Formalities

A. FORMALITIES

  • General rule- equity looks to intent not form

1. Purposes of Formalities

J D Feltham [1987] Conv 246.

Four functions of formalities

  1. Ritual or cautionary function
    • Because the settlor drops out of the picture once he has transferred, this is a step to make sure that the settlor thinks about and considers his actions before transferring property
  2. Evidentiary function
    • Formalities can inform us as to what is going on exactly
  3. Protective function
    • From undue influence and duress
  4. Channelling function
    • Transactions are now standardized

In considering these functions we can critically analyse whether the formalities are doing what they’re meant to achieve.

Formalities arise when the creation of a trust involves land but not for personalty

2. Declarations of trust

(a) Testamentary declarations

  • Take effect when you die. A gift I created by writing a Will and the provision for a valid Will is found in:

Wills Act 1837, s 9 as amended by the Administration of Justice Act 1982, s 17

Four requirements:

  1. Must be in writing
  2. Signed by the testator
  3. In the presence of two witnesses
  4. Two witnesses must also sign
  • S9 doesn’t distinguish between types of property, so if you want to create a valid express testamentary trust= comply with s9 whatever the subject matter of the property.

 

(b) Inter vivos declarations

  • Subsisting equitable interest is what we are looking at here

There are two formalities situations

  1. One relating to the creation of trusts
    • A new interest
  2. The other on the subsisting equitable interest
    • Relates to an already existing trusts- concerned with formalities of disposing one’s interest

Law of Property Act 1925, s 53(1)(b)

  • Formalitiesare required when creating trusts in land
    • Doesn’t apply to resulting trusts
    • Only applies to express trusts
    • Silent on the position when requirements not complied with
  • Requirement: Must be manifested and proved by some writing signed by some person who is able to declare such a trust or by his will.
    • In writingversus proved by signed writing
      • In writing triggers the consequence
      • Writing and proved- is only evidence- indicates an orally declared trust over land exists, but it can’t be proved unless there can be some signed writing shown.
    • Theoretical issue:
      • Later writing can count= problem arises, who is the person able to declare the trust? Settlor drops out, trustee only middleman doesn’t have right of property only a duty, beneficiary has no power to declare the trust merely recipient
    • Declarations of trust property other than land or interest in land can be made orally since no special evidential requirements exists- Paul v Constance

Issue: should B be compelled to hold the trust for a volunteer C?

Two views

  1. Newden: yes because B took the land subject to an agreement and equity looks to the substance of the agreement
  2. Felton: no, we must give it back to A always, B cant be made to fulfil the informal trust, giving it back is sufficient to prevent fraud.

Gardner v Rowe (1828) 5 Russ 258

  • An oral or informal declaration of land is valid but unenforceable NOT void, if it doesn’t comply with s53
  • Valid but unenforceable= if later writing produced= sufficient the trust becomes valid.

(c) Consequences of non-compliance

Law of Property Act 1925, s 53(2)

  • Purpose of the act= prevent fraud
  • g. A transfers land to B or buys land in B’s name on an oral understanding with B that B will hold the land on trust for A, case law assumes A cannot subsequently prove the express trust by signed writing to satisfy s53(1)(b) because the only person who can do that is B.
  • Ways A could avoid B fraudulently gaining from this:
    • Rely on s53(2)- on the basis that equitable interest arises in favor of A by operation of law under either a constructive trust or resulting trust. = it would be unconscionable for B to benefit
    • Rely on equity estopping B from using a statute as an instrument of fraud= basis of Rochefoucauld.
    • Basis of below cases:

Secret trusts

  • Another exception to testamentary trusts
  • Courts agree S9 doesn’t affect constructive trusts

Rochefoucauld v Boustead [1897] 1 Ch 196

  • Facts: Comtesse de la Rochefoucauld had insufficient funds following her divorce to pay debts, so her friend Boustead agreed to buy her estates in Ceylon at a price sufficient to cover the mortgage debt and other expenses AND hold on trust for her the estates, subject to her paying off the purchase price and further expenses.
  • Linden LJ- equity will not allow a statute to be used as an instrument of fraud
  • Example of a constructive trust case.

Bannister v Bannister [1948] 2 All ER 133

  • Shows how Rochefoucauld principle has been obscure
  • Facts: elderly woman transfers two of her cottages to her brother in law below market price on the understanding that she’d be able to live in one of them rent free for the rest of her days. He tries to evict her, CoA says he holds one of the cottages on trust to give effect to the agreement. Didn’t matter that he had no fraudulent intention when the property was transferred. The fraud consisted in relying on the absence of writing when she then tried to enforce her beneficial interest.
  • Scott LJ said this was a Constructive trust case rather than an oral express trust but without giving any reasons

Hodgson v Marks [1971] Ch 892

  • If C can make no special proprietary estoppel claim by virtue of detrimental reliance = b does indeed hold the land on a resulting trust for A
  • Resulting trust case

JD Feltham, ‘Informal Trusts and Third Parties’ [1987] Conv 246

  • It should make no difference that A transferred the land to B and declared an oral trust for C, for if this did affect the outcome then there would hardly be any scope for the application of s53(1)(b)

TG Youdan, ‘Informal Trusts and Third Parties: a Response’ [1988] Conv 267

  • Argues that thereshould be no difference between:
    • A simply conveying land to B with intent manifested by oral evidence to make an outright gift to B (effectively in B’s favor) and:
    • A conveying the land to B manifested by oral evidence to B to hold on trust for C as intended donee of an equitable gift. However, s53(1)(b) deliberately creates a difference in expressly requiring written evidence of trusts of land where legal title is in one person (B) and equitable title is in another (C), so that A’s claim should prevail over C’s claim. This evidence provides a paper trail to enable C to enforce his interest against B’s executors after B’s death.

3. Sub-Trusts and dispositions of subsisting equitable interests

(a) ‘Disposition’

Law of Property Act 1925, s 53(1)(c) states that

‘A disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.’

  • Crucial to note this relates to EXISTING equitable interests, we are dealing with the equitable title that the beneficiary has, as the trust already exists.
  • Disposition must be IN signed writing- doesn’t say evidence or proved in signed writing= no writing= disposition void and later writing will not
  • Issue: what is a sufficient disposition
    • If something is a disposition you need formalities, no formalities= void
    • Everything turns on this question as it determines whether or not this section is engaged validly for beneficiaries.

Two important cases relating to dispositions of an equitable interest=

Grey v IRC [1960] AC 1 and Vandervell v IRC [1967] 2 AC 191 (in outline)

  • Where settlor doesn’t make direct disposition, but advises trustees to hold on trust for another, such a transaction caught by s53(1)(c):
  • Grey:settlor transferred shares to trustees to hold as nominees for him. He then orally directed trustees to hold on trust for his grandkids, and the trustees, later executed a written declaration of trust. However theactual disposition was by oral direction= void.
    • HoL: the word disposition must be given its natural meaning
  • Both cases: relate to funny dealings by beneficiaries of shares who tried to do various things without putting it into writing. Reasons for not putting it in writing= if they did they would’ve been taxed. Avoiding tax is fine, evading taxes isn’t

(b) Sub-Trusts

  • g. Trust is up and running and then beneficiary declares himself trustee of his equitable interest for the benefit of another person. Theoretical issues arise, because it’s a subsisting equitable interest= does the creation of a sub trust need to comply with s53(1)(C), does the beneficiary need to put it into writing?

Theories

1-     David Hayton

  • Distinguishes between two situations.
  • If B is only declaring a trust for part of his equitable interest = we don’t need writing because B retains active duties. B hasn’t given away everything since it’s not a full disposition there’s no need for writing
  • However, if B gives away 100% of his equitable interest, he sort of drops out of the picture he’s no longer need= disposition so writing is needed. Problem arises/illustrated in two old cases:

2-     Brian Green

B Green ‘Grey, Oughtred and Vandervell – A Contextual Re-appraisal’ (1984) 47 MLR 385 (on Hein Online) 396 – 399

  • Every time a sub-trust is created writing is required. Takes functional analysis, writing is always going to help the trustee know who B2 is, and it’s important the trustee knows who that is.

3-     J.E Penner

  • No writing is required in any case, very simple view- B never truly drops out of the picture, trustee must always in every case account to B1 as he must receive the property first before giving it to B2, since B never drops out of the picture= no writing. (what if B1 dies before receiving property?)

o   Nelson v Greening & Sykes (Builders) Ltd [2008] 1 EGLR 59

  • Paragraphs 57-58 of this case support this
  • Collins LJ- as a matter of law B never drops out of the picture.

4-     Lawrence Collins LJ

  • Even though the practical effect of declaring a subs trust with no active trustee duties ‘would seem to amount to…getting rid’ of the trust of the equitable interest then subsisting’ , this is, ‘not the same as saying as a matter of law it does get rid of the intermediate trust.’

Note to self: pick which theory you agree with and like.

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2 Comments

  1. Anonymous
    May 18, 2016 / 3:05 pm

    sooo helpful. Thanks fo saving a life!

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