Equity and Trusts: The Perfect Gift - Essay Example

?Equity and Trusts Table of Contents Table of Contents 2 Introduction 3 Exceptions to the Maxim That ‘Equity Will Not Assist a Volunteer to Perfect an Imperfect Gift’ 4 Scope for Further Development 7 Conclusion 10 References 12 Introduction According to the Milroy v Lord case, it has been observed that trust must not be held for the sake of the protection of gifts. Conceptually, the transfer of any kind of property from one individual to the other is termed as a ‘gift’ in accordance with the legal propositions. The court usually determines the value of the gift on the basis of three elements that include the actual delivery of the gift, intention of the donor who is presenting the gift and the acceptance of the gift by the receiver1. By the delivery of the gift, it can thus be understood that the gift can be considered as perfect when the donor of the gift actually surrenders the control or the right of the property. The intention of the donor making the gift is identified by the court with regard to certain circumstances. These circumstances include the relationship between the parties involved in the exchange of the gift, behaviour of the donor in the event of the exchange of the gift and the actual amount of the gift. The donor must also possess the legal capacity to deliver a gift to someone. Correspondingly, the final element is the acceptance of the gift wherein the person taking the gift must accept it at the time of the delivery. On completion of these three elements, the court would recognise such gift as a ‘perfect gift’. If in any case, the court is unable to identify the following three elements in the exchange of the gift then it is considered as the ‘imperfect gift’, which was also ruled in the Milroy v Lord case2. The aim of this study is to reveal the actual meaning of the perfect gift and the process through which the law has developed exception that the equity is unable to assist the volunteer to perfect an imperfect gift. The study has also tried to analyse the scope of further development in the particular area. Exceptions to the Maxim That ‘Equity Will Not Assist a Volunteer to Perfect an Imperfect Gift’ In the Milroy v Lord case, the main issue intended to prove whether the transferor of the property was really the trustee so that the gift could be treated as a ‘perfect gift’ or an ‘imperfect gift’ if otherwise. The question that rose in the context of this case was that the property was actually registered in the name of Tom Medley or was this was only an interest of Elena in order to enjoy the full right of the property. The case was in possession of the property and the limitations that were levied on the equity of the gift. Elena, niece of Tom Medley was getting married very soon. After the marriage of Elena, Medley had given some dividends from the shares to Elena, which was immediately handed over to the trustee or the Lord. Lord had deposited these shares in the Bank of Louisiana. Soon after the death of Medley, various issues rose such as whether these shares in the bank came under the possession of Medley or were they are the part of Lord’s property. Nevertheless, the real fact was that the shares were not once enumerated in the name of Lord rather it was always in the name of Medley3. At the end of the case, the court held a decision that Elena had no possession of any kind of property in the Bank of Louisiana as the title was never handed over to Lord from Medley. In this case, Lord was only acting as the trustee of the shares but the actual beneficiary was Elena. This case has given rise to a number of issues such as the ‘creation of trust’ and the exception that the ‘equity will not assist a volunteer to perfect an imperfect gift’4. In a general sense, trust is a legally binding agreement in which an individual transfers the legal control of the property to another person, namely the trustee, to manage the property effectively for the sake of the beneficiary. A trust usually is levied during the lifetime of the individual transferring the control as well as after the death of the individual. Usually, there are two types of trusts namely the discretionary trust and the non-discretionary trust. In case of the discretionary trust, the beneficiary does not have any control over the money or the property. All the monetary decisions are taken by the trustee itself. On the other hand, the non-discretionary trust gives the power to the beneficiary regarding the control of the property. Here, the beneficiary can handle the issues of monetary transactions5. In the issue of the Milroy v Lord, Lord was acting as the discretionary trust where he was empowered with the full right of taking decisions independently regarding the dividends of the shares. Due to the possession of the discretionary trust, he had deposited the dividends in the Bank of Louisiana. Also, it was noted that after a certain period of time, Lord had bought some shares in other bank with the dividend money but he had obtained the title and the beneficiary was Elena6. The court also determined the judgement on the basis of this particular type of trust. The general procedure for the equity after the case of the Milroy v Lord propounded that ‘equity will not assist a volunteer’ and thus, the equity will not be eligible to put into effect any gratuitous commitment ‘to perfect an imperfect gift’. The equity will correspondingly be entitled to perfect an imperfect gift only when the donor has undergone all the legal formalities in the transfer of the title to the trustee. In relation to this case, the gift will be considered as a perfect gift by the law. The gift being perfect can be made clear with the help of the case Pennington v Waine7. This case concentrated on the fact that the gift can be perfected if the donor fulfils all the criteria necessary in the due course of the transfer of the property of any kind. This case was the beginning of the law regarding the imperfect gifts and also provided much scope for the circumstance that the imperfect gift held by the equity is not effective. There were a lot of issues arising from the case of Milroy v Lord regarding the matter of the assistant of the equity in volunteering the perfect and imperfect gift. However, the rise of the issues from the Pennington v Waine case gave evolution to the law that the equity will be able to perfect an imperfect gift in case if the donor of the gift is undergoing all the legal formalities of the transfer of the property8. In the rule of the equity, a term ‘maxim’ is a vital subject which means a set of principles to be followed by the equity during the operation of the perfect gifts. It elaborates the quality of the equity in accordance with the law and also ensures the worthiness and conduct of the parties involved in the transfer of the gift between the two parties. The maxim is generally applied by the court whenever required9. Accordingly, in case of Milroy v Lord, maxim was referred to as the equity. In a general sense, the person who is receiving the gift cannot expect from the equity court regarding the promise of the gift. It is in this context that the volunteer cannot enforce against the gift offered to them. According to the common law, equity cannot assist the receiver of the imperfect gift. The maxim is therefore subjected to imperfect gift in the referred case, which thus rules that only in case of gifts of land or shares. In such case the equity must possess all the legal formalities of transfer of the property. Apart from all these facets, the perfect gift comprises both the equitable and legal transfer of property and the person accepting the gift becomes the complete owner of the property10. If the document related to the transfer is not present then the gift is considered to be an imperfect gift. In this regard, the equity will not be able to perfect the imperfect gift. Scope for Further Development The system of perfect and imperfect gift by the equity has developed much with the decision of the Pennington v Waine where a newer law of the imperfect gift had begun. In the case of Milroy v Lord, a lot of issues regarding the ownership of the dividend amount of the shares had grown up. The discussion was among the trustee and Tom Medley, the real owner related to the property. However, the case of Pennington & Breen v. Waine has supported the argument that the imperfect gifts are yet effective for the equity. It is also one of the best examples to focus on the doctrine of the Re Rose wherein the equity can exercise the power of volunteering to perfect an imperfect gift in case if the donor of the gift is going through all the legal criteria in the transfer of the property11. To understand the doctrine of Re Rose, the facts of the case must be analysed in details. Ada Crampton was the holder of 1500 shares out of 2000 in the family company. She wanted to gift her nephew Harold 400 shares and make him the new director of the company. Thus, she consulted with her company’s auditor Mr. Pennington regarding the transfer of the shares. Mr. Pennington sent a 288A form along with a note that the procedure does not require any action from Harold’s end. Subsequently, all the legal formalities were fulfilled by Ada and Harold in the course of share transfer. Nonetheless, Mr. Pennington kept the share transfer form along with the other documents of the company. The form was misplaced in the office which created a huge problem after the death of Ada. After the death, conflict raised among Harold and the executors regarding the title to the shares. Harold had been continuously arguing the fact that the title of the shares has automatically passed on to the equity (Harold) in accordance with the ‘doctrine of Re Rose’12. However, in case of the transfer of shares from one person to the other, the doctrine must be in possession of the stock transfer form along with the share certificate irrespective of the registration of the name as the owner of the company13. In this course, Harold’s problem was that he did not have either of the documents as it was misplaced by Mr. Pennington. Nevertheless, the consequence of the case was in favour of Harold by the court. The donor of the gift always ensures that the title of the shares has ultimately transferred to the person to whom the gift is being transferred. Conversely, Harold was aware of the fact the shares are being transferred in his name even though he does not have the documents of the transfer. The doctrine of the Re Rose says that the gift is effectual in terms of equity, when the person accepting the gift is aware of the transfer although he is not in a possession of the related documents14. These bases of the Re Rose doctrine assisted Harold to get the results of the case in his favour. This situation can be concluded as one of the scopes for the further development of the equity in volunteering to perfect an imperfect gift. Apparently, the rule delivered in the case of Pennington & Breen v. Waine gave a new decision in regards to the possession of imperfect gift. Conceptually, the related legislation states that an imperfect gift can be perfected if the legal formalities are performed during the transfer of the property. The same rule is also applicable in the case of transfer of land or shares, as was illustrated in the Pennington & Breen v. Waine case where the transfer of shares, whereby an amendment was made to the rule of transfer of shares following the fulfilment of legal formalities. Although the law for the possession of the gift has been introduced in keeping with the doctrine of Re Rose but still there are many criteria which lie in the path of the possession of a perfect gift by the equity. According to the maxim of equity, the gift which does not undergo the legal formalities of the common law cannot be assisted by the equity. A perfect gift needs certain procedures of transfer instead of just a ‘physical delivery ‘of the goods15. This law has been developed by the common law and there has been observed a very little scope of further development of the law in future. The Trust law was developed to assure the equity about their rights of operating the perfect gift. The Trust law states that equity must always operate with the principles of the person holding the legal interest of the property16. Thus, all these laws were developed for the benefit of the equity and the trusts. The Trust law helps the equity in the identification of the perfect and imperfect gift and regarding the volunteering of those gifts. The development of all these law and the various doctrines such as the Re Rose doctrine is somehow an initiative towards the development of the equity’s handling power of the gift. Conclusion The aforesaid facets bring forward certain integral elements related to the law concerning the equity and trusts. The study of the term ‘equity will not assist a volunteer to perfect an imperfect gift’ has been mentioned in keeping with the case example of Milroy v Lord. As per the case of Milroy v Lord, it has been observed that the gift which has been transferred with the fulfilment of all the legal formalities is considered to be the perfect gift. However, if the gift does not possess such formalities then it is imperfect gift which the equity cannot volunteer. The case refers to the involvement of the third party i.e. Lord who was the trustee of the shares gifted to Elena. The trustee in the related case was beneficial as at certain point of time he had bought some other shares in other bank and entitled Elena as the beneficiary. From the study of this point, it has been observed that the person making the gift has the full right to create a trustee in course of the transfer of property with regards to the ‘valid declaration of a trust’17. The person making the gift must do each and every proceeding or the required formality in order to transfer the property in the name of the person accepting the gift before creating a trustee in the due course. If these criteria are not followed then the person giving the gift might declare himself as the trustee. These are the basic rules regarding the formation of a trust in order to make a valid gift18. Notably, the valid formation of the trust can determine the legal value of the gift made by one individual to the other. From the entire study, it has been apparent that the case of Milroy v Lord was a turning point for the analysis of the restriction of the equity to assist a volunteer to perfect an imperfect gift. Apparently, the case of Milroy v Lord had given exceptions to the equity in regards to the perfection of an imperfect gift. The equity that has undergone through all the legal formalities in the making of gift and the formation of a valid trustee can be able to perfect the imperfect gift according to the maxim in the Milroy v Lord case. Along with this, the maxim further stated that equity needs to hold all the required documents of the transfer of property so that it can be claimed as a perfect gift. In accordance to the development of the law of perfect gift, lesser scope has been observed to be delivered to the transferor and the transferee. In accordance, the doctrine of Re Rose was developed regarding the concept that complete legal formalities are required for the transfer of property as included in the process of assisting the volunteer to perfect an imperfect gift by equity. The maxim in the case of Pennington & Breen v. Waine further had brought about a change of the rule binding the transferor and the transferee in possession of an imperfect gift. The rule was amended to a transformed form that transfer of land or shares with the legal formalities can be considered as perfect gift and thus, in that case the equity can assist the volunteer. This case onwards the common law for the possession of gift by the equity could be made valid. References Aslani Ava, ‘Trusts Online’ [No Date] (Uploads) accessed 07 November 2013. Bullock John, ‘Private Law: Property’ [2013] (Uploads) accessed 07 November 2013. Burke D. Barlow and Snoe Joseph A, Property: Examples and explanations (Aspen Publishers Online, 2008). Garner Bryan A, A Dictionary of Modern Legal Usage (Oxford University Press, 2001). Watt Gary, Todd and Watt's Cases and Materials on Equity and Trusts (Oxford University Press, 2007). Hudson Alastair, ‘Advanced Equity and Trusts’ [2007] (Uploads) accessed 07 November 2013. Hudson Alastair, Equity and Trusts (Routledge, 2012). Maitland Chambers, ‘Failure of Legacies and Contractual Rights’ [2012] (Uploads) accessed 07 November 2013. 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