Rationale and legal significance case

Rationale and jural significance caseIntroductionEquity entrust non perfect an corrupted gift, this maxim from Milroy (1862) had been recognized as the strict regulate that apply to the area of constabulary related to the steer of a gift. Judges and the legal profession had espouse this rule for many years. Nonetheless, this rigid requirement had been relaxed after the finale in Pennington (2002). In the followings, I bequeath discuss the rationale and the legal significance of this case. last in Chancery DivisionBefore the case went to the Court of Appeal, Judge Howarth (Judge of Chancery Division) held that Mr. Pennington was not the accompanys divisor. He held that the gift of 400 shares became effective when Ada kill the share hit line and there was no legal requirement for the stress to be delivered to the makee /company. He also held that the breach of word 8(B) did not render the gift ineffective.Two of the beneficiaries appealed to the Court of Appeal on the points that (1) Doctrine in Re pink wine should be applied and the transfer form should be delivered to the throughe/ company prior to the donors death. (2)And the transfer breached a pre-emption clause in article 8(B) (3) The donor could not be said to suck done everything in her power to effect the transfer1.Decision of Court of AppealThe dallyroom unanimously dismissed the case, but for different reasons.2 The summary of the judgment and reasoning will be discussed below.Arden LJs1st JudgementThe pre-emption provisions in the article 8(B) of the company did not prevent Adas share to be transferred to Harold.ReasoningArticle 8(B) involve a sale notice to be ordern. No sale notice was served on the company under article 8(B). and then, it appeared that Ada, Harold and Pennington were unaware of the pre- emption provisions in the article 8(B) of the company.2nd JudgmentIt would be unconscionable for Ada or her personal representatives not to transfer the shares to HaroldReas oningThere were 6 facts in this circumstances that give rise to the judgment (1) Ada had made the gift of her own free will (2) Ada had told Harold about the gift (3) Ada had signed a form of transfer (4) Ada had delivered the form of transfer to Mr. Pennington for him to secure registration (5) Mr. Pennington had told Harold that there was no action that he imply to take and Harold had not questioned this assurance3 (6) Harold agreed to perform a director of the company without limit of time, which he could not do without shares being transferred to him.4The full general rule was that Equity will not assist a volunteer 5, but AdrenLJ relied on the judgment in Choithram Although rectitude will not aid a volunteer, it will not strive officiously to shoot down a gift,6 and hence prefect the transfer of the shares in equity. She believed that in the above circumstances, where donors conscience was affected and it would be unconscionable and contrary to the article of beliefs of equity to award Ada to resile.third JudgmentDelivery of the share transfer before her death was un obligatory so far as perfection of the gift was concerned.ReasoningAlthough Re Rose required the stock transfer form to be handed over to the donee, she did not think that the ratio always requires a oral communication of the share transfer form to the donee,7 and this requirement can be dispensed with in some circumstances. In this circumstance, there was a light-headed finding that Ada had a clear figure to make an immediate gift. The requirement of actual delivery could be dispensed with.Moreover, Adren LJ adopted the principle of beneficent spin to construct Mr Pennington as an agent for Harold for the purpose of submitting the share transfer to the company.8 Therefore, traditional requirements of Re Rose were thus satisfied.9Clarke LJsThe judgment of Clarke LJ seems to be different from that given by AdrenLJ. The main difference in the judgment will be explained belowJudgmen tAda had executed a valid transfer of the equitable title with the result that Ada had maintained the legal title as legal guardian.10The exertion of a stock transfer form can have effect as an equitable assignment without the requisite of a transfer or delivery of the formReasoningClarkeLJ held that when Ada executed the stock transfer form, she had passed the beneficial interest to Harold. She would then hold the legal interest in the shares on trust for Harold until registration in Harolds name.Although the strict rule was that the donor must have done everything workable to effect the transfer of his equitable interest. provided he believed the maxim cannot be absolutely true since there is always something much that the donor could have done.ClarkeLJ believed there was no need of a transfer/ delivery, since even Ada had delivered the transfer form to Harold, she could have done more by making a particularised request to the company to register the shares in Harolds name . Moreover, there was nothing in the Stock Transfer Act 1963 s.1 which suggested that delivery was necessary to effect the transfer.Therefore ClarkeLJ believed that Ada had done everything possible thing possible to effect the transfer for the followings reasons (1)Ada had executed the correct share transfer form (2) Ada had given it to Pennington (3) Ada had not thought it necessary to take any further steps to effect the transfer to Harold, and if she had been asked to do so, she would have done it (4) Ada had not at any stage think to reserve a right to withdraw the form (5) The shares that she intended to give to Harold during her lifetime did not form any part of the subject matter of her will. disputableThis case is regarded as being controversial since ArdenLJ adopted two innovative ideas to perfect the transfer even without actual delivery of the share transfer form they are (1) Unconscionability Test and (2) Benevolent Principles of Construction.The idea of unconscionabili ty come from the decision of Choithram that if in the circumstances, the donors conscience is affected and it would be unconscionable and contrary to the principle of equity to allow the donor to resile from the gift. But in the judgment of ArdenLJ, she didnt give any concrete explanation of what will satisfy the requirement of unconscionability nor give any guideline. Arden LJ explained that the piece of music of unconscionability is solely relied on the finding from the facts and depended on the interpretation of the court. Particularly, Harold did not prove any evidence of detrimental reliance in order to fulfill the test. Therefore the requirement of what will satisfy the Unconscionability Test is blurred and depends on the discretion of the court. In Milroy, the court will not give a benevolent aspect as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee.11 But Arden LJ adopt the principle of benevolent c onstruction on the meaning of words This requires no action on your part used by Pennington in musical com prepare to Harold and she constructed the words as meaning that Ada and, through her, Pennington became agent for Harold for the purpose of submitting the share transfer to the company. ArdenLJ did not give any guideline on the principle of benevolent construction, such as what will satisfy the requirement of benevolent construction and when will the court adopts the usage of benevolent construction. Differences from the prevailing lawThe general rule in Milroy is that settlor must have done everything necessary to be done to transfer the property. If settler has not done everything necessary to effect transfer, the court/ equity will not construe a failed gift/transfer as a declaration of trust. The rule has been applied strictly in cases such as Richards (1874)12 and Re Fry (1946).The strict application of the rule in Milroy had been relaxed in the cases of Re Rose (1952), Mascall (1984) and the recent case of Choithram (2001)13.In Re Rose, the court relaxed the strict rule and held that it was not necessary that the donor should have done all that it was necessary to be done to complete the gift. It was sufficient if the donor had done everything in his power to transfer title to the trustee, even there was short of registration of the transfer. Therefore in Re Rose, trust constituted if donor does everything in his power to divest himself of the trust property and transfer of legal title fails for another reason. The doctrine in Re Rose has been followed in Mascall (1984)14. But the execution of the document of assignment by the donor and the actual delivery of the form/ document of the assignment to the transferee were still the essential requirements. In Trustee of the home of Pehrsson v von Greyerz (1999), the transfer is failed due to the lack of actual delivery of the transfer.In Choithram (2001), the court had further relaxed the strict rule in Milroy. The judge held that although equity will not assist a volunteer, it will not strive officiously to defeat a gift15 This case introduced the idea of unconscionability as discussed above in para.5.In the decision in Pennington contravened the decision in Milroy that equity will not assist a volunteer. In this case, Harold did not give any consideration keep out he agreed to become a director. It also contravened the doctrine in Re Rose. Ada didnt deliver the transfer form to Harold, it contravened to the requirement of actual delivery in Re Rose. The adoption of the principle of benevolent principle contravened to the decision in Milroy, that court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee16 The judgment of ClarkeLJ, that Ada had executed a valid transfer of the equitable title with the result that Ada had retained the legal title as trustee, it co ntravened the decision in Choithram. Since Choithram required the donor to declare himself to be one of the initial trustees and Ada didnt declared herself as trustee in this case.Whether the decision was correctI think that the decision in Pennington is not correct. Although if the court held that the transfer of share was ineffective, it would be unfair / unconscionable to both Harold and Ada since both parties did have the intention of completing the transfer. Certainty in law must be strictly respected and it should be the first priority. Judges should follow Milroy and Re Rose strictly. I think that the lack of actual delivery of the transfer form is fatal in this case. Since I agreed that the actual delivery is the strongest evidence in screening the intention of transferring the beneficial interest. And this evidence was absent in this case.It is also incorrect for ArdenLJ to construct that Pennington was the agent for Harold only by the words This requires no action on your part in the letter that Pennington had written to Harold. It was only an assumption by ArdenLJ. There was no evidence that neither Ada nor Harold intended to appoint him as an agent. Moreover, the unconscionability test set out by ArdenLJ should not be satisfied either. It is because detrimental reliance is always the central element in the idea of unconscionability. Harold didnt show detrimental reliance. Harold only signed the form and accepted to become a director. He had neither financial contribution nor any change in his position that could constitute to a detrimental reliance.The decision in Pennington do not left the law in a reasonable situation. Since after Pennington, unconscionability and the principle of benevolent construction were introduced. ArdenLJ did not give any guideline/ requirement of the unconscionabilty test. That means that the unconscionability test would give the court a wide discretion in allowing equity to perfect a transfer. It would cause flood gate in this area of law, since every parties will use the idea of unconscionability in arguing their cases. The amount of law suits in this area of law will definitely be enlarged. Moreover, it is unclear that when the court could adopt the principle of benevolent construction and also where the construction should applied. ArdenLJ did not give any direction /guideline in this area.The well established formula in this area of law that developed in cases such as Milroy and Re Rose have been totally broken by these two innovative ideas of unconscionability and principle of benevolent construction.Practical implicationThis case has a greater practical implication on individuals. Individuals usually do not have specific legal knowledge on the transfer of a gift. Therefore individuals would substantially miss some critical requirement such as actual delivery. subsequently Pennington, lack of delivery it is not fatal. Since individuals can argue that in the specific circumstances, it is u nconscionable for the donor to resile. Then it is the courts interpretation on whether the unconscionability test is satisfied in the circumstances that the individual encountered.The practical implication in business is that it is more difficult to ascertain the real legal requirement in the constitution of a valid transfer. Before Pennington, businessman can rely on the rule set out in Milroy and Re Rose to ascertain legal certainty. After Pennington, it becomes difficult for a businessman to interpret the meaning of unconscionability. Certainty in law is essential to give confident to businessman in doing economic activities. Precaution should be made due to the uncertainty in law.The implication on legal advisers is that flood gate situation would likely to occur. Lawyers can rely on unconscionability to bring legal action for their clients, and the amount of law suits will increase dramatically. Application in later UK caseIn a later UK case, Jordan v Roberts (2009) in Chancery Division, the concept of unconscionablity/ inequity that used in Pennington have been adopted by the Judge George.Bompas.Q.C. The fact was that the donor(B) wished the first defendant (D1) to hold 51% of shares and therefore transferred his shares to D1. The legal issue was whether the donor(B) has successfully transferred his shares to D117 . In any event, the pertinent shares could not simply have been transferred to D1. It required an instrument of transfer, but donor failed to do so. It was similar to that of Pennington. The Judge citied Pennington v Waine in perfecting the transfer and held that it would be unjust for the donor (B) to resile.ConclusionThe concept of the unconscionability and the benevolent Principles of construction might give the court a greater discretion to apply justice depending on the particular circumstances on each particular case. Nevertheless, certainty in law is the most fundamental issue in common law legal system. In my opinion, the decision i n Pennington disrupted the legal certainty and left the law in this area in a doubtful and non-predicable manner.Ian Hunter, Equity and Trust The disposition of a trust, Case Comment, Coventry Law diary 2002John Mc Ghee 2003Ian Hunter, Equity and Trust The Constitution of a trust, Case Comment, Coventry Law Journal 2002Judith Morris, Question When is an invalid gift a valid gift? When is an in entirely constituted trust a completely constituted trust? Answer After the decisions in Choithram and Pennington, Private Client Business Article 2003Para. 52 of the judgment in Pennington v Waine (No.1) 2002 EWCA Civ 227 2002 1 W.L.R. 2075 (CA (Civ Div))Para. 60 of the judgment in Pennington v Waine (No.1) 2002 EWCA Civ 227 2002 1 W.L.R. 2075 (CA (Civ Div))Ian Hunter, Equity and Trust The Constitution of a trust, Case Comment, Coventry Law Journal 2002Para. 67 of the judgment in Pennington v Waine (No.1) 2002 EWCA Civ 227 2002 1 W.L.R. 2075 (CA (Civ Div))John Mc Ghee 2003Ian Hunter, Equity and Trust The Constitution of a trust, Case Comment, Coventry Law Journal 2002Para. 60 of the judgment in Pennington v Waine (No.1) 2002 EWCA Civ 227 2002 1 W.L.R. 2075 (CA (Civ Div))Richards v Delbridge (1874) LR 18 Eq IIMascall v Mascall (1984) CAJudith Morris, Question When is an invalid gift a valid gift? When is an incompletely constituted trust a completely constituted trust? Answer After the decisions in Choithram and Pennington, Private Client Business Article 2003Para. 60 of the judgment in Pennington v Waine (No.1) 2002 EWCA Civ 227 2002 1 W.L.R. 2075 (CA (Civ Div))Jordan v Roberts 2009, EWHC 2313