lOMoARcPSD|5942792

2 The Three Certainties

Equity & Trusts (Manchester Metropolitan University)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)
 lOMoARcPSD|5942792

Express Trusts and Gifts: The Three Certainties

Possible property transactions

These are the main ways in which property can be transferred.

→ Gift – probably the most straightforward example as it can often just be handed over [intention +
delivery]. Shares and land have special formalities but for most other items of property are easily
handed over to another who is free to do what they want with it. A gift comes with no responsibility
or obligations.
→ Sale – there is a contractual element here. Once a sale is complete the person again has complete
control of it, however there is an offer, acceptance, consideration and intention [a contract].
→ Trust – this is different to a gift or sale. Trust property is transferred to one person to hold for the
benefit of another. A trust therefore has obligations towards the beneficiary in respect to the trust
property.
→ Loan – this usually involves a contractual relationship with consideration, on a temporary basis. The
consideration would be interest.

Consider the following scenario:

Gerald has been advised for tax reasons to pass on some of his wealth to his grandchildren, Harriet (28,
and settled in her career in marketing) and Ian (18, and not sure as to his future path in life). He
intends to benefit each of them to the value of £30,000

How might Gerald benefit his grandchildren, given their different circumstances? The easiest way to
give them the money would be as a gift, but with Ian where he is younger and unsure of his career, it
may be more appropriate to hold the £30,000 on trust for the benefit of Ian when he is older or with
other conditions such as completing a university degree or getting married. If the condition is never
fulfilled it would refer back to Gerald, or if he was deceased it would refer back to his estate.

Comparing outright gifts and trusts

I want to give £300 to Dave so I pass over the money in the form of cash to Dave. Dave now has
absolute ownership of the money i.e. complete control and can do what he wants with it.

If, instead of making a gift, I wanted to create a trust, I would transfer the money to my chosen trustee
or assign myself as a trustee, and direct them to hold the money on trust for Dave. The trustee holds
the legal title and Dave has an equitable interest. The trustee has obligations towards Dave, but Dave
cannot just spend the money.

Similarities and Differences

→ The differences involve the intention of the donor

→ The similarities involve the transfer of the property

In the case of a gift, the transfer intends that the recipient or donee, will have complete control of the
property. In the case of a transfer by way of trust, the transferor intends to impose an obligation on the
person who received the legal title. In both circumstances, the property needs to be transferred in the
correct manner for the transaction to be valid – this is called making a gift perfect or constituting a

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)

 lOMoARcPSD|5942792

trust. Everything which is necessary to constitute a proper transfer of property must be fulfilled in order
to make a gift perfect or constitute a trust.

Express trusts

→ Trusts brought into being by the deliberate act of the owner of the property.

→ Separation of legal and beneficial ownership of property.

Two methods to constitute a trust - Milroy v Lord (1862):

o (settlor can) declaration of self as trustee

o (settlor can) transfer property on trust to the trustees

Express trusts are deliberate acts and are declared intentionally by the settlor. Typically, the settlor will
have sought legal advice with the intention to settle a property on trust with specific beneficiaries on
precise terms. There are some situations where a settlor can intend their actions without knowing a
lawyer would define those actions as constituting a trust. It is possible to therefore create a trust
without knowing you have, and in these scenarios, the court will find a trust exists if in in substance this
is what is being done – equity looks to intent.

Requirements:

→ Certainty (the three certainties)

→ Constitution
→ Formalities

Knight v Knight (1840) – as per Lord Langdale’s judgement, there is a requirement for certainty to be
present in three areas. Three certainties to create a valid private express trust:

→ Intention/Words – sometimes referred to as certainty as words but call it certainty of intention as

sometimes there are not any words. This is a requirement that a settlor intended to create trust in
the first place.

→ Subject matter – the trust property

o as a whole – what is the totality of the property subject to the arrangement

o regarding the beneficial interests – what are they? Are there multiple beneficiaries? Is it an
equal share?

→ Objects – the beneficiary is the object of a trust (who is intended to benefit?)

The word ‘certainty’ appears, on the face of it, to denote a general lack of flexibility but do not let that
fool you. Courts have and still do enjoy flexibility in this area of law however it is recognised within
boundaries. Judges often disagree on the mode of transport but agree on the destination. Additionally,
it is a mistake to view each of the three heads as independent areas; they are inter-related and ‘inform
and speak to each other’ (see e.g. next slide and bear this in mind with later cases).

Mussoorie Bank v Raynor (1882) – the testator (a male who has died and left a will – female is testatrix
and someone without a will is ‘in testate’) said that he was 'feeling confident that she will act justly to
our children in dividing the same when no longer required by her.’

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)

 lOMoARcPSD|5942792

“...uncertainty in the subject of the gift has a reflex action upon the previous words, and throws doubt
upon the intention of the testator, and seems to show that he could not possibly have intended his
words ... to be imperative words. “

Because there was a lack of clarity over how much property was to be left to the children, there was
too much uncertainty in intention and in the property itself.

Note in this case, there was a link between uncertain subject matter and intention – they are often
linked.

Certainty of intention

Intention - Whether an imperative obligation is imposed is a question of construction. There must be a

clear instruction telling someone what to do and must carry with it an imperative.

A trust only comes into existence if this is the owner’s intention. It is necessary, therefore, to examine
the words or the actions used or taken by the owner.

o Did he intend to impose full trustee-like duties on the recipient of the property (or himself if he is to
be the trustee)? Did he intend something less that this?

→ Wright v Atkyns (1823) – per Lord Eldon: ‘the words must be imperative’. There must be a clear
instruction or order given.

However, equity is somewhat flexible. It is said that equity "looks to the intent rather than the form",
there is no need for any technical expression to be used in order to create a trust – it is words or
actions to be considered. “It is well settled that a trust can be created without using the word ‘trust’ or
‘confidence’ or likewise – the use of the word ‘trust’ does not necessarily mean that there is one; the
question is whether in substance a sufficient intention to create a trust has been manifested” - per
Megarry J in Re Kayford [1975].

As this is open to interpretation, problems can arise as it is not a set formula to reach this. A trustee is
under an imperative ‘must do’ obligation, and the courts will not allow this burden to fall on the
shoulders of an honest person, so it is important to make sure a trust has been intended. There are
often disputes in cases involving wills as the testator cannot be asked to clarify their position or
intention. Phrases such as ‘I hope/wish/desire that’ can cause uncertainty due to being not much more
than a request, are deemed precatory words.

Issues can also arise where there is no document to construe – the will is not at hand or there is nothing
written down – in this event the spoken words or acts of the party need to still show a clear intention to
create a trust.

→ Express trust based on inference by the court

o Paul v Constance [1977] – unmarried cohabiting couple. Mr Constance left his wife to set up
home and live with Mrs Paul (extra-marital affair). He had not divorced Mrs Constance. He

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)

 lOMoARcPSD|5942792

received a court award for £950 PI accident at work. He went to set up a joint bank account
with Mrs Paul but were advised that due to the different surnames, the account should be set
up in his name alone (his name on legal title) to ‘save embarrassment’, which they did do.
The £950 was paid in and formed the bulk of the money held in the account, they also added
joint bingo winnings and used some of the money to pay for joint holidays. He had said to
Mrs Paul ‘this money is as much yours as is mine’, he then died. Mrs Constance came back
seeking to claim that the bank account was her husbands and that she could claim the
contents. Mrs Paul disagreed and said the money was on trust (he held as legal owner, but
they were both beneficiaries, with her as the remaining beneficiary). Court held that there
was a trust and that his words had manifested an intention and Mrs Paul was entitled to the
contents. They also considered their behaviour and that they had treated the money as joint
for holidays etc. This was even though Mr Constance was of unsophisticated behaviour –
meaning he may have created it without knowing he had. His conduct was the intention, not
his knowledge.

o Rowe v Prance [1999] – two co-habitants who bought a boat to live on. The man paid for it,
but he frequently stated that it belonged to both and they both worked on it, and she helped
to kit it out and name it. They referred to it as ‘ours’. She did not possess a relevant boating
certificate, so he did not make her a legal owner, despite this not being a real reason. Things
went sour and she wanted a beneficial interest. The courts said that he had constituted an
express trust making himself a trustee and her a beneficiary, so she did have an interest.

→ Decision based on surrounding circumstances

o Jones v Lock (1865) – a father of a baby had been away on a business trip and when he
returned, he was scalded by his wife because he did not bring ‘even a present’ for the baby.
He took his cheque book out and made himself payee (wrote his name on cheque) and
shouted, ‘look you here I give this to baby it is for himself’ and gave the cheque to the baby.
It was torn and chewed by the baby, but the man took it away and put it away. He later died
and the question arose as to whether that £900 cheque could form the subject of a trust for
the baby. The courts held that no there was no intention to create a trust, and that it was a
gift, but the name on the cheque should have said the babies name so it was a failed gift,
and the baby got nothing.

→ The commercial context

o Re Kayford [1975] – this concerns a mail order catalogue company experiencing some
financial difficulty and sought some accountancy advice to protect customers money. The
company was advised to open a separate bank account and to call it the customers trust
deposit account to put customers money in until the goods were delivered to the customer
and then the money could go back into their company account. The manager gave oral
instructions to the bank, and the bank used a dormant account in their name. This was not a
new account and therefore was not called ‘the customers trust deposit account’. A few
weeks later the company went into liquidation and the question was whether the sums in the
dormant account were general company assets to be claimed by creditors or whether they
were separate and could be claimed by trust to be returned to customers. It was held that a

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)

 lOMoARcPSD|5942792

trust had been created due to the intention of the company even though the wrong label
was used.

o Don King Productions Inc v Warren [1999] – two famous boxing promoters Don King and
Frank Warren, as they had a partnership agreement where they wanted to exploit EU boxers
to their own advantages. One wished to opt out and the other didn’t want him to opt out. It
was discussed whether the benefits of the agreement were held on trust. All of the
documents were badly drafted, and the judge referred to this but also found that there was a
trust due to the partnership and nature of the agreements equally.

Precatory words – expressing a wish, hope or desire

→ Moral obligations (where it is not enforceable) or formal fiduciary obligations (enforceable)? You can
impose a condition on someone with a gift e.g. giving a child money and saying not to spend it on
sweets, and this is a moral obligation, not a formal fiduciary obligation

→ Older cases

o precatory words gave rise to a trust

o Influenced by the rule that executor entitled to any undisposed of property in a will

o Courts of equity leaned in favour of finding valid trust to stop property going to executor

→ Executors Act 1830

o revoked above rule

o led to stricter approach to precatory words.

Lambe v Eames (1871)

A testator’s gift of his estate to his widow “to be at her disposal in any way she may think best, for the
benefit of herself and her family”. Held: No trust. Per James LJ: “I could not help thinking that the
officious kindness of the Court of Chancery in interposing trusts where in many cases the father of the
family never meant to create trusts must have been a very cruel kindness indeed.” Because trusts
come with obligations

This was not a trust. It does not say anything like ‘she must do’ it is merely a permission for her to do
as she wishes.

Re Adams and Kensington Vestry (1884)

Gift to widow: “to the absolute use of my dear wife in full confidence that she will do what is right as to
the disposal thereof between my children, either in her lifetime or by her will after her decease”. Held:
No trust and widow took absolutely.

This was not a trust. It does not say anything like ‘she must do’ it is merely a permission for her to do
as she wishes.

Re Hamilton (1895)

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)

 lOMoARcPSD|5942792

Lopez LJ summed up the post 1830 approach: “It seems to me perfectly clear that the current of
decisions with regard to precatory trusts is now changed…the court will not allow a precatory trust to
be raised unless on consideration of all the words employed it comes to the conclusion that it was the
intention of the testator to create a trust.”

Comiskey v Bowring-Hanbury [1905]

“...absolutely the whole of my real and personal estate...in full confidence that she will make such
use of it as I should have made myself AND that at her death she will devise it to such one or more of
my nieces as she may think fit AND in default of any disposition by her by her will I hereby direct that
all my estate and property acquired by her shall at her death be equally divided among the said
nieces.” Held: valid trust.

Downloaded by nabaa alzaabi (nabaa.m.allawati@gmail.com)