Presenting Elements of Certainty - Essay Example

?“English law has a great affection for certainty: judges are concerned that the law promotes certainty in contracts, trusts and other dealings between persons. In terms of the trust specifically, the judges’ concern is that the settlor makes her intention sufficiently certain so that the court will be able to direct the trustees how to act if there are problems with the administration of the trust”. Introduction There must be three elements of certainty present in an express trust. First, certainty of intention to create a trust must be evident. Second, identity of the subject matter of trust must be certain. Third, the beneficiaries or objects of the trust must be present. These elements are essential prerequisites for a valid creation of express trust. Trust being an arrangement, certainty of certain aspects must be present just as in a contract (Hudson, 2009). Certainty of intention The settlor should have actually intended to create a trust without giving an impression of imposing some moral obligations or gifting or acting in some other manner which cannot be a trust. As there is no prescribed wording for creation, courts are expected to examine what intention of the parties had been and whether those intentions are given effect to in the trust deed. The court is free to infer an intention from the circumstantial evidences including parties’ conduct. Thus, the inference may be had if the property owner shows a positive intention to share the beneficial ownership of his property with someone else, or if he transfers title of the property to a third party intending that he will hold it for the benefit of some other person. The intention must be in the form of a trust deed and not as a gift or some other form. Though there are exceptions, written form is ideal to prove the existence of a trust and the certainty of intention. Difficulties will arise if the settlor unknowingly creates a trust by his conduct or leaves behind a Will or some instrument in ambiguous terms (Hudson, 2009). Express trusts inferred by the court In Paul v Constance (1977), the court was faced with this ambiguous situation. Mr Constance deserts his wife and lived with Mrs Paul without marrying her. When he wanted to open a joint bank account along with Mrs Paul to deposit ? 950 he received as compensation for an injury, bank refused as they were not married. Hence, with the account in his sole name, he became the common law owner of the account. Later on the couple put both their monies in the same account and spent the money in the account for their common purposes. Once Mr Constance had told Mrs Paul “this money is as much yours as mine”. After Paul’s death, his wife claimed the money in the bank account stating that the balance in the account belonged to her husband and she was entitled to the bank account balance as per the Intestacy Rules. Although the widow of Mr Constance was entitled as his legal heir, court held his wordings “this money is as much yours as mine”. constituted an evidence to create a trust for the benefit of Mrs Paul as well as Mr Constance. The Court said that Mr Constance might have behaved in the manner above without being conscious of creating a trust and its legal implications. Courts are only uncovering an express trust and not imposing a constructive trust. In Re Kayford (1975), the mail order company, in anticipation of impending insolvency, set apart all advance payments from its customers in a separate bank account and withdrew from that account as and when supplies were made to each customer. This was done with the intention that in the event of becoming insolvency, customers’ monies not supplied with goods could be returned to them. When the issue arose as to whether the money in the separate account could be distributed to the existing creditors, the court held that the company had held the money in a separate account in trust for the benefit of unsupplied customers who had made advance payments. By creation of a separate account, the company’s intention to create a trust was quite evident and hence court held that the customers not supplied were the beneficiaries during the period they waited to receive supply after making prepayments. As to the court’s inference of existence of the intention through surrounding circumstances, the court held in Jones v Lock (1865) that what the deceased father had given to his son as a gift by way of cheque could not be construed as in pursuance of a trust created by him for the benefit of the child. Lord Cranworth followed the maxim of Milroy “equity will not perfect an imperfect gift and it followed that unless intention is clear, a trust will not be constituted” (Milroy v Lord, 1862). Turner LJ laid down the principles of constitution of trust in Milroy. “actually transferring the property to the persons for whom he intends to provide … and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes … but, in order to render the settlement binding, one or other of these modes must…be resorted to, for there is no equity in this Court to perfect an imperfect gift. “ (Milroy v Lord, 1862). In RE Nanwa Gold Mines Ltd (1955), the company promised to keep the moneys received for application of shares in a separate account so that it could be returned in the event of non-allotment. According to Herman J, intention of the company by keeping in a separate account was to make itself as a trustee and not a debtor of the moneys so received. Since no allotment could take place, Herman J held that legal title to the moneys received as trust moneys should be returned to the persons who remitted them. The case distinguished between the promise to keep money in a separate account and the promise to refund upon happening of a contingency stated (Ong, 2007). Thus, in Mosley v Cressey’s Company (1865), it was held that the company had not made itself a trustee despite its specific mention in the prospectus that application moneys for shares would be refunded in case of no allotment. It was clarified that by such a statement, the company became a debtor and not a trustee. The above would show that “all that was needed to establish an intention to create a trust was an intention to keep the beneficial ownership of the money” (Hudson, 2009, p. 82) Moral obligation or trusts Imposing moral obligations would not amount to creation of trust. Just as when a car owner asks someone to look after his car failing which he will be responsible or when a father gives money to his son imposing a condition not to spend it wastefully. In Re Adams and Kensington Vestry (1884), the father’s statement in his will that “in full confidence that she would do what was right by his children” directed at his wife constituted a moral obligation on her and hence the court held that property passed to his wife absolutely. It was stated that the Will only imposed an obligation that the wife would use the money for the benefit of his children and not hold the money as trustee for the children. Mere statement of wishes cannot have the force of a trust. (Hudson, 2009). An opposite stand was taken in Comiskey v Bowring-Hanbury (1905), wherein the testator stated in the Will that his wife would get the property subject to being equally divided amongst his nieces after her death. The wordings were “in full confidence that... she will devise it to one or more of my nieces as she may think fit” (p86). Although it appeared like a moral obligation, the court held that it was an executory gift intended to be given to his nieces under a trust. (Hudson, 2009). The three certainties of “ certainty of words” , “ certainty of subject matter “ and “certainty of objects “ were derived from the dictum of Lord Langdale in Knight v Knight (1840). These are only broad requirement and it would be misleading to assume that they are precise principles as observed by Watkin (1979). Certainty of words is now known certainty of intention. This requires existence of specific intention to create a trust. It requires rules of determination as to the intention to create a trust by conduct or otherwise. And precatory words such as “in full confidence” is legally binding rather than morally binding or the words “: trust” is decisive. Certainty of subject matter can be ambiguous since both state certainty of the specific property as well as the quantum of the interest of each beneficiary in the trust. It also argued that certain kinds of property rights can be capable of being held on trust. The “certainty of object” originally meant the identification of beneficiaries which should be mentioned in clear terms. It now includes beneficiary principle. The three principles of certainty cannot be seen in isolation from one another. In respect of certainty of subject matter and certainty of words, it was held in Mussoorie Bank V Raynor (1882) by Sir Arthur Hobhouse as “ Uncertainty in the subject of the gift has a reflex action upon the previous words, and throws doubt upon the intention of the testator, and seems to show that he could not possibly have intended his words of confidence, hope, or whatever they may be- his appeal to the conscience of the first taker- to be imperative words” ( p 117) Observation of formalities There is no specific law for observation of formalities. While the case law requires certain forms of trust for land and for writing of Wills, there must be evidence in writing and for the wills The Wills Act must be complied with for testamentary trusts. Further, the trust should be completely constituted or supported by valuable consideration. The trust cannot violate the rules regarding perpetuity, inalienability and accumulation. The trust should not be for the purpose of defrauding creditors or against public policy otherwise. (Moffat, Bean, Bean, & Dewar, 2005). Certainty of objects To determine existence of a trust, A must be obligated to B under a specific right. Thus certainty of objects is to ensure that A has a duty to a particular person and that duty is certain and capable of being enforced (Hartpub.co.uk, n.d.). In OT Computers Ltd v First National Tricity Finance Ltd and Others (2003), the claimant company was making losses since 2000 and hence it instructed its bank in 2003 to open two separate trust accounts for paying customers’ deposits and to pay moneys due to urgent suppliers by transferring from its current account to the two trust accounts. The bank also agreed that it would not set off these trust accounts against any other accounts held by it in the name of the company. The company had kept two separate schedules for names of customers and name of suppliers as potential beneficiaries under the trust accounts opened. Later, when the company went into liquidation, the bank demanded repayment of loan. One unpaid supplier’s name was not in the schedule. Question arose whether valid trusts were created for customers and suppliers. While the court held that a valid trust had been created for the customers, the trust created for supplies was not valid for the reason of uncertainty of objects. The categorization “urgent” was held to be too vague for defining a class and identifying each beneficiary. Here, a resulting trust was created. Pumfrey J held “the trusts alleged to have been created are necessarily express trusts, and for each such trust to be created there must be certainty of words, certainty of subject matter, and certainty of objects. Certainty of words requires that the words used are sufficient to demonstrate an intention to create a trust., and so far as necessary, the terms of the trust. Second, the property to be comprised within the trust must itself be identified with sufficient clarity. Finally, the class of persons who are beneficiaries of the trust have to be sufficiently ascertained. .... the trust suppliers in the present case is insufficiently certain in respect of certainty of objects.” (Ramjohn, 2008, p. 55). Certainty of subject matter The subject matter refers to various forms such as land, chattels, shares etc. And whatever be the form, it must be stated with sufficient clarity so that it will enable the court identify them. When a property is uncertain, not being a beneficial interest, the intended express trust would fail (Ramjohn, 2008). In Sprange v Barnard (1789), the Will stated that after the death of testatrix, her husband Thomas Sprange would get ? 300 in joint stock annuities which he could use and after his death, the remaining amount out of ? 300 should be divided amongst her one brother and two sisters equally. When Thomas Sprange applied for payment, the trustees refused. It was held that there was no trust created and Thomas was entitled to absolute beneficial interest. It is because there was no certainty of subject matter in that the remainder portion after his death was uncertain as the property was wasting. Hence it was not trust for want of certainty and he was therefore entitled to the full amount of ? 300. In Palmer v Simmonds (1854), the claim of trust failed as there was no clear means of identifying the trust property. The testatrix left a Will providing for the residue of her estate to Thomas Harrison subject to condition “ that if he should die without lawful issue he will, after providing for his widow during her life, leave the bulk of my said residuary estate unto [four named persons equally]. It was held that there was no trust as there was no identifiable property and hence Thomas Harrison was entitled to the property beneficially. Kinderly said that the term “bulk” meant not the whole but greater part. The testatrix therefore could not be said to have expressed a definite, clear, certain part of her estate. The subject matter fails the test of certainty in respect of identification and capability of identification without precision (Ramjohn, 2008). Discretionary Trusts If A has a core trust duty, it is called discretionary trust. A gives ?100,000 to B on condition that it should not be used for B’s benefit and invest that money for being paid with returns to C at the end of 21 years. Here B has a core duty to C. In order to ensure certainty of objects in discretionary trust, certain tests are required. They are “ full list” test, “administrative workability test”, and “one person test”. (Hartpub.co.uk, n.d.). Fixed trusts Fixed trusts are non-discretionary trusts where the number of beneficiaries and their shares are predetermined. Thus, a fixed trust can be set up for a handicapped child to be cared for in the event of the death of the child’s parents or guardians (Howtolaw.co.nz, n.d.). Mere powers It is distinct from trust. While a fixed trust is imperative, a power is permissive in that it is not necessary that the donee of the power is vested with a property in his name. Mere power is sub-classification of Special and Hybrid power. A ‘mere power’ is power with no obligation “to appoint among a class”. And only if the trustee has “mere power”, he has the duty to exercise it (Eqdiscr, n.d.). Benjamin orders  If the trustees entertain doubts about the validity of claims of the beneficiaries, they may apply to court for what is called a Benjamin order for directions in which case they will be protected subject to condition they act strictly according to the directions. The Benjamin order came from Re Benjamin (1902), by which court has powers to authorise the distribution of trust property without identifying all beneficiaries and creditors (Ramjohn, 2008). Uncertainties There are four uncertainties namely conceptual uncertainty, evidential uncertainty, ascertainability, and administrative unworkability. The conceptual uncertainty refers to unclear language used in the trust document which is the most fundamental to the validity of a trust or power. Examples include vague terms like good customers or loyal employees etc. Evidential uncertainty arises when the question of fact cannot be answered at all such as a claimant being unable to prove himself as a beneficiary. The ascertainability refers to the situation of not being able to locate beneficiaries for reasons of beneficiaries either having died, changed their names or moved. The administrative unworkability arises when it is impossible or impractical for the trustees to perform their duties. If they are prevented from performance of their duties, the trust becomes invalid. The ways of resolving uncertainties are by engaging experts to advice the identity or otherwise of beneficiaries, giving discretionary powers to the trustee to determine who is or who is not a beneficiary, and allowing the trustee to distribute property to anyone so as to reduce the risk of uncertainty (Hudson, 2009). Conclusion The above examination of the various issues of certainty goes to show that there cannot be express trust without certainty of the intention, subject matter and objects. It has been observed that a trust can be created without the settlor actually intending to do so and the trust knowingly created can fail for want of the three certainties. The courts have been consistent for centuries together in holding on to the certainty principles of express trusts. Bibliography Books Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. Moffat, G., Bean, G. M., Bean, G., & Dewar, J. (2005). Truts law : text and materials (4 ed.). Cambridge: Cambridge University Press. Ong, D. S. (2007). Trusts Law in Australia (3 ed.). NSW: Federation Press. Ramjohn, M. (2008). Cases and Materails on Equity and Trusts 4/e. London, Routledge-Cavendish . Journals Watkin. (1979). Doubts and Certainties. Anglo American L.R. , 8, 123 in Moffat, G., Bean, G. M., Bean, G., & Dewar, J. (2005). Truts law : text and materials (4 ed.). Cambridge: Cambridge University Press. Websites Eqdiscr. (n.d.). Equity : Trust objects- discretionary trusts and powers of appoitnment. Retrieved Nov 30, 2011, from think.io/pub/Law%20Notes/Equity/eqdiscr.rtf Hartpub.co.uk. (n.d.). Certainty of Objects & Discretionary Trusts . Retrieved Nov 30, 2011, from http://www.hartpub.co.uk/companion/propertylaw/certainty.pdf Howtolaw.co.nz. (n.d.). How to understand trusts . Retrieved Nov 30 , 2011, from http://www.howtolaw.co.nz/html/ml025.as Table of cases Comiskey v Bowring-Hambury (1905) AC 84 Jones v Lock,(1865) 1 Ch App 25 in Hudson, A. (2009) Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis.. Knight v Knight , (1840) 3 Beav 148 in Moffat Graham, Bean Gerard M.D, Bean Gerry and Dewar John (2005) Truts law : text and materials , Cambrdge University Press. Milroy v Lord, (1862) 4 De GF & J 264 in ELSA Law Review , available at accessed 28 Nov 2011 ) Moseley v Cressey's Company (1865) LR 1 Eq 405 in Ong Denis S.K. (2007) Trusts Law in Autsralia , NSW Federation Pres 3rd ed. Mussoorie Bank v Raynor (1882) 7 App Cas 321 in Moffat Graham et al (2005) Truts law : text and materials Cambridge University Press . OT Computers Ltd v First National Tricity Finace ltd and Others (2003) , EWHC 1010 H.C. in Ramjohn Mohammed (2008 ) Cases and Materails on Equity and Trusts 4/e London Routledge & Cavendish 4th ed . Palmer v Simmonds (1854 ) 2 Drew 221, HC in Ramjohn Mohammed (2008 ) Cases and Materails on Equity and Trusts 4/e London Routledge & Cavendish 4th ed. Paul v Constance (1977) 1 WLR 527 in Hudson, A. (2009). Equity and Trusts 6 ed.. Abingdon,: Taylor & Francis. . Re Adams and Kensington Vestry(1884) 27 Ch D 394 in Hudson Alastair (2009) Equity and Trusts, Oxon , Taylor & Francis 6th ed . Re Kayford (1975) 1 WLR 279 in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis 6th ed. Re Nanwa Gold Mines Ltd,(1955) 3 All ER 219 ; 1 WLR 1080 in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis.). Sprange v Barnard (1789) 2 Bro CC 585, CA in Ramjohn Mohammed (2008 ) Cases and Materails on Equity and Trusts 4/e London Routledge & Cavendish 4th ed . Comiskey v Bowring-Hambury , AC 84 (1905). Eqdiscr. (n.d.). Equity : Trust objects- discretionary trusts and powers of appoitnment. Retrieved Nov 30, 2011, from think.io/pub/Law%20Notes/Equity/eqdiscr.rtf Hartpub.co.uk. (n.d.). Certainty of Objects & Discretionary Trusts . Retrieved Nov 30, 2011, from http://www.hartpub.co.uk/companion/propertylaw/certainty.pdf Howtolaw.co.nz. (n.d.). How to understand trusts . Retrieved Nov 30 , 2011, from http://www.howtolaw.co.nz/html/ml025.asp Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. InReKayford, 1 WLR 279 ( in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. 1975). Jones v Lock, ! Ch App 25 (in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. 1865). Knight v Knight , 3 Beav 148 (in Moffat Graham, Bean Gerard M.D, Bean Gerry and Dewar John (2005) Cambrdge University Press 1840). Milroy v Lord, 4 De GF & J 264 (in ELSA Law Review , available at accessed 28 Nov 2011 1862). Moffat, G., Bean, G. M., Bean, G., & Dewar, J. (2005). Truts law : text and materials (4 ed.). Cambridge: Cambridge University Press. Moseley v Cressey's Company, LR 1 Eq 405 (in Ong Denis S.K. (2007) Trusts Law in Autsralia , NSW Federation Pres 3rd ed 1865). Mussoorie Bank v Raynor, 7 App Cas 321 (in Moffat Graham et al (2005) Cambridge University Press 1882). Ong, D. S. (2007). Trusts Law in Australia (3 ed.). NSW: Federation Press. OT Computers Ltd v First National Tricity Finace ltd and Others , EWHC 1010 H.C. (in Ramjohn Mohammed ( ) Cases and Materails on Equity and Trusts 4/e London Routledge & Cavendish 4th ed 2003). Palmer v Simmonds , 2 Drew 221, HC (in Ramjohn Mohammed 1854). Paul v Constance, 1 WLR 527 (in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. 1977). Ramjohn, M. (2008). Cases and Materails on Equity and Trusts 4/e. London, Routledge-Cavendish . Re Adams and Kensington Vestry, 27 Ch D 394 (in Hudson Alastair (2009) Equity and Trusts, Oxon , Taylor & Francis 6th ed 1884). Re Benjamin, 1 Ch 723 (in Ramjohn, M. (2008). Cases and Materails on Equity and Trusts 4/e. London, Routledge-Cavendish . 1902). Re Nanwa Gold Mines Ltd, 3 All ER 219 ; 1 WLR 1080 (in Hudson, A. (2009). Equity and Trusts (6 ed.). Abingdon,: Taylor & Francis. 1955). Sprange v Barnard , 2 Bro CC 585, CA (in Ramjohn Mohammed 1789). Watkin. (1979). Doubts and Certainties. Anglo American L.R. , 8, 123. Read More