Constitution

There are two ways an express trust can be constituted, firstly, if the settlor declares himself as
the trustee and secondly when the settlor transfers the legal title of the property to trustees.
When the first method is used by the settlor then the trust created must be an inter vivos trust
because it is obviously important for the trustee to be alive for him to declare himself as the
trustee. The settlor already has the legal title in himself so after he declares himself as the
trustee, he is now holding the property for someone else as a trustee. However, it must be
clear on part of the settlor that he is now a trustee and there are different instances and
different cases regarding this.
When there is a loose conversation on party of the settlor then it will not be considered a
declaration of trust and this could be seen in the case of Jones v Lock. In this case jones forgot
to bring a gift for his baby son so he signed a check of 900 pounds and said that this is for his
baby and that he’s going to put it away but after some time jones died and three questions
arose; firstly, whether this check was a gift or not, secondly, did Robert declare himself the
trustee for the check or not and lastly whether the check only belonged to Robert. The court in
this case held that the conversation between jones and his son was a loose conversation and
that the check did not constitute a gift, so the check was only going to his estate after he died.
However, if jones has constantly repeated the same conversation with his son the court could
have concluded that the check was a gift for his son and this could be seen in the case of Paul v
Constance.
The intention of the settlor is objective not subjective meaning that the intention of the settlor
is determined from his words as can be seen in the case of Shah V Shah. In this case the court
held that the words used by Dinesh gave the impression that he was creating a declaration of
trust and so the gift is imperfect. In another case of Richard’s v Delbridge, the court said that
the settlors’ words did not create a declaration of trust as they were not appropriate and so the
lease was part of his estate. The principal court used here was that there was ineffective
transfer of the legal title.
The second way an express trust can be constituted is when the settlor transfers the legal title
of the property to the trustee but the transfer completely depends on the type of property the
settlor is dealing with e.g. If the property involves transfer of registered land then the land
registry registers the transfers and the land transfer is completed after following the
requirements under section 52 of the LPA 1925. The transfer of land and the transfer of shares
is a two staged process and the first stage is completed when the settlor has done everything in
his part to transfer the legal title to the property to the trustee. In the second stage it is the
duty of the company or the land registry to complete the transfer and here comes the Re Rose
principle which says that when the settlor has done everything which is required to transfer the
legal title then the gift or the trust will not fail as the transfer will be complete in equity. This
principle was also followed in the case of Mascall v Mascall where the court held that transfer
was complete in equity. The case of Pennington v Waine went even further in trying to secure a
trust.
A hybrid case is also a situation through which an express trust can be constituted. In a hybrid
case the settlor is one of the trustees and main authority for this situation is the case of T
Choithram International SA v Pagarani. In this case the settlor had created a foundation and
orally declared to give his wealth to the foundation and out of nine trustees he had also named
himself as one of the trustees. It was argued that the trust was not completely constituted and
so his wealth could not go to the foundation but the court using the notion of unconscionability
held that a trust was indeed created as he had done enough to declare himself the trustee and
it would not be right if the gift is recalled. However, the decision is criticized as it was purely
based on unconscionability and it went against the fact that his wording did not suggest that he
was declaring himself as the trustee.

Now we will talk about incompletely constituted trusts. There are five possible solutions for a
trust which is incompletely constituted. The first solution is when the settlor covenanted with
the beneficiary. Covenanted means that the settlor has promised something in a signed
document which is also known as a deed, so when a settlor covenant this means that he has
made a specialty contract. Under equity a covenant is considered a promise but equity follows
the maxim that equity will not assist a volunteer, so a promise is not enforced unless there is
some consideration. Common law on the other hand also believes that covenant is a promise
but if the settlor breaches the specialty contract, then unlike equity he could be sued for
damages under common law. The main authority under common law on this is the case of
Cannon v Hartley and in this case the court held that the husband had to pay damages for
breach of the covenant under common law because he had failed to settle the property as per
his promise. It is to be remembered that consideration is not required under common law for a
breach of a covenant so the family who was the beneficiary in this case was successfully able to
sue the husband. However, there are limitations and advantages to this solution which should
be discussed. The limitation as we know is that equity does not recognize that a covenant is a
specialty contract and so no remedy is available. The other limitation is that only one remedy of
damages is available and that too under common law. The advantage of this solution is that the
beneficiary who didn’t give any consideration in return for the promise is able to sue for the
breach of the promise under common law if he is party to the specialty contract.

(2) Beneficiary relies on the contract’s rights of third-party act 1999

The following represents an alternative approach that may be employed in situations where a
trust has not been fully established. As per Section 1 of the aforementioned act, an individual
who is not a party to the contract is entitled to enforce a contractual term in their own capacity
if either (a) the contract explicitly stipulates their entitlement to do so, or (b) the term in
question is intended to confer a benefit upon them. Section 1(5) of the 1999 act stipulates that
the third party is precluded from seeking any recourse that would have been inaccessible to
them had they been a contracting party. As a contracting party, one would have had the option
to seek damages as a legal remedy, rather than specific performance. One potential constraint
of this approach is that in the absence of a contract between a settlor and trustee, established
subsequent to May 11th, 2000, the third party is precluded from pursuing legal action. The
second constraint pertains to the fact that the third party is restricted to seeking damages
exclusively, as common law only provides damages as a remedy and not specific performance.
The benefits of this solution lie in the potential for the third-party beneficiary to pursue legal
action, despite not being a direct party to the contract. However, this course of action is
contingent upon the beneficiary receiving some form of benefit.
(3) Consideration given by the beneficiary for the settlors promise - marriage consideration
The solution indicates that the beneficiary is taking into account the promise, thereby implying
that the beneficiary may be entitled to equitable relief, specifically specific performance. The
reason for this is that, typically, equity does not compel the fulfilment of a promise unless it is
accompanied by consideration. Consequently, the equitable remedy of specific performance
may not be accessible. However, in cases where the beneficiary has provided valuable
consideration, equity would provide support, as previously stated. The focus of this solution
pertains primarily to the matter of marriage, with the leading legal precedent being the case of
Pullan v Koe.
(4) Completely constituted trust of a promise/ trust of a covenant
The implementation of the Contracts Rights of Third Parties Act 1999 resulted in the
replacement of this solution. The present solution was formulated based on the legal case of
Fletcher Vs Fletcher, wherein the court determined that the trustees, who were the
covenanters, held the benefit in trust for the beneficiary, Jacob, thereby establishing a trust. In
the event that a comparable scenario were to occur presently, Jacob would depend on the
1999 act, which would enable him to initiate legal proceedings as a third party in accordance
with section 1 of said act. One of the primary contentions surrounding Fletcher v Fletcher is the
uncertainty regarding the settlor's intention to establish a trust of promise. According to the
legal precedent established in the case of Re Schebsman, the formation of a trust of promise
would require unambiguous evidence indicating the settlor's explicit intention to create such a
trust.

(5) The rule in Strong v Bird

The rule in strong v bird is the fifth possible solution to a trust which is incompletely
constituted. Two main requirements are needed for the rule in this case to apply. The first
requirement is that the trustee should have been appointed the executor and second
requirement is that the settlor had a continuing intention to settle or to give the property. In
the case of strong v bird, the court departed from its decision in Milroy v Lord in which it had
stated that equity will not assist a volunteer to perfect an imperfect gift.

“IT IS IMPORTANT TO NOTE THAT QUESTIONS COULD COME FROM A

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