Equity and Trust Laws
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Introduction
To adequately conceptualize a trustee’s key functions under English Law and properly evaluate the association between the laws of equity and trust, it is imperative to contextualize the arguments that define equity and trust laws initially. Historically, common laws, equity laws, and to a lesser degree, trust laws are applied in courts to evaluate conflicts. Generally, the laws of equity are instituted to provide fairness in the process of evaluation of a trust between the settlor, trustee and beneficiary/ ies. Arguments of equity and fairness are usually given precedence over rigid common laws . Common laws come to apply to define perfect or imperfect gifts. Within the courts, there comes an urgency that manifests to ensure that fairness, certainty, and greater consistency are achieved when applying equity and trust laws. Placing greater values on equity may manifest a sense of inconsistency in laws especially when a gift is not perfect. Perfect implies to a certainty in intention to offer the gift to a beneficiary, named beneficiary and provision of the gift to the beneficiary. Likewise the creation of a trust, agency is usually placed on the donor, trustee and beneficiary relative to the gift or object being gifted. The laws that regulate the constitution of a trust and gifts is strictly governed by two equitable maxim. First, the settlor needs to define a trust as equity maxims will not do that on his behalf. Essentially stating that equity will not perfect an imperfect gift. Secondly, the beneficiary under a badly constituted trust have no rights unless they are given express considerations or have a significant association to the state settlor as equity will not assist a volunteer. The following essay provides a general outlook on why equity will not perfect an imperfect gift, and the exceptions when the court perfect an imperfect gift.
Characteristics of Trust Agreement
Defining a perfect and an imperfect gif ensures that the verdicts arrived in a ruling remain constant and do not change from time to time relative to the case. But for all these to be achieved, there is a need for all certainties in trust instruments to be adequately defined—lack of adequate expression of certainties by the settlor before his entrusting results in an imperfect gift. A maxim exists that equity does not perfect an imperfect gift. In the evaluation of equity and Trust laws, the following analysis seeks to outline the diversity in trust laws of property the principles of fairness and equality in equity laws to emphasize the need to establish motive, agreed intent, or an agreement’s origin and use when evaluating who might be the beneficiaries and the trustees, towards a property- essentially “a perfect gift.”
Trust instruments can be created correctly when all three certainties are met. These instruments categorically express trusts to be valid before the law relative to the situation or subjective experiences of the beneficiary, settlor, and trustee. These three certainties include
1. Certainty of intention
2. The certainty of subject matter
3. Certainty of the object.
They are all needed to respectively they address the settlor’s intention as the individual who creates the trust and transfers the property to the trustee. Certainty of the subject matter speaks to what is being entrusted to a trustee for a beneficiary. The object should generally be easily identifiable, and finally, the certainty of the object speaks to who the beneficiary of the subject matter is. In any regard, some formalities are followed when creating a perfect trust, and they are outlined in the maxims of equity below. But what happens when things do not go into the plan regarding the creation of trust? Implying that either of the three certainties is met?
Incomplete Trust Instruments- Imperfect Gift
These introduce the incomplete trust instruments and the maxim of imperfect gifts in which Judge’s Turner L. J defined that “for then imperfect instruments would be made effectual by being converted into perfect trusts.” Essentially summarizing those imperfect gifts cannot be perfected by equity but by rational law. Meaning that if a donor/ settlor has not fulfilled all the required legal formalities to effect the transfer to a beneficiary, the aspects of equity cannot be used as an assurance to achieving the gift.
The Maxim “Equity Will Not Perfect An Imperfect Gift”
Just as expressed in the maxim of equity, there is a need for an established connection between the donor, their gift, and the beneficiary. But under the maxim “Equity will not perfect an imperfect gift,” the courts outline that equity will not assist a volunteer. Judge Turner L.J in Milroy v Lord [1862] outlined that in the case where the benefactor of the trust does not have a connection to the settlor and has never worked his life in the benefit of the subject matter, it would be inaccurate for them to use equity to assist them in securing a perfect gift. This is primarily because they have not done anything to earn the gift or work the gift. This principle has become commonly adopted in most courts today, and it is generally assumed that one cannot use trust instruments to perfect an imperfect gift. As such imperfect instruments were to be made effective by being converted into trust . There is various exception to this rule.
The first significant exception to be established was when a settlor or transferer of the subject matter made all necessary conditions to establish the gift. In this case, Lord Evershed stated that the equitable interest will pass. This is, however, a broad interpretation, and a modern case made the matter more clear when it added that if the settlor had taken all necessary precautions to make the gift, and even when they wanted to, they could not establish change their mind, equitable interest would still have passed in favor of the beneficiary . The case narrows the interpretation that establishes a devotion to the maxim that equity will not assist a volunteer, as Milroy v Lord principle.
The second exception to the maxim of imperfect gifts is established with effects to gifts in the exception of death, translated into Latin as Donatio Mortis Causa, giving up dominion with high precedence for immediate death. The law establishes that there has to be a very good reason and intention for the settlor to give up wealth immediately. The precedence was further expounded when the courts declared that an expectation of immediate death and the availability of the settlor with clear intent, a subject matter and an object were established, then equitable interest was granted. In this case, the settlor who was dying called the beneficiary abruptly and gifted him the keys to his house and verbally stated that he had the intention that they should have it after he died. As per the court’s ruling, the idea of putting the key into the beneficiary’s handbag established the transfer of dominion of the house.
A debtor can be granted an equitable interest in the case that the person to who they were owed the money was the settlor. In Strong v Bird [1908], Bird lived with his stepmother and owed her some money, and before making payments, the stepmother died, and Bird became the Trustee/ Executor of the property. He was compelled to sue himself in order to pay the money back hypothetically, but the courts decided that the debt was discharged. As such, he was provided equitable interest to contest for the trusteeship and beneficiary of the property.
The trustee is usually assumed to own the property for the beneficiary of other persons. However, research establishes that an individual can hold all three roles of a beneficiary, trustee, and the settlor simultaneously, as per the subjective trust agreement. Additionally, the law has come to allow the trustee’s property ownership. . This means that they could be trustees of properties to more than one beneficiary. In a 1996 ruling, it was established that the key elements of trust were that they had to be equitable and beneficial to all parties and in act in personam. Additionally, the rights of the property in question were always to be bestowed on the beneficiary. However, the trust was allowed to impose obligation and act in the beneficiary’s interest, having expressive knowledge that they had a fiduciary relationship to the beneficiary in relation to the property. Trust was to be constructive, expressive, and resulting, which implied that : Trustees were compelled to expressively trust the settlor’s intended owner of the absolute title. Secondly, the trustee maintained a fiduciary relationship as the defacto owner of the property to the beneficiary. Thirdly, the trustee had the legal title entrusted to them and was to act by paying attention to duties and responsibilities outlined in the trust. Finally, the relationship between the trustee and the beneficiary was to be of good faith and loyalty. Out of these exceptions, imperfect gifts can not be transformed to perfect gifts.
Certainty of intention
It should be clear to the courts that the donor wishes to establish or create a trust. Certainty of intention is one of the most important trust instruments that outlines a clear path of the object from the donor to the beneficiary and outlines the conditions under which it should be done. It is not dependent on a particular language utilized in the trust and it can be established without the word “trust” and the donor does not even need to be aware that they are creating a trust . In Macedo v Stroud [1922] 2 AC 330, an imperfect gift for example becomes outlined when a donor intends to give a donee a gift, but in the form of a memorandum, and does not go ahead and register the gift, but continues to benefit in rent from the gift, upon his death court named this an imperfect gift . Here the first certainty of intention was not met, as the donor did not register the memorandum after delivering it his solicitor, and further, he continued to benefit personally from the gift. Making it clear on the need for certainty of intentions to be expressively outlined.
Contrary to Macedo in Re Griffin [1899] 1 Ch 408 an endorsement of a cheque of a cheque as a gift was purported to be of equitable assignment, as there was an express statement by the donor when parting that it should have been cashed, and instructions were provided to the donee. It did not matter that instructions were not provided to the bank. In re Griffin contrary to the first case, the donor shows certainty of intention, identifies the subject matter and the object making it express that all certainties are met, even if the bank was not aware. Its purview to the transaction did not matter.
The Certainty Of Subject Matter
The person to whom the gift is addressed must be clearly identifiable along with all the interest that the beneficiary aims to gain. Trust is likely to be imperfect when the person to whom it is addressed or the terms to be gained by the beneficiary cannot be identified . In Jones v Lock [1865] LR 1 Ch App Cas 25, the action of gifting and again taking a gift from a person, surmounts to lack of equitable interest to the donee . As no declaration of trust was outlined and more importantly, donee did not have a gift. There needs to be an expressive declaration of giving up dominion. This establishes an intention. When the father gifts his baby a banker’s cheque and later on takes it, he fails to effectively establish dominion, and blurs the intention of the cheque. This is similar to when a person creates an informal document that outlines of their intention to transfer property to a donee in the event of their death. Here Donatio Mortis Causa which establishes agency in giving up property due to imminent risk of death, in Warriner v Roger there was no imminent risk to the donor, and his writings on a piece of paper did not amount to a perfect trust instrument, as such effectively an imperfect gift .
Certainty of the Object
While the solicitor, can be a trustee, and a trustee can also be a beneficiary in the object, there is an agency that is established that requires a person to expressively declare their position prior to transfer of a gift. In Richard v Delbridge [1874] LR 18 Eq 11, the courts express that the individual donor, who was also a trustee, did not appropriately point that he was a trustee, as such, making the gift an imperfect one.
Maxim of Equity Put into Context
As already outlined above (historically and in the present), a contest between common and equity laws takes precedence when interpreting laws. Equity laws have been well established, and at a certain point in time, they provided landmark rulings to counter the decision made in common law courts . Maxims of equity were created to provide better adaptation and flexibility in pursuit of certainty, strictness, fairness, and equality. It is important to note that in cases where there is a conflict between common law and equity laws- equity takes precedence . The precedence of equity laws over common laws is hinged upon trust and the underlying concepts manifested through predefined agreements- such as a contract. This allows the law and the courts not to unfairly punish one party and subject another to the rule of the land law (an irrational expression) in conflicts such as contract disputes. Equity laws essentially come to give judgments based on the actual details of the controversy and not on previous pronouncements on previous cases.
Equity and trust laws seek to preach justice and equality and almost never deal with common technicalities. The maxim of equity laws suggest that equity will not be subjected to actions of injustice without the provision of a remedy; equity is conceptualized from decisions made by the common laws of the land. Equity implies equality. It means as done what needed to be done; equity act in persona- a lawsuit that is enforceable against a person. Meaning that it comes in if the decision does not address the injustice committed. The only exception to this is when both parties are equally unjustified in the decision; here, the law prevails at the digression of a judge. Delay in seeking equality and justice defeats the values of equal law.
Those who come to the courts of equity-seeking justice must explicitly practice equity. They need to come with a clean hand since the value of equality is basically what the equity laws suggest. Finally, equity looks to the intended purpose of the agreement, or the original motive takes precedence over the resulting form of action. . Common laws can be interpreted as failing to acknowledge the presence or existence. At the same time, they fail to provide adequate remedies for the breach of trust by the defaulting trustee, and the equity laws presented an opening for the compulsion of trust laws and their consequent use as a tool for justification of wrongdoing and service of equality within the society, hence trust laws.
Conclusion
In pursuit of justice, equity principles remain an important tool provisioned to all stakeholders to ensure fairness, certainty, and equality. These principles dictate and provide oversight that works to ensure that the due process of law is adhered to and in a rational manner by all parties regardless of their position or access to power. Equity ensures certainty and fairness in how the law is dispensed. It provides mechanisms for the parties in a court of law to address their concerns, defining a process in which justice is defined and achieved- specific to their case. Law cannot be unfair for either party unless deserved. At the same time, applying the law cannot be too strict as it will redress either party’s needs and constrict them to certain irrational views and interpretations. Creating an effective balance becomes an agency to appease both parties’ needs and effectively achieve justice and fairness. Certainty in a matter of law has potential for controversy as relativity plays a role in applying the law. The need to achieve certainty and fairness in applying the law compels various subjective views that result in a shift between strictness and certainty to fairness and equality.
Bibliography
Books
Davies,, Paul S., and Graham Virgo. 2016. Equity. London: Oxford University Press
Mohamed Ramjohn, Q&A Equity & Trusts (2014).
Oakley,Parker and Mellows: The Modern Law of Trusts(9th edn, Sweet & Maxwell 2008) 146.
Pettit P, Equity And The Law Of Trusts (3rd edn, Oxford University Press 2012)
Watt, Gary. 2016. Equity And Trusts Law Directions. Oxford: Oxford University Press.
Wilkie, Margaret, Rosalind Malcolm, and Peter Luxton. 2015. Equity And Trusts 2014 And 2015. 1st ed.
Journals
Collins, B. 2014. “The Remedial Constructive Trust ‘Between A Trust And A Catch-Phrase”. Trusts & Trustees 20 (10): 1055-1068. doi:10.1093/tandt/ttu230.
Mason, A. 2014. “Discretionary Trusts And Their Infirmities”. Trusts & Trustees 20 (10): 1039-1054. doi:10.1093/tandt/ttu165.
Halliwell, ´Perfecting imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?´ [2003] Conv 192
Cases
Jones v Lock (1865) LR 1 Ch App Cas 25,
Macedo v Stroud [1922] 2 AC 330,
Pennington v Waine [2002]
Re Griffin [1899] 1 Ch 408,
Re Rose [1952]
Richards v Delbridge (1874) LR 18 Eq 11,
Sen v headley [1991]
Strong v Bird [1908]
Warriner v Rogers LR 16 Eq 340,
Wilkes v Allington [1931]
