Constitution of Trusts

CONSTITUTION OF TRUSTS
Introduction Meaning of Completely Constituted Trusts Importance of Completed Constituted Trusts Meaning of Incompletely Constituted Trusts Modes of Constitution of a Gift/Trust Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift. The Rule in Strong v Bird (1874) The Rule in Dilwyn v Llewelyn (1862) Donatio Mortis Causa Donation Through will which does not Conform with Wills Act 1959 Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust Conclusion
CONSTITUTION TRUSTS
Introduction: A valid express trust must satisfy the requisite formalities , comply with the requirement of the three certainties and trust be properly constituted. To constitute a trust, the trust must not only be duly declared but the trust property must also be validly transferred and vested in the trustees. For example, in the case of personal property it must be handed over to the care and custody of the trustees. In other words, this is an area in the law of trust requiring the trustees be given control over the property they are to hold on trust for the beneficiaries.
CONSTITUTION TRUSTS
Introduction: (Continuation) All in all, constitution of trust is basically the vesting of rights which are to form the subject matter of the trust in the intended trustee. There are three issues to discuss: (a) How can a trust be constituted? (b) What will the court do if the constitution is in some way defective? (c) And since trust can in many ways be seen as a type of a gift, we will also ask what the law does about defective gifts.
Meaning of Completely Constituted Trusts: Completely constituted trust- it means that the settlor must effectively transfer the legal title to the trustee according to the proper requirements for that particular property. For example, a transfer of land or any interest therein must be executed by deed. Hence, the court will not enforce the trust until the formal proof is produced. A completely constituted trust- is one which there is an express declaration of trust and vesting of trust property in the trustee at law and in the beneficiary at equity. (See the case of Yeong Ah Chee @Yan Hon Wah v Lee Chong Hai & Anor [1994] 2 MLJ 614). See also the case Re Yeap Chor Ee (decd) [1954] MLJ 248.
Importance of Completely Constituted Trusts: The importance of a completely constituted trust is the settlor who was the absolute owner terminates his rights in that property unless he is also the beneficiary. See the case of Re Bowden [1936] Ch 71, where prior to becoming a nun, a settlor decided to settle certain property she was entitled to on her fathers death. The property was duly transferred to the trustees. However, some 60 years later she requested the return of the property, claiming it was a voluntary settlement. Bennett J, upholding the trustees refusal to comply, stated that the property was bound by the trusts. Further, the settlor no longer had beneficial interest in the property and therefore could not demand its return. Another important consequence of a completely constituted trust is that, the trust confers valuable rights on the beneficiary, who can now enforce the trust against the settlor and trustee. The trust also confers on the beneficiaries an equitable interest in the property, which forms the subject matter of the property.
Importance of Completely Constituted Trusts: (Continuation) It should be noted that to transfer the property to the trustees the settlor has to observe the current mode of transfer of that item or property. Property may be immoveable or moveable. Thus, to convey land the settlor has to register it in the name of the trustee according to the rules of the National Land Code 1965. In the case of share certificates, the name of the trustee has to appear on the same and it has to be registered with the Registrar of Companies under the Companies Act 1965. If it is a car, then the key must be handed over to the trustee, i.e. a symbolic delivery must be effected in the case of chattels. However, it would be better for the car to be registered in the name of the trustee.
Importance of Completely Constituted Trusts: (Continuation) It is equally important to make reference to the case of Seck Mun Foo & Ors v Datuk Harris bin Mohd Salleh [1993] 1 AMR 13:515 while addressing the issue of completely constituted trust. In this case, the court laid down the following proposition of law: (i) To be enforceable by a volunteer, a trust or gift of property must be completely constituted. The court will not assist a volunteer by making effectual an incomplete gift. (ii) Equity will not construe as a declaration of trust an ineffectual attempt to make a gift. (ii) That a fully constituted trust or gift to a volunteer only comes about the transferor has done all that is required of him by law to pass good title and place in the hands of the donee or its solicitors the instrument for registration in a state when registration is possible.
Importance of Completely Constituted Trusts: (Continuation) All in all, if the trust is completely constituted and there is no reservation of a power of revocation by the creator of the trust , it is binding on the whole world except a bona fide purchaser for value without notice of the legal estate. The beneficiaries are in a position to enforce such a trust.
Meaning of Incompletely Constituted Trusts:
It means where the settlor failed to transfer the legal title to the trustee according to the proper requirements for that particular property. In other words, if the legal title of the trust property is not transferred to the trustees, the trust is an imperfect trust or an incompletely constituted trust which cannot be enforced by volunteers. The general rule is that, if a trust is incompletely constituted, there is no trust at all. Thus, the intended or would-be beneficiaries have no rights to enforce the intended trust. In other words, if the legal title of the trust property is not transferred to the trustees, the trust is an imperfect trust or an incompletely constituted trust which cannot be enforced by volunteers. It is important to note that the effect of incompletely constituted trust is that there is no trust at all. However, there are some exceptions e.g. it can be enforced by beneficiaries who have given consideration for equity looks on as done that which has been agreed to be done. The imperfect transfer will be treated as a contract of transfer.
Meaning of Incompletely Constituted Trusts: (Continuation) If the trust is incompletely constituted, it operates as a contract or a covenant to create a trust. Such an imperfect trust cannot be enforced by volunteers. In Milroy v Lord (1862), Lord as trustee was given some shares to hold for the plaintiffs. Although Lord had a power of attorney over the settlors property, he failed to register the shares in his own name. It was held that the beneficiaries could not enforce the trust which was not completely constituted. It is important to note that an ineffective transfer of a gift will not be construed as a valid declaration of trust. In Richards v Delbridge (1874) - an assignment, not being under seal was ineffectual to transfer the intended gift of a lease.
Meaning of Incompletely Constituted Trusts:(Continuation) Note: The principle in Milroy v Lord does not apply in its full rigour if the settlor has done all that could be done in his power to constitute the trust. This is by virtue of the courts decision in Re Rose [1949] Ch 78. In this case, the donor had properly executed a share transfer form and delivered it, with the appropriate share certificate, to the donee. The donee failed to register them prior to the donors death. Though the legal title to the shares did not pass until the donee registered the transfer with the company, the court held that, in equity, such a gift is valid from the time the donor does everything he is obliged to do to transfer the shares.
Circumstances Giving Rise to Incompletely Constituted Trusts: Transfer to trustee- One of the modes of constituting a gift/trust is by way of transferring the legal title to the property to the trustee (see the case of Milroy v Lord). However, if the legal title to the property is not transferred to the trustee, the trust is an imperfect trust or an incompletely constituted trust. See the case of Re Bowden [1936] Ch 71 illustrating a clear cut case or effect of a completely constituted trust. In Re Bowden, it was held that as soon as property had been received by the trust as result of the nuns own action and declaration it was impressed with a trust. The trust became completely constituted and could not be revoked by the settlor. See also the case of Paul v Paul (1882) 20 Ch 742 on the effect of constitution of a gift/trust.
(a)
Circumstances Giving Rise to Incompletely Constituted Trusts: (Continuation) Owners declaration- It is important to note that when the settlor/owner of the property is the trustee, there is no need for the necessary transfer of the legal title to take place. This is because the legal interest is still with him. In other words, if the settlor declares himself as the trustee the problems related to constitution does not arise. In such a case as long as there is proper declaration the trust is valid. Regardless of what is said above, if, however, the owners declaration (of himself as a trustee) is not followed by an equivocal intention on his part, the courts would treat this scenario as a case of incompletely constituted trust or an imperfect trust. See the case of Jones v Lock (1865)- where the court held that the intention was to make an outright gift but since the gift was not actually made, there was no declaration of trust. Equity will not perfect and imperfect gift. In other words, there had been no valid gift or declaration of trust, equity cannot be used to perfect and imperfect gift.
(b)
(b)
Circumstances Giving Rise to Incompletely Constituted Trusts: (Continuation) Owners declarationsee also the case of Richards v Delbridge (1874)- Mr Delbridge purported to transfer title to a lease. He wrote on the back of the lease this deed and all thereto belonging I give to Edward Burnetto Richards (his grandson) from this time forth with all the stocks in trade. The gift failed because there was no deed specifically created to effect the transfer. In other words, there should have been a proper deed of assignment to pass legal estate, or a declaration of trust. Hence, a declaration of self as trustee will not be held to arise where there has been ineffective attempt at an outright transfer. It could not be argued that Mr Delbridge had declared himself to be a trustee because he did not intend a trust to exist. He intended an outright gift. Note: It is not necessary for the settlor to use the words: I declare myself as trustee in establishing or showing the existence of an equivocal intention in a self-declaration of trust. See the case of Paul v Constance [1977] All ER 195. See also the case of Re Kayford- where evidence of an irrevocable step depriving the Co of all beneficial interest in the money kept in an a/c named Customers Trust Deposit A/C was enough for the money in the a/c to be said to be held on trust for the customers.
Modes of Constitution of a Gift/Trust: Turner LJ lad down three modes of constitution of a gift/trust in the case of Milroy v Lord (1862) and they are: (a) An outright gift to B without the imposition of trust; (b) A transfer of the legal title of the property to a trustee to hold on trust i.e. S declaring a trust in favour of B, but with T being the trustee of the property; or (c) A self declaration of trust i.e. S declaring himself as trustee of property he holds in favour of B.
Modes of Constitution of a Gift/Trust: (Continuation) See the case of Milroy v Lord (1862)- In this case, a man named Medley executed a deed which purported to transfer to Lord 50 shares in the Louisiana Bank, to hold these upon trust for a number of persons, including Milroy. The deed was not a proper transfer of shares because they could only be effectively transferred in law by the execution of a share transfer and registration in the books of account (see sec 183 of the English Companys Act 1985). However, Lord held a power of attorney from Medley as well as the share certificates, and he could have effected the transfer under the power of attorney.
Modes of Constitution of a Gift/Trust: (Continuation) See the case of Milroy v Lord- But this he failed to do. On Medleys death the power of attorney ceased to have effect and the question arose whether or not the shares belonged to Medleys estate. In holding that the shares were still part of Medleys estate, Turner LJ put forward the following principle: (a) The trust must be transferred by appropriate method laid down by law. (b) There must be a transfer in three different ways (see the three modes above). (c) If the settlor has intended one of these three modes, the court will not hold that another of them applies so as to give effect to the transfer. Hence, it was held that the beneficiaries could not enforce the trust which was not completely constituted.
(a) Modes of Constitution of a Gift/Trust: (Continuation) An outright gift to B without the imposition of trust Where there is an outright gift to B without the imposition of trust, the settlor as an absolute owner of the property must comply with the relevant transfer formalities so that B can become the new owner of the property. For instance a transfer of land or interest therein must be executed by deed (see sec 52(1) of the English LPA 1925). In a Malaysian context, to convey land the settlor has to register it in the name of the trustee according to the rules of the National Land Code1965. See also some other examples under the English LPA 1925 i.e., sec 136 of the LPA 1925 regarding chose-in-action, which provides that the assignment must be absolute; done in writing and assigned by the transferor. See also sec 183 of the Companys Act 1985 regarding shares, which provides that the owner of the share must execute share transfer form, give notice to the recipient and to the Co and finally the Co must register the transfer.
Modes of Constitution of a Gift/Trust: (Continuation) (b) A transfer of the legal title of the property to a trustee to hold on trust Where a settlor transfers property to T (as trustee) on trust for B (beneficiary), he must both effectively declare the trust, and effectively transfer the title to the property to B. In other words, legal title has to change hand from the settlor to the trustee, so that he can act for the trust. The trust now becomes completely constituted and thus enforceable by the beneficiaries. The settlor has no more rights to the property unless he is also a beneficiary. It is important to note that certain requirements must be met in order for legal title to change hands from the settlor to the trustees. For example under English law as far as land is concerned, the requirement of sec 52(1) of the LPA 1925 must be fulfilled. As for shares, see sec 183 of the Companies Act 1985 (the sec provides that the owner of the share must execute share transfer form, give notice to the recipient and to the Co and finally the Co must register the transfer). It is upon registration that the transfer is complete (see sec 183 of the Companys Act 1985).
Modes of Constitution of a Gift/Trust: (Continuation) (b) A transfer of the legal title of the property to a trustee to hold on trust Still on the issue of shares above, as regards a public company, registration will automatically follow on from the documentary transfer. A private company, however, usually has the discretion to refuse to register a share transfer dealing. As to chattels, title to chattels is transferred either by deed of gift (uncommon) or by physical delivery of the item to the recipient coupled with the intention to effect a transfer. Delivery includes parting with dominion over an article (e.g. passing over the key to a jewellery box) As to cheques, legal title to a cheque passes on endorsement by the transferor and delivery of the cheque to the third party. This seemingly, is not possible when the cheque is crossed account payee only. As to copyright, writing is necessary for the transfer of copyright. As to an existing equitable interest, the assignment must be in writing and signed by the assignor or his agent (see sec 53(1)(c) of the LPA 1925)
Modes of Constitution of a Gift/Trust: (Continuation) (b) A transfer of the legal title of the property to a trustee to hold on trust As it has been mentioned earlier on that one of the modes of constituting a gift/trust is by way of transferring the legal title to the property to the trustee (see the case of Milroy v Lord). Hence, if the legal title to the property is not transferred to the trustee, the trust is an imperfect trust or an incompletely constituted trust. In other words, if the correct procedure is not followed, the transfer to the trustees will be ineffective. See the case of Richards v Delbridge (1874). See also the case of Antrobus v Smith (1806), where an endorsement on the back of a share certificate was ineffective to pass title to the shares. Again, in Re Fry (1946), where a donor died after executing a share transfer, but (as he was resident abroad) he needed the consent of the Treasury to the transfer. He had not done this. Accordingly, the gift was ineffective.
Modes of Constitution of a Gift/Trust: (Continuation) (c) A self declaration of trust In a self declaration of trust i.e. S declaring himself as trustee of property he holds in favour of B, there is no need for the necessary transfer of the legal title to take place. Hence, if the settlor declares himself as the trustee the problems related to constitution does not arise. However, the settlor must manifest an equivocal intention holding himself as the trustee. See the case of Jones v Lock (1865), where the court held that the intention was to make an outright gift but since the gift was not actually made, there was no declaration of trust. Equity will not perfect and imperfect gift. In other words, there had been no valid gift or declaration of trust, equity cannot be used to perfect and imperfect gift.
(c) Modes of Constitution of a Gift/Trust: (Continuation) A self declaration of trust Furthermore, see also the case of Richards v Delbridge (1874)Delbridge purported to transfer a lease. He wrote on the back of the lease this deed and all thereto belonging I give to Edward Burnetto Richards (his grandson) from this time forth with all the stocks in trade. The gift failed, there should have been a proper deed of assignment to pass legal estate, or a declaration of trust. Hence, a declaration of self as trustee will not be held to arise where there has been ineffective attempt at an outright transfer. Note: The settlor need not use the words I declare myself as trustee in order to construe the existence of an equivocal intention on his part (see the case of Paul v Constance [1977] All ER 195.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: The Rule in Strong v Bird (1874)- In this case, B borrowed 1,000 from his stepmother. She lived in Bs house as a lodger paying 212.50 a quarter for her board. It was agreed that the debt was to be repaid by the stepmother deducting 100 from each quarterly payment as it fell due. After making two such deductions, the stepmother insisted on paying the full rent and did so until her death four years later. B was appointed sole executor by her will. The next-of-kin claimed that B owed the estate 900. It was held that the debt had been released by the appointment of B as executor because at law he could not sue himself for the debt. Further, the act of appointing his executor together with full payment of the quarterly rent showed a continuing intention up until death to release the debt.
(a)
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) (a) The Rule in Strong v Bird (1874) It is important to note that certain conditions must be fulfilled in order to resort to the rule. Such conditions are: (i) there must be a present intention of forgiving a debt, or making a gift of existing property. A future intention will not suffice nor will promise to make a gift on future occasions. (ii) the intention be a continuous one i.e. Until the donors death (See the case of Re Gonin [1979] Ch 16). See also the case of Re Syed Hassan bin Abdullah Allofri [1953] MLJ 190.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) The Rule in Strong v Bird (1874)See also the case of Re Syed Hassan bin Abdullah Allofri [1953] MLJ 190- where an executor of the estate of the deceased, claimed that the deceased gave him a piece of land during his life-time. He claimed that the house which stood on it was built with his money. His counsel relied on the principle in Strong v Bird. The court ruled that to succeed the executor must have a present intention to make an immediate gift and that such intention survived until the date of the deceaseds death. (iii) the property must become gift lawfully vested in the donee. See also the case of Re Estate of Choong Lye Hin [1977] 1 MLJ 96where the concept in Strong v Bird was applied. In this case, Lee Hun Hoe CJ of Borneo said: The gifts to the plaintiff in respect of the Gim Kee account was clearly an imperfect gift but in respect of the gifts to the three defendants it was perfect by the rule in Strong v Bird, by the donor naming them his trustee and executor.
(a)
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) The Rule in Dillwyn v Llewelyn (1862)- The owner of land who has made an imperfect gift of the land or some interest in it may in circumstances be estopped from asserting his rights if through his oral assurance given to the donee the latter acts in reliance of such assurance to his detriment. In Dillwyn v Llewelyn, a father wishing his son to stay nearby offered him a farm and encouraged him to build a house on it. No conveyance of the farm was made to the son who had spent 14,000 to construct the house. Since there was encouragement and reliance, it was held that the son was entitled to have the land conveyed him. It is equally important to make reference to some Malaysian cases while discussing this concept. See the case of Lee Eng Teh v Teh Thiang Seong & Anor [1967] 1 MLJ 42- where the court also discussed proprietary estoppel and Abdul Kadir JCA restated the law: ...it does not matter whether the trust is completely constituted or not as equity regards as done which ought to be done and will perfect an imperfect conveyance for value by regarding that as a contract to convey.
(b)
Additional Methods by which a Trust can be fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) The Rule in Dillwyn v Llewelyn (1862)See also the case Koperasi Kasuma (M) v Pengarah Tan dan Galian Selangor & Ors [1991] 2 CLJ 1371- where the court expounded two doctrines of equity, namely, that of proprietary estoppel and equitable estoppel. The court ruled that: ... This doctrine commonly known as proprietary estoppel can only arise when: (a) the plaintiff has incurred expenditure or otherwise has prejudiced himself or acted to his detriment; (b) the plaintiff has acted in the belief that he already owns a sufficient interest or will obtain such an interest to justify the expenditure; (c) such belief must arise through the representation or encouragement of the State Government; and (d) the equity claimed would not prevent the exercise of a statutory discretion. (See the case of Government of Negeri Sembilan & Anor v Yap Cheng Lan & Ors [1984] 2 MLJ 123). Note: The main element of The Rule is encouragement by a donor to a donee of an imperfect trust to expand money or improve, then equity will try to perfect the gift or trust.
(b)
Additional Methods by which a trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect gift: (Continuation) (c) Donatio mortis causa- this is a gift made in contemplation of death or known as deathbed gift. In other words, are gifts made inter vivos, but which take effect on death. Hence, there is an express or implied condition that the gift will not become absolute until the donor dies. In other words, the gift will be perfected at death. If the donor intends the donee to keep property which would belong to the donee if the donor dies, equity would perfect the donees title although he may be a volunteer. Hence, DMC cannot be revoked by a will for it is deemed to precede the will.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) (c) Donatio mortis causa- this is a gift made in contemplation of death or known as deathbed gift. In other words, are gifts made inter vivos, but which take effect on death. Hence, there is an express or implied condition that the gift will not become absolute until the donor dies. In other words, the gift will be perfected at death. If the donor intends the donee to keep property which would belong to the donee if the donor dies, equity would perfect the donees title although he may be a volunteer. Hence, DMC cannot be revoked by a will for it is deemed to precede the will.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) Donatio mortis causaIt is important to note that there are essential requirements needed in order to have a valid donatio mortiss causa. See the case of Cain v Moon [1896] 2 QB 283- where Lord Russel set out the conditions required for a valid DMC. The conditions are: (i) The gift must be made in contemplation of death, though not necessarily expectation of death i.e. old days going in war and modern times suffering from incurable disease or serious operation. See the case of Agnew v Belfast Banking Co (1896), where a gift was made upon embarking on a dangerous mission. The gift was held to be valid.
(c)
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) (c) Donatio mortis causa (DMC)- See the case of Cain v Moon on the conditions required- (i) Still on the first condition, make reference to the case of Wilkes v Allington (1931), where the court held that the fact that death does not occur in the manner contemplated is irrelevant. In this case, the donor believed he was dying of cancer, but eventually died through contracting pneumonia by riding on an open-topped bus in the rain. The gift was held to be valid.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) Donatio mortis causa (DMC)The donor must part with dominion over the property before his death/the subject matter of the gift must have been delivered to the donee. See the case of Reddel v Dobree (1839), where a cash box was given but had to be returned every three days for counting. It was held not to be a DMC gift. See also the case of Re Cravens Estate- where a duplicate key was retained by the donor. It was held not t be a DMC gift. See also the case of Re Lilingstone- where a locked box was given but the key was retained. It was held not to be a DMC gift. See also the case of Woodard v Woodard (1991)- where the court held that receiving the keys to a car though not the logbook was sufficient. See also the case of Sen v Headley [1991] 2 All ER 636- where the court held that the doctrine could apply to gifts of title to land, a point which had until that decision been in doubt.
(c) (ii)
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) (c) Donatio mortis causa (DMC) (iii) The gift must be made in circumstances which show that the property will revert to the donor, should he recover or he does not die. See the case of Gardner v Parker, where it was stated by the court that intention is inferred from the surrounding circumstances. The gift will fail if the donee predeceases the donor. See also the case of Re Lilingstoneit was held that the gift should be conditional, i.e. on the terms that, if the donor should not die, he should be entitled to resume complete domination of the property the subject matter of the gift.
Additional Methods by which a Trust can be Fully Constituted/Exceptions to Equity will not Perfect an Imperfect Gift: (Continuation) (c) Donatio mortis causa (DMC) (iv) The property must be capable of passing by way of DMCGenerally all pure personalty is capable of a DMC e.g. Insurance policies, saving certificates and chattels. Some particular classes of property have, however, caused some doubts and difficulties. See the position regarding cheques and promissory notes- cannot pass by DMC, including donors own cheque . This is because it does not constitute property, but merely an order/or direction to his bank, which, unless the cheque is cashed before the donor dies, will automatically be cancelled on his death. (See the case of Re Beaumont [1902] 1 Ch 889)
Additional Methods by which a Trust can be Fully Constituted: (Continuation) Donation through will which does not conform with Wills Act 1959 Although attestation of a will is an important aspect of a validity of any given will, it is important to note that a will is not to be invalidated by reason of incompetency of attesting witness. This is by virtue of sec 8 of the Wills Act 1959, which states: If any person who attests the execution of a will shall at the time of the execution thereof or at any time afterwards be incompetent to be admitted a witness to prove the execution thereof, such will shall not on that account be invalid. The implication of sec 8 is that, a donation made under a will still remains valid irrespective of the incompetence of attesting witness at the time of execution or at any time afterwards. All in all, although sec 5 clearly lay down the rules regarding the validity of any given will in Peninsular Malaysia, sec 8 appears to operate as an exception. For example, sec 5(1) No will shall be valid unless it is in writing and executed in manner hereinafter mentioned.
(d)
(1)
a) b) c)
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: General rule- if a trust is incompletely constituted, there is no trust at all. Thus, the intended or would-be beneficiaries have no rights to enforce the intended trust. They are viewed as volunteers and equity will not assist a volunteer. Exception to the general rule- such a trust can be enforced by beneficiaries who have given consideration. For example, in equity, marriage consideration is recognised as a valid consideration. Thus, those within the marriage consideration would be allowed to enforce the settlement even though technically the settlement has not been constituted. Meaning of marriage consideration- See the case of Re Densham- where Goff J stated that marriage consideration or settlement is a settlement that is made: On the occasion of the marriage, before & in the consideration of marriage. It must be conditional only to take effect on the marriage taking place. It must be made for the purpose of or with a view of encouraging the marriage.
Other Relevant Discussions on the Topic/Whether it is Possible to
Enforce an Incompletely Constituted Trust: (Continuation) Exception to the general rule: In addition to the above, people who are deemed to have furnished marriage consideration are: (a) H & W: parties to the marriage (b) Issues of the marriage and the issues include the remote issues. Hence, certain people or persons fall outside the marriage consideration i.e. Illegitimate children- children by former marriage & children to whom one of the former parties sand in loco parentis cannot be included unless their interests are so closely intermingled with those of the natural issue of marriage; next-of-kin of the parties who may be intended beneficiaries in the event of failure of issue, are not within the marriage consideration. (See the case of Re Plumptre (1910)-Here the next-of-kin, who were to take the property if there were no issue of the marriage, sued to enforce a covenant to settle after acquired property. Their suit failed. The court would not order specific performance as they were volunteers, not being within the marriage consideration.
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Exception to the general rule Still on the issue of marriage consideration as an exception to the general rule regarding incompletely constituted trust, make reference to the case of Pullan v Koe [1913] 1 Ch 9- where a wife covenanted in a marriage settlement to settle after-acquired property of a value of 100 upwards. She received 285 in 1879 which she gave to her husband to invest in bonds. On the husbands death, the trustees claimed the 285 of bonds from his executors. The court held that the trustees could recover them because the moment the 285 came to the wifes hand in 1879 it was bound by the covenant and impressed with a trust. The beneficiaries being within the marriage consideration could obtain specific performance of the covenant to bring the bonds within the settlement. Note: The executor of the husband had relied on the Statute of Limitation. It was held that the Limitation Act does not affect a claim by those within the marriage consideration to obtain property within the terms of the settlement but not yet settled.
(2)
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Covenant to settle property- Covenants are promises formally expressed by being written in a deed. Hence, covenants are expressions of voluntarily undertaken obligations which, because they are expressed in a particular form, can be enforced at common law. It is, therefore, important to note that if the covenantor, the party who makes the promise in a deed, fails to perform what he promised, the covenantee, the party to whom the promise was made, may bring an action at common law for damages. Where a beneficiary is a party to the covenant to settle property, he or she can enforce the covenant under common law and recover substantial damages for breach of the covenant. See the case of Canon v Hartley [1949] Ch 213- where the court held that the daughter had been a party to the deed and a direct covenantee of the covenant to settle, she was entitled to a significant award of compensatory damages at common law. Although equity will not assist a mere volunteer, in the present case the daughter did not require the assistance of equity, she was entitled, as a party to the covenant, to enforce directly her common law right to the benefits of the covenant. The problem associated with the daughter being a mere volunteer in equity simply did not arise.
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Covenant to settle propertyHaving addressed the position of a beneficiary who is a party to the covenant to settle, probably the next issue to look into is whether the would-be trustee could enforce the covenant on behalf of the would-be beneficiaries. There are dicta where the courts made it clear that the would-be trustees will not be allowed to bring the action. See the case of Re Pryce [1917] 1 Ch 234- where the W covenanted to settle all her after-acquired property on the terms of the marriage settlement i.e. to her and her H, remainder to the children of marriage (of whom there were never in fact), and an ultimate remainder to the Ws next-of-kin. After the Hs death the W held certain property which was subject to the covenant but refused to settle it; the next-of-kin, who were ultimate remaindermen, wished this to be settled. The court held that the trustee ought not to take any steps to compel the transfer or payment to them of after-acquired property. Eve J said that the trustees should not be compelled to pursue whatever remedy they have in law on the covenant. See also the case of Re Kays Settlement [1939] 1 All ER 245.
(2)
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Covenant to settle propertyThe effect of these cases cited above is to deprive the would-be beneficiaries of a perfectly valid common law contract action. See the views of Prof. Elliot and Prof. Swadling on this issue. Prof. Elliot argues that the would-be trustees should have been directed that they need not sue since the court would not enforce upon them the onerous burden of trusteeship, but not they ought not to sue. To Prof. Elliot, damages can still be quantified based on the valuation of the property and not based on expectation loss. His view is limited to generic property (money) and not to special property. Also, the covenantees can decide to retain the property for themselves as they are suing in their personal capacity and not as a fiduciary. Thus, if they decide to keep the property for themselves, it would amount to unjust enrichment. Prof. Swadling on the other hand, opines that the would-be trustee can be compelled to bring an action on behalf of the beneficiary. (See also the recommendation of the Law Commission advocating for a would-be trustee to be allowed to recover damages on behalf of the would-be beneficiary)
(2)
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Covenant to settle propertyPerhaps covenant to settle should be construed as a trust of a promise. This is by looking at the covenant to settle as the subject matter of the trust. Hence, if the promise itself could be regarded as the intended subject matter of the trust, then from the moment the promise had been given, the trust would be completely constituted. Consequently, if the promise were made voluntarily by the settlor, the volunteer beneficiaries could get the trustees to enforce it without in any way offending the rule equity will not assist a volunteer.
(2)
Other Relevant Discussions on the Topic/Whether it is Possible to Enforce an Incompletely Constituted Trust: (Continuation) Covenant to settle propertySee the case of Fletcher v Fletcher (1844), which suggests that a covenant to settle could be construed as a trust of a promise. In Fletchers case, a father entered into a voluntary covenant with trustees to pay them 60,000 within 12 months of his death for such of his sons who attained 21 and survived him. One son, Jacob, fulfilled these conditions but the trustees were reluctant to carry out the trust unless the court ordered them to do so. Wigram VC held that Jacob could enforce the covenant even though he was a volunteer. It has been suggested that the decision was based on there being a trust of a promise to pay the 60,000 and that, the trust being completed constituted of this promise, equity could assist in the enforcement of it. In order to apply the principle in Fletcher v Fletcher, three requirements must be proven: (i) there must have been voluntary settlement made and no inducement; (ii) the subject matter of the property must be existing one; and (iii) there must be a clear and unequivocal intention.
(2)
Conclusion: Regardless of the importance of constitution of trusts be it the general rule or exceptions to the general rule, it is of paramount importance to note that the Privy Councils decision in T Choithram International SA v Pagarini [2001] 1 WLR 1 and the English Court of Appeals decision in Pennington v Waine [2002] 1 WLR 2075, may require a fresh examination as to what in law would amount to a valid and effective transfer of property for the present purpose i.e. Constitution of trusts. In T Choithram International SA, if the rule in Milroy v Lord were adopted, the trust would have failed since the deceased failed to transfer the property to the other six trustees and hence, failed to do everything within his power to perfect the trust and that equity will not perfect an imperfect trust/gift. However, Lord Brown Wilkinson decided to address the case from a different angle and found that the testators action could be seen as a self-declaration of trust. Thus, although he has not vested the rights in all the trustees of the Foundation, it would have been unconscionable for him to act otherwise. He thus concluded : Although equity will not aid a volunteer, it will not strive officially to defeat a gift.

Constitution of Trusts - Equity Trust II

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