Learning Outcomes
This article outlines the key exceptions to the equitable principle that equity will not assist a volunteer or perfect an imperfect gift. For the SQE1 assessment, you will need to understand the circumstances in which equity may intervene to complete a transfer of property despite the transferor failing to comply with all legal formalities. This includes understanding the requirements for the rule in Re Rose, the rule in Strong v Bird, donatio mortis causa (deathbed gifts), and proprietary estoppel. Understanding these exceptions will enable you to identify the correct legal outcome in SQE1-style multiple-choice questions.
SQE1 Syllabus
For SQE1, you are required to understand the constitution of express trusts and the exceptions to the rule that equity will not assist a volunteer. It is likely you will need to apply these principles to determine the validity of a purported gift or trust where formalities are incomplete.
As you work through this article, focus your revision on:
- The general rule that equity will not assist a volunteer or perfect an imperfect gift.
- The requirements for the exception established in Re Rose (the 'every effort' test).
- The conditions necessary for the rule in Strong v Bird to apply.
- The specific requirements for a valid donatio mortis causa.
- The elements required to establish proprietary estoppel as a means to perfect a gift.
- The consequences for property ownership when one of these exceptions applies.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- True or False: If a donor intends to make a gift of shares and completes the stock transfer form but forgets to hand it to the donee before dying, the gift will always fail.
- Which exception might apply if an intended donee is appointed as the donor's executor after the donor's death?
a) Donatio Mortis Causa
b) The rule in Re Rose
c) The rule in Strong v Bird
d) Proprietary Estoppel - For a valid donatio mortis causa, the gift must be made in contemplation of what?
a) Marriage
b) Immediate death from a known cause
c) The possibility of future death
d) Making a will - Which case established the 'every effort' test, where equity may perfect a gift if the donor has done everything in their power to transfer the property?
a) Strong v Bird
b) Pennington v Waine
c) Re Rose
d) Cain v Moon
Introduction
As explored previously, for a trust to be properly constituted where the settlor appoints a third party as trustee, legal title to the trust property must be transferred to the trustee using the correct formalities for the specific type of property. Similarly, for an outright gift to be effective, the donor must transfer legal title to the donee. If the settlor or donor fails to complete all the necessary legal steps, the trust may be incompletely constituted, or the gift may be imperfect.
The fundamental equitable principle is that ‘equity will not assist a volunteer’ and ‘equity will not perfect an imperfect gift’. A volunteer is someone who has not provided consideration recognised in equity (such as money, money’s worth, or marriage consideration). Therefore, if a gift is imperfect, or a trust incompletely constituted, the intended recipient (who is usually a volunteer) generally cannot ask equity to compel the transferor to complete the transfer.
However, equity, seeking to achieve fairness and prevent unconscionable outcomes, has developed exceptions to this rule. These exceptions allow a transfer to be perfected in equity under specific circumstances, even where legal formalities remain outstanding.
Key Term: Volunteer
A person who has not provided valuable consideration (money or money's worth) or marriage consideration for a promise or transfer of property. Equity generally does not enforce promises made to volunteers.Key Term: Imperfect Gift
A gift where the donor has failed to complete all the necessary legal steps required to transfer ownership of the property to the donee.Key Term: Constitution (of a trust)
The process by which legal title to the trust property is vested in the trustee(s). A trust is 'completely constituted' when this is achieved.
This article examines the main exceptions where equity may intervene.
The 'Every Effort' Test: The Rule in Re Rose
The first exception arises where the transferor (settlor or donor) has made every effort necessary for them to make to transfer the property, and the only outstanding actions are to be performed by a third party. If the transferor has done everything in their power and put the matter beyond their control, equity may treat the transfer as complete.
This principle was established in Re Rose [1952] Ch 499. Mr Rose executed share transfer forms in favour of his wife (the donee) and delivered these forms along with the share certificates to her. The company directors needed to register the transfer for legal title to pass, which they did some months later. The court held that the gift was perfected in equity from the date Mr Rose had done everything required of him and handed over the documents, even though legal title passed later upon registration by the company.
Requirements for the Rule in Re Rose
For this exception to apply:
- The transferor must use the correct method of transfer for the relevant property.
- The transferor must have done everything within their own power to effect the transfer.
- The documentation must have been delivered to the transferee or put beyond the transferor's control (e.g., sent to the relevant registration authority).
Worked Example 1.1
Anita wishes to gift her shares in a private company, TechStart Ltd, to her nephew, Ben. She completes and signs the correct stock transfer form and hands it, along with her share certificate, to Ben. Ben sends the documents to TechStart Ltd for registration, but Anita dies before the company registers the transfer.
Is the gift perfected in equity?
Answer: Yes, the gift is likely perfected in equity under the rule in Re Rose. Anita used the correct form (stock transfer form) and did everything in her power by completing it and delivering it with the share certificate to Ben (or arguably, it was put beyond her control when Ben sent it to the company). The only outstanding step was registration by a third party (the company).
Unconscionability: Pennington v Waine
The principle from Re Rose was extended in Pennington v Waine [2002] EWCA Civ 227. In this case, the transferor (Ada) intended to gift shares to her nephew (Harold) and signed a stock transfer form. She gave it to her agent (Mr Pennington, the company's auditor), who told Harold he need do nothing further. Ada died before Mr Pennington delivered the form to the company. The Court of Appeal held the gift was complete in equity because it would have been unconscionable for Ada (or her estate) to retract the gift, given Harold had been told it was complete and had acted in reliance by agreeing to become a director.
This decision introduces an element of unconscionability and reliance, suggesting that perfection might occur even before the transferor has done everything in their power, if it would be unfair to recall the gift. However, the scope of this extension remains debated and appears dependent on very specific facts.
Fortuitous Vesting: The Rule in Strong v Bird
This rule applies where a donor intends to make an immediate inter vivos gift, or release a debt, but fails to complete the necessary legal formalities during their lifetime. If the intended donee subsequently obtains legal title to the donor's property in another capacity – specifically by becoming the executor or administrator of the donor's estate – the gift may be perfected, or the debt released.
Requirements for the Rule in Strong v Bird
- The donor must have intended to make an immediate, unconditional inter vivos gift (or release a debt). A mere promise of a future gift is insufficient.
- The donor's intention must remain unchanged until their death.
- The intended donee must become the donor's executor or administrator, thereby obtaining legal title to the donor's property (including the intended gift).
Worked Example 1.2
David owes his aunt Clara £5,000. Clara tells David, "Don't worry about that £5,000, consider it forgiven as a gift". Clara takes no steps to formally release the debt. Clara dies a year later, having appointed David as the sole executor of her will. David proves the will.
Is the debt released?
Answer: Yes, the debt is likely released under the rule in Strong v Bird. Clara intended an immediate release of the debt (treated like an immediate gift), this intention continued until her death, and David obtained legal title to her estate (including the right to sue for the debt) as her executor. The appointment perfected the intended release.
The rule can also operate to constitute an incompletely constituted trust if the intended trustee becomes the settlor's executor or administrator (Re Ralli's Will Trusts [1964] Ch 288).
Donatio Mortis Causa (DMC) - Deathbed Gifts
A donatio mortis causa (DMC) is a gift made during the donor's lifetime, in contemplation of impending death from a known cause, which is conditional upon death and takes effect fully on death. It is an exception to the usual rules for lifetime gifts and testamentary dispositions (requiring a valid will).
Key Term: Donatio Mortis Causa
A gift made by a person (the donor) in contemplation of their impending death, delivered to the recipient (the donee), on the condition that the gift only becomes absolute upon the donor's death from that cause.
Requirements for a DMC
Established in Cain v Moon [1896] 2 QB 283, the requirements are:
- Contemplation of Impending Death: The gift must be made in contemplation of death in the near future from a specific cause (e.g., serious illness, dangerous journey). A general contemplation of death is insufficient. The donor does not need to be in extremis (at the point of death), but death must be more than a remote possibility.
- Conditional on Death: The gift must be conditional, only taking effect fully upon the donor's death. It must be intended that the property reverts to the donor if they recover from the contemplated cause of death.
- Delivery of Subject Matter: The donor must 'part with dominion' over the property. This means delivering the property itself, or the means of controlling it (e.g., keys to a car or box), or essential documents of title (e.g., deeds to unregistered land as in Sen v Hedley [1991] Ch 425, savings account passbooks). Constructive delivery may suffice.
Worked Example 1.3
Elsie is about to undergo major heart surgery with significant risks. The day before the operation, she hands her neighbour, Frank, the keys to her vintage car and says, "If I don't make it through this, the car is yours." Elsie dies during the surgery.
Is this a valid DMC of the car?
Answer: Yes, this appears to be a valid DMC. Elsie made the gift in contemplation of impending death from a specific cause (the surgery). The gift was conditional on her death ("If I don't make it..."). She parted with dominion by delivering the means of control (the keys).
Limitations
- The donor must die from the contemplated cause (or another cause without having recovered). If they recover, the gift fails.
- Real property (land) can be the subject of a DMC (Sen v Hedley), although the position with registered land is uncertain regarding what constitutes sufficient delivery.
- Cheques payable to the donor can be gifted via DMC, but a cheque drawn by the donor on their own account cannot, as the authority to pay is revoked by death.
Proprietary Estoppel
Proprietary estoppel is another equitable doctrine that can perfect an imperfect gift or create property rights where formalities have not been met. It operates to prevent a person (A) from insisting on their strict legal rights where they have made an assurance to another person (B), who has relied on that assurance to their detriment, making it unconscionable for A to go back on their word.
Key Term: Proprietary Estoppel
An equitable doctrine preventing a property owner from denying rights to another person where that person has acted to their detriment in reliance on assurances made by the owner regarding those rights.
Requirements for Proprietary Estoppel
- Assurance: An assurance, promise, or representation made by the property owner (A) to the claimant (B) that B has or will acquire an interest in the property. This can be express or inferred from conduct.
- Reliance: The claimant (B) must have reasonably relied on the assurance.
- Detriment: The claimant (B) must have acted to their detriment as a consequence of their reliance on the assurance. Detriment is not limited to financial expenditure and can include life choices (e.g., working for low wages, giving up opportunities, providing care).
- Unconscionability: It must be unconscionable in all the circumstances for the property owner (A) to go back on the assurance.
If estoppel is established, the court has discretion to award a remedy that is proportionate and does the minimum necessary to satisfy the equity arising from the detriment. This might range from financial compensation to the transfer of the property itself.
Revision Tip
While proprietary estoppel can perfect an imperfect gift, it is a distinct doctrine often involving promises about future interests rather than immediate gifts. It requires proving assurance, reliance, and detriment. Note its potential overlap with constructive trusts in family home contexts, but remember the remedies differ.
Key Point Checklist
This article has covered the following key knowledge points:
- Equity generally does not assist volunteers or perfect imperfect gifts/trusts.
- The rule in Re Rose allows perfection where the transferor has done everything in their power to effect the transfer.
- The rule in Strong v Bird allows perfection where the intended recipient becomes the deceased donor’s personal representative and the donor had a continuing intention to make an immediate gift.
- Donatio mortis causa (DMC) allows gifts made in contemplation of impending death, conditional on death, with delivery of the subject matter.
- Proprietary estoppel can provide a remedy where a person has acted detrimentally in reliance on an assurance regarding property rights, making it unconscionable for the owner to retract.
Key Terms and Concepts
- Volunteer
- Imperfect Gift
- Constitution (of a trust)
- Donatio Mortis Causa
- Proprietary Estoppel
