The Law of Formalities - Term Paper Example

 Property law Introduction: The requirements on formality have arisen out of the Statute of Frauds of 1677, of which some provisions, notably Section 9, were incorporated into Section 53 (1)(c)of the Land Property Act of 19251. Some of the formality requirements include the intentions of the testator being required to be spelt out in writing with beneficiaries clearly named and the transfer associated with the payment of necessary duties. Section 53 (1) (a) deals with a subsisting trust, 53 (1)(b) deals with oral declarations of trust in land while Section 53 (1) (c) deals with oral dispositions of equitable interests in property. Section 53 (1)(c)states as follows: "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 thereunto lawfully authorized in writing or by will." The purpose behind setting out this clause was to prevent fraud in hidden transfers of equitable interests and in order that trustees who hold the legal interests are able to identify those equitable interests. There is a conflict that arises in terms of the disposition of the legal owner of the trust as set out in the written instruments vis a vis the equitable owner/s or beneficiaries of the trust, since equity starts out in the form of a measure of “confidence reposed in some other” which imposes “a duty or aggregate accumulation of obligations” that connotes some beneficial interest2. Where the disposition of a trust has been set out in writing or by deed, the Courts must give effect to it. In fact, the law of formalities has created inflexibility in some cases and there have been instances where the interests of beneficiaries have been compromised. For example, in the case of Re Diplock3 that concerned the disposition of a trust, the general principle that was laid down was clarified by Pettitt, who states that whenever there is an initial fiduciary relationship, the beneficial owner of an equitable proprietary interest in property can trace it into the hands of anyone holding the property except a bona-fide purchaser for value without notice4. Property held in trust for a beneficiary is generally meant to be assigned on the basis of equity and though the process of tracing is helpful to locate beneficial interests in a trust, Petitt clarifies that this is only possible to the extent that the fund can be followed and identified; if on the facts of any individual case, such continued existence is not established, equity is helpless.”5…..(422 words) The Three Certainties: When there is no written instrument, the Courts have been guided by the three certainties in reference to trusts which may be detailed as follows: (a) Certainty of intention: This is based upon the equitable maxim that equity looks to intent rather than form, as set out in the case of Paul v Constance6, where the Court inferred the presence of a trust in spite of no written instrument, on the basis of beneficial interest. In the recent case of Rowe v Prance7 the Court in a similar manner, was able to determine the existence of an equitable trust on the basis of the defendant’s use of the word “our” in reference to a property which was a yacht. When the intention is not certain, as was the case in Jones v Lock8 where an oral declaration had been made by the father but there was no supporting action to support a trust made in favor of a child, Lord Cranworth stated: “I think it would be a very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declaration of trust.” While the above mentioned cases deal with personalty trusts where requirements of formality may not be strictly necessary, the Courts have been similarly reluctant to concede the existence of a trust in cases of disposition of land and property where a clear intent on the part of the testator has not been indicated through the use of precatory words, as was the case of Lambe v Eames9. But in cases where the intent of the testator to create a trust have been clear, the courts have been willing to concede beneficial interest, even in the disposition of property, when the formality requirements under Section 53 of the LPA have not been met, as it did in the case of Re Steele’s Will trust10 where precatory words served to establish the existence of a trust.. (b) Certainty of subject matter: In the absence of formality requirements, the Courts have also been willing to concede beneficial interest on the principle that any property can be the subject matter of a trust, provided it is properly specified such that beneficial interests can be identified. In the recent case of Hunter v Moss11, the issue at stake was a 5% beneficial interest in the shares that belonged to the defendant and the Court deemed that a valid trust had been set up on the basis of certainty of subject matter. (c ) Certainty of beneficial interest: When the subject matter of the trust is identifiable, then despite the lack of a written instruments, the Courts have allowed beneficial interest through the existence of a trust. The three conditions mentioned above have evolved, as laid out by Lord Langdale in the case of Knight v Knight 12 because the Courts are unwilling to deprive another person of his or her property or to direct how the property should be disposed unless there is certainty of the intent of the testator and that the formality requirements have been adhered to as much as possible. (493 words) Beneficial interest of third parties: One very important case that has spelt out the principles by which beneficial interest of a third party in land can be determined is that of Gissing v Gissing in which Lord Diplock stated: “....any claim to a beneficial interest in land by a person whether spouse or stranger, in whom the legal estate in the land is not vested must be based upon the proposition that the person in whom the legal estate is vested holds it as a trustee upon trust to give effect to the beneficial interest of the claimant as cestui Que trust13…….if it is not in writing, it can only take effect as a resulting, implied or constructive trust.”14 Thereby Lord Diplock laid out the principle that in examining disputes over property, the Court was to look for the existence of a trust according to formality requirements. Where that does not exist, the Court could (a) deduce the existence of a resulting trust, which is an implied trust arising out of the manner in which money is laid out to acquire the property, or (b) a constructive trust, which is imposed by law in order to offset unconscionable dealing. In the case of Lloyds Bank v Rosset, the bank tried to gain possession of the property owned by the Rossets, but Mrs Rossett refused to vacate, claiming beneficial interest in the property and the Courts ruled in her favor on the basis of her investment of time and effort into the property.15 In the case of Timson’s Executors v Yerbury16, Romer LJ laid out four methods that would constitute a disposition, by a person entitled to equitable interest in a trust, to a third party. The person can: (a) assign it to the third party directly; (b) direct the trustees to hold the property in trust for the third party; (c) contract for valuable consideration to assign the equitable interest to him; and (d)declare himself to be a trustee for him of such interest. The Courts have also exercised more flexibility in directing the disposition of trusts where there are fiduciary interests involved, such as for example in the case of Mettoy Pension Trustees Limited v Evans17 where the Court considered that the donees of power had to exercise that power. In the case of Re Hay’s Settlement Trusts18 Megarry V.C. considered the position of a fiduciary in power and stated that it was the obligation of a fiduciary to exercise his power in the context of a trust, if he failed to do so, the Courts could direct such action. Estoppel has formed another basis upon which Courts have often stepped in to dispose of trusts where the formality requirements have not been effectively laid out, especially in the case of express trusts. What is important to note however is that the courts in exercising their discretion are not eschewing the formality requirements, rather the first step a Court must take19, is to look for the formality requirements in the establishment of the trust. However when this is absent, the Court will try to infer as closely as possible the intent of the testator and in some instances may take the step of imposing a constructive trust where an unconscionable result would occur. (539 words) Exceptions to Formality rule: In certain cases, there have been exceptions made to the written formality rule set out in Section 53 (1) (c). For example in the case of Re Vandervell20 a wealthy man was finally able to constitute an express trust in favor of his children, with Lord Denning summing up the valid creation of an express trust by Vandervell as follows: “If he [Mr Vandervell] had lived and not died, he could not have claimed it back…..Even a court of equity would not allow him to do anything so inequitable and unjust.” Therefore in this case, equitable estoppel formed the basis, which the Courts deemed an exception to Section 53 (1) (c). Similarly, nominations by staff pension holders or disclaimers would be construed to be exceptions as well.21 Section 52 (g) of the Land and Property Act of 1925 contains several exceptions to the formality rule, which can constitute the establishment of a valid trust and Courts have relied upon its provisions to circumvent the formality requirements. This section allows the conveyance of a legal estate which is not made by a deed to take effect by “operation of law”. For example, the conveyance of realty in the absence of a deed occurs in the case of a donatio moris causa, especially in cases where a gift of property has taken place. This was precisely the case in Sen v Hedley22 where the deceased gave his friend a key to a steel chest which contained the deeds to a house he possessed and indicated that he wanted the friend to have it, since he knew that he was dying. After the death of the property owner, the friend claimed the property on the grounds of donatio moris causa and while his initial plea was rejected, he succeeded in the Appeal Court. The Courts have also allowed gifts conditional upon death for which no words are necessary since it can be inferred from the circumstances23. In recent times, a significant development that has aided Courts in the disposable of interests in land is the law of adverse possession for which the pre conditions that must exist to invoke such impregnable possession includes physical occupation of the property24 Another condition that may invoke such possession right includes an intention to possess the land25 without the consent of the actual owner26. One of the salient points noted by Browne Wilkinson in allowing the judgment for the defendant was the issue of whether the defendant squatter had “dispossessed the paper owner by going into ordinary possession of the land for the requisite period without the consent of the owner.27 The Land Registration Act of 2002 now allows squatters to legally acquire interest in land which Courts had previously allowed on the basis of adverse possession, despite legal title being vested in other owners28. (468 words) Conclusion: On the basis of the above, it may be noted that equity has been the guiding principle that the Courts have followed. They have used estoppel, enforcing of fiduciary interests, the establishment of intent of the testator, exceptions of section 53(g) and prevention of unconscionability as justification for circumventing formality rules in determining beneficial interest of parties, even to the extent of establishing resulting and constructive trusts when necessary, since Trust law is governed by equity law. (77 words) (Total: 1999 words) Bibliography “Adverse Possession: Land Registry Act of 2002.” [Online] Available at http://www.landregistry.gov.uk/assets/library/documents/fact_sheet002.pdf Re Diplock (1948) 2 All ER 31 Re Steele’s Will trust (1948) Ch 603 Re Hay’s Settlement Trusts (1982) 1 WLR 202 Re Vandervell (No: 2) (1974) Ch 269 Re: Danish Bacon Co Staff Pension Fund (1971) 1 WLR 248 and Paradise Gissing v Gissing (1971) AC 886 (HL) Gardner v Parker [1818] 3 Madd 184 Hunter v Moss (1993) 1 WLR 934 Knight v Knight (1840) 3 Beav 148 Lloyds Bank v Rosset (1990) 2 WLR 867 JA Pye (Oxford) Ltd v Graham [2002] UKHL 30 [2003] 1 AC at 43 Jones v Lock (1865) 1 Ch 25 Lambe v Eames (1871) 6 App 597 Motors Co (1968) 1 WLR 1125 CA Moffat, Graham Trusts Law: texts and Materials Fourth edition, Butterworths, p 1-3 Mettoy Pension Trustees Limited v Evans (1991) 2 All ER 513 Powell v McFarlane (1977) 38 P&CR 452 Pettit, Philip (1993) Equity and the law of trusts London: Butterworths. Paul v Constance (1997) 1 WLR 527 Rowe v Prance (1999) ECGS 75 ; (1991) 2 FLR 787 Sen v Hedley (1991) Ch 425 Timson’s Executors v Yerbury (1936) 1 KB 645 CA Wolstenhome and Cherry’s Annotated Land Registration Act 2002. London: Sweet and Maxwell, 2003 Read More