‘The best way in which to understand the operation of section 53(1)(c) is to consider particular types of transaction, and to determine whether, in each case, there is a subsisting equitable interest and whether that interest is being disposed of or destroyed.’
Critically discuss this statement with reference to the rationale behind s53(1)(c) Law of Property Act 1925. Do you agree that the law should draw a distinction between the disposition and destruction of an equitable interest for the purposes of determining the formalities rules applicable to the actions of beneficiaries?
Overview of Equity and Trust
Equity denotes fairness. It means to be fair, right and just to one another at any point of time and in any given situation. As per the English Common Law system, the English Court of Chancery developed the Law of Equity, which is presently administered synchronously with the common law. In law, ‘equity’ means a specific set of rules or remedies or procedures associated with civil law. These equitable rules, regulations and procedures are differentiated from the legal ones. An equitable remedy is generally awarded whenever a legal solution is inadequate or unjust. The concept of ‘Trust’ has developed from the Doctrine of Equity. It speaks about a set of regulations that are used to maintain the scenario where one holds a place of trust over another and assigns a duty or responsibility based on such trust. In law, the term trust refers to a relation between two people where a property or a sum of money is held by one for the gain of another as a duty or responsibility. A trust is actualized by the owner of the property, called “settlor”, “grantor” or “trustor” who transfers his property to another person, called “trustee” for the benefit of the “beneficiary”. Therefore, it can be clearly seen that there are three parties to this transaction, namely the trustee, the trustor, and the beneficiary. The provisions and procedures to create a trust depends from one particular type of transaction to another. This paper strives to discuss such different types of transaction in order to determine whether a distinct provision for disposition and destruction of an equitable interest is necessary.
Meaning and background
The law of equity has always been distinguished from common law system as to provide a less stringent remedy in comparison to the harsh regulations of common law. Originating the Court of Chancery, the law of equity denotes just and reasonable remedy following the rules of Natural Justice. The Judges of the chancery court resorted to the rule of equity when they could not find a proper solution following legal rules, thus giving birth of the Doctrine of Equity. It has spread as a contemporary structure of trust law in and around the United States and in the Commonwealth countries. On the other hand, the law of trust was created as a counter-part of equity, an embodiment of principles set up by the Court of Chancery for lessen the harshness of the common law. The principles of trust is a complementary addition to the law of property where a person is entitled to take care of a property for the interest of a beneficiary. The court of chancery held that it was fair and ‘equitable’ for this person to make use of the property for the welfare of another. The court clearly distinguished between the legal and beneficial right of the different people in question. The legal owner bearing the legal right was recognized as “trustee” as he was ‘entrusted’ with the duty while the beneficial owner was called the “beneficiary” as he reaped the ‘benefit’ out of such property.
Development of Law of Equity and Doctrine of Equity
The Law of Property Act (LPA) 1925 discussing Equity and Trust
The LPA 1925 is a statute that was formulated by the Parliament of the United Kingdom. It is an integral part of the legislative program promulgated by Lord Birkenhead, the then Lord Chancellor between 1922 and 1925. Such programs were created to modernize the face of English property law. This statute majorly deals with freehold or leasehold land and their transfer by deed. The main policy of the Act was the reduction of the bulk of legal estates and making the transfer of interest of such estates or land easier for the buyers. Some other additional policies included mortgage, lease and trust properties, along with the lacunae regarding the law of property. It has been amended a number of times since its commencement. Currently, it comprises of provisions relating to the general principles of legal estate and equitable interest, contracts and conveyances, mortgage, rent-charges and power of attorney, lease and tenancy, perpetuities and accumulations, voidable dispositions and will. It is divided into twelve parts and seven schedules. The Act categorizes different types of trust.
Classification of trusts
An express trust appears when the ‘settlor’ or ‘trustor’ who is the absolute owner of the property is expressly establishing it. An implied trust is created by some action of the trustor, which is interpreted by the court as sufficient to establish a trust, but something that the trustor himself had no knowledge about. A resulting trust is formed by the action of law either to determine a dispute relating to the ownership of a property where the formation of an express trust was unsuccessful. Lastly, a constructive trust is made with the help of the operation of law when the trustee of a property denies the rights of the beneficiary. Section 53(2) of the LPA 1925 speaks about the resulting, constructive and implied trusts. Anyhow, it can be clearly stated that all of these types of trust levies some or the other equitable obligations on the integrity of the trustee. Therefore, it is on the shoulders of the trustee to bear and maintain the equitable interests of the beneficiary.
Section 53 of the LPA 1925 discussed:
The subsections of S. 53 of the LPA 1925 lay down that:
- 53(1) (a): an interest relating to land can only be established or disposed of in writing, signed by a person establishing or disposing of the same; or his agent with written authorization or by his will or by operation of law.
- 53(1) (b): an establishment of trust relating to land must be made in writing by the person declaring it as a Trust property; or by his Will.
- 53(1) (c): a disposition of an equitable interest or trust existing during the hour of such execution, must be in written form, signed by the individual disposing it; or by the agent of such individual with written authorization; or by will.
However, S. 53(2) of the same Act states that S. 53 (1)(a), (b) and (c) do not restrict the establishment or application of implied, constructive or resulting trusts. Section 53(1)(b) acts as a caution and refrain trustors/settlors becoming a victim fraudulent activities or making hasty decision of creating a trust relating to land. In addition, it prevents people from falsely accusing landowners of trusting theirs with them and pressurizing a court of law to believe in such accusation. The need of a written trust ‘deed’ puts an end to such dilemma. Unless it is proved in writing, such false allegation would not be entertained. While, section 53(1)(c) acts a guiding factor for the beneficiaries to refrain from making hasty transfers of their beneficial interests to others. Additionally, this section protects a trustee as well from the wrongful claims of a beneficiary. To illustrate, X (trustee) holds money for Y (beneficiary). One day, Y directs X orally to hold the money for Z. Later on, X accuses Y for holding the money for Z (with Z’s support) and tries to prove Y guilty in the court. Here, in absence of S. 53(1)(c), Y would be held guilty. Whereas, in the presence and protection of S. 53(1)(c) Y cannot be held guilty as there is no written evidence of X’s direction to Y to hold money for Z and moreover, Y can refuse X’s direction to hold money for Z unless it is put down in writing. Therefore, Section 53(1)(c) holds immense importance in the principle of disposition of equitable trust or interest as it mandates written authorization as a must. It is however believed that S. 53(1)(c) is mainly about revenue generation as a written document always requires stamp duty. Tax evaders majorly avoid this provision. Non-compliance to this provision results in void dispositions.
Law of Trust and its Principles
‘Subsisting’ equitable interest
A limitation of the provision of S. 53(1)(c) is that it only applies to an existing equitable interest, which means it can only be applied for the beneficiary’s concern under an existing trust. It is however non-applicable to original establishment of trust. It can only be used when a beneficiary wants to dispose of his interest on trust. To elucidate, M (trustor/settlor) selects N as the trustee for holding a property for O (beneficiary). Here, M holds the legal title to the property while O holds and relish the equitable interest. The formalities that M (trustor) needs to carry out would depend upon the particular type of transfer of property concerned. It does not fall within the ambit of section 53(1)(c).
Disposition as to Resulting and Constructive Trusts
In Re Vandervell’s Trust, Vandervell directed the trust company to opt for repurchasing to evade surtax liability. But it was held to be not possible as Vandervell’s equitable interest on such company had extinguished. Lord Denning observed and expressed that there was an existence of Resulting Trust for there is a question of protecting the children’s settlement money. However, Lawton LJ terminated the resulting trust as Vandervell’s equitable interest had extinguished.
In Grey v. IRC, it was opined that verbal direction given by the primary beneficiary to his trustee to retain the property for the secondary beneficiary results in a disposition. However, if the primary beneficiary signs a contracts with the secondary beneficiary to dispose of his beneficial interest in exchange of a consideration, no disposition of the existing equitable interest can be found here. It is because a new equitable interest has been established with the aid of constructive trust.
The types of transaction
In general, there are no stringent formalities for creating a trust; they can be oral or written. The intention to form a trust is the only requisite. However, for the transfer of land, subsisting equitable interest or in case of trust created in a will, it is compulsory to retain a written document for the particular type of transfer of property.
- Land: 53(1)(b) of the LPA 1925 states an assertion of trust over a land must be proved in writing by the person who has created such trust, or by his will. This implies that a record in writing has to be there for the transaction relating to such trusted land.
- Equitable interests: Section 53(1)(c) of the above mentioned Act speaks about the provision for disposing of existing equitable interests. It says the person disposing of such interest or trust must make that disposition of an equitable interest or a subsisting trust in writing.
- Will: In case of a trust formed in a will to be lawful, it must conform with Section 9 of the Wills Act 1837 which lays down that:
- a will must be in writing and duly signed by testator; and
- it seems that the testator deliberated to give effect to the will by signing it; and
- the testator signs the will in the presence of two or more witnesses; and
- Such witnesses either attests the will by signing it or acknowledges the signature of the testator.
Legal distinction between disposition and destruction of equitable interest required
Section 53(1)(c) of the Law of Property Act 1925 clearly expresses that a disposition of equitable interest is mandatory in written form. However, it not mentioned anywhere in the Act that the destruction of such interest requires any written documentation. There are several case laws pertaining to this matter. In Rochefoucald v. Boustead (1897), a writing agreement between A and B was required while A gave the responsibility to hold a property to B; but A did not require declining such offer in writing to accept such responsibility. In Vandervell v. IRC (1967), V told T to transfer both the legal and equitable interest to RCS; therefore, no writing was required for the destruction of an equitable interest. Nevertheless, V’s trustee company had a choice to purchase surplus shares back from RCS, so that V was able to aid them for a different reason. Therefore, the choice was reverted to V as resulting trust as the beneficiaries for the trust were unspecified. Whereas, in Grey v. IRC (1970) B asked T to acquire a trust for his grandchildren where disposition required written documentation. In Re Lashmar, it was held that establishment of a sub-trust means the formation of a fresh equitable interest- no writing is required. However, if B holds no active responsibility pertaining to the trust then such duty would be overlooked and it would seem like a disposition; in such case, a written documentation would be required.
Therefore, to conclude, it is necessary for an express and separate legal provision as to the proper formalities needed for a disposition and destruction of an equitable interest. A clear distinction between the two courses is essential for the benefit of the beneficiaries as to fulfil their formalities lawfully. Certain case laws are referred to in the paper regarding this matter for a clearer picture. It is also made clear through the study that the different type of transactions must be dealt with differently. Section 53(1)(b) and (c) is discussed in depth and the formalities relevant to them are considered as well. Distinct provisions are always desirable for better application of law and for lessening the burden of the courts
Chen, Xueping. "Understanding the Nature of the Presumption of Resulting Trusts." Open Access Library Journal 1.05 (2014): 1.
Clements, Richard, and Ademola Abass. Complete Equity and Trusts: Text, Cases, and Materials. Oxford University Press, 2018.
Graham Battersby, 'Formalities for the disposition of equitable interests under a trust' (1979) 43 Conv 17, 38
Harris, Jonathan. "The Hague Trusts Convention after Akers v Samba." Trusts & Trustees 24.4 (2018): 346-363.
Hudson, Alastair. Principles of Equity and Trusts. Routledge, 2016.
'Law Of Property Act 1925' (Legislation.gov.uk, 2018) <https://www.legislation.gov.uk/ukpga/Geo5/15-16/20> accessed 4 August 2018
McDonald, Iain, and Anne Street. Equity and Trusts. Oxford University Press, 2016.
Mee, John. "The Past, Present, and Future of Resulting Trusts." Current Legal Problems 70.1 (2017): 189-225.
Morley, John. "The Common Law Corporation: The Power of the Trust in Anglo-American Business History." Colum. L. Rev.116 (2016): 2145.
Paul Davies, Equity & Trusts: Text, Cases and Materials (OUP, 2013) 18-19
Pearce, Robert A., and Warren Barr. Pearce & Stevens' Trusts and Equitable Obligations. Oxford University Press, USA, 2015.
Penner, James. The law of trusts. Oxford University Press, 2016.
Ramjohn, Mohamed. Unlocking Equity and Trusts. Routledge, 2017.
Sitkoff, Robert H. "Trusts and Estates: Implementing Freedom of Disposition." . Louis ULJ 58 (2013): 643.
THAM, Chee Ho. "Exploding the myth that sub-trustees' drop out'." Trust Law International 31.2 (2017): 76.
Virgo, Graham. The principles of equity and trusts. Oxford university press, 2018.
Watt, Gary. Cases and Materials on Equity and Trusts. Oxford University Press, 2016.
Wills Act 1837' (Legislation.gov.uk, 2018) <https://www.legislation.gov.uk/ukpga/Will4and1Vict/7/26/contents> accessed 4 August 2018
Wilson, Sarah. "Law and Equity, and “Law and History” as a Resource of Critique." Pólemos 11.1 (2017): 23-40.
Youdan, T. G. "Formalities for Trusts of Land, and the Doctrine in Rochefoucauld v. Boustead." The Cambridge Law Journal43.2 (1984): 306-336.
To export a reference to this article please select a referencing stye below:
My Assignment Help. (2021). Equity, Trust, And The Law Of Property. Retrieved from https://myassignmenthelp.com/free-samples/laws2205-equity-and-trusts/equity-denotes-fairness.html.
"Equity, Trust, And The Law Of Property." My Assignment Help, 2021, https://myassignmenthelp.com/free-samples/laws2205-equity-and-trusts/equity-denotes-fairness.html.
My Assignment Help (2021) Equity, Trust, And The Law Of Property [Online]. Available from: https://myassignmenthelp.com/free-samples/laws2205-equity-and-trusts/equity-denotes-fairness.html
[Accessed 07 December 2023].
My Assignment Help. 'Equity, Trust, And The Law Of Property' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/laws2205-equity-and-trusts/equity-denotes-fairness.html> accessed 07 December 2023.
My Assignment Help. Equity, Trust, And The Law Of Property [Internet]. My Assignment Help. 2021 [cited 07 December 2023]. Available from: https://myassignmenthelp.com/free-samples/laws2205-equity-and-trusts/equity-denotes-fairness.html.