MOD010544 Equity and the Law of Trusts Coursework Sample ARU

Introduction

The question in this issue is whether some of the attempted lifetime dispositions that Albus tried to make are enforceable under a single law of trusts and principles of equity. The focal point is the question about the proper construction of the gifts and trusts. Usually in equity, there is a general rule that a settlor must go through the formalities necessary to convey property or establish a trust or the disposition will fail. This rule was well followed in the case of Milroy v Lord¹ when the court believed that equity will not perfect an imperfect gift. In this respect, a donor has to transfer the property to the donee or transfer it to a trustee on behalf of the beneficiary or to state that he is the trustee of the property.

However, courts have realized that this stringent rule has some exceptions in which, it would not be fair to reject the gift or the donor has satisfied all requirements to achieve the transfer. We may consider the example of Re Rose², the court decided that a transfer can be valid when all the acts of transfering the property have been taken by the donor although the passage of legal title has not been realized yet.

The report will examine whether Albus legally should have acted as he did in so far as he did the four attempts to dispose of Severus, Minerva, Horace and Rubeus. Both of the situations will be discussed to establish the existence of a valid trust or a gift and the ability of Albus to revoke the disposition.

Severus – Transfer of Shares

The initial matter relates to the question of whether Albus transferred 1, 000 shares in Muggle Investments plc to Severus. Albus provided Severus with a share transfer form, and instructed him to file the transfer, but Severus did not. The issue here is, is the gift fully completed or can Albus revoke the gift? The imperfect gifts rule is found in Milroy v Lord¹. The court observed that a gift to be effective, the donor has to have performed all the actions that are required to convey the property in line with the legal considerations.

Equity will not intervene to perfect the gift in the event the transfer has not been duly completed. In the instance of the shares in a company the title is usually only conveyed after registration in the register of members. The transfer of the share is not normally completed by filling a share transfer form unless that form is delivered and registered. Severus has not been transferred to legal ownership of the shares because he had never registered the transfer. An exception to the rule of Milroy v Lord can be made in Re Rose². Then the court ruled that a transfer can be an effective one in equity in case the donor has done all in their power to make the transfer and there is nothing more that the donor can do with the transfer.

When this is reached, equity would consider a transfer as having been made even where registration is made later. In the case at hand, however, Albus only handed the transfer form to Severus and recommended him to get himself registered. This implies that Albus had not taken the required measures to implement the transfer since there was more to be done. The duty to register the transfer was still unfinished, i.e. the gift was not yet perfected. The other case that is related is Pennington v Waine³, in this case, the court determined that a gift might be considered effective, even in case it would have been unconscionable of the donor to retract the gift.

Nevertheless, there is restraint in this principle and it normally must have explicit dependency by the donee. In the case, Severus just forgot to make registration of transfer and it is not shown that there was reliance or unconscionability. Thus, the exception in Pennington v Waine cannot be likely to be applied. The gift of shares was therefore not duly constituted. Since the transfer has never been made and the condition of Re Rose has not been fulfilled, the shares are still legally in the possession of Albus and he may reclaim the attempted gift.

Minerva – Declaration of Trust Over the Rare Book

Whether or not Albus had succeeded in the establishment of valid trust of a rare book as agent of Minerva, is the second question. In response, Albus told her that he would hold the rare book in trust to Minerva and handed the book a box with her name printed on it. The issue of whether these acts would be a valid declaration of trust or the attempted disposition a failure is an issue. Even the establishment of a trust may be made where there is no transfer of legal title provided the settlor is clear explicit that he has a certain property on behalf of a third party.

It is called a self-proclaimed declaration of trust. Where such is the case, a transfer of property is not necessary as the settlor already enjoys a legal title. The declaration must however indicate that it has the intention to possess the property on trust. The courts have stipulated that they must possess clear intention. The decision of Richards v Delbridge4 was that an unsuccessful offer to transfer the property could not be treated as the declaration of trust, unless there was an intention of the settlor expressed in terms, of holding the property as a trustee.

According to Jessel MR, the equity will not convert an imperfect gift into an effective one by turning it into a trust. Conversely, the presence of valid trust may be accepted by a court where informal words are uttered provided that it is clear that there is an intention to create a trust. Recurrent utterances in Paul v Constance⁵, that money was as much yours as mine, were enough to prove the intention to make a trust.

Based on these principles, Albus clearly said that he would keep the rare book in trust of Minerva. This is a very strong language showing an intention of states to make himself a trustee of the property. Albus applied words that explicitly mention building of a trust relationship unlike situations where a donor only tries to make a gift. Moreover, Albus went a step further to put the book into a box and label it with the name of Minerva. Although this is not legally necessary to establish a trust, it gives the argument that Albus was seeking to treat the book as an asset that was held in trust on behalf of Minerva and not himself. In this case, there was no need to transfer any property because Albus already had the book. It is only necessary that the declaration of trust exists provided that the intention is evident. Hence, the conditions of establishing a self-proclaimed trust seem to be met.

Thus, it is likely that an effective trust has been created whereby Albus is the trustee and Minerva is the beneficiary. Accordingly, Albus cannot renounce the arrangement as the beneficial interest in the book had already vested in Minerva in the trust.

Horace – Trust of 40,000 Galleons Held by the Bank

The third question is whether Albus was able to establish a valid trust with respect to 40,000 galleons and more to the benefit of Horace. Albus wrote to the bank asking that 40,000 galleons be reserved to Horace and the bank duly made its accounts in order to show it. The main issue is whether such acts are enough to establish a valid trust.

When settlor sends property to a trustee to administer in the favor of a beneficiary, a trust can be formed. Instead, there can be a case of trust in which the settlor can easily prove that he/she had an intention that property was to be held by a certain beneficiary. Some pre-requisites of intention, subject matter and objects are usually needed by the courts, which are commonly referred to as the three certainties. Concerning intention, the courts attach attention to the actions of the settlor to show that he or she intended to establish a trust and not the moral obligation. In Re Kayford Ltd⁶, the court acknowledged that a trust might exist in the situation when the money is placed aside with the express purpose to benefit some individuals even when such words were not made in written form.

That is when the mail-order company segregated customer payments to another account, and the segregation of funds was enough to form a trust on behalf of customers. The other point of concern is the subject matter certainty. The trust property should be well recognized. The court in Hunter v Moss⁷, found that where the property is in the form of identical intangible property, such as the shares, the actual property, which is a trust may not need specific segregation of the actual assets which compose the trust. The trust can even hold the water so long as the number of assets is well spelt out.

When these principles are applied to the current situation, Albus directed the bank to keep 40,000 galleons on behalf of Horace and the bank made these arrangements known in its books. This shows an obvious desire that the money ought to be retained to the benefit of Horace. Also, the sum of money is well defined, that is, the subject of the trust is definite. The fact that the bank is involved also implies that the funds are in the custody of a third party on behalf of Horace, which would form a trustee-beneficiary relationship.

The move taken by the bank in updating its books helps in concluding that the trust arrangement has been put in place. Hence the conditions of forming a valid trust seem to be met. It is expressly intended to create a trust; the thing to which a trust is to be put (40,000 galleons) is definite, and the beneficiary (Horace) is certainly mentioned. Consequently, it is likely that a valid trust can be established. As a result, Albus cannot revoke the arrangement as the beneficial interest in the money transferred to Horace under the trust.

Rubeus – Covenant to Transfer the Motorcycle

The last problem is on whether Albus legally honors his commitment of transferring his motorcycle to Sybill as a trustee in the interest of Rubeus. Albus had done an act that assured the transfer of the motorcycle but this was not done. The deciding factor is whether this covenant imposes some rights that are enforceable upon Rubeus or Albus is entitled to rescind the promise. The principle on which equity will not aid a volunteer is the beginning point. This principle goes hand in hand with the principle that equity will not perfect an imperfect gift, which was decided in Milroy v Lord¹.

In this principle, in case a donor has failed to satisfy the necessary requirements to transfer property or even make a trust, the courts will not step in to execute the proposed gift. In the case at hand, Albus made good faith on the promise to place the motorcycle under the trust of Sybill. Nevertheless, the motorcycle was not transferred. This implies that the trust was not duly constituted since the property that was supposed to constitute the trust fund was not put under the control of the trustee.

Consequently, the trust is not complete. A case in point is Re Pryce⁸ where a settlor made a covenant with trustees to transfer property to persons who volunteered to benefit volunteers. The court decided that the trustees were not entitled to persuade the settlor to effect the transfer since the beneficiaries were volunteers and had not given any consideration. Accordingly, the covenant would not be applied by equity.

On the same note, the court in Cannon v Hartley⁹ acknowledged that the beneficiaries can occasionally enforce a covenant when the covenant is a settlement that has been part of a marriage which is backed by consideration. This exception will however not be applicable when the beneficiary is just a volunteer who has no rights or contract. By the application of these principles, Rubeus is a volunteer since he has made no consideration to the transfer promised.

The trust property was not duly constituted as the motorcycle was not transferred to the trustee. This leads to the general rule in Milroy v Lord, that is, the court will not force Albus to make the gift. In this regard, the attempted trust has collapsed because of the absence of adequate constitution. Since there was never any transfer of the motorcycle and Rubeus is a volunteer, Albus can probably revoke the promise and keep the motorcycle.

Conclusion

The report has examined whether the principles of equity and the law of trusts effectively constituted four proposed dispositions that were raised by Albus. The discussion shows that the efficacy of both disposition is founded on whether the legal requirements in the transfer of property or the declaration of trust are satisfied.

The gift to the transfer of shares to Severus was not duly done since the transfer was not registered. Equity will not grant an imperfect gift under the rule such as that in Milroy v Lord. Consequently, there are high chances that Albus still owns the shares and can cancel the gift. By comparison, it can be stated that the declaration of the trust of the rare book to Minerva is valid as Albus made clear his intention to transfer the book on trust.

Since a self-declared trust does not involve transfer of property, it is probable that the beneficial interest has been transferred to Minerva and cannot be revoked. The 40,000 galleons trust of Horace is probably good also, because Albus proved his intention to set up a trust and the bank was aware of the deal and revised its books. Lastly, transfer of the motorcycle of Rubeus is not valid since the property was not transferred to the trustee and Rubeus is a volunteer. Therefore, the trust was not duly made and Albus can give up the promise. All in all, only the arrangements between Minerva and Horace can be considered legally binding.

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