CONSTITUTION TRUSTS

Introduction:
A valid express trust must satisfy the requisite formalities ,
comply with the requirement of the three certainties and
trust be properly constituted.
To constitute a trust, the trust must not only be duly declared
but the trust property must also be validly transferred and
vested in the trustees. For example, in the case of personal
property it must be handed over to the care and custody of
the trustees. In other words, this is an area in the law of trust
requiring the trustees be given control over the property they
are to hold on trust for the beneficiaries.
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Introduction: (Continuation)
All in all, constitution of trust is basically the vesting of
rights which are to form the subject matter of the trust in the
intended trustee. There are three issues to discuss:
(a) How can a trust be constituted?
(b) What will the court do if the constitution is in some way
defective?
(c) And since trust can in many ways be seen as a type of a
gift, we will also ask what the law does about defective
gifts.
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Meaning of Completely Constituted Trusts:

Completely constituted trust- it means that the settlor must
effectively transfer the legal title to the trustee according to
the proper requirements for that particular property. For
example, a transfer of land or any interest therein must be
executed by deed.
A completely constituted trust- is one which there is an
express declaration of trust and vesting of trust property in
the trustee at law and in the beneficiary at equity.
(Re Rallis Will Trusts)
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Importance of Completely Constituted Trusts:

The importance of a completely constituted trust is the settlor who was
the absolute owner terminates his rights in that property unless he is also
the beneficiary. See the case of Re Bowden [1936] Ch 71
Another important consequence of a completely constituted trust is that,
the trust confers valuable rights on the beneficiary, who can now enforce
the trust against the settlor and trustee. The trust also confers on the
beneficiaries an equitable interest in the property, which forms the
subject matter of the property.
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Importance of Completely Constituted Trusts:

(Continuation)
It should be noted that to transfer the property to the trustees
the settlor has to observe the current mode of transfer of that
item or property. Property may be immoveable or moveable.
Thus, to convey land the settlor has to register it in the name
of the trustee according to the rules of the National Land
Code 1965. In the case of share certificates, the name of the
trustee has to appear on the same and it has to be registered
with the Registrar of Companies under the Companies Act
1965. If it is a car, then the key must be handed over to the
trustee, i.e. a symbolic delivery must be effected in the case
of chattels. However, it would be better for the car to be
registered in the name of the trustee.
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Importance of Completely Constituted Trusts: (Continuation)

It is equally important to make reference to the case of Seck Mun Foo &
Ors v Datuk Harris bin Mohd Salleh [1993] 1 AMR 13
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Importance of Completely Constituted Trusts:

(Continuation)
All in all, if the trust is completely constituted and there is
no reservation of a power of revocation by the creator of
the trust , it is binding on the whole world.
The beneficiaries are in a position to enforce such a trust.
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Meaning of Incompletely Constituted Trusts:

It means where the settlor failed to transfer the legal title to the trustee
according to the proper requirements for that particular property. In other
words, if the legal title of the trust property is not transferred to the
trustees, the trust is an imperfect trust or an incompletely constituted
trust which cannot be enforced by volunteers.
The general rule is that, if a trust is incompletely constituted, there is no
trust at all. Thus, the intended or would-be beneficiaries have no rights
to enforce the intended trust.
It is important to note that the effect of incompletely constituted trust is
that there is no trust at all. However, there are some exceptions e.g. it
can be enforced by beneficiaries who have given consideration for
equity looks on as done that which has been agreed to be done. The
imperfect transfer will be treated as a contract of transfer.
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Meaning of Incompletely Constituted Trusts:

(Continuation)
If the trust is incompletely constituted, it operates as a
contract or a covenant to create a trust. Such an imperfect
trust cannot be enforced by volunteers. In Milroy v Lord
(1862), Lord as trustee was given some shares to hold for
the plaintiffs. Although Lord had a power of attorney over
the settlors property, he failed to register the shares in his
own name. It was held that the beneficiaries could not
enforce the trust which was not completely constituted.
It is important to note that an ineffective transfer of a gift
will not be construed as a valid declaration of trust.
Richards v Delbridge (1874)
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Meaning of Incompletely Constituted Trusts:(Continuation)

Note: The principle in Milroy v Lord does not apply in its full
rigour if the settlor has done all that could be done in his power to
constitute the trust.
See Re Rose
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Circumstances Giving Rise to Incompletely Constituted

Trusts:
(a) Transfer to trustee- One of the modes of constituting a gift/trust
is by way of transferring the legal title to the property to the
trustee (see the case of Milroy v Lord). However, if the legal
title to the property is not transferred to the trustee, the trust is
an imperfect trust or an incompletely constituted trust.
See the case of Re Bowden [1936] Ch 71 illustrating a clear cut
case or effect of a completely constituted trust. In Re Bowden,
it was held that as soon as property had been received by the
trust as result of the nuns own action and declaration it was
impressed with a trust. The trust became completely constituted
and could not be revoked by the settlor. See also the case of
Paul v Paul (1882) 20 Ch 742 on the effect of constitution of a
gift/trust.
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Circumstances Giving Rise to Incompletely Constituted Trusts:

(Continuation)
(b) Owners declaration- It is important to note that when the settlor/owner of the
property is the trustee, there is no need for the necessary transfer of the legal
title to take place. This is because the legal interest is still with him. In other
words, if the settlor declares himself as the trustee the problems related to
constitution does not arise. In such a case as long as there is proper
declaration the trust is valid.
Regardless of what is said above, if, however, the owners declaration (of
himself as a trustee) is not followed by an equivocal intention on his part, the
courts would treat this scenario as a case of incompletely constituted trust or
an imperfect trust. See the case of Jones v Lock (1865)- where the court held
that the intention was to make an outright gift but since the gift was not
actually made, there was no declaration of trust..
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Circumstances Giving Rise to Incompletely Constituted Trusts:
(Continuation)
(b) Owners declaration-
see also the case of Richards v Delbridge (1874)
Note: It is not necessary for the settlor to use the words: I declare myself as
trustee in establishing or showing the existence of an equivocal intention in a
self-declaration of trust. See the case of Paul v Constance [1977] All ER 195.
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Modes of Constitution of a Gift/Trust:

Turner LJ lad down three modes of constitution of a
gift/trust in the case of Milroy v Lord (1862) and they are:
(a) An outright gift to B without the imposition of trust;
(b) A transfer of the legal title of the property to a trustee to
hold on trust i.e. S declaring a trust in favour of B, but
with T being the trustee of the property; or
(c) A self declaration of trust i.e. S declaring himself as
trustee of property he holds in favour of B.
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Additional Methods by which a Trust can be Fully
Constituted/Exceptions to Equity will not Perfect an
Imperfect Gift:
(a) The Rule in Strong v Bird (1874)
(b) The Rule in Dillwyn v Llewelyn (1862)
(c) Donatio Mortis Causa
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Other Relevant Discussions on the Topic/Whether it is Possible to
Enforce an Incompletely Constituted Trust:
General rule- if a trust is incompletely constituted, there is no trust at all.
Thus, the intended or would-be beneficiaries have no rights to enforce the
intended trust. They are viewed as volunteers and equity will not assist a
volunteer.
Exception to the general rule- such a trust can be enforced by beneficiaries
who have given consideration. For example, in equity, marriage consideration
is recognised as a valid consideration. Thus, those within the marriage
consideration would be allowed to enforce the settlement even though
technically the settlement has not been constituted.
(1) Meaning of marriage consideration- See the case of Re Densham- where
Goff J stated that marriage consideration or settlement is a settlement that is
made:
a) On the occasion of the marriage, before & in the consideration of marriage.
b) It must be conditional only to take effect on the marriage taking place.
c) It must be made for the purpose of or with a view of encouraging the
marriage.
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Conclusion:
Regardless of the importance of constitution of trusts be it the general rule or
exceptions to the general rule, it is of paramount importance to note that the
Privy Councils decision in T Choithram International SA v Pagarini [2001]
1 WLR 1 and the English Court of Appeals decision in Pennington v Waine
[2002] 1 WLR 2075, may require a fresh examination as to what in law
would amount to a valid and effective transfer of property for the present
purpose i.e. Constitution of trusts.
In T Choithram International SA, if the rule in Milroy v Lord were adopted,
the trust would have failed since the deceased failed to transfer the property to
the other six trustees and hence, failed to do everything within his power to
perfect the trust and that equity will not perfect an imperfect trust/gift.
However, Lord Brown Wilkinson decided to address the case from a different
angle and found that the testators action could be seen as a self-declaration of
trust. Thus, although he has not vested the rights in all the trustees of the
Foundation, it would have been unconscionable for him to act otherwise.
He thus concluded : Although equity will not aid a volunteer, it will not
strive officially to defeat a gift.