear class of individuals who will benefit if it is carried out. For example re Astor – a trust for inter alia the establishment, maintenance and improvement of good understanding, sympathy and co-operation between nations was held void.

The rationale is that such trusts lack enforceability against the trustees and flouts the beneficiary principle inherent in all trusts. The beneficiary principle requires that all trusts be made for the benefit of human beneficiaries who will be able to apply to the court to enforce the trust : Morice v Bishop of Durham – the court can neither reform maladministration nor direct a due administration. The principle is also framed as the ‘no purpose trust’ rule and that with the exception of charitable trusts, nearly all trusts for a purpose are void : re Endacott – a testamentary trust for the purpose of providing some good useful memorial to myself failed for want of a human beneficiary

The beneficiary principle can be viewed as a rights principle or an enforcer principle. If there are no persons with rights against the trustee then there is no trust. It also follows that if there is no one with the ability to enforce the trust then there is also no trust. The law of trusts are devices of private law and for a private law to have any legal effect it must actually confer rights or create enforceable duties. Dedicating rights to a purpose does neither.

A number of purpose trusts have been upheld despite infringing the beneficiary principle, and also despite infringing the rule against perpetuities :-

1.Reasonable provision for tombs and monuments provided it was specifically to erect a physical structure

2.The upkeep of animals : re Dean with the rationale that the courts were sympathetic with the specific motive of the testator and it was unclear whether the trust was for the animal per se or to a person who helped to look after the animals : Pettingall v Pettingall – under such situations the trustee or executor of the will undertakes to carry out the purpose of the trust – “Petingall” order

3.Religious services to the extent that these are not charitable in advancement of religion : Bourne v Keane, re Hetherington – the element of community benefit.

The rationale to allow these private purpose trusts was that the purposes were beneficial and it was reasonably possible to execute through a Pettingall order which would be issued by the courts under which the trustee or executor of the will undertakes to carry out the purpose.

With regard to a gift to an unincorporated association which is a group of individuals who combine to act together to achieve some purpose, often social. Because the society is not incorporated, unlike a limited company, it has no legal personality in itself and so cannot hold rights in the way that a corporation can. Unlike a corporation, an unincorporated association has no rights or duties separate from those undertaken by its individual members. Contrast this with, for example, a limitedCompany, which is an corporation and has a distict legal personality. A limited company can sue and be sued in its own name, and enter into contracts.

Because it is not a legal entity, individual members of an association are responsible for their actions, even if carried out on behalf of the association.
However, if an association appoints a committee to act on its behalf, that committee may be jointly liable for the actions of one of its members. In addition, in legal proceedings an association may appoint someone to represent the association, and that appointment will normally be accepted by the courts.

Gifts to or in trust for unincorporated associations, excluding charities, create difficulties in terms of ownership of the property and enforceability of the trust.
The validity of gifts to unincorporated associations varies with the construction that the court may place on the gift. The approach of the court was summarised by Cross J in Neville Estates Ltd v Madden [1962] Ch 832, in three propositions.

Cross J. “In the first place, it may, on its true construction, be a gift to the members of the association at the relevant date as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member of the association – this however may not however be the intention of the donor - Leahy v AG for New South Wales – as a non charitable gift, the trust failed as the testator’s intentions was clearly to create an endowment for the order of nuns (both present and future) and not for the benefit of ndividuals.

Secondly, it may be a gift to the existing members not as joint tenants. A member cannot sever his share, it would accrue to other members on his death or resignation, even though other members could seek to restrain him by injunction or seek to restrain him by injunction or proceed against him for breach of contract. This approach is to resort to contractual notions rather than the device of the trust based on the duties and obligations between members and the association which amount to contractual obligations. According to Conservative Central Office v Burrell 1982, the members of the association must have mutual obligations to one another, which suggests that there is some form of contractual relationship between them. the members are bound by the contractual relationship between them to use the property to the associations's purposes. As such the gifts and other transfers to such associations are construed as being transfers to the members themselves but subject to their contractual obligations between themselves to use the rights so given to promote the purposes of the association : re Lipinski’s Will Trusts : a purpose that is within the powers of the association and of which the members of the association are beneficiaries should not fail.

Thirdly, the terms or circumstances of the gift or the rules of the association may show that the property in question is not to be at the disposal of the members for the time being, but is to be held in trust for or applied for the purposes of the association as a quasi-corporate entity. Since an unincorporated association promotes a purpose, a gift to such an association in one sense may not be enforced because there is no person (donee) capable of giving a valid receipt for the property or it may be difficult to identify a person who is capable of enforcing the trust : Re Astor. Such an approach is disastrous for the transferor because it would generally invalidate the transfer as a private purpose trust, unless the purposes were exclusively charitable or of a type falling under the principle enunciated in re Denley’s Trust Deed .

In this case, a trust for the maintenance of a sports ground (a purpose) for use by the employees of a company was valid on the ground that the purpose was not of such an abstract kind as to fall foul of the beneficiary principle and the employees had locus standi to ensure that the trustees put the purpose into effect. There are however views that suggest that this was merely a form of a trust for persons with the purpose being treated as merely a superadded direction or motive for the gift.

Alternatively a gift to an association can be seen as a mandate to an officer of the association to disburse the gift in a particular way. As mandates are (by definition) revocable when initially created, there must be some point at which the mandate to the association becomes irrevocable. The most logical view seems to be that this takes place when the property of the gift is disbursed.

Re Horley Town Football Club; Hunt v McLaren [2006] - In 1948 Major Jennings, the president of Horley Football Club (the Club) settled land by deed on trust to secure a permanent sports ground for the Club. In May 2002 the land was sold to a developer for almost £4m. The trustees used the proceeds to purchase another site for £850,000 and to construct a Club house and ancillary facilities amounting to approximately £2.2m. This new sports complex was subject to certain restrictive covenants which limited its use to sports and leisure. As a consequence the land was worth less than the amount spent on it. The rules of the Club made provisions for several varieties of membership ranging from the current full members to temporary and associate members. The claimants (trustees) applied to the court for directions concerning the basis on which they held the assets of the Club and the proper construction of the rules of the Club.

The High Court decided as follows:

(a) a gift to or in trust for an unincorporated association might take effect as a gift to the existing members, not as joint tenants, but subject to their respective contractual rights and liabilities towards each other as members of the association. In this event the member could not sever his share and it would accrue to the other members on his death or resignation. Such members include persons who became members after the gift took effect.

(b) The deed of 1948 was construed as a gift to the members of the Club as a contract-holding gift to the Club and its members including subsequent members. On this construction, the gift will fail if it is not limited in perpetuity

(c) The beneficial ownership of the assets of the Club was in the subsisting full members, but not the temporary and associate members. The trustees of the Club held the assets on bare trust for the full members

(d) The members acquired the assets of the Club subject to the current rules and could unanimously or by a general meeting call for the assets to be transferred.

Disbursal of assets of the dissolution of the association

In the present case, Collins J. after considering the principles in the above mentioned cases decided that the trust deed will be construed as a gift to the Club as a ‘contract-holding’ gift to the Club and its members. He also decided that the beneficial ownership of the assets of the Club was vested in the current full members of the Club on a bare trust. In addition, a clause will be implied into the rules of the Club to the effect that the surplus funds of the club on a dissolution should be divided amongst its members at the time of dissolution on a per capita basis, irrespective of the length of membership or subscriptions paid.

A common problem concerning unincorporated associations is the distribution of their assets when they are dissolved. Where the assets are contributed by the individual members the problem is not particularly acute, but there are particular difficulties where the assets are funds that have been raised by public subscription : Re West Sussex Constabulary Widows Fund 1971. The prevailing view is that there is no obligation to return these funds to their contributors, but in Air Jamaica v Charlton 1999 Lord Millet stated that such a return should be effected where the number of contributors was small and readily ascertainable.

Charitable Trusts

What are the approaches taken to determine whether a proposed trust, which appears to provide for a novel purpose not found to be charitable or uncharitable by a previous judicial decision is charitable? Are any reforms of the law indicated? - Justin Santiago

The question refers to the fourth category of charitable trusts called trusts for other analogous purposes within the spirit and intendment of the Preamble to the Statute of Charitable Uses 1601 which was distilled by Lord Mcnaghten in the case of Commissioners of Income Tax v Pemsel. This fourth category allowed for charitable trusts other than those outlined in the first three categories outlined in the preamble namely trusts for the relief of poverty, trusts for the advancement of religion and trusts for the advancement of education.

This fourth category of trusts includes a purpose which confers a benefit on the public Incorporated Council for Law Reporting Society v AG and which must be wholly and exclusively chartable.

Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population Neville Estates v Madden and there must be no denying any element of public participation in the purpose : Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries.

The exclusively charitable requirement was outlined in Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the grounds the charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the force.

For the fourth category it is not enough simply to show that the purpose confers a benefit on the public – inherent in the purpose that it is beneficial to the community – it must also be shown to be a charitable trust – AG v National Provincial and Union Bank of England – it must be analogous to purposes which are found in the Preamble : Williams v IRC. The approach of the courts is to treat the examples as stated in the preamble as a means of guidance in deciding on the validity of the relevant purpose. Two approaches have been adopted by the courts namely;-

1. Reasoning by analogy : the approach here is to ascertain whether a purpose has some resemblance to an example as stated in the preamble or to an earlier decided case which was considered charitable : Scottish Burial Reform and Cremation Society v City of Glasgow Corporation : provision of a crematorium was considered charitable by analogy with the repair of churches as stated in the preamble.

2. The spirit and intendment of the preamble : this approach is much wider than the previous approach. The courts decide if the purpose of the organization is within the spirit and intendment or within the equity of the statute unhindered by the specific purposes as stated in the preamble : Incorporated Council of Law Reporting v AG - if a purpose is shown to be beneficial to the community per se this should be enough to guarantee charitable status unless some positive harm or unwanted effect can be proven this is the public benefit approach – tainted by politics McGovern v AG.

3. Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population or be so limited by the stipulations of the testator as to deny an element of public participation in the purpose. Although the limitation on the class of persons who may derive a benefit from the charity does not destroy the public character of the trust, a second or third limitation may well make it so difficult for the public at large to qualify for the charitable benefit that there is no real public benefit at all : IRC v Baddeley. In Dingle v Turner (1972) a trust to benefit a company's poorer employees was held to be charitable, despite the strong, but much criticised message of Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries which confirmed the test in Re Compton which stated that lacking the essential element of public benefit if the potential class of persons likely to benefit are united by a common personal bond.

4. Reference to the identification of the objects as exclusively charitable. In Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the ground that the trust funds were capable of being devoted for both charitable and non-charitable purposes. The charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the Force. Lord Normand declared:

The Charities Act 2006 although not providing a statutory definition of charity has attempted to reform the law on charities and extended the fourfold categorization in Pemsel to 12 though some of this is little more than a codification of earlier decisions on the fourth head including advancement of advancement of amateur sports, advancement of human rights – McGovern v AG, advancement of animal welfare, citizen and community development – Williams v IRC and expanded on the category of religion to include belief in more than one god and religion which does not involve belief in a god and the retention even the expansion of the analogy approach. However the definition of charity in S1(1) is still not clear and the public benefit test requirement although included under S3 of the act is still not properly defined. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

The Charities Act 2006 attempted to resolve the public benefit test requirement. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

Ultimately courts will interpret charitable trusts rather broadly because charitable trusts are regarded as beneficial to society as a whole and as such can bypass the beneficiary principle and avoid conformity with the certainty of objects requirement. This is because in the case of charitable trusts there need not be a named beneficiary. Attorney General may take an action on behalf of the Crown. Charity is regarded in law as indivisible, irrespective of the actual group or body carrying out the purpose. As such it would not be contrary for money to be permanently dedicated to charitable purposes and will not fail.

Charitable trusts can defeat the rule against perpetuities - may be of unlimited duration.

Can defeat the rule against remoteness of vesting which will allows the court to order a gift over from one charity to another if the original charity should fail and be used for purposes as near as possible to the original purposes under the rules of cy-pres – re Lysaght, re Farakar.

May enjoy substantial fiscal advantages in the form of reduction or exemption from various taxes and charges.

Declaration and Disposition

Many attempts have been made to avoid the action of s.53(1)(b) and s.53(1)(c). - Justin Santiago

The sections of the LPA 1925 refer to written evidence required in a declaration of a trust and disposition of an equitable interest respectively. The avoidance of these two sections is to avoid these two requirements in order not to pay stamp duty which is required when a beneficial interest is transfered to the beneficiaries. Anyone who wants to avoid paying stamp duty will want to avoid using a document to create or transfer a trust. Most attempts to do this have failed. The courts take a dim view of over-enthusiastic tax avoidance, and the lack of precision of the term “disposition” has allowed them to give effect to that view. Arguments about whether it is possible to come up with a way to defeat s.53 to the satisfaction of a judge are now moot - stamp duty is generally only payable on land transactions, and it's almost impossible to do anything with land these days unless it is in writing.

S53(1)(b) states that a declaration of a trust of interests in land must be manifested and proved by some writing and signed by some person who is able to declare a trust. This statue is based on S7 of the Statute of Frauds 1677 which requires written proof of a declaration of a trust. The writing must be signed by the settlor (or the testator in the case of the will). Signature by an agent is not permitted. The written requirement does not have to be on the date itself it is merely a confirmation of a declaration of trust that happened before. The trust would still operate from the date it was declared. The general view is that Section 53(1)(b) is merely an evidential requirement provided the matter came to court rather than substantive in nature. Non-compliance with the provision would merely render the trust unenforceable although it will be perfectly valid. It is possible for there to be a joinder of documents in order to fulfil the requirements of the subsection. Constructive trusts and resulting however are specifically exempted from formality requirements according to S53(2) outflanking the rule in S53(1)(b).

However the effect of S60(3) LPA 1925 which states that “In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee”. This is of course contradictory to Russel LJ’s reasoning obiter in Hodgson v Marks that a trust that fails for want of formality is saved by an automatic resulting trust. This reasoning is of course false because there is nothing automatic.

In the case of Rochefoucold v Bousted, the COA held that an oral declaration could be allowed based on the equitable maxim a statute cannot be used as an instrument of fraud and the court is entitled to suspend the operation of the statutory requirement of evidence in writing. It is important to see whether there was any point of a fraud being committed and to show that the party being promised to acted to his detriment or significantly altered his position as proof that there was an oral declaration that would vest the equitable title to him. Alternatively the extended fraud theory can be invoked in order to create a half secret trust which can be allowed as an exception.

T.G. Youdan in his article "Formalities for Trusts of Land and the Doctrine in Rochefoucauld v Boustead" has argued that the third party beneficiary should be entitled to enforce the trust – whether or not the settlor is dead – under the Rochefoucauld doctrine as well as in half secret trusts.

S53(1)(c) states that disposition (not creation) of an existing equitable interest (not legal title) subsisting (must be in existence) at the time of the disposition must be in writing not merely proved by writing for it to be assigned (transferred) to third parties. The underlying policy was to :-

a. prevent fraud by prohibiting oral hidden transfers of equitable interests under trusts and
b. assist trustees by enabling them to identify the whereabouts of the equitable interest subsisting under a trust

This requirement was recognised much earlier under S9 of the Statute of Frauds 1677 which stipulated that all grants and assignments of any trust must be in writing otherwise it will be void and have no effect.

It has been established that the written requirement in S53(1)(c) LPA 1925 applies to personalty as well as to realty despite the definition of ‘equitable interests’ in s205(1)(x) of the Law of Property Act 1925 which refers to equitable interests in the context of land.

Grey v IRC is thought to be the authority for the proposition that a written document is required if the beneficiary of a trust instructs the trustees to hold the trust property for different beneficiaries. The rationale is that the divesting part of the transaction which results in the destruction of the original beneficiary’s interest must be regarded as a disposition. This is also consistent with S205 which states that a disposition includes a conveyance and conveyance includes a release.

In Vandervell v IRC where National Provincial Bank held the legal title to shares on behalf of Mr Vandervell were orally directed by Mr Vandervell to transfer the legal title of the shares to the Royal College of Surgeons and made it clear that he wanted to transfer his own beneficial interest it was held that this was a valid disposition because it was outside the S53(1)(c). Lord Upjohn in this case empasised the fact that the shares had been transferred by writing and that further writing under S53(1)(c) was therefore superfluous. The proposition was that no writing is required if the beneficiary instructs the trustees to transfer the legal title to the trust property out of the trust altogether.

If the beneficiaries assign the interests, the assignment is similar to contract and S53(1)(c) would apply

If the beneficiaries contract to assign the interests, this is not a disposition and S53(1)(c) would not apply : Oughtred v IRC. Here, shares in a trust fund were held on trust for Mrs O for life and then for her son. Mrs O held other shares of which she was the absolute owner. She agreed to transfer these to her son and he agreed to release his interest under the other shares to her. In order to do this three documents were executed: a transfer of the second shares to the son; a deed of release to the trustees who held the first shares; and a deed of transfer by the trustees of the first shares to Mrs O. Thus there was no document transferring the son’s interest to Mrs O and it was argued that no stamp duty was payable. This argument failed in the House of Lords, where it was held that the son’s equitable interest must have passed under the transfer of the legal estate by the trustees. This can be explained upon the basis that the transfer of the legal estate by the trustees amounted to a disposition of the equitable interest, which transfer would have to be in writing pursuant to Section 53 (1) (c). Later decisions suggest that an equitable interest can pass under a contract without any formality but it should be noted that the point does not appear to have been fully argued in some cases. See Re Holt’s Settlement and DHN Food Distributors Ltd v Tower Hamlets London Borough Council.

The question did arise in the recent case of Neville v Wilson where the CA decided that an informal agreement relating to the liquidation of a company and the division of the company’s equitable interest in the shares of another company was not rendered ineffective by S.53 of the Law of Property Act 1925. Each shareholder’s agreement to the liquidation created an implied or constructive trust for the other shareholders. This decision would seem to confirm that an equitable interest can pass under a contract without any formality. As soon as a contract is formed, the assignor holds the equitable interest on constructive trust for the assignee, and s.53(2) states that s.53(1) does not apply to constructive trusts. This decision endorsed the dissenting argument by Lord Radcliffe in Oughtred v IRC where he stated that a constructive trust would have to be created to prevent unjust enrichment.

In the case of a bare sub trust the beneficiary is now a mere conduit between the trustee and the sub beneficiary and therefore drops out of the picture and this is in truth a disposition and must follow S53(1)(c) as explained by Battersby and strenghtned by the operation of the rule in Grainge v Wilberforce.

Summary

1. Declaration of new trust not an outright transfer – S53(1)(c) does not apply - Re Vandervell No. 2

2. Beneficiary instructs the trustees to transfer the legal title to the trust property out of the trust altogether to a new beneficiary. The old trust collapses and the beneficiary drops out. The new beneficiary also receives the equitable interest and becomes the new settlor. S53(1)(c) does not apply – Re Vandervell

3. Change trustee – S53(1)(c) does not apply

4. Declaration of bare sub trust – S53(1)(c) applies

5. Declaration of a sub trust – S53(1)(c) does not apply because the old trust collapses and a new trust is created - Grainge v Wilberforce

6. Where an equitable interest is disclaimed – this occurred in Re Paradise Motor Co Ltd where the Court of Appeal held that a disclaimer did not amount to a disposition under Section 53 (1) (c)

7. Nomination of a beneficiary under a pension fund or a life assurance
policy. In Re Danish Bacon Co Staff Pension Fund Trusts Megarry J took the view that the nomination of a beneficiary under a staff pension fund was not a testamentary disposition and neither did it fall within the ambit of s.53(1)(c). He stated that even if it did fall within the statutory provision, the formalities could be satisfied by two connecting documents. In Gold v Hill, the first claimant was named as a beneficiary under the life assurance policy of Gilbert. The first claimant alleged that, before his departure to Nigeria, Gilbert informed him of this fact and asked him to look after Gilbert’s wife and children if anything should happen to him, Gilbert. Gilbert died and a dispute arose as to the nomination. The claimants claimed that the nomination was valid. The defendant,who was the solicitor and executor of Gilbert’s will, alleged that the nomination created an equitable interest in favour of Gilbert and the instruction to the first claimant had the effect of disposing the equitable interest contrary to s.53(1)(c) of the LPA 1925. It was decided that the nomination did not transfer or create any interest until death and it was sufficient that the nature of the trust was communicated before death. There was sufficient communication of the terms of the trust to the first claimant. Further, prior to the death of Gilbert, there was no subsisting equitable interest which could be disposed of. Accordingly, there had been no attempt to dispose of an existing equitable interest contrary to s.53(1)(c).

References

T.G. Youdan Formalities for Trusts of Land and the Doctrine in Rochefoucauld v Boustead

Graham Battersby Formalities for the disposition of equitable interests under a trust

Constitution of a Trust

Every inter vivos gift must comply with the complete and perfect requirement. - Justin Santiago

The complete and perfect requirement refers to constituting a trust which is vesting of the rights which form the subject matter of the trust in the intended trustee. Once it is constituted the beneficiaries of the trust can enforce it against the trustee. A gift will fail if the giver can not, or does not, take the appropriate steps to divest himself of the legal title.

How is a trust constituted?

a. Title to land which is unregistered – execution of deed – S52LPA1925, S2LP(MP) 1989
b. Title to land which is registered – trustee will be registered as the proprietor
c. Chattels - conveyed by either deed or delivery
d. Shares - executed an instrument of transfer of shares in the form required by the company’s articles and registered with the company SS182, S183 Companies Act 1985 and Stock Transfer Act 1963
e. Chose in action – S136 LPA 1925
f. Equitable interests – S53(1)(c) LPA 1925

The general rule about constituting a gift is found in Milroy v Lord - equity will not assist a volunteer to perfect an imperfect gift consistent with the inability to enforce gratuitous promises promises not supported by consideration under common law.

Historically there have been only two ways to create a trust. Either:
(1) the intending settlor declared the trusts and actually transferred the assets to the trustees (or did everything in his power, according to the nature of the property, to transfer the property to the trustees); or
(2) he constitutes the trust with himself as the trustee of the property.

Milroy v Lord holds that an imperfect attempt to create a trust using a third party as trustee will not be interpreted as a declaration by the settlor himself as trustee. The argument here is that there must be an expression of intention to become a trustee which is different from an intention to give over property to another : Richards v Delbridge.

Courts have frequently been called upon to exercise their equitable discretion, and rescue a gift that has failed for some reason or other and will not intervene to create one for him except in the following situations which would result in a constructive trust :-

Exceptions to the rule in Milroy v Lord

1. Detrimental Reliance – if it can be shown that there was a representation, reliance, detriment then proprietary estoppel will step in to order the perfection of the imperfect gift/trust from the moment the assurance is given : Dillwyn v Llewelyn, Pascoe v Turner.

The purported transferor will hold the promised right on constructive trust for the intended donee. However it could be argued that in the alternative the donor could be compelled to make good the donee’s loss (compensation) or to give up his own gain (restitution).

2. Re Rose - there was a defect in the share transfer process –everything has been done to transfer the legal title and this is a question of fact. If so then the gift is effective despite the lack of a valid transfer of title. The legal sleight-of-hand that makes the Re Rose principle work is that, once the donor is committed to transfer the legal title, he is deemed to hold the legal title on constructive trust for the recipient. However for a constructive trust to apply there must be a requirement of ‘unconscionability’. In Pennington v Waine where the donor had manifested an immediate and irrevocable intention to donate shares to another and had instructed her agent to execute the transfer, the donor was not be permitted to deny the interest acquired by the donee even though there was no unconscionability on the part of the donor but the courts felt it would be unconscionable on the part of the donee to be denied his interest as argued by Abigail Dogget in her article "Explaining Re Rose : The Search Goes On". This is a worrying trend since it would complicate the maxim that equity will not assist a volunteer and turn it into equity will not assist a volunteer only if it was not unconscionable.

3. Donatio Mortis Causa or Death Must Cure- conditions for the operation of the rule found in Cain v Moon although not complying with the Wills Act 1837 :-

a. Gifts must be in contemplation of the owner’s death “settled, hopeless, expectation”' of (relatively imminent) death, even if there has not been an adequate transfer of legal title : Re Craven’s Estate.
b. Donor must intend for gift to go back to him if death does not occur – similar to a bare trust situation
c. The gift has to be physically passed on

4. The rule in Strong v Bird - when a testator makes his debtor the executor the debt is automatically released although not made by deed and was merely a bare promise not to sue however this is balanced by the intention to relieve the debt and the intention continued until the testatrix death

5. The rule in Re Ralli’s WT- unperformed promise by deed to give had not been performed during the lifetime of the promisor – enough to constitute the covenanted for trust by virtue of being appointed executor of the promisor’s will

6. The rule in Choithram v Pagarani

Choithram v Pagarani set up a foundation and transferred the legal title to the foundation which is different from vesting the trustees with the legal title.

- it was argued that the foundation does not exist in English law and and that the legal title was not transferred and therefore the trust failed
- however the counter argument were the words “ I give to the foundation” could only mean “I give to the trustees of the foundation trust deed to be held by them”
- however the settlor himself being a trustee and the settlor vesting the legal title in himself puts the situation squarely in the middle of the two historical methods of creating a trust which is for the settlor to declare himself as trustee or to vest the legal title to a trustee

Referencea

Abigail Dogget Explaining Re Rose : The Search Goes On
Judith Morris When is an invalid gift valid?

Substantive Requirements of a Trust

What are the the requirements to create an enforceable trust? - Justin Santiago

1. Substantive Requirements i.e. - 3 certainties - certainty of intention, certainty of subject matter, certainty of objects.

a. Certainty of intention

Whether there was certainty of intention is a question of fact, not a question of law. If the test for certainty of intention fails, there cannot be a valid trust, and the person to whom the property is transferred becomes the legal and beneficial owner.

The test of certainty of intention is "Can the words be construed as having the effect on the trustee’s conscience? Christian LJ in McCormick v Grogan.

The use of the word “wish” can be construed as being precatory i.e. exhibiting a desire which only has the effect that the trustee acts according to his conscience which would merely amount to an allegation of a trust : Re Adams & Kensington Vestry.

Also the word “trust” does not necessarily imply a trust in the legal sense. For example, in Tito v Waddell the words “held in trust for” did not mean that a certain legal obligation was to be imposed. Where certainty of intention is evidenced by conduct, the conduct must manifest a clear intention to deal with the trust property in the form of a trust Re Kayford 1975 although, again, no reference need be made specifically to a trust

The modern approach does not look at words alone to determine an intention but conduct as well. It is not necessary that the settlor used the word “trust”', nor even that he knew what a trust was, provided the intention is clear. For example, in Paul v Constance 1976 the words “This money is a much yours as mine”, combined with the behaviour of the settlor, were held to be sufficient to find that a trust had been created.

Was the intention to transfer rights? Failed attempts to transfer rights cannot be construed as a self declaration of a trust – Richards v Delbridge.

If the court cannot distinguish between an intention to benefit another and an intention to create a trust, then the result is that neither of these outcomes will obtain, and the property will remain with the settlor : Jones v Lock.

b.Certainty of subject matter - there are two limbs to certainty of subject matter in order to ensure that there is holding of rights on behalf of another :-

i) the trust property must be certain
ii) the beneficial interest must be defined/ascertainable

Failure of a trust where relative words are employed in defining the property for example – a gift by a testatrix of “the bulk: of her residuary estate : Palmer v Simmonds and Re Kolb which concerned a direction to hold “blue chip securities” on trust. Also Anthony v Donges where the testator directed that his widow receive such minimal part of the estate as she might be entitled under English law was void for uncertainty.

Consequences of inability to identify trust rights would result in the recepient taking the rights outright : Palmer v Simonds the rationale is that the uncertainty as to subject matter feeds back into uncertainty as to intention to create a trust in the first place.

Note however the trend of courts to not take the too literal approach in Re Golay with regard to a trust to pay a reasonable income to a named beneficiary.

c.Certainty of objects

The beneficiary principle requires that all trusts be made for the benefit of human beneficiaries who will be able to apply to the court to enforce the trust : Morice v Bishop of Durham. The principle is also framed as the ‘no purpose trust’ rule and that with the exception of charitable trusts, nearly all trusts for a purpose are void : re Endacott – a testamentary trust for the purpose of providing some good useful memorial to myself failed for want of a human beneficiary

The beneficiary principle can be viewed as a rights principle or an enforcer principle – re Astor’s Settlement Trusts. If there are no persons with rights against the trustee then there is no trust. It also follows that if there is no one with the ability to enforce the trust then there is also no trust. The law of trusts are devices of private law and for a private law to have any legal effect it must actually confer rights or create enforceable duties. Dedicating rights to a purpose does neither.

However whether the conferring of rights creates the enforceable duty is unclear as it may be possible for the settlor to nominate someone else to serve as the enforcer of those beneficiaries’ rights. In Re Denley, a trust for the maintenance of a sports ground (a purpose) for use by the employees of a company was valid on the ground that the purpose was not of such an abstract kind as to fall foul of the beneficiary principle and the employees had locus standi to ensure that the trustees put the purpose into effect.

Law of Trusts - Basics

What is Trust Law? - Justin Santiago

The law of trusts deal with trusts, an equitable device used by the settlor to split the rights over his or her money or property into legal and equitable rights. The legal rights are held by the trustee on behalf of the beneficiary who holds the equitable rights (the right to enjoy the benefits of the money or property).

The equitable rights created by the trust enables the beneficiary to enforce the trust in his own name, although he was not a party to the original agreement evading the doctrine of privity. This is why the trust is only recognised by equity not the common law which requires the doctrine of privity in any agreement.

In Westdeutsche Landesbank Girozentrale v Islington Borough Council, Lord Browne-Wilkinson, conveniently identified the relevant principles of trust law which can be summarised as follows:

(i) equity operates on the conscience of the owner of the legal interest;
(ii) the owner of the legal interest cannot be a trustee of the trust property until aware of the facts alleged to affect his conscience;
(iii) in order to establish a trust there must be identifiable trust property (
(iv) once the trust is established, a trust beneficiary has an equitable proprietary interest in the trust property enforceable against subsequent holders other than the bona fide purchaser of the legal interest.

Rights which the settlor had prior to the creation of the trust are vested in their entirety in the trustee. But he is not free to use those rights for his own benefit in the way he could if no trust existed. At the same time new rights are created in the beneficiary of the trust, which enables him to hold the trustee to account for his exercise of those rights : DKLR Holding Co (No 2) Ltd v Commissioner of Stamp Duties.

It should be noted that if, at any time, the full legal title and equitable title are held by a single individual, a merger has happened, which means the titles have fully merged such that the individual has full ownership of the property and the trust is over. The beneficiaries are also entitled to terminate the trust by directing the trustees to transfer the legal title to them, provided that they have attained the age of majority and are mentally sound.

A settler can declare himself trustee of property for someone (settler and trustee can be the same person), a settler can also convey property to a trustee on trust for himself (settler and beneficiary can be the same person). A trustee can also be one of several beneficiaries. A beneficiary can declare a trust of the equitable title which is called a sub-trust.

Express trusts are a species of trusts that have been created specifically and are associated with the traditional meaning of a trust. An express trust is created when a settlor effectively exercises his powers of ownership to do so. A power is the capacity to change or create rights, duties or other powers. An express trust can be testamentary which is set out in a person’s will or it can be inter vivos which is created by the settlor when alive.

An express trust has to fulfill the substantive requirements, be properly constituted, adhere to the formalites and there must be a valid disposition.

There are variations of express trusts :-

Sub trust - a beneficiary may create a trust of his interest in favour of another. In this situation the original beneficiary adopts the role of the settler and trustee for the benefit of another.

Trust of a promise – a legal fiction designed to make a promise between 2 parties the subject matter of a trust for the benefit of a 3rd party which can enforce the promise – Les Affreteurs Reunis v Walford. The courts have undermined the device by insisting upon strict proof of an intention to create a trust of a promise – Re Schebsman.

A bare trust - when the trustee holds property for a beneficiary on no specific trust terms but to do as the beneficiary dictates. Bare trustees are often called nominees. Most common example of a trust of this kind is the trust upon which a solicitor holds his client’s purchase moneys prior to completion of the sale of land.

There are trusts which arise through the courts :-

Statutory Trust – legislature has thought it convenient to use the trust device as a cure for certain problems. If I attempt to convey a title to land to Fred and Joe as tenants in common, statute provides that the effect of my action is to convey the title to Fred and Joe as joint tenants on trust for themselves as tenants in common : S34(2) LPA 1925.

There are also trusts that arise by operation of the law namely constructive and resulting trusts :-

Constructive Trust – a trust constructed by the court rather than by the individual right holder. An example is Aluminium Industrie Vaasen B.V. v Romalpa Aluminium Ltd n the case of reservation of title clauses sellers retain equitable title and to make the company to which the goods were supplied a trustee of the goods until the seller has been fully paid.

Resulting Trust – any situation in which A conveys rights to B which B for whetever reason then holds on trust for A.

Trust Maxims

Trust Maxims - Justin Santiago

•1 Equity regards as done that which ought to be done.
•2 Equity will not suffer a wrong to be without a remedy
•3 Equity delights in equality
•4 One who seeks equity must do equity
•5 Equity aids the vigilant, not those who slumber on their rights
•6 Equity imputes an intent to fulfill an obligation
•7 Equity acts in personam.
•8 Equity abhors a forfeiture
•9 Equity does not require an idle gesture
•10 One who comes into equity must come with clean hands
•11 Equity delights to do justice and not by halves
•12 Equity will take jurisdiction to avoid a multiplicity of suits
•13 Equity follows the law
•14 Equity will not aid a volunteer
•15 Between equal equities the law will prevail
•16 Between equal equities the first in order of time shall prevail
•17 Equity will not complete an imperfect gift
•18 Equity will not allow a statute to be used as a cloak for fraud
•19 Equity will not allow a trust to fail for want of a trustee

1. Equity regards as done that which ought to be done.
Problems may sometimes arise because, through some lapse or omission, cover is not in force at the time a claim is made. If the policyholder has clearly been at fault in this connection, because, for example, he has not paid premiums when he should have, then it will normally be quite reasonable for an insurer to decline to meet the claim. However, it gets more difficult if the policyholder is no more at fault than the insurer. The fair solution in the circumstances may be arrived at by applying the principle that equity regards that as done which ought to be done [See para 1, above]. In other words, what would the position have been if what should have been done had been done?
Thus, in one case, premiums on a life policy were overdue. The insurer' s letter to the policyholder warning him of this fact was never received by the policyholder, who died shortly after the policy consequently lapsed. It was clear that if the notice had been received by the policyholder, he or his wife would have taken steps to ensure the policy continued in force, because the policyholder was terminally ill at the time and the cover provided by the policy was something his wife was plainly going to require in the foreseeable future. Since the policyholder would have been fully entitled to pay the outstanding premium at that stage, regardless of his physical condition, the insurer (with some persuasion from the Bureau) agreed that the matter should be dealt with as if the policyholder had done so. In other words, his widow was entitled to the sum assured less the outstanding premium. In other similar cases, however, it has not been possible to follow the same principle because there has not been sufficiently clear evidence that the policy would have been renewed.
Another illustration of the application of this equitable principle was in connection with motor insurance. A policyholder was provided with cover on the basis that she was entitled to a ' no claims' discount from her previous insurer. Confirmation to this effect from the previous insurer was required. When that was not forthcoming, her cover was cancelled by the brokers who had issued the initial cover note. This was done without reference to the insurer concerned, whose normal practice in such circumstances would have been to maintain cover, but to require payment of the full premium until proof of the no claims discount was forthcoming. Such proof was eventually obtained by the policyholder, but only after she had been involved in an accident after the cancellation by the brokers of the policy. Here again, the fair outcome was to look at what would have happened if the insurer's normal practice had been followed. In such circumstances, the policyholder would plainly have still had a policy at the time of the accident. The insurer itself had not acted incorrectly at any stage. However, in the circumstances, it was equitable for it to meet the claim.

2. Equity will not suffer a wrong to be without a remedy
When seeking an equitable relief, the stronger hand is that which has been wronged. The stronger hand is that hand which has the capacity to ask for a remedy. In equity, this form of remedy is usually one of Specific Performance or an Injunction. These are superior remedies to those which are administered at common law such as damages.

3. Equity delights in equality
Where two persons have an equal right, the property will be divided equally. Thus Equity will presume joint owners to be tenants in common unless the parties have expressly agreed otherwise. Equity also favours partition, if requested, of jointly-held property.

4. One who seeks equity must do equity
In order to receive some equitable relief, the party must be willing to complete all of their own obligations as well. Moreover, the defense of "unclean hands" lies whenever the conduct of a plaintiff in equity has been iniquitous. Snidely Whiplash would not be tossed out of a court of law, but his equity suits would almost certainly turn out badly.

5. Equity aids the vigilant, not those who slumber on their rights
Vigilantibus non dormientibus aequitas subvenit.
Once the party knows they have been wronged, they must act relatively swiftly to preserve their rights.
Equity favours the vigilant, and those who "sleep on their rights" may be deprived of equitable remedies. This maxim is often displaced by statutory limitations, but even where a limitation period has not yet run, equity may apply the doctrine of "laches", an equitable term used to describe delay sufficient to defeat an equitable claim.
Alternatives:
•Delay defeats equity
•Equity Aids the Vigilant, Not Those Who Sleep on Their Rights

6. Equity imputes an intent to fulfill an obligation
Generally speaking, near performance of a general obligation will be treated as sufficient unless the law requires perfect performance, such as in the exercise of an option. Text writers give an example of a debtor leaving a legacy to his creditor equal or greater to his obligation. Equity regards such a gift as performance of the obligation so the creditor cannot claim both the legacy and payment of the debt.

7. Equity acts in personam.
Basically, the act is against the person, and not their property in rem.
Equity asserts jurisdiction over the person of the defendant, and enforces its orders against him or her by contempt or other means.

8. Equity abhors a forfeiture
Today, a mortgagor refers to his interest in the property as his "equity." The origin of the concept, however, was actually a mirror-image of the current practice. At common law, a mortgage was a conveyance of the property, with a condition subsequent, that if the grantor paid the secured indebteness to the grantee on or before a date certain (the "law" day) then the conveyance would be void, otherwise to remain in full force and effect. As was inevitable, debtors would be unable to pay on the law day, and if they tendered the debt after the time had passed, the creditor owed no duty to give the land back. So then the debtor would run to the court of equity, plead that there was an unconscionable forfeiture about to occur, and beg the court to grant an equitable decree requiring the lender to surrender the property upon payment of the secured debt with interest to date. And the equity courts granted these petitions quite regularly and often without regard for the amount of time that had lapsed since the law day had passed. The lender could interpose a defense of laches, saying that so much time had gone by (and so much improvement and betterment had taken place) that it would be inequitable to require undoing the finality of the mortgage conveyance. Other defenses, including equitable estoppel, were used to bar redemption as well. This unsettling system had a negative impact on the willingness of lenders to accept real estate as collateral security for loans. Since a lender could not re-sell the property until it had been in uncontested possession for years, or unless it could show changed circumstances, the value of real estate collateral was significantly impaired. Impaired, that is, until lawyers concocted the bill of foreclosure, whereby a mortgagee could request a decree that unless the mortgagor paid the debt by a date certain (and after the law date set in the mortgage), the mortgagor would thereafter be barred and foreclosed of all right, title and equity of redemption in and to the mortgaged premises. To complete the circle, one needs to understand that when a mortgagor fails to pay an installment when due, and the mortgagee accelerates the mortgage, requiring immediate repayment of the entire mortgage indebtedness, the mortgagor does not have a right to pay the past-due installment(s) and have the mortgage reinstated. In Graf v. Hope Building Corp., 254 NY 1 (1930), the New York Court of Appeals observed that in such a case, there was no forfeiture, only the operation of a clause fair on its face, to which the mortgagor had freely assented. In the latter 20th Century, New York's lower courts eroded the Graf doctrine to such a degree that it appears that it is no longer the law, and that a court of conscience has the power to mandate that a default be excused if it is equitable to do so. Of course, now that the pendulum is swinging in the opposite direction, we can expect courts to explain where the limits on the newly-expanded equity of redemption lie...and it is probably not a coincidence that the cases that have eroded Graf v. Hope Building Corp. have been accompanied by the rise of arbitration as a means for enforcing mortgages. See, generally, Osborne, Real Estate Finance Law (West, 1979), Chapter 7.

9. Equity does not require an idle gesture
Also: Equity will not compel a court to do a vain and useless thing. It would be an idle gesture for the court to grant reformation of a contract and then to deny to the prevailing party an opportunity to perform it as modified.

10. One who comes into equity must come with clean hands
For example, if you desire your tenant to vacate, you must have not violated the tenant's rights.
For instance, in Riggs v. Palmer (1889) 115 N.Y. 506, a man who had killed his grandfather to receive his inheritance quicker (and for fear that his grandfather may change his will) lost all right(s) to the inheritance.
IN D&C Builders v. Rees (1966) a small building firm did some work on the house of a couple named Rees. The bill came to 732 pounds, of which the Rees had already paid 250 pounds. When the builders asked for the balance of 482 pounds, the Rees announced that the work was defective, and they were only prepared to pay 300 pounds. As the builders were in serious financial difficulties (as the Rees knew), they reluctantly accepted the 300 pounds 'in completion of the account'. The decision to accept the money would not normally be binding in contract law, and afterwards the builders sued the Rees for the outstanding amount. The Rees claimed that the court should apply the doctrine of equitable estoppel, which can make promises binding when they would normally not be. However, Lord Denning refused to apply the doctrine, on the grounds that the Rees had taken unfair advantage of the builders' financial difficulties, and therefore had not come 'with clean hands'.

11. Equity delights to do justice and not by halves
When a court of equity is presented with a good claim to equitable relief, and it is clear that the plaintiff also sustained monetary damages, the court of equity has jurisdiction to render legal relief, e.g., monetary damages. Hence equity does not stop at granting equitable relief, but goes on to render a full and complete collection of remedies.

12. Equity will take jurisdiction to avoid a multiplicity of suits
Thus, "where a court of equity has all the parties before it, it will adjudicate upon all of the rights of the parties connected with the subject matter of the action, so as to avoid a multiplicity of suits." Burnworth v. Hughes, 670 P.2d 917, 922 (Kan. 1983). This is the basis for the procedures of interpleader and the more rarely used bill of peace.

13. Equity follows the law
Equity will not allow a remedy that is contrary to law. The court of Chancery never claimed to override the courts of common law. In story on equity 3rd English ed. 1920 pg.34,"where a rule, either of the common or the statute law is direct, and governs the case with all its circumstances, or the particular pint, a court of equity is a much bound by it as a court of law, and can as little justify a departure from it." it is only when there is some important circumstance disregarded by the common law rules that equity interferes. as per Cardozo C.J in Graf v. hope building corporation, 254 N.Y 1 at 9 (1930)

14. Equity will not aid a volunteer
Basically, the person involved in the action must have a real interest in the issue. Equity will not assist if the common law requirements for a gift are not met. The exception is if the doctrine of estoppel applies.
This maxim is similar to equity will not complete an imperfect gift.

15. Between equal equities the law will prevail
Equity will provide no specific remedies where the parties are equal, or where neither has been wronged.

16. Between equal equities the first in order of time shall prevail
This maxim operates where there are two or more competing interests, one legal and the other equitable. Where the claims of both parties are fair and meritorious, precedence will be given to the legal interest. This maxim was developed in connection with interests in lands. When a purchaser acquires property bona fide without notice of a defect in the vendor’s title, the equities are equal and the legal estate will prevail. If the purchaser takes title with notice of the defect, the earlier title, if valid, will prevail. The force of this maxim has largely been displaced by legislated systems of land title registration. Goes back to the Earl of Oxford Case.

17. Equity will not complete an imperfect gift
If a donor has made an imperfect gift, ie lacking the formalities required at common law, equity will not assist the intended donee. A subset of equity will not assist a volunteer.
Note the exception in Strong v Bird (1874) LR 18 Eq 315. If the donor appoints the intended donee as executor of his/her will, and the donor subsequently dies, equity will perfect the imperfect gift.

18. Equity will not allow a statute to be used as a cloak for fraud

19. Equity will not allow a trust to fail for want of a trustee

Law of Trusts - Exam Technique by the Trust Guru Himself

LAW OF TRUSTS
Exam Technique - William Swadling

Since the examination is almost upon us, it might be useful to say a little about examination technique. Many external (and internal) students, though they clearly know the law, do not do as well as they should because of poor exam technique.

The Golden Rule

There is one golden rule in doing law exams: answer the question. This might seem obvious, but at least 90% of students answer the question they wish had been asked, not the one which was. You cannot expect to get credit for an answer which does not address the question, no matter how accurate the information you give may be. If in a history exam, you were asked to give a list of the kings of England but instead gave one of the kinds of Israel, then no matter that your list was perfect in everyway, you would receive a mark of zero, for you have not answered the questionasked. Law examinations are no different.

It should be remembered that much work goes into preparing your examination papers. The Chief Examiner will spend many hours setting the papers, which are then checked by the Deputy Chief Examiner, whose comments are relayed back to the Chief Examiner. He or she will then rewrite the papers in light of those comments.

Those amended papers are then referred to a scrutiny committee of the External Laws Programme, where at least ten pairs of eyes review the amended papers. Their comments are in turn relayed to the Chief Examiner, who will amend again the papers accordingly. It is therefore a great disappointment to find students ignoring the carefully crafted questions and answering their own. It should, however, be no surprise to those students when they subsequently fail.

An increasing problem of late is the use by candidates of pre-prepared answers, written no doubt by third-rate lecturers in third-rate institutions. Students should NOT use these. First, they are generally of an inferior standard, far below thatexpected of a degree from the University of London. Second, they will inevitably not be an answer to the question, for the third-rate lecturer will not have the gift of foresight, and so will not know the question which will appear on the exam. It should not be forgotten that examiners mark hundreds and hundreds of scripts. It is therefore fairly easy for them to see when pre-prepared answers are being used.

So, how do you ensure that you ‘answer the question’? Let us first discuss essay questions, and then problem questions.

Essays

The ‘trick’ here is to deconstruct the question asked. Take the question to bits,and play it back to the examiner, explaining the issues which the question raises. Take,for example, the following question from a few years ago:

Any system of law which recognised the trust would have need of the automatic resulting trust, for this merely provides the mechanism by which property ineffectively given on trust beneficially remains with the would-be donor. On the other hand, there is no similar need for the presumed resulting trust, which is anachronistic and has largely outlived its usefulness.

Discuss.

The first thing to notice is that the examiner has not said, ‘Please write every thing you know about resulting trusts’. Yet, the vast majority of candidates will answer the question as if he did. What the examiner has instead done is ask a specific question, and the first thing to do is identify exactly what that is. And that is done by simply playing back the question in different language. So here, we could say that the question raises a number of issues.

First, it assumes that there are two types of resulting trust, the presumed and automatic. One issue is whether such a distinction is valid. Second, on the assumption that there really are resulting trusts which are ‘automatic’ (and the meaning of that word will need to be explained), the next question is whether such trusts are needed. Is there no other way of dealing with the situations to which they are a response? Third, is it correct to say that such trusts arise because the property ‘beneficially remains with the would-be donor’? And fourth, what is the true based of presumed resulting trusts? What is the presumption in play in such cases? And can it really be said to be anachronistic?

Notice that in deconstructing the question, you have provided yourself with a structure for your answer. Moreover, you have ensured that everything you then say will be of relevance to the question asked. After that, you can’t go wrong!

Problem questions

These again are not an invitation for candidates to write all they know about a particular subject. So, the first three pages of your answer should NOT consist of a potted summary of the law on, for example, secret trusts. The examiner will simply get out a red pen and score through this part of your answer. What you should instead do is identify the broad area of the question (‘This is a question on secret trusts’) and then the specific issues it raises (‘There is a problem as to the timing of the communication of the terms of the half-secret trust’; ‘there is a problem as to the lack of written evidence concerning the alleged declaration of trust respecting Blackacre’; ‘there is a problem in that the communication was made to only one of two trustees’; etc, etc’). Not only have you now got a structure for your answer, but you also have a check-list to which you can refer to ensure that you’ve not omitted anything important from your answer. There’s nothing worse than coming out of the exam room and saying to yourself, ‘Oh, I forgot to mention the communication point’. Detailing the issues at the start helps prevent this.Moreover, it demonstrates to the examiner that you are someone who knows what they’re talking about.