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Summary Notes - Law of trusts (LA307)
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Complete study notes detailing each week of the 3rd year law of trusts module at Warwick.
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Term 1Week 1 – introduction to trusts
What is a trust?
• A trust is a device whereby one person holds an asset and controls it for the benefit of
someone else
• Trustee - controls the asset and has legal ownership
• Beneficiary - enjoys the asset and has equitable ownership (doesn’t get any say in
decisions regarding the asset but simply enjoys its 'benefits')
• A trust is a relationship that arises when property is vested in a person(s) called the
trustees, which those trustees are obliged to hold for the benefit of other persons
called beneficiaries (Hanbury and Martin 2015)
• A purchaser is bound by an equitable interest unless he/she had either actual notice of
the equitable interest of the beneficiaries, or constructive notice or imputed notice
• Actual notice means actual knowledge
• Constructive notice means purchaser should have been aware of equitable interest
had reasonable enquiries been made
• Imputed notice means that if the agent or employee of the purchaser had notice,
the purchaser will also have notice
History of the court of chancery
• Series of standard writs started to develop (legal document that orders a person or
entity to perform or to cease performing a specific action or deed
• Privy council - no new writs could be introduced without their approval
o So the current writs became a standard
o Novel cases began to struggle
• Where the law seems unfair, equity steps in
• In 1673 equity began to become a system of rules and regulations that were no longer
dependent on the feeling of the particular chancellor
o The lawyers took over from the ecclesiastics in the role of chancellor
• Two bodies developed over the following centuries. Common law applied by the high
court, equity applied by the court of chancery
o Served to ameliorate the common law where the it seemed to result in a
harsh decision
• Earl of Oxford's case 1615
o foundational case for the common law world that held equity takes
precedence over common law
History of a trust
• Trusts developed out of things called 'uses'. These were utilised to help people avoid
some of the harsher elements of property law e.g. land couldn't be left by will
• The use exploited the fact that there were no limitations on a person to give property
rights to their land to another person. Exploited the lifetime transfer of property
• Land conveyed to a feoffee to hold for a cestui que use
• E.g. sir john conveys property to his trusted friend, James, 'to the use of sir John and
then after his death for all his children'
o Sir john is able to ensure that his children can still enjoy the land after
his death, and he can enjoy while he is alive
• The common law did not recognise the cestui
• Feoffee treated as new outright owner. Chancellor would order Feoffee to keep to his
promise upon acquiring the property
• Equity did not override the common law, but revealed more of the picture
, • Over time it became clear that the Feoffee (legal ownership) and cestui (equitable
ownership) both had property rights
• Statute of uses 1535
o Undermine the very conceptual basis of a use
o Didn’t void uses, but changed how they operated. The use would
instead transfer legal title to the cestui at the exclusion of the foeffee
(executing the use). The conversion of legal title to the beneficiary
stopped the avoidance of fuedal incidents
• Use upon a use:
o The property would go to A to the use of B, to the use of C
o The second use would be executed in equity, so A drops out and B holds
for benefit of C
o This is what became known as the trust
Key characteristics of the trust
• Sees one person holding the legal title for the benefit of another person
• Creation
o Express trust - created by conscious act or declaration by settlor (person
who sets the trust up - gives the property to the trustee)
o Imputed trusts - where unconscionable for the legal owner to use the
asset for himself
• Resulting trust
• The beneficial interest results to, or jumps back, to
the settlor who created the trust. The basis of an
action founded ona resulting trust is, therefore, that
one is seeking to recover one’s own property
• Megarry J in Re Vandervell’s trusts (no.2) (1974) two
types of resulting trust
• Automatic – has nothing to do with
intentions of settlor
• Presumed - where property is transferred
to another for no consideration but no
words of gift are used
• Chambers (1997) – all resulting trusts are concerned
with the intentions of the settlor as one reason why
they arise is that the settlor does not intend the
property to go to the transferee as a gift, but
intends it to be held on trust
• Swaddling (2008) – nothing is automatic in law. the
trust doesn’t just arise because the court says so
• Cases where they can arise
• Voluntary conveyances
• Basic equitable rule is that where
there is a voluntary conveyance of
property (i.e. a gift) there is a
presumption that the other person
holds it on a resulting trust for the
purchaser
• Hodgson v Marks (1971)
• The owner transferred her
house into the name of her
lodger and it was held that
, there was a resulting trust
in her favour
• Where there is a voluntary
conveyance then section 60(3) of
the LPA 1925 provides that a
resulting trust for the grantor
(transferor) is not to be implied
merely because the land is not
expressed to be conveyed on trust
for him – was debated in Lohia v
Lohia (2001) – held that where land
is conveyed as a gift then there is no
presumption of a resulting trust
• Presumption of advancement
• The situations where a presumption can
arise were old fashioned (e.g. where a
husband transfers property to his wife but
not vice versa, and to advancements by a
father (not a mother) to his children
• However Pecore v Pecore (2007) held that
they could also apply to an advancement by
a mother. Also the presumption ceases to
apply when the child becomes an
independent adult
• The presumption was abolished by s.199 of
the Equality Act 2010, but this doesn’t
appky to things done before the act came
into force
• Clear statement of when the presumption
can apply is in Lavelle v Lavelle (2004) –
where there is no close relationship
between the parties, there will be a
presumption that A does not intend to part
with the beneficial interests in the property
and B will take legal title under a resulting
trust for A
•
• Constructive trust
• The common feature of both resulting and constructive trusts is that unlike
express trusts, they are not created by the express agreement of the parties
as evidenced in a trust deed, or some other writing. – except in the case of
trusts of land or an interest in land (s.53(1)(b)) – orally is fine
• One exception is the secret trust that is considered a constructive trust, but
doesn’t arise from agreement
• Imputed trusts arise by operation of some legal rule
• Parties
o No limit on beneficiaries or settlors
o Max trustees of land is 4 trustee act 1925 s.34(1)
o Trustee can also be beneficiary and settlor but no trust where sole
trustee is also beneficiary
• Property
, o Can be any estate or interest within property law
• Trustee
o Normally has legal title
o The trust property may only exist as an equitable property interest, here
the trustee's title must be equitable
o T must keep trust property separate from his other assets
o If trustee goes bankrupt because he lacks the benefit, that means the
property isn't available to his creditors
• Beneficiaries' rights
o Flexible nature of rights
o E.g. income generated from the property
o Allocation of benefit may be uneven
o Allocation may be left to trustee's discretion by the settlor
o Can give trustee the power to even exclude certain beneficiaries if it is
written in the trust document e.g. B's interest might only arise only if
specified conditions are met
• Enforcement
o Beneficiaries can enforce their rights against a third party owner as well
o Beneficiaries also have standing to enforce duties of trustee
o Equitable ownership bind the world at large except for equity's darling
(bona fide purchaser of the legal title without notice of the trust for
value)
• Abstract purposes
o Trust must either have at least one beneficiary
o Or be for a charitable purpose - enforced by a public authority (usually
attorney general or charity commission to enforce charity trusts) as
there are no beneficiaries
Definition of a trust - an arrangement established by a settlor whereby a trustee holds property as
its nominal owner for the good of one or more beneficiaries. There is no limit on the number of
beneficiaries, but the number of trustees is limited to 4 by s.34(1) of the trustee act 1925
Moffat reading:
• Its conceptual starting point is 'a confidence reposed in some other'
• The confidence gives rise to moral obligations to which the courts, aided by the
legislature, have purported to develop legal parallels.
• In the early twentieth century the historian and jurist F W Maitland praised the trust
(see Equity (2nd edn, 1936), p 23 and Selected Historical Essays (1936), p 129); he
regarded ‘the development from century to century of the trust idea’ as ‘the greatest
and most distinctive achievement performed by Englishmen in the field of juris-
prudence’.
• The versatility of the trust is what has made it such a praised aspect of UK law
• The trust is an effort to escape from the ever deepening and ever recurrent crises in
capitalism. It is the confession of the upper middle class that the contradictions in
capitalism cannot be resolved
• The risks of capitalism, therefore, must be minimised as much as possible through the
employ of an astute, intelligent, ever watchful class of professional managers of
capital who are placed beyond the control of the owner for consumption
• Regardless of its underlying moral base, the trust is no insulated from its socio-political
environment
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