CONSTITUTION OF TRUSTS AND THE EXCEPTIONS

CONTENTS

1.0 Introduction

2.0 Objectives

• Main Content
• Constitution of Trusts
• Exceptions to Equity’s Non-Perfection of Imperfect Gifts

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment (TMA)

7.0 References/Further Readings

INTRODUCTION

As part of the requirements in creating a valid trust, constitution of the trust is a very fundamental one and goes to the root of the trust. This is based on the ground that it can almost be said with certainty that where there is no subject matter of the trust, there is no trust, because is the subject matter that the whole trust is based upon. This is a factor why the part is treated separately although a  mention  of it has been made above as part of the requirements of trust. A consideration  of related issues, such as exceptions to non-perfection of imperfect gifts will be attempted in order to have a balanced understanding of the treatment of issues.

OBJECTIVES

In this Unit, you will be exposed to the concept of constitution of trust, covenant to settle and the exceptions to the equitable maxim of ‘equity will not perfect an imperfect gift” and “equity will not assist a volunteer”, will also be examined. You will appreciate what it requires to constitute personalty and realty, when you can say a trust is completely constituted and when it is not. When a trust has not been constituted but there is agreement to do so, you will see when this is possible and what the general exceptions to the above equitable maxims are. At the end of this Unit, you should be able to:

• Say whether a trust is constituted or not
• Explain what is required to constitute a trust both in personalty and realty
• Give instances when the requirement of writing in constituting realty can be dispensed with
• Discuss what is covenant to settle and when this will be forced
• Name and discuss the exceptions to equity’s non-perfection of imperfect gifts and non-aiding of volunteers

MAIN CONTENT

Constitution of Trusts

As you’ve learnt above, constitution of the trust or conveying the subject matter of the trust to the trustee is vital to the validity of the trust created. Failure to  constitute a trust passes no interest to the beneficiary and the will be void.  We  shall now examine the nucleus of what is regarded as constitution of trust, in order for you to have practical understanding of when a trust can be said to be  completely constituted and when it is not.

The trust is said to be completely constituted when the settlor has vested or has done all that is required or necessary to properly vest the trust property in the trustee. Except the property has been transferred, the trust cannot be enforced, as equity will not perfect an imperfect gift or aid a volunteer. See Milroy v. Lord (1862) 4 De G.& J. 264 at 274 per Turner L.J.

In order to constitute a trust, the nature of the trust property (whether personalty of realty) will determine the mode of doing this. Also, where the settlor is both the settlor and the trustee, this might affect the mode of  transfer.  These issues will now be examined.

i.) Constitution of realty

To constitute a trust in respect of realty, the settlor must comply with all necessary requirements of the law. A cardinal issue here, is that there must be evidence in writing of such transaction. See for example, Section 3 of the Registration of Titles Act, Cap. 181, Laws of Nigeria, applicable in other parts of the country  and Section 77 of the Property and Conveyancing Law, and the Statute of Frauds Section 7, on requirement as to writing, that the land be registered in the trustee’s name or that he has done all that’s required to of him with nothing left to be done by the settlor, otherwise, the trust cannot be enforced for lack of constitution.

If the interest to be transferred is an equitable one, the settlor need not vest the  legal title in the trustee since he has none. All that is required is that the disposition of the equitable interest must be evidenced in writing as treated previously.

Where the settlor has not transferred the property but has covenanted to settle the same for the purpose of the trust, the beneficiary may through the  equitable  remedy of specific performance in some cases be able to enforce the settlement of the property, although the issue involved in a situation such as this, is one of contract but intertwined with trust.

However, where the settlor declares himself as the trustee of the trust property and now wears the double cap of both the settlor and the trustee, there is no need to execute any conveyance to transfer the trust property since he already has the legal interest. The declaration makes him automatically the trustee of the property and thereby holds the same for the interest of beneficiary. See Lady Naas v. Westminster Bank Ltd. [1940] A.C. 366.

ii.) Constitution of Personalty

From your knowledge of equity and classification of property, you’ll realize that personalty can be divided into tangible and intangible property. To effect the constitution of pure personalty, mere delivery of the property suffices.

In respect of intangible property – such as shares, etc., the settlor must have executed the necessary transfer form for this purpose and the transfer registered in the company’s register.

Where a deed was executed for this purpose but the required transfer form was not used, the transfer will be ineffective. See Milroy v. Lord (supra).

Covenants to settle

In situations where the settlor has neither constituted the trust nor declared himself as the trustee of the trust property, there is nothing for the beneficiary to enforce; and no interest passes to the beneficiary. In some cases however, the settlor may covenant to settle or transfer the trust property to the trustee, in which case the beneficiary may enforce such a trust.

The problem however, is that since the agreement to transfer or settle the trust property is a contractual one, and going by the doctrine of privity of contract, only  a party to a contract can enforce it. In other words, the beneficiary must be a party to the covenant before he can enforce the same. Where the beneficiary has furnished consideration for the covenant, he will be able to enforce the covenant both at common law and equity.

Where the type of consideration furnished is not the type recognised at common law, the beneficiary can only enforce the covenant in equity. For example, consideration based on marriage is not recognised at common but recognised in equity. At equity, anyone within the marriage consideration can enforce it but not the next of kin. The requirement in respect of this is that, the marriage  consideration must be made on or before the day of the marriage, although a post- nuptial settlement made in pursuance of a pre-nuptial covenant will be recognised. Where the marriage consideration was given after the marriage and was not related to a pre-nuptial covenant, consideration will be deemed not to be furnished. See Hill v. Gomme (1835) 5 Myl. Cr. 250 and De Metstre v. West (1891) A.C. 264.

However, a beneficiary may enforce a covenant to settle without having furnished any consideration where the covenant is by deed, as agreements made by deed  need not be supported by consideration in order to be enforced at common law.

SELF ASSESSMENT EXERCISE (SAE) 1

What do you understand by constitution of trust and when can a trust said to be completely constituted?

 Exceptions to Equity’s Non-Perfection of Imperfect Gifts

There are circumstances where a trust not completely constituted will be enforced and constitutes exceptions to the equitable maxims that “Equity will not perfect an imperfect gift” and “Equity will not assist a volunteer”. The exceptions are considered as follows:

i.) The rule in Strong v. Bird

Under this rule, an imperfect gift will be perfected if the legal title has vested in   the donee on the donor’s death. Circumstances under which this can arise are:

a.) Where the donor appoints the donee as the executor.

b.) Where the donee is appointed as the administrator in the case of intestacy. See

Re James [1935] Ch. 449.

In Strong v. Bird (1874) LR 18 Eq 315, the stepmother of Bird resides in his house for which she pays rent to Bird. Bird borrowed the sum of 1,000 pounds from his stepmother and it was agreed that the loan will repaid by a reduction in the rent  paid until the same was totally liquidated. The stepmother was however paid the reduced rent twice and afterwards paid the full rent until her death. The stepmother on her death appointed Bird as her executor and her the next of kin then attempted to recover the debt from Bird. It was contended that the conduct of the stepmother is making full payment of rent and stopping paying the reduced rent does not discharge Bird from the debt since Bird has furnished no consideration to entitle him to be discharged from the debt.

It was however held that in making Bird her executor, the stepmother intended the loan to be a gift to Bird since it will be the duty of Bird to call in the debts due to his stepmother’s estate and it cannot be expected that Bird will sue himself, thus resulting in the cancellation of the debt. It was further held that the fact that the stepmother had stopped payment of the reduced rent in her lifetime was indicative of her donative intention till she died.

For the rule in Strong v. Bird to apply, the following conditions must be satisfied:

a.) The donor must have intended to make immediate inter vivos gift to the donee. If the intention relates to the future and is not immediate, the rule will not apply. See Re Freeland [1952] Ch. 110. The immediacy requirement here makes the rule to apply to existing specific gifts. Thus, intention to make a gift by will does not come within the rule. See Re Stenart (1908) 2. Ch. 251.

b.) The donor’s intention to make the gift must have continued till the time of his death. In other words, it has to be established, that such intention of the donor endured till he died. Where however, the donor has taken some steps which is at variance with the expressed intention to make a gift, for example, by lending the property to someone else, the rule will not apply. See Re Wale [1956] 1 W.L.R. 1346.

c.) The intention of the donor must relate to a specific item. If the intention is  vague and does not relate to some specific items, the rule will not apply. See Re Gonin [1964] Ch. 288.

ii.) Donatio Mortis Causa

Donatio mortis causa is a gift made in contemplation of death. This type of gift is a conditional one and takes effect only on the donor’s death. It is upon the death of the donor that title in the property passes to the donee. The conditions for the validity of a donatio mortis causa as established in Cain v. Moon (1896) 2 Q.B.  283 per Lord Russell, are as follows:

i.) The gift must have been made in particular contemplation of death and not in respect of death some day.

ii.) The subject matter of the gift or means of control or obtaining it must have  been delivered to the donee; and

iii.) The gift must have been made under the circumstances as to show that the property is to revert to the donor if the contemplated death did not occur. This condition is not one that is usually expressed but is to be inferred from the surrounding circumstances. Thus, if the donor recovers from his illness or revokes the gift while alive, the gift fails.

iii.) Dispositions under Will

In testamentary dispositions, once the will is duly executed and probate of  the same has been obtained, the beneficiaries are entitled to the gifts, irrespective of whether they are volunteers or not. Where the executor of the will failed to convey the gifts, the beneficiaries can sue the executor for specific performance notwithstanding that they have not furnished any consideration for the gift.

iv.) Doctrine of Proprietary Estoppel

Under this heading, equity will preclude a person who has made an imperfect gift  to deny or assert a contrary right over such property. Such as where a father asks his son to occupy a land and the son in consequence thereof, expended large sums of money to build on the land. The father died without executing any document in favour of the son. The son’s claim to get the conveyance to himself on  the  property was upheld. See Dillwyn v. Llewelyn (1862) 4 De G.F. & J. 517.

v.) Statutory Exceptions

As treated above, an infant or minor cannot hold a legal estate in realty or a legal estate created in their favour. The conveyance of realty in favour of an infant or a minor has the effect of operating as a declaration of trust in favour of the minor, while the legal estate remains vested in the donor/settlor who now becomes a trustee for sale of the legal estate in favour of the minor. See Sections 35(1) and 36 Property and Conveyancing Law, Western Nigeria. In cases where the  settlor/donor who made the conveyance is death or no one available to execute the trust, the property conveyed in favour of the infant will be vested in the Public Trustee until he attains the age of majority. See Section 37(1) Property and Conveyancing Law. For the position in States outside the former Western Nigeria, the conveyance of legal estate to an infant operates as a settled land. See Settled Act, 1882. 

SELF ASSESSMENT EXERCISE (SAE) 2

1. Mention and discuss three exceptions to the equitable maxims that “Equity will not perfect an imperfect gift” and “Equity will not assist a volunteer”.

CONCLUSION

The constitution of a trust is very essential to the life of the trust. For there to be a trust at all, there must be subject matter. The non constitution of trust may render it to be void. You have to note however, what is required to constitute a trust based  on the nature of the subject matter of the trust, whether personalty or realty and the interest involved, whether legal or equitable interest. You must also note the various exceptions to the equitable maxims that “Equity will not perfect an imperfect gift” and “Equity will not assist a volunteer”. In particular, the rule in Strong v. Bird, the conditions for its application, donatio mortis causa and its conditions for application and other exceptions. You can appreciate how the issues are interwoven and none of the requirements for the valid creation of trusts should be taken less seriously.

SUMMARY

In this Unit, you have learnt about the constitution of trusts, mode of constitution  of personalty and realty, equitable and legal interest. You also learnt about the necessity of the constitution of realty to be in writing and the exceptions to this to the law in this regard. Also examined is covenant to settle and circumstances when this will be enforced. The exceptions to equity’s non-perfection of imperfect gifts and not assisting a volunteer were discussed. In particular, you appreciates the rule in Strong v. Bird and the rationale for the decision in that case and consequently  the rule in that case. Conditions for the application of the rule in that case were equally considered among other exceptions. In the next Unit, you will be introduced to express private trusts.

TUTOR-MARKED ASSIGNMENT (TMA)

1. What is covenant to settle, and under what circumstances will this type of covenant be enforced and not enforced?
2. Discuss the rule in Strong v. Bird and the conditions to be satisfied before the rule will apply

REFERENCES/FURTHER READINGS

Banire, Muiz. (2002). The Nigerian Law of Trusts. Lagos: Excel Publications. Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo

University Press Ltd.

Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.

Lagos: MIJ Professional Publishers Limited.

Smith, I.O. (1999). Practical Approach to Law of Real Property in Nigeria. Lagos: ECOWATCH Publications (Nigeria) Limited.

The Infants Law, Cap. 49 Laws of Western Region of Nigeria, 1959.

 

The Property and Conveyancing Law, Cap. 100 Laws of Ogun State 1978.