Chapter 3d: Requirements of an Effective Transfer

Where a settlor purports to create a trust by transferring his property to a trustee the trust will only be completely constituted if his actions were effective to transfer the title of the property concerned. Some types of property can only be transferred using appropriate formalities or mechanisms.

Which mechanisms or formalities are required to effectively transfer title to the following types of property?

Effective transfer of chattels

Where a settlor wishes to create a trust of tangible personal property (i.e.chattels) he can transfer the legal title either by delivering physical possession of the item(s) concerned to the trustee, or by executing a deed of gift.

In the absence of either delivery of possession or a deed of gift the legal title is retained by the settlor and the trust remains incompletely constituted.

Effective transfer of company shares

You should already be familiar with the case of Milroy v Lord. It is clear from that case that the legal title to shares is not transferred by mere delivery of the share certificates. Nor is the execution of a deed of transfer effective to pass title. Legal ownership is only transferred when the transferee is registered as the owner of the shares on the share register maintained by the company to which they relate.

Thus the effective transfer of company shares cannot be completed by the action of the transferor alone, since the act of a third party (the company) is required. A transfer is effected when the owner of the shares instructs the registrar of the shares to register them in the name of the transferee. This will require either the completion of a share transfer form or an appropriate instruction if the shares are held in the electronic CREST system.

Unless a settlor ensures that the trustee is registered as the owner of his shares any purported attempt to create a trust will fail as it will remain incompletely constituted.

Effective transfer of interests in land

The transfer of interests in land is somewhat more complex. Three points must be made:

(1) Transfer of Legal Estates

Section 52 Law of Property Act 1925 provides that all conveyances of legal interests in land are void unless they are made by deed. Thus a settlor cannot create a fully constituted trust of a freehold or legal leasehold interest in land unless he executes a deed of conveyance transferring his interest to the intended trustee. An attempted transfer by writing, or the mere handing over of possession of the land, will not be sufficient to pass legal title, and will thus be ineffective to constitute a trust.

(2) Completion by Registration

Under the 1925 regime ownership of some interests in land is constituted be registration as proprietor on the centrally maintained Land Register. This includes the two registrable legal estates, namely the freehold and legal leasehold for more than twenty-one years.

These interests can only be transferred by way of registration, in a manner similar to that required for company shares. The transferee must complete a transfer form instructing the land registrar to register the transferee as the new owner of the estate concerned. Without registration any transfer is ineffective. Thus an attempt to create a trust of a registrable interest in land will remain incompletely constituted unless the trustee is registered as the owner of the estate concerned.

(3) Equitable Interests

Equitable interests in land, for example an equitable lease, can be transferred by means of a written assignment, and there is no need for the execution of a deed.

Effective Transfer of a Legal Estate in Land

John was the tenant (under a legal lease) of a mill from which he ran a business. He was assisted by his grandson, Edward, who was a minor. Shortly before his death John indorsed his lease with the following memorandum:

"This deed and all thereto belonging I give to Edward...from this time forth, with all the stock in trade."

He then handed the lease to Edward's mother.

Do you think that there was a valid transfer of the lease to Edward?

(a) Yes

(b) No

Answer: No.

These facts were considered by the Court of Appeal in Richards v Delbridge (1874) LR 18 Eq 11, where it was held that a mere indorsement of the lease was ineffective to convey the legal leasehold estate in the land to the indorsee. The purported transfer would only have been effective if John had executed a deed of conveyance in favour of his grandson.

It is important to remember that Richards v Delbridge involved unregistered land. Under the system of registered title introduced by the property reforms of 1925 the transfer of such a legal lease would require both the execution of a deed and also completion of the transfer by registration.

Richards v Delbridge did not involve a trust. However suppose that John had intended Edward to hold the lease on trust for a named beneficiary. In this event the transfer would have been ineffective and the trust would have remained incompletely constituted.
Effective Transfer of a Copyright

Intangible property rights, such as copyrights or patents, can be transferred by writing without the need for a deed: s1 Copyright, Designs and Patents Act 1988.

However a purely oral transfer will be ineffective.

Effective Transfer of Bills of Exchange

Imagine that a father receives a cheque payable to him for a substantial amount of money. He wishes to create a trust of that money for the benefit of his children, and therefore hands the cheque to his brother as trustee for them.

Has he created a fully constituted trust in favour of his children?

(a) Yes

(b) No

Answer: No

Mere physical delivery of a bill of exchange, such as a cheque, is ineffective to transfer ownership thereof. A bill of exchange can only be transferred by indorsement in favour of the transferee.

You should remember the case of Jones v Lock (1865) LR 1 Ch App 25, which was examined in the context of the declaration of trusts. In that case a father handed a cheque for £900 payable to himself to his baby son stating "I give this to baby; it is for himself."

The court held that there was no valid declaration of trust of the money represented by the cheque, and there had been no effective transfer of it to the baby because it had not been indorsed.

Effective Transfer of Equitable Interests

It has already been seen how an equitable lease of land may be transferred by means of a written assignment without the execution of a deed. More generally other equitable interests in property, for example beneficial interests behind a trust, can only be transferred by writing. This is the effect of s53(1)(c) Law of Property Act 1925.

The operation of this section is examined in detail in the workbook on Formalities, to which you are referred if you require further information

Summary of Effective Transfer

You should now be familiar with the mechanisms and formalities which must be observed to achieve the transfer of a variety of types of property. If a settlor wishes to create a trust by transferring his property to a trustee the trust will only be fully constituted if the settlor satisfies all the requirements for a transfer of his ownership of the intended trust property. If he fails to do so the trust will remain incompletely constituted.

You may now like to go back and try the exercise at this beginning of this section of the workbook again, to check whether you have understood the law correctly.