In a summary the facts of the case are that Gari, a settlor had the intention of entering a relationship of trust with Ogbolo, his brother as the trustee and have as beneficiary of that trust Melechi-Ede. The subject matter of the trust included any money that Gari would receive from his father’s will worth more than £30,000. The facts of the case illustrate also the intention of Gari to create a second trust for the benefit of Melechi-Ede regarding some shares from Mikado Plc. The issue that arises in this scenario question is whether or not a trust was actually created for the benefit of Melechi- Ede.
To decide the question therefore we have to examine three criteria namely, whether the trust is completely constituted; whether the three certainties are met and established and whether the formalities needed for the creation of any trust were followed for making the trust valid. First of all the three certainties, namely that of subject matter, intention and object. The subject matter in this case is quite clear and it includes any money that Gari receives from his father’s will that exceed 30000 and shares in Mikaldo Plc. The intention is inferred from the wording of the trust instrument. From the facts of the question I believe in intention can be derived. As far as the certainty of the object in this case the beneficiary is clear and it is Melechi-Ede. Therefore I can state that the three certainties criteria are met in this case.
For being able to examine the formalities, we must look at the way the trust was created. Here even though we have the intention to create a trust, the fact that the settlor failed to convey the property as he promised makes the trust incomplete. We need something more than just intention in order to create a valid trust. We need to have some actions on behalf of the settlor for assuming that he has created that trust. Therefore in this case the trust is incompletely constituted. An incompletely constituted trust is treated as an imperfect gift.
The dominant principle regarding this issue is that, namely that of an incomplete trust is that “equity cannot perfect an imperfect gift.” But as in all rules, this rule has too, its own exceptions. Equity was created and still exists because the law is not perfect. There are many factors that render any law imperfect and therefore equity is there to fill the gaps and prevent any injustice. Therefore equity can in some cases perfect the imperfect gift of an incompletely constituted trust. Our task at this point is to examine the exceptions provided by equity, analyze them and examine whether or not any of this exceptions provided are able to assist Melechi- Ede. There are four exceptions to the rule. These are Proprietary Estoppel, DMC, Re Rose principle and the debt forgiveness concept, but in the context of this paper I will be dealing with the examination of the first three because there is no indication of debts in this case.
The first exception is proprietary estoppel. This doctrine can be used both as a shield and as a sword meaning that it can be raised as a defense and as a means to perfect an imperfect gift. A successful claim of proprietary estoppel requires the presence of four elements: first, an assurance or a representation by the owner of or the person entitle to some form of property; secondly reliance on that assurance or representation by the person to whom it is made; thirdly, some unconscionable disadvantage or detriment suffered by the person to whom the assurance or representation was made; and fourthly, failure to satisfy the minimum equity which is necessary in order to do justice to the person to whom the assurance or representation is made and in order to avoid an unconscionable or disproportionate result. Now let us examine whether or not Melechi- Ede can benefit from this exception. Are the requirements fulfilled; I believe not and this because there was no representation and Melechi-Ede did not suffer any detriment to improve the property neither she believed that the property was hers. Therefore as far as proprietary estoppel is concerned I conclude that Melechi-Ede cannot use it for her benefit
The second exception is Donationes Mortis Causa which occurs when a gift is made inter-vivos meaning during the lifetime of the donor to take effect on his death. The three essentials for a valid DMC were provided by Lord Russell LJ in Cain v Moon. The gift must have been in contemplation of death, the subject matter of the gift must have been delivered to the donee and the gift must have been made under such circumstances as to show that the property is to revert to the donor if he would recover. It is evident from just reading the requirements for a DMC that this does not apply in our scenario question. This exception cannot be applied because the trust had nothing to do with the death of Gari, and the fact that he actually died is irrelevant because the three essentials of the principle do not match either to the trust regarding the property from the will, nor to the trust regarding the shares of the Mikado Plc.
The third exception is the Re Rose case 1952. The facts of the case will be described in detail. The case dealt with the shares of a private company. A testator intended to create a trust for the shares of the company. In order for that trust to be valid was supposed to fill a form transferring the interests to the trustees. Before the transfer was able to take effect, it must had been registered in the Share Registry by the directors of the company. The testator signed the form and delivered it to the directors but they did not registered it in the Shares Registry at the appropriate time. Because the testator had done everything in his power to make the trust effective, but a third party’s actions made the trust incomplete, equity will perfect that gift. This is known as the Re Rose principle. I can state with some hesitation that this principle can apply in our scenario but only as far as the shares are concerned. The first factor is that there is the existence of the intention for the transfer of the shares. Secondly Gari, besides having the intention to transfer, he made some actions showing that intention. The fact that he used a deed rather than a registered transfer can be argued that it can still made the gift perfect. The basis for this argument is that If that wrong action can be justified by the fact that Gari had no knowledge regarding transfer of shares and he therefore did not know the right procedures, then it can be said that he did what he thought was enough in order to create the trust for that shares. Given the circumstances and the intention he had to make the trust valid could give as a chance to try and rely on equity to make the gift perfect.
In our case we have an incompletely constituted trust arising because the property was not transferred or as far as the shares are concerned were not transferred correctly. By examining the exceptions to the rule that equity will not perfect an imperfect gift we still have not found a strong basis for bringing an action before the court. The only possibility that Melechi-Ede to succeed in a claim relies on the law of contract. The enactment of the Contracts (Rights of Third Parties) Act 1999 has increased the possibility of success by parties seeking the enforcement of an incompletely constituted trust. Another important principle worth mentioning at this point is that
“Equity will not assist a volunteer”. Therefore we have to examine whether or not there is a contractual remedy. From the above we conclude that Melechi-Ede will rely on Contract law. However we have to examine the type of the contract whether it is a simple contract enforceable both in law and equity, or if it is a specialty contract that is enforceable only in law. If the settlor and the beneficiary have entered into a contract or the creation of a trust then both parties will be able to sue for breach of contract. In this case there is no consideration on behalf of Melechi-Ede and therefore I cannot find the existence of a simple contract. The only way Melechi-Ede will have a chance of success is under a specialty contract which does not require valuable consideration but it is a fact that claimants claiming on this basis are in a weaker position. Specialty contracts include both existing property of the settlor and after-acquired property as in this case with the house. The covenant can be enforced if the claimant satisfies the criteria provided for under the Contracts (Third Party Rights) Act. Section 1 which provides that a third party to a contract who is identifiable may enforce any term of that contract and his own right provided that either the contract so provides or the term in question purports to confer a benefit on him and it does not appear on a proper construction if that term that the parties did not intend him to able to do so. A third party will be identifiable to if he is expressly identified by name or is a member of an identified class or answers a specific description. This provision will normally be applicable to covenants to settle to property on trust. The beneficiaries will necessarily be identifiable since otherwise the trust in question will be void for uncertainty of object. The issue here is whether or not the claimant in our case satisfies these criteria. In our case Melechi-Ede was expressly identified by the settlor which is Gari and the covenant in question confers her right to the shares and to after-acquired property by Gari. Consequently she will normally be able to enforce the covenant against the settlor and obtain damages for breach of covenant under contract law.
However the Act will not apply if certain factors are met. If any of these factors is met then the claimant in this case looses the right to claim under the Act. These are: first it could be decided as a matter of construction that the settlor did not intend the beneficiaries to be able to enforce the term of the covenant purporting to confer a benefit on them. In this case, there is nothing indicating that Gari did not intend to make Melechi-Ede able to enforce the covenant, it is only shown that he failed to convey the property as was agreed but no reason for that failure is given anywhere, therefore, because of lack of evidence, this first exception will not apply.
Secondly the Act was enacted on May 11 2000. Any covenant made before the enactment of the Act is subsequently not covered by the Act. In this case however there is no evidence of a date therefore I assume that it is after May 11 2000.
Thirdly, if the covenant was hidden by the settlor and the beneficiaries found out about it only when the settlor tried to rescind it, then the beneficiaries have no right to claim under the Act. If this is the case then Melechi-Ede will not be able to get damages.
If Gari had made a Will but the Mikado Shares were not included in the Will then the advice would be different.
The position here is different. If property is not included in the will of the testator then it falls into the residuary estate of the testator. Residuary estate is a term used to refer to the part of a deceased’s estate that remains after all specific gifts and bequests have been made and all claims satisfied. This property is given to the residuary legatee him being assigned by a residuary clause or following the rules of intestacy. In this case the residuary legatee is Ogbolo and therefore he is entitled to receive the ownership and enjoyment of the shares in Mikado Plc.
Parker and Mellows: The Modern Law of Trust, 9th Edition A.J. Oakley
Equity and Trusts, 5th Edition Alastair Hudson
Dr. K.S.A Ebeku Notes on Constitution of Trusts
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