Equity And Trust

"Two years ago Sir Clarence, feeling his age, decided to arrange his financial affairs. First he wrote to his friend Tanya asking here to hold his seaside cottage in trust for his daughter Davina and her children in equal shares. Sir Clarence signed the letter and put it in an envelope containing the title deeds of the cottage, which he then posted to Tanya. Secondly he telephoned Tanya and secured her agreement to hold his shares in Meteor Holdings Ltd in trust for his son Sam, he then sent to Tanya his share certificate and an executed share transfer form. Thirdly he told his other daughter, Penelope, that he wanted her to have his collection of antique silver, but that he would retain it for safe keeping until she had a burglar alarm installed in her house.

Shortly after, Tanya attempted to obtain registration of the shares in Meteor Holdings Ltd in her name; but the company directors, exercising a power contained in the company's articles, declined to register the transfer.

Sir Clarence died recently. By his will made in October 1999, he appointed Penelope his sole executrix, he specifically bequeathed on item out of his silver collection (an 18th Century teapot) to his sister Janet and he gave his residuary estate to his niece, Nell. Advise Davina, Sam and Penelope."

A declaration of trust must be Ð''certain' this has been held to mean that three elements must be positively established before a trust may come into being, Knight V Knight (1840) 3 Beav. 148. The Ð''three certainties' identified in this case are certainty of: intention (to create the trust), subject matter, and objects (the beneficiaries of the trust). It will be assumed that the three elements are present in the following analysis.

Davina.

It is known that Sir Clarence expressly wishes to set up a trust for the benefit of his daughter and her children. For this trust to be, what is termed Ð''fully constituted' and hence legally enforceable, it will be necessary to demonstrate that Sir Clarence (the settlor) has correctly passed the legal title to his trustee, Tanya, so that she may hold the legal title of the cottage upon trust for the enjoyment of the property by the beneficiaries Davina and her children. (i.e. they will hold the equitable title)

Legally the above trust may be seen as fully constituted if it can be demonstrated that Sir Clarence has done every thing in his power, which needs to be done. As was said by Turner L.J in Milroy V Lord (1862) 4 De Gf & J 264, "the Settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfere the property and render the settlement binding upon him".

As Turner L.J points out the nature of the property will affect the outcome. For example the property is land (realty) and therefore Sir Clarence must comply with S 52(1) Law of property Act 1925 (LPA) this is because the transfer of his legal interest of the land would be a conveyance to the trustee, Tanya and S 53(1) (b) would appear relevant.

It is submitted that Sir Clarence has satisfied S 53(1) (b) LPA because the declaration is in writing, and is signed by him. It appears more difficult to find that he has complied with S (52) (1) though.

Although there is mention of Ð''title deeds' this is not the same thing as a conveyance made by deed. It is known that Sir Clarence, "wroteÐ'...asking [Tanya] to hold hisÐ'...cottage in trustÐ'..." so there is writing and a signature it is not possible to tell whether this is a deed. There is no evidence to suggest that it is.

If it were found to be a deed then it is suggested that the trust is fully constituted. If not then the trust has failed and the cottage will become part of Sir Clarence's residuary estate and would therefore pass to Nell on his death. (It could be argued that if Tanya fails to register the legal title then, even if the trust was fully constituted, the legal title could revert back to Sir Clarence, S123 Land registration Act 1925, but there is no evidence of this).

From the evidence it would appear doubtful that Davinia has supplied any consideration. If this is the case she will be a Ð''volunteer' therefore she will not be assisted by equity if the trust has failed this may be contrasted to the case where the trust has been fully constituted and the lack of consideration will be irrelevant, Paul V Paul (1882) 20 Ch. D. 742.

Sam

It is usually the case that if an attempted transfere of property fails then equity will not construe this as a declaration of trust. As has been said, "An imperfect gift is no declaration of trust", Equity, 2nd (Brunyate) edn, P72.

In some cases though even where the actual legal title has not been successfully transferred to a trustee, by a Settlor an enforceable trust will nevertheless exist in equity. This will be the case where it is found that a settlor has done everything in his power to, "divest himself of the property in favour of the trustee" Pettit, Equity and the law of trusts 9th ed p97.

From the evidence it may be seen that the legal title to the shares in Meteor Holdings would still be registered in the name of Sir Clarence. This is because transfere of the legal title would only be complete when the shares were registered in Tanya's name, Stock Transfere Act 1963. Therefore for Sam to be able to enforce the trust it must be demonstrated that Sir Clarence has, "done all in his power to divest himself of and to transfere to the transferees the whole of the right, title and enterestm legal and equitable, in the shares in question", Re Rose [1952] Ch 499.

It is known that Sir Clarence has. "Sent to Tanya his share certificate and an executed share transfer form". But it would appear that he relied on her to register the shares in Meteor Holdings, rather than doing it himself. So can this be seen as him doing all in his power if he is relying upon a third party to complete the process? And, further, would it make a difference to Sam that Tanya has failed to get the shares registered with the company?

If one relies upon the Ratio of Re Rose (1952) and also Re Rose [1949] Ch.78, it could be argued that he has indeed done all in his power. For example in Re Rose(1952) the Court of Appeal held that the settlor had done all that he was required to do and all that he could do. It was also said that the legal title to the shares remained with the donor (the donee having the equitable title) during