Equity law

 

 

Part A

Section 53 (1)(c) of the 1925 law of property act states that a “disposition of an equitable interest or trust subsisting at the time of disposition must be in writing signed by the person disposing of the same, or by his agent there unto lawfully authorized in writing or by will[1]. In identifying the application of section 53(1) (c), under express trust, it is determined whether an attempt by a beneficiary to dispose their interest by conduct or verbally has occurred. For example, it is considered that where an individual A, who is a beneficiary of a trust, declares verbally that  he or she would hold all his interest upon trust for a third party B, then section 53(1)(c) is applicable[2]. In such a case, unless there is contrary evidence, such a declaration that is not in writing is considered to be void. The courts have construed this subsection to be inapplicable especially where a settlor with beneficial interest gives instructions to trustees to vest the interest to a third party where both the legal and equitable interest passes to the beneficiary and applicable where both the legal title and equitable title passes to a third party. Such court cases are presented and analysed in this paper.

Before highlighting the specific attributes of section 53 (1)(c) and the courts application and interpretation of the section, it is crucial to understand some basics of what trusts are and how they are formed. Brown describe a trust as an arrangement where an individual referred to as a settlor offers property to one or more individuals referred to as the trustee, who manages the property for the benefit of another individual who is the beneficiary.[3] The settlor loses both the equitable title, which is the beneficial interest, and the legal title when he assigns other beneficiaries to the properties with himself not a beneficiary and when he or she appoints a trustee. Where the settlor is also a beneficiary, he or she loses the legal title to the trustee but maintains the equitable title as a beneficiary.  The settlor can thus pass the beneficial or the equitable interest but cannot pass the legal interest without revoking the trust instrument. This form of trust is a conveyance in trust[4]. Trusts are also formed through declarations of trust where a settlor through a written statement transfers the equitable interest in a property while retaining the legal interest. These distinctions are crucial in the subsequent discussion of the courts application of section 53(1)(c) of the 1925 property’s act.

Among the key features of the section 53 (1) (c), that must be satisfied for an instrument to be valid includes the condition that a transfer of a relevant interest under the section must be in writing. The test for this case is whether the transfer of relevant interest is represented in a permanent form. An agents or diponers signature, which is also required, is can include any endorsement of the document and it may include initials, voice on tape recorder, and so on. The equitable interest that exists with the individual drawing the instrument purporting to transfer the interest in a property is defined as the overriding interest, and in this case the subsisting equitable interest that exists with the prior beneficiary. Finally, the term disposition is the key feature in the section and it although it has not been defined in the statute; it is defined in Section 205 (1) (ii) of the law of property act[5] as vesting instrument, declaration, disclaimer release and any assurance of interest or property. Romer described disposition in the case of Timpson’s executors v Yerbury as “the equitable interest in property in hands of trustee as disposed by an individual who is entitled to a third party in any of four ways including directly assigning to a third party, directing trustees to hold property in trust for a third party, contracting for valuable consideration, declare oneself as trustee to a third party[6]

The provision for section 53(1)(c) is based on the rationale that where beneficiaries are allowed to transfer equitable rights to third parties orally and without evidence in writing, there would be possibility of fraud. The provision thus aims at stemming fraud by prohibiting such oral or hidden transfers of equitable interests[7]. Another basis for the provision is to ensure that trustees are able to determine where equitable interests subsist in a trust at any given time[8].

The courts have addressed such a scenario, where an individual who holds both the legal and equitable rights such as where a settlor who is an equitable owner as a beneficiary directs the legal owner, the trustee, to transfer his title to a third party and similarly the equitable owner, the settlor orally and with no writing transfers his interest to a third party such as in the case of Vandervell v IRC[9]. In such a case, Vandervell verbally directed his trustees to transfer his bare trust of shares directly to the Royal College of Surgeons. Vandervell intention was that the shares would utterly pass to the college. His trustees transferred the shares but the question of whether such an oral direction qualified as a disposition of his shares or whether it was void for want of writing arose with the assertion that the college merely held the shares on trust for him and not outright as he had sought. The case reached to the House of Lords after the court of appeal found that section 53 (1) (c) was not applicable to the particulars of the case.

The ruling sought to determine whether despite the plainly conveyed intention by the appellant, the lack of verbal directions being accompanied by writing prevented passing of the beneficial interest to the college. The judges argued that the determination of whether the beneficial interest passed to the college was dependent on the true construction of the section of the law. Citing the case of Grey and Oughtred in where legal estate continued to reside with a trustee with the beneficial holder dealing with the equitable estate[10], it was argued that where the construction sought to avoid fraud or where it would make it difficult for the trustee to ascertain as to who are the true beneficiaries at any given time by avoiding concealed oral transactions, it was necessary to observe the section. However, where in a case such as where the settlor is the beneficiary, and where the trustee is instructed to transfer the legal and beneficiary interest as was the case in Vandervell, the fact that he was in a position to give instructions to the trustee on both the equitable and legal interests meant that the need for invoking the section was unnecessary. Consequently, the new beneficial owner would in that case be free to deal with both the equitable and legal aspects of the estate, and this would not amount to creation of a new trust. The overriding opinion was that where the intention was to pass the legal estate to a beneficiary, then no further document would have been necessary unless the beneficiary would expressly need such a document as proof of beneficial interest in case this is challenged in a later date.

In this case, since the testator posses both the legal and equitable interest on the estate, and as the beneficiary to the estate, he does not need to comply with the section requiring that these be in writing. However, if it were that the equitable and the legal interest are possessed by different individuals, then the section would require to be upheld. Considering the issue of justice, upholding section 53 (1) (c) would not deliver its purpose of preventing fraud and ensuring that it is determinable by the trustee where the equitable interest subsists at any given time. In this case, it would be unjust to hold that it should be in writing as it serves none of the established purposes. Quoting Lord UpJohn:

“…where the beneficial owner holds the whole equitable interest in the estate and is in a position to direct his bare trustee concerning the legal and equitable estate, then no justification exists to invoke section s(53)(1)(c) where the equitable owner wants to deal with both the equitable and legal estate.”[11]

In a similar case but where an equitable owner directed the trustees to hold upon trust property for a third party, it was argued that the disposition was void for lack of writing as required in s 53(1)(c). In this case; Grey v. IRC[12] it was decided that the oral directions were void. Disposition would only occur where directions by a beneficiary vests the beneficial interest to a third party through writing and duly signed. In our case, where the settlor who has the sole beneficial interest but with the legal interest subsisting with the trustee, the settlor may not be able to request the trustee to assign the beneficial interest to a third party without observing section 53 (1) (c). This would suffice since the legal title is separate from the equitable title expressed through beneficial interest.

Thus where there is a subsisting equitable interest meaning that the equitable and legal interest are divorced from each other[13], the courts have held that the disposition must be in writing. In this regard, the courts have held that the disposition must be in writing and not just evidenced in writing. This was evident in the case of Re Tyler [1967] [14]and in the case of Danish Bacon v Staff Pension Fund.[15]

 

 

Part B

Question of whether a gift is valid or void often arises in law especially after the death of a donor. In many cases, gifts that are not properly constructed fail when they are unable to satisfy all the requirements of construction of a gift. Over, the years, the decision by the courts in applying whether a gift is void or not has usually based its framework for determining such cases on whether the gift has thus satisfied these requirements. Besides the three certainties; intention, subject matter, and object[16] a gift must be properly constructed by observing various formalities. The intention of the donor must also be clear as to the intention to give the gift. This is intended to ensure that the equity is observed[17]. Still, despite such clear intention, it has often been held that equity may not perfect an imperfect gift[18].

A gift causa mortis is given by a donor when he or she has expectation or has apprehension of her or his impending death[19]. The type of gift in this case is thus a gift causa mortis since Horace Chapelwick, who is expecting that he may die while undergoing a major cancer operation gives her the property, the house and hand her keys to the house on condition that if he was to die, she was to take the house. Determining whether Esther Nortis is entitled to the house will depend on whether her case satisfies necessary requirements in a case of causa mortis. In this case, the donor delivers the gift with an intention that control of the subject of the gift immediately passes to the recipient of the gift but only passing in absolute to the recipient upon death of the donor

Determination of whether Esther North is entitled to the gift is dependent on whether her situation satisfies all the elements under the particular type of law. Intention to create a trust is one of the three certainties and it asserts that an intention to create a trust must be sufficiently shown by the words used[20]. The equitable maxim of equity looking at intention and not form is used to identify the intention of creating trust. Therefore, use of precatory words that either impose moral obligation or give hope have been found not to create trust. Such was evident in cases such as Lamb v. Eames[21] and in Re Adams and Kensington Vestry[22] which marked a shift to the modern approach that looks at the whole document creating trust to identify whether an intention to create trust exists. This approach has been upheld in various cases including Re Diggles (1888) 39 Ch D 253[23], Re Hamilton [1895] 2 Ch 370[24] and in   Comiskey v Bowring-Hanbury [1905] AC 84.[25] In cases where intention to create trust is oral, similar standards are required such that in the case of Jones v. Lock [1865][26], it was held that a cheque to a child that had not been signed by a his father before he died was a failed absolute gift and thus the estate could not claim it on behalf of the child. The courts held that an absolute gift that had failed could not be held as a declaration of trust as no clear intention of creating a trust could be shown. The intention to create a trust thus must was evident by the wording by Horace to Esther. Other certainties include   certainty of subject matter, and the object which includes certainty of property under trust and certainty of beneficial interest[27]. The certainty in the house as property and Esther as the beneficiary also qualifies under this case. Finally,

Firstly, there should be expectation or apprehension of death. Such expectation should be subjective; reasonable expectation or objective expectation of death is not a necessity[28]. In order to determine whether subjective probability of death is present, then facts surrounding the cause of the expectations of death must be analysed. This would require that objectively present factors contributing to expectations of death such as disease, peril; or illness must be objectively present. Hudson, asserts that traditionally insufficient expectations of death have been found in cases of minor surgery, threatened assassination and where a donor voluntarily undertakes a perilous enterprise or journey[29]. On that condition alone, Esther North qualifies for the gift since Horace’s impending major cancer operation is a sufficient subjective reason for him to be apprehensive of an impending death.

Additionally, the donor must have an existing intention to deliver complete control and ownership of a property in future. Consequently, the donor should not make attempt to preserve control of property till death. Where such control is exercised, then the gift is invalidated. This fact results from the presumption that those gifts that are given while death is impending are not gift inte vivos but are gift causa mortis.Thus a proof that it is the donors intention to unconditionally part with the property must be shown[30]. In this case, by handing Esther the house keys in an envelope, before his death is a sign of parting with the control thus satisfying the condition of intention to deliver the absolute control of property in future.

Again, it must also be shown that the gift was delivered. Where delivery is made, acceptance is presumed. Where manual delivery is practical, common law required that it be exercised. However, where it is impractical to deliver manually, symbolic or constructive delivery is sufficient. Constructive deliver involves giving control over the gift and where it is done symbolic delivery it involves giving something that symbolizes the property. In the case, handing over the keys is symbolic delivery. However, taking into consideration section 53(1) (b) of the law of property act, any oral declaration for a trust of land is made void,[31]the oral declaration is thus void based on this aspect.

Since absolute title passes only after the death of the donor, another consideration that must be satisfied before the title passes in absolute to the recipient of the gift is that the cause of death must be the illness, peril or disease that the donor was apprehensive would result o his or her death.[32]Considering that the cause of death was only a proximate death and not the cause expected as an impending threat of death since Horace committed suicide, then the gift is void and it lapses, with the effect that the donor’s estate would be administered according to the will, with Hillary and his attorney as the executors.

In the case of Hillary, various factors would require to be analysed to determine whether she is entitled to the shares. Firstly, considering that the gift by Horace was not given on the basis of an impending death, the gift would be considered as an inter vivo gift, and as such a gift made during the lifetime of Horace. In order to determine whether Hillary was entitled to the gift, considerations on whether the gift was completely constituted and following the required legal formalities would be determined. In a case of inter vivo gift, the principle that equity does not perfect an imperfect gift and the principle that equity wont assist a volunteer show that even where a donor intended to make a gift but fails to comply with formalities, the gift is improperly constituted and it cannot be enforced[33].

Firstly, the gift must satisfy the criteria of constitution. In this regard, the gift in the property must be valid trust declaration and the property must be transferred to the trustee.[34]. To determine whether an intention to transfer the shares to the donee exists, the actual context of the relationship is analysed. In the case of Horace, the issue of share certificate is an indication of an intention to transfer the shares to Hillary.

Secondly, whether transfer of the property occurs is another question that must be answered. In this case, Horace gives his share certificate to Hillary and the question is whether this constitutes a valid transfer to the trustee. The transfer of the properties to a trustee would only be argued to have occurred where the donor divests himself of the property through passage of legal ownership in a declaration of trust. In this case, handing of the share certificate without the accompanying legal transfer by filling out the necessary transfer certificate makes the transfer to be void as it would be taken to be incompletely constituted.

However, an exception rule exists. It was asserted that some circumstances would render a voluntary settlement to be valid. One such case is that set the precedent was the case of Milroy v. Lord,[35]where it was argued that where the settlor had done all that was required to be done in the particular class of property, the settlement is rendered binding. Equity however does not make the imperfect trust to become a perfect trust even where clear intention was evident as in our case. A similar case to the case given was the case of Re Fry [1946] [36]where a donor who intended to give his shares was unable to effect the transfer of the shares as he had to gain the governments consent before the transfer of the shares. In this case, he managed to get the consent but before he had dispatched the transfer form he died. The court held that the transfer was void. Similarly, the transfer to Hillary on this basis alone is void. Nonetheless, under the Re Rose [1952] case, in a form of strict interpretation of the rule, it was argued that where a donor had done all that was possible to make a valid transfer, but due to a third party this was not possible, then the transfer is valid[37].In this case, only directors were the only ones remaining to authorise the transfer, and it was held that a trust was imposed on the property until when the assignment would be effected by the directors. Equity thus recognises the attempted transfer although the law would only do so on completion of the director’s role affecting the transfer to make it legally binding. However, in the case of Pennington v Waine[38], it was held that where a settlor had executed share transfer to her nephew but leaving the form for the share transfer in the auditors file thus failing to send it for registration, it was held by the court of appeal that such a transfer was valid. This case was criticised strongly for being wrongly decided on the basis that it conflicted with the Re Rose principle that required a settlor to do everything within their power. Critics argued that the settlor had not achieved the strict interpretation required and the case had the consequence of not only leaving the law uncertain but also attempted to indicate that strict rules could be ignored where a donor had acted unconscionably[39]. Considering that no such efforts are evident in the case, Hillary’s gift to that extent is void. Similarly, the share dividends are still legally Horace as no effective transfer has occurred.

Considering that both Hillary and Esther’s gift fail, the Horace estate should be administered based on the contents of his legally binding will. Consequently, since the legally biding will leaves all the estate in the registered local cat’s charity, then the estate should be passed to the beneficiaries in the will as per the wills instructions. However, taking into consideration the rule in Strong v. Bird[40], although the gift is void due to failure to fulfil the legal requirements, where the beneficiary is vested with the administration responsibility, the gift is perfected as long as the will of the donor is unchanged up to the period he dies. Consequently, in this case, Frank Stodega and Hillary west will act as executors to the estate as outlined in the will, with the effect of Hillary being an executor perfecting the gift. Hillary would thus be entitled to the gift.

It is thus clear that a gift is not perfected if it fails despite fulfilling various other requirements such as a clear intention on the donor especially where it is indicated that the donor did not do enough to pass the equitable rights to the done. However, where all obligations are met, the gift is valid and it should thus pass to the donee as is appropriate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Jones v. Lock (1865) 1 Ch. App 25

Hudson, Alastair. 2005.Equity & Trusts. London: Cavendish publishing.

Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

Hayton, The Law of Trusts, 4th ed, 2003, London: Sweet & Maxwell

Milroy v. Lord (1862) 4 De.G.F. & J. 264

Paul v. Constance [1977] 1 WLR 527

Pennington V Wainen [1886] Lr 17b

Vandervell v IRC [1967] 2 AC 291

Grety v. IRC [1960]  AC 1

Re Rose [1952] Ch 499

Hanbury, H.G. & Martin, Jill E. Modern Equity. 18th edition. Sweet & Maxwell

Hudson, Alastair, Equity and Trusts 6th Edition. Cavendish 2009
Hayton, David J. and Mitchell C, Hayton and Mitchell Commentary and Cases on the Law of Trusts and Equitable Remedies. 13th edition Sweet & Maxwell, 2010.

Graham Moffay, Gerry, B., John Dewar.

Duddington John, Essentials of Equity and Trusts Law. 6th Edition Pearson Longman 2006
Wort Hanbury & Martin Modern Equity pp 52-53; 64-69

Hington, Sarah, Equity, 2nd edition, Clarendon Law Series, 2006.

Virgo, Graham Maudsley & Burn’s Trusts & Trustees: Cases & Materials.  7th edition, Butterworths, 2008.

Edwards, Richard and Stockwell, Nigel, Trusts and Equity. 9th edition. Pearson  Longman, 2009

 


[1] Section 53(1) (c) of the 1925 Property act

[2] Hington, Sarah, Equity, 2nd edition, Clarendon Law Series, 2006.

[3] Brown Gordon and Scott Myers. Administration of will, trusts and estate. Cengage. 2003. P. 210

[4] Hayton, David J. and Mitchell C, Hayton  and Mitchell Commentary and Cases on the Law of Trusts and Equitable Remedies. 13th edition Sweet & Maxwell, 2010.

 

[5] Section 205 (1) (ii) of the law of property act

[6] Timpson’s v. Yerbury [1936] IKB 645

[7] Duddington John, Essentials of Equity and Trusts Law. 6th Edition Pearson Longman 2006

[8] Hudson, Alastair. 2005.Equity & Trusts. London: Cavendish publishing

[9] Vandervell v IRC [1967] 2 AC 291

[10] Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

 

[11] Vandervell v IRC [1967] 2 AC 291

[12] Grety v. IRC [1960]  AC 1

[13] Dudington 20

[14] [1967] 1 WLR 1269

[15] Danish Bacon v Staff Pension Fund [1971] 1 WLR 248)

[16] Oakley, A.J. (ed)  Parker & Mellows: the Modern Law of Trusts.  9th edition Sweet & Maxwell, 2008

[17] Dudington 205

[18] Hudson, Alastair. 2005. Equity & Trusts. London: Cavendish publishing.

[19] Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

[20] Edwards, Richard and Stockwell, Nigel, Trusts and Equity. 9th edition. Pearson  Longman, 2009

 

[21] Lamb v Eames (1871) 6 Ch App 592

[22] Re Adams and Kensington Vestry (1884) 27 ChD 394

[23] Re Diggles (1888) 39 Ch D 253

[24] Re Hamilton [1895] 2 Ch 370

[25] Comiskey v Bowring-Hanbury [1905] AC 84

[26] Jones v Lock [1865] 1 Ch App 25

[27] Edwards, Richard and Stockwell, Nigel, Trusts and Equity. 9th edition. Pearson  Longman, 2009

[28] Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

[29] Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

 

[30] Edwards, Richard and Stockwell, Nigel, Trusts and Equity. 9th edition. Pearson  Longman, 2009

[31] Section 53 (1) (b) of the law of property Act 1925

[32] Hudson, Alastair. 2005. Equity & Trusts. London: Cavendish publishing.

[33] Wort Hanbury & Martin Modern Equity pp 52-53; 64-69

[34] Hudson, Understanding Equity and Trusts, 2nd ed, 2004, London:Cavendish

[35] Milroy v. Lord (1862) 4 De.G.F. & J. 264

[36] Re Fry 1986

[37] Re Rose [1952] Ch 499

[38] Pennington V Wainen [1886] Lr 17b

[39] Virgo, Graham Maudsley & Burn’s Trusts & Trustees: Cases & Materials.  7th edition, Butterworths, 2008.

 

 

[40] The rule in Strong v. Bird [1874] LR 18 Eq 315

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