CONSTITUTION OF TRUST.

COMPLETELY CONSTITUTED & INCOMPLETELY CONSTITUTED TRUST.

General principle: There must be transfer of subject matter to the trustee beside the three certainties.

Once the subject matter is transferred it is a completely constituted trust.

Effect of Completely Constituted Trust

1)Irreversible by the settlor : an important test of the seriousness of a donor or settlor’s interest

2) Prevent casual imposition of obligations on trustees.

- Binds 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.

There are 2 heads of CCT

1. Effectual transfer to trustee or beneficiaries2. Effectual declaration of trust and appointing self as trustee.

MILROY v. LORD (1862) 45 ER 1185.

H: The settlor must have done the necessary things to transfer the property and to render the settlement binding upon him.

1. Effectual Transfer

RE ROSE, ROSE v I.R.C (1952) Ch 499.

The transfer were executed and transferred to the trustee on 10th April 1943.

The transfer was registered by the company on 30/6/1943.

Issue: What was the time the deceased divested himself of the shares? (for the purpose of estate duty)

H: If a man executes a document transferring all his equitable interest (shares), and intended to operate as a transfer will give rise to and take effect as a trust.

Re Ralli’s Will Trusts [1964] Ch 288

Once a property has been vested in the trustees, and the trusts declared, the trust is constituted and the settlor is unable to reclaim the property even though the beneficiary may be volunteers.

An effectual declaration of trust and appointing self as trustee.

No transfer of legal ownership.

What does change is the capacity in which the settlor/owner holds the property

Situation: the absolute and beneficial owner

2. Effectual Declaration

No need for him to say or to use the words such as “ I declare myself a trustee,

He must do something which is equivalent to it and use expressions which have that meaning.

INCOMPLETELY CONSTITUTED TRUST. (ICT)

The trust does not satisfy the requirement of vesting the property in the trustee.

Known as imperfect trust or incompletely constituted trust.

Only operates as a contract or covenant to create a trust.

YEONG AH CHEE

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“An incompletely constituted trust is one in which the trust property has not been finally and completely vested in the trustee.”

Effect of ICT

1. It cannot operate as a trust2. Volunteer can not enforce the trust.

RE FRY (1946) Ch 312 The donor had not done all in his power to transfer the property, hence the gift remained imperfect.

VOLUNTEERS

A person who in relation to any transaction has not given valuable consideration.

A person is not a volunteers when:1) he provides/furnish valuable

consideration2) if the parties are within the marriage

settlement/consideration

YEONG AH CHEE

H: “A volunteer is a beneficiary who has not given any valuable consideration (in the usual sense of the ordinary law of contract), for the creation of a settlement or trust.”

“It is a settled rule of equity that a court of equity would not render assistance to a volunteer in the case of an incompletely constituted trust.”

Issues or children are not volunteers.They can enforce an incompletely constituted trust.

Valuable marriage consideration

A settlement must be made;i) before marriage

ii) in contemplation of marriage

iii) made after marriage but in pursuance of an ante-nuptial agreement (settlement before marriage ceremony.

Three Exception to the rule that equity does not assist a volunteer

1) The Rule in Strong v Bird2) Donatio Mortis Causa 3) Proprietary Estoppel.

1. The rule in Strong v Bird [1894] LR 18.

If an incomplete gift is made during the donor’s lifetime and the donor had appointed the donee as executor or in the case of intestacy, the donee is appointed as administrator;

the vesting of the property in the donee in his capacity as executor or administrator may be treated as the completion of the gift.

Facts of the case:

Bird borrowed £1,100 from his stepmother. The stepmother lived in his house and she paid £212.10s a quarter for board.

It was agreed that the debt should be paid off by deducting £100 from the quarterly payments. Deduction for this amount was made for two quarters, but on the third quarter payment, the stepmother refused to hold the arrangement (of deducing the debt from her rent) and She paid £200 generously until her death and she continued to do so the time of her death.

Strong alleged that Bird ought to pay the 900 balance of the loan. The release of debt (repaying the loan) owed by Bird to his stepmother was not legally effective.

Reasons: i) it was not given under seal.

ii) no consideration had moved from stepmother to Bird. As she insisted to make full payment of rent without deduction.

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Bird was appointed as her sole executor and the step mother died.

Strong, the next of kin claimed that the defendant still owed the balance of her estate.

Held: Appointment of Bird as executor released the debt.

Re Stewart [1908] 2 Ch 251

Basis of the rule:

• First that the vesting of the property in the executor at the testator’s death completes the imperfect gift made in the lifetime.

• Secondly that the intention of the testator to give the beneficial interest to the executor is sufficient to countervail the equity of beneficiaries under the will, the testator having vested the legal estate in the executor.

Requirements for the Rule to Apply:

(a) There must be an intention to create and intervivos gift.

b) The donor’s intention to make the gift must continue until the donor’s death. The benefit to be given to the donee must not be in a vague term.

(c) The donee must be appointed an executor or granted letter of administration of the donor’s estate.

(d) The subject matter must be capable of enduring the donor’s death.

Re Gonin: [1977] 2 All ER 20.

The donee/ daughter was appointed as the administatrix of her mother’s estate. She claimed the house under the rule of Strong v Bird.

Held : There was no continuing intention on the mother’s part that the daugther should have the house.

The giving of cheques indicated that she should have the money instead.

Malaysian Case

RE SYED HASSAN

Held : The plaintiff had to prove that there was on the part of the deceased a present intention to make an immediate gift and that such intention survived until the date of the deceased's death.

LEE HUN KEE

H: The deceased intended to make a gift out-and-out of the business to the first plaintiff and the defendant and such gift was of the business and the premises in which it was carried on.

Such gift was perfected by the appointment of the defendant as one of the administrators of the estate of the deceased.

2. Donatio Mortis Causa / Gift of Account of Death.

If the donor intends or wants to the donee to keep property which would belong to the donee, if the donor dies, equity would perfect the donee’s title although he may be for a volunteer.

The principle was stated by Lord Russell CJ in Cain v Moon [1896] 2 QB 283

These have been restated by Nourse LJ in Sen v Headley [1991] 2 All ER 636

Three general requirements (Snell’s Equity):

First, the gift must be in contemplation, although not necessarily in expectation, of impending death.

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Secondly, the gift must be made upon condition that it is to be absolute and perfected only on the donor’s death, being revocable until the event occurs and ineffective if it does not.

Thirdly, there must be a delivery of the subject matter of the gift, or of the essential indicia thereto, which amounts to a parting with dominion and not merely physical possession over the subject matter of the gift.

Sen v Headley [1991] 2 All ER 636

Mr. Hewett and Mrs Sen had lived together as if married for 30 years. Title to the house was unregistered.

After Hewitt’s death, the gift was challenged by his next of kin.

The principle was restated by Nourse LJ CoP.

1. Contemplation of Death.

The donor must have made the gift in contemplation though not necessarily in expectation of death

Eg: Suffering from a serious disease or undertaking a dangerous journey with strong possibility of loss of life would qualify as event in contemplation of death.

It does not matter if death occurs from an event other than the one originally contemplated.

2. Dominion over property must be transferred to Donee

There must be an effective delivery of the gift to the donee.

The donor must be taken to have parted with dominion over the subject matter. The done must have control over the property – an indication that the donor is already parted with the property.

Eg: delivering of keys, for instance a car key.

Wooddard v Woodard [1991] Fatm Law 470

COA : it was a donatio mortis causa and there was no need for the donor to reacquire the car and redelivering again

EXCEPTIONS

Cheques, promissory notes, stocks and shares can not be subject of donatio mortis causa, even if their possession is delivered to the donee.

iii) Conditional on Death

1. If it cannot be shown that the gift was to be revert back to the donor in the event he recovers, the inference is one of an imperfect gift, intervivos.

2. In Re Lilingston [1952] 2 All ER 184, it 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 dominion of the property the subject matter of the gift.

3. Proprietary Estoppel

Estoppel by encouragement or acquiescence

Where one party knowingly encourages another to act OR acquiesces in the other’s rights.

EFFECT: That party will be unable to complain later about the infringement and he may be required to make good the expectation which he encourages in the other party.

Dillwyn v LlewellwynFather gave his son possession of the land and a memorandum that he had made the gift so as to provide a dwelling-house for him. The son spent a large sum to build a house on the land. The father died. H: gift valid

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