Equity and trusts problem question answers

Keywords: knight v knight, creation of a trust, milroy v lord, donationes mortis cause

Equity and trusts problem question (1500 words)

This scenario relates to the purported creation of a trust. We are told that Michael has said to his daughter that “I promise to transfer to you within the year certain property”. The first issue to determine is whether this is sufficient to create a trust. One of the principal requirements for the successful establishment of a trust is certainty, and in this instance, certainty of intention is relevant. Knight v Knight (1840) established that the “three certainties” must be present; certainty of intention, of subject matter, and of object. Also of relevance here is the equitable maxim that “equity look to intent, not form”. This means that it is not necessary for the declaration explicitly to include reference to the word “trust”. The fact that Michael does not refer to a “trust” does not, therefore, defeat the attempt to establish a trust. By way of example, in Paul v Constance (1977) the words “the money is as much yours as mine” in reference to deposits in a bank account were sufficient to create a trust. There is no requirement that the declaration be in writing either, unless the trust property is land.

The second “certainty” that is required is certainty of subject matter. What is the trust property? In this instance, Michael has sought to create a trust over “certain property”. This will fail for evidential uncertainty; there is no clear specification of what the trust property is. Lord Hailsham indicated in his judgment in IRC v McMullen (1981) that the courts are generally reluctant to invalidate a trust for uncertainty of subject matter and will, where possible, apply a reasonable construction to the wording of the trust in order to make them valid. In this instance, however, there is no reasonable construction that could make this vague declaration sufficiently certain. Michael goes on, however, to specify this property as being his Cartier watch, his shares in ABC plc, the legacy he expected to receive from his uncle’s will, and Tranquil View, a freehold house. This, then, will meet the evidential certainty criteria.

The next issue to consider is who the trustee is over each of the trust properties. Michael’s watch is a chattel. A trust only becomes fully constituted once the property is in the hands of the person properly bound to be the trustee. In this instance, the bank is holding his watch. The bank, then, becomes the trustee as soon as the declaration is made. In Milroy v Lord (1862), Turner LJ set out his famous three modes of making a gift; an outright transfer of the legal title to the property, a transfer of legal title of the property to a trustee to hold on trust, and a self-declaration of trust. As we have seen, Michael has transferred, by his declaration, the legal title to the watch to the bank. There is no delivery requirement as it is already in the bank’s possession. In relation to Michael’s shares in the public company, the Re Rose (1952) case is relevant. Another equitable maxim is that equity will not assist a volunteer, meaning that in order successfully to create the trust, Michael must have done everything possible to transfer the legal title to the trust property. In Re Rose, the Court of Appeal upheld a trust where the donor had done everything he was obliged to do to make the trust valid.

In relation to the shares, Michael will have to execute a stock transfer form in order to create the trust. This principle was extended by Pennington v Waine (2002), although this still required the execution of a stock transfer form. Michael has also sought to create a trust over future property, his expected legacy from his uncle. This is a mere “expectancy” rather than a trust. Equity will only enforce this as a trust if some consideration was given for it, which does not appear to have been the case in this instance. It is a gratuitous assignment and is not therefore legally enforceable. Tailby v Official Receiver (1888) is authority for equity enforcing an imperfect transaction where consideration was given. In relation to the freehold house, a trust over real property can only be fully created in writing (unlike trusts over personalty). There will not be a properly constituted trust, then, over the property.

Michael has also verbally promised to his mistress that she will have the freehold house. This is a case of donationes mortis cause, or deathbed gifts, which are made inter vivos. What distinguishes this from a deathbed gift, however, is that it is not conditional upon Michael’s death, as he says “whether I die or not”. Cain v Moon (1869) is authority for the fact that deathbed gifts must be in contemplation of death. He also gives his mistress the keys to the safe which contain the title deeds, and thus he has delivered to her the legal title, in essence. This is sufficient to create the trust although as mentioned this is not a donationes mortis causa.

We come to Michael’s will which was validly created, and which takes effect upon his death. The £200,000 trust to create a sports ground for the employees will be successful as it is sufficiently certain as to the trust objects (i.e. the beneficiaries). This is a trust for a purpose, and pure purpose trusts will be invalid, however. Equity will not recognise a trust to carry out a purpose as the benefits of carrying out a purpose cannot be localised to specific individuals (see Morice v Bishop of Durham (1804)). The trust for the purpose of erecting and maintaining a monument will be invalid following Re Endacott (1960) in which a gift of some £20,000 was made “for the purpose of providing some useful memorial to myself”. This was invalid. The trust for the purpose of looking after his pet tortoise will be valid as an exception to the no purpose rule, following Pettingall v Pettingall (1842), in which a trust was valid for the purpose of looking after a horse. The gift for the purpose of educating his children is obviously no longer relevant so the trust property will revert to Michael’s estate.

Finally, he leaves a legacy for the purpose of building a new clubhouse. Gifts to unincorporated associations were discussed in Conservative and Unionist Central Office v Burrell (1982), and the lacrosse club meets the criteria for an unincorporated association. Once the association is dissolved, the property which is held by the members of the association is not bona vacantia but there is no resulting trust because the property was held under a bare trust. The members can therefore distribute the property among themselves as they see fit.

Precatory words are words of prayer or request in wills. The gift of Michael’s jewellery to Nileema is an example of this, and the case law suggests that these words are sufficient to create a trust, although in Lamb v Eames (1871) the Court of Appeal did not allow similar words to create a trust. The gift of the majority of his model soldiers may fail for conceptual uncertainty of subject matter following Palmer v Simmonds (1854).

The cy pres doctrine preserves charitable trusts from failure, and strives to make the trust “as near as possible”. It is likely that the gift to the museum which has closed will be transferred to the Museum of Childhood which now holds the collection. The fund for charitable or benevolent works is a general charitable intention, following Buckley J’s analysis in Re Lysaght (1966). This is wholly charitable and will be valid under the provisions of the Charities Act 2006. The gift to his trustees is a power rather than a trust and will be valid following Re Douglas (1887). The gift of half his shares in ABC plc will be valid, as it is sufficiently certain to determine the property following Hunter v Moss (1994) provided it can be discerned which shares Michael was referring to.

BIBLIOGRAPHY

Statutes

Charities Act 2006

Cases

Cain v Moon [1896] 2 QB 283

Conservative and Unionist Central Office v Burrell [1982] 2 All ER 1

Hunter v Moss [1994] 3 All ER 215

IRC v McMullen [1981] AC 1

Knight v Knight (1840) 3 Beav 148

Lambe v Eames (1871) 6 Ch App 597

Milroy v Lord (1862) 4 De GF & J 264

Morice v Bishop of Durham (1805) 10 Ves 522

Palmer v Simmonds (1854) 2 Drew 221

Paul v Constance [1977] 1 All ER 195

Pennington v Waine [2002] EWCA Civ 227

Pettingall v Pettingall (1842) 11 LJ Ch 176

Re Douglas (1887) 35 Ch D 472

Re Endacott [1960] Ch 232

Re Lysaght[1966] Ch 191

Re Rose [1952] Ch 499

Tailby v Official Receiver (1888) 13 App Cas 523

Secondary sources

Martin, J.E. (2001) Modern Equity, 16^th Edition (London: Sweet & Maxwell)

Pearce, R. and Stevens, J. (2006) The Law of Trusts and Equitable Obligations, 4^th Edition (Oxford: OUP)

Penner, J.E. (2004) The Law of Trusts, 4^th Edition (London: LexisNexis)