Bristol and West Building Society - Case Study Example

Equity & Trust work A. Blackacre The creation of a trust over Blackacre in favour of trustees Richard and Robin for the benefit of Sarah’s grandchildren is not a valid express trust because it was not created in accordance with the formalities required under the Land Property Act 1925 (LPA hereinafter). According to the LPA 1925 in s 53 (1)(b) thereof, any declaration of trust involving any land or interest in it must be made apparent and in writing signed by a person who has authority to attach his signature to it. Although Sarah delivered the title of Blackacre to Richard and Robin, such delivery is apparently not enough because there was no written documentation accompanying it declaring the creation of a trust over it. The aforesaid LPA provision was cited in Bristol and West Building Society v Pritchard [1994], where a married couple mortgaged their home but when the building society moved to possess it, the children of the couple intervened on the ground that they had prior equitable interest over the property, alleging that the property was given to their parents by their paternal grandfather with the understanding that it will be kept in trust by the couple for their benefit. The Court rejected the claim on the ground that there was no proof in writing of such an intention in compliance with the LPA provision (cited Iwobi 2001 25). The actual declaration itself creating the trust over the land need not be in writing but what is important is the existence of any document that provides proof that such a trust over land was created, whether executed during or after the creation. In the case, for example, of Forster v Hale [1798] 3 Ves696, 30 ER 1226, the trust over a land was only construed by the Court from a series of correspondence between the settler and trustee. The rationale behind the law is partly underpinned by the Trustee Act 1925, which requires under s 14(2) thereof, that a purchaser of a land held under trust should pay to at least two of its trustees. In addition, case law has also established the maxim that “equity will not perfect an imperfect gift” illustrated in Milroy v Lord [1862] All ER Rep 783, 7 LT 178. In that case, the deceased set up a trust involving certain shares to benefit his niece and nominated the trustee. To evidence the trust, he made a trust deed, provided for consideration and the manner in which the beneficiary shall benefit from it. He did not, however, transfer the shares to the trustee. The Court ruled that the deceased failed to use any of the modes of giving gifts: conveying title to the done; conveying title to a trustee for the beneficiary, and; declaring oneself as trustee. The Court declared that it will not operate to perfect the imperfection of the deceased’s gift by acting on its own to fulfill any of the modes to establish the trust. The requisite form, however, does not apply to resulting and constructive trusts. Nonetheless, Blackacre’s case cannot be deemed to be within the ambit of either resulting or creative trust. A resulting trust resolves two issues: a property whose title is left in limbo because there was failure to institute beneficiaries, and; a claimant who has contributed to the acquisition of a property but does not legally hold title to it. On the other hand, a constructive trust is one that takes place by operation of law, regardless of the intentions of the parties. This kind of trust takes place when dishonesty is present in the way a defendant deals with property to the injury of another (Hudson 2008 85, 97). It is evident from the preceding definition that Blackacre does not come within the ambit of constructive trusts because there is no unconscionable dealing with it. On the other hand, a trust over land which did not abide by the LPA may still come within the ambit of automatic resulting trusts. However, it is also a principle in trust creation that three certainties must be present: intention; subject matter, and; objects (or beneficiaries). This principle was established in Knight v. Knight [1849] 3 Beav 148. In the present case, Sarah leased Blackacre six months after she delivered the title of the property, an act that manifested an opposing intention on her part to create an express trust over it, in violation of the dictum in the Strong v Bird. In addition, the underpinning behind automatic resulting trusts is the maxim “equity abhors a vacuum” (Hudson 381 2005) which is not true in this case because an heir, in the person of James, has been named in Sarah’s will. B. £10,000 A valid inter vivos express trust was created over the amount in favour of Richard and Robin to benefit the grandchildren of Sarah and therefore is not subject to the will and cannot be claimed by James. With respect to personalty, the condition required under s 53 (1) of the LPA is not applicable (Iwobi 2001 24), except if the personalty consists of equitable interest or trust subsisting at the time of the disposition, in which case s 53 (1)(c) of the aforesaid law applies. This is also supported by Paul v Constance [1977] 1 WLR 527, where the deceased set up a bank account in his name from the money awarded him from his accident at work as he wanted to spare his live-in partner from embarrassment because they were not married. He had been heard to declare several times to his live-in partner, however, that his money is her money as well. Also, when the couple won at a bingo game, their winning was deposited in the same account. Upon his death, his legal wife, claimed all his remaining assets, including the money in the bank. The Court declared that there was a trust created upon the declarations of the deceased albeit there was no formal declaration of such orally or in writing. As earlier stated, an express trust is created when there is certainty in intention, subject matter and beneficiary. In the present case, all such certainties are present. The certainty of intention is well-established by Sarah’s action expressly telling the trustees of creating a £10,000 trust and extending a cheque for that amount, manifesting a firm purpose that did not deviate from beginning to end. In addition, there was certainty as to subject matter because of the definiteness of the amount, viz. £10,000, and finally, there was certainty in beneficiaries because Sarah had identified them. The fact that the cheque had not been encashed in time and was refused by the bank upon notice of Sarah’s death cannot defeat the intention of the settlor to create the trust. C. Shares in North Oil plc The trust created by Sarah over her shares in the North Oil plc would not be normally valid since there was no valid transfer of her shares in accordance with the Companies Act 2006 where s 770 (1) and (2) thereof prohibit a company from registering transfer of shares unless accompanied by a document evidencing the transfer or if exempted by laws (c 41 of Stock Transfer Act and Chapter 2 of CA 2006) or was transferred by operation of law, like inheritance. As held in the case of Milroy “equity will not perfect an imperfect gift.” However, there are decided cases subsequent to Milroy where the courts considered certain circumstances to constitute as exemptions to the general dictum, which may also be invoked in the present case because Sarah actually delivered the shares’ title to the trustees. In Strong v Bird [1874] LR 18 Eq 315, CA, the Court made an exemption to the maxims ‘equity will not perfect an imperfect gift” and “equity will not assist a volunteer” by allowing a debt to be condoned although there was no consideration involved. In this case, a woman lived with his grandson and his wife but paid for her board and lodging. The owed her £1000, which debt was agreed be paid by deducting £100 every time from her rent until the entire amount shall have been paid off. For two quarters, the grandmother reduced £100 from her rent but on the third quarter onward and until her death, she insisted on paying the original amount. Upon her death, her next of kin moved to hold the grandson, who was made sole executor to her estate, for the balance of the debt. The Court ruled that the deceased manifested the intention to donate the unpaid sum to him by refusing to reduce her rent, an intention evident up to the time of her death. In addition, the naming of the grandson sole executor had extinguished whatever debt he owed because it would have been ridiculous for him to sue himself for the recovery of the debt. In another case, Re Rose [1949] Ch 78, a person was found by the Court to have established his intention to transfer a trust property by executing a donation transfer form and delivering the certificate of shares to the donee. Notwithstanding that registration was needed to legally effect a title, the Court held that such transfer was considered to have been made effective at the time the settlor manifested his intention by doing everything he could to transfer the property. D. Shares in Firth Place There was a valid transfer of Sarah’s shares in Firth Place plc in favour of Caroline. This case does not contemplate of an express trust but an outright gift, which was made through oral instruction to the trustee, which had the legal title of the shares. Section 53 (1)(c) is not applicable because it speaks only of equitable interest or trust subsisting at the time of the disposition. In the present case, the subject being transferred is not equitable interest or trust but the shares themselves. The present case can finds parallelism in the case of Vandervell v Inland Revenue Commissioner [1967] 2 AC 291, where the plaintiff, a wealthy car racer, held substantial shares in a company called Vandervell Products Ltd, which manufactured, among others, racing cars which competed and won in the Formula 1 competition in the 1950s. The plaintiff wanted to establish a chair of pharmacology in the Royal College of Surgeons and decided to make a donation of £150,000. He wanted, however, to avoid paying taxes that come with the donation so he devised a way of avoiding it. He orally instructed the bank who held his shares in the company on trust to transfer 100,000 shares to the College but retain an option for the Vandervell Trustees Ltd, a trustee company created solely for that purpose, to buy back the shares at the nominal amount of £5,000. The plaintiff then ordered the company to declare dividend on the shares. The strategy was precisely employed so the College could earn money from the dividends, which as a charity would not be liable for the payment of tax and at the same time he would be able to retrieve said shares after the purpose of making the College earn money from them had been achieved. The strategy did pay off because the College was able to earn £266,000 from the declared dividends without having to pay a single amount of tax for it. The IRC, however, wanted to assess the plaintiff of the taxes owing to the said shares on the ground that there was no written document that evidenced the transfer of his equitable interests to the College in violation of S 53 (1)(c). The Court disagreed over the IRC position for the reason that said provision of the statute did not apply to a case where a beneficial owner verbally instructed his bare trustees respecting the disposition of equitable and legal interests of a property held on trust. Nonetheless, the Court held that the plaintiff was still held liable for surtax because of his failure to provide proof that he had divested his interest over the option to buy back the shares. The implication of the Vandervell case to the present case is that like the said case, Sarah’s transfer of her shares held by the Huddersford Bank as her trustees did not come within the ambit of s 53 (1)(c) of the LPA because it was not merely a transfer of equitable interest but both legal and equitable interest. Since the instruction was made during the lifetime of Sarah with the intention of endowing the shares to Caroline inter vivos, the shares are therefore beyond the reach of the testamentary will which made a general provision of endowing James of all of Sarah’s property upon her death. This general provision should refer to all Sarah’s property remaining not disposed at the time of her death. E. Sarah’s Equitable Interest under a Trust Created by her Father The transfer of the equitable interest under a trust created by Sarah’s father to Matthew, Luke and John is not valid as an express trust because of the provision set forth in the LPA s 53 (1)(c). Section 53 (1)(c) of the LPA provides 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 in will.” This provision does not differentiate between equitable interests in land or personal property. In Grey v IRC [1960] AC 1, the settlor wanted to create a trust over certain shares he owned to benefit his six grandchildren without paying stamp duty, which would necessarily be assessed once a transfer of beneficial interest occurs. Thus, he devised a strategy that would preclude the use of a document and this was creating a bare trust over said shares with him as the beneficiary and the trustees the same trustees of his grandchildren. Subsequently, he orally ordered the trustees to hold the same shares on trust to for his grandchildren to be divided equally among them arguing that no document was necessary to accompany it because there was no transfer of equitable interest merely benefit. The Court, agreeing with the position of the IRC, ruled that what the settlor did amount to a disposition of his equitable interest, and therefore within the ambit of s 53 (1)(c) of the LPA, and should have been made in writing notwithstanding that the trustees were already verbally directed to do so. Applying the preceding principles to the present case, the disposition by Sarah of her equitable shares, under a trust created by her father with her as beneficiary, to her grandchildren should have been done in writing and signed by her to comply with the formality required under LPA s 53 (1)(c). References: Bristol and West Building Society v Pritchard [1994] Ch 1. Companies Act 2006. Forster v Hale [1798] 3 Ves696, 30 ER 1226. Grey v IRC [1960] AC. Hudson, A. (2005). Equity & Trusts, 4th Edition. London: Routledge Cavendish. Hudson, A. (2008). Understanding Equity & Trusts, 3rd Edition. Taylor & Francis. Knight v Knight [1849] 3 Beav 148. Iwobi, A. (2001). Essential Trusts Law, 3rd Edition. London: Routledge. Land Property Act 1925. Milroy v Lord [1862] All ER Rep 783, 7 LT 178. Paul v Constance [1977] 1 WLR 527. Re Rose [1949] Ch 78. Strong v Bird [1874] LR 18 Eq 315, CA. Trustee Act 1925. Vandervell v Inland Revenue Commissioner [1967] 2 AC 291. Read More