Equity Will Not Perfect an Imperfect Gift

The maxim ‘Equity will not perfect an imperfect gift’ is used in the law of trust to provide a general rule that gifts will fail unless the transfer to the donee has been made using the correct formalities for making such a gift under the law. The formalities in the law of trust have been used to ensure that there is consistency and certainty; but at times the courts have found that the rigid and strict application of the maxim leads to a perverse situation wherein the rigid application leads to a result that is contrary to the donor’s intention and is also at times inequitable. In such situations, a gift could fail on a mere technicality, which has been avoided by the courts under certain exceptional situations. The ‘every effort’ test laid down in the case of Re Rose, the rule in Strong and Donatio Mortis Causa are the three exceptions to the maxim that have been developed by the courts in order to ensure that the intention of the settlor are given effect to. However, as this essay shows there is no certainty in how these rules apply in different cases. The exceptions developed by the courts do answer to the two arguments that the result of applying the maxim strictly may be contrary to the donor’s intention and may be inequitable. However, the exceptions do not always lead to results that are according to the intention of the donor or even equitable.

In Milroy v Lord, it was held that equity will not save a gift where the donor who intends to confer a benefit using a particular method, fails to do so effectively. This is as per the maxim, equity will not perfect an imperfect gift. However, courts have allowed themselves to perfect imperfect gifts when they consider that to not do so would lead to perverse results vis a vis the intention of the donor or unconscionable results. In Milroy, the court considered that the donor should have done everything necessary to constitute the trust. However, even this dictum was found to be too rigid in Re Rose where the court held that the donor should have done everything in his power to constitute the trust. The difference between the two is significant; donor doing everything necessary would imply that all the formalities are complied with including those that are not to be done by the donor himself, whereas donor doing everything in his power would imply that even if the donor did not comply with all the formalities, he has done everything in his power to comply with all formalities. This is the ‘every effort’ test laid down in the case.

Thus, Re Rose provides some respite to the donee in the case of imperfect gift, so that even if there is an imperfection in the gift, the intention of the settlor will be allowed to take effect where the settlor has done everything that needs to be done from his side for making the gift. This provides an exception to the general rule which provides that if the attempted transfer of property is imperfect then the trust cannot be said to be perfectly constituted. The ‘every effort’ test can be used in situations where the settlor has done everything in their power to vest the legal interest of the property in the donee, and the legal technicality on which the gift could have failed is related to something that needed to have been done by a third party. Thus, when everything has been done by the donor, courts may allow the imperfect gift as in the case of Re Rose.

Another case where the courts have applied this principle is Pennington v Wayne, which also involved the question of whether it would be unconscionable to not allow the gift to take place when the donor had done everything in her power to transfer her shares to her nephew. The technical requirements for this to come into effect included that the donee/ nephew be registered as the director of the company. Despite the nephew filling in the prescribed form for his registration as a director the donor’s agent forgot to give the form to the company prior to the donor’s death. The beneficiaries of the donor’s estate challenged the validity of the gift because all the formalities had not been completed but the court allowed the gift. While Pennington case appears to be following the same line of reasoning as in Milroy and

then Re Rose, it lays down an even wider test because even if the donor has not done everything in their power, the court can apply the gift because of the element of conscionability, which is to be decided on the basis of the subjective satisfaction of the court and will therefore vary in different cases and situations. Where the Milroy case saw judges focusing on the wishes of the donor, Pennington is said to shift the focus from the donor’s intentions to what would be equitable for the donee. The use of conscience test may lead to further uncertainty in the law because it will depend on the judges’ subjective satisfaction. Prior to Pennington, the test of conscience was used in T Choithram International SA v Pagarani. However, Choithram involved a case of the settlor also being one of the trustees. At the same time, Pennington also raises the question as to whether the private company could have refused to transfer the shares even if the application form had been submitted as it was a private company. Therefore, the result cannot be said to be equitable when the court has decided to allow the gift without taking into consideration the right of the company to refuse such a transfer.

If the line of judgments from Milroy to Pennington are considered, it would appear that the courts have increasingly taken a wider and broader approach to providing exceptions to the rule of equity that equity shall not perfect an imperfect gift. However, that does not necessarily mean that this would now allow the donee in such cases to get a more liberal approach from the court in case of an imperfect gift because the certainty factor stands compromised; when courts can use their subjective satisfaction to consider whether conscionability in context of the donee, it may lead to results that are different from Pennington. A recent example can be seen in Zeital v Kaye, where the Court of Appeal refused to validate a transfer of shares as a gift, because all necessary formalities were not completed by the donor. Thus, while the orthodoxy in Milroy was diluted in Re Rose and further flexibility was introduced in Choithram on the basis of unconscionability, Pennington has led to more uncertainty and unpredictability in the law.

Another exception to the rule that equity will not perfect an imperfect gift was laid down in Strong v Bird. In this case, the court held that if the donor intends to make an immediate lifetime gift of a property, even if the gift is imperfect, the appointment of the donee as the executor of the donor’s will or as administrator of the donor's intestate estate will perfect the imperfect gift. The conditions in which Strong rule will apply are: (i) intention to make an inter vivos gift by the donor; (ii) persistence of the intention after the death of the donor; (iii) appointment of the donee as the executor of the donor; and (iv) subject matter of the gift enduring after the death of the donor. The reasoning is based on the acquiring of the legal title by the donee on the death of the donor. In Re Stewart, which applied the Strong rule, the rationale has been explained by Neville J. as that which has a double character, involving the vesting of the property in the executor at the testator's death (thus perfecting the imperfect gift) and the intention of the testator to give the beneficial interest to the executor being sufficient to countervail the equity of beneficiaries. In Re James, Farewell J. explained this

by observing that where the legal estate is vested in the person to whom an imperfect gift was made, she no longer requires the aid of equity to complete her title.

However, where the vesting of the title may come due to the operation of the law and not the act of the beneficiary and the beneficiary may have a contrary intention, in which case it would be perverse to allow courts to perfect the gift by applying the Strong rule. For instance, in Re Gonin, the plaintiff was one of three illegitimate sisters, who gave up her job to look after her parents, in return for which she was given to understand that she would receive the house and its contents. Her mother signed a cheque for £33,000 to be payable to her daughter on her death, sold her three building plots for £12,000 which she paid into her bank and died intestate. The plaintiff obtained letters of administration on her mother’s death however, her claim to the gift failed because there was no continuing intention to gift. Therefore, simply by becoming an administrator it is not necessary that the individual will be able to perfect an imperfect gift. However, the intention of the donor will play an important role. In Re Gonin, the act of the mother making a cheque in the name of the plaintiff showed a change in intention as far as the house and its contents were concerned.

The third exception to the maxim that equity will not perfect an imperfect gift is the rule of Donatio Mortis Causa, which applies if the donor made the gift in contemplation of death, to be conditional on death, and involves a delivery of property or ownership. For instance, in Birch v Treasury Solicitor, a savings account was held to be validly transferred because the savings account pass book was handed over to the donee. Earlier, the principle of Donatio Mortis Causa was applied only to the chattels transferred inter vivos; however, this principle has come to be applied to real property as well. However, this is controversial because it may lead to a situation where the application of the rule goes against the stated intentions of the testator in the will, which the courts would then have to overturn in order to give effect to the principle. Even in a recent report, the Law Commission has taken a negative view of use of Donatio Mortis Causa and called for the abolition of the doctrine. The Law Commission has specifically noted that it is anamalous because it is neither “a gift made in a will, nor a gift made during lifetime; it is a hybrid.” The case of King v Dubrey, is a good example of the problems with this exception. In this case, the claimant’s elderly aunt/donor made a will in 1998, leaving the bulk of her estate to seven animal charities. However, the claimant began living with his aunt, who gave the deeds of her freehold property to him saying that “this will be yours when I go.” During the six months before her death the donor also signed three separate documents, which were not valid wills and did not comply with the formalities. The court held that the rule could not be applied in the case. This despite the attempts by the donor to make the wills in the past six months clearly showing that the intention to make the gift was present. However, the court turned to technicalities to make its decision in the case. At the same time, the will made earlier by the donor giving the bulk of estate to charities cannot be ignored.

To conclude, the three exceptions to the maxim that equity cannot perfect what is imperfect do not always lead to equitable results or even the application of the intention of the donor. The Pennington decision has further brought in uncertainty and unpredictability in the law.

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List of cases

Birch v Treasury Solicitor [1951] Ch 298.

King v Chiltern Dog Rescue [2015] EWCA Civ 581.

King v Dubrey [2016] Ch 221.

Milroy v Lord [1862] EWHC J78.

Pennington v Wayne [2002] EWCA CIV 227.

Re Gonin [1979] Ch 16.

Re James [1935] Ch 449.

Re Rose [1952] Ch. 499.

Re Stewart [1908] 2 Ch 251.

Sen v Headley [1991] Ch. 425.

Strong v Bird (1874) LR 18 Eq 315.

T Choithram International SA v Pagarani [2001] 1 WLR 1.

Zeital v Kaye [2010] EWCA Civ 159.

Books

Wilson S, Todd & Wilson's Textbook on Trusts (Oxford University Press, 2013).

Journals

McCormick W, ‘How difficult is it to gift a share? Shah v Shah [2010] EWCA Civ 1408’ (2011) 17 (5) Trusts & Trustees 438.

Smith O, ‘Incompletely Constituted Gifts: A Historical Assessment of Case Law’ (2014) 2 NEL Rev. 33.

Reports

Law Commission, Making a Will Paper 231 (The Stationary Office 2017).