Milroy v Lord

Facts

Thomas Medley executed a voluntary deed, meaning one made without payment or other value, which purported to assign 50 shares in the Bank of Louisiana to Samuel Lord, to hold on trust for the claimants. Under the bank's rules, the shares could only be transferred by registering the transfer in the bank's books.

That never happened. Lord held a power of attorney from Medley which would have allowed him to transfer the shares, but he didn't use it to register the transfer. After Medley died, the claimants argued that they were entitled to the shares under the trust.

Issue

Was the trust of the shares completely constituted? If the transfer to Lord had failed, could the court treat Medley as having declared himself a trustee of the shares instead?

Decision

Turner LJ, with whom Knight Bruce LJ agreed, held that no trust had been created. The claimants, who were volunteers, couldn't enforce it.

Reasoning

Turner LJ explained that there are three ways a person can benefit someone else with their property:

1. by transferring it to them outright;
2. by transferring it to trustees to hold for them; or
3. by declaring themselves a trustee of it for them.

For a voluntary settlement to be valid, the settlor must have done everything which, according to the nature of the property, was necessary to transfer it and make the settlement binding on them.

Medley had chosen the second method, a transfer to a trustee. That transfer wasn't completed, because the shares were never registered. The court couldn't rescue the gift by treating it as a declaration of trust, the third method, because Medley hadn't intended to make himself a trustee. As Turner LJ put it, if the settlement is intended to take effect by one of these modes, the court won't give effect to it by applying another.

Why it matters

Milroy v Lord underpins two equitable maxims: equity will not perfect an imperfect gift and equity will not assist a volunteer.

The strictness of the rule has been relaxed in several ways:

• Every effort. In Re Rose [1952] Ch 499, a share transfer was effective in equity once the donor had done everything in his power, even though the company still had to register it.
• Unconscionability. In Pennington v Waine [2002] EWCA Civ 227, a gift of shares was upheld because it would have been unconscionable for the donor to change her mind, even though the transfer form hadn't been delivered. The decision has been criticised, and in Zeital v Kaye [2010] EWCA Civ 159 the court declined to extend it.
• The rule in Strong v Bird (1874) LR 18 Eq 315: an imperfect gift is perfected if the donee becomes the donor's executor.
• Donationes mortis causa: gifts in contemplation of death (King v Dubrey [2015] EWCA Civ 581).
• Proprietary estoppel.
• In T Choithram International SA v Pagarani [2001] 1 WLR 1, the Privy Council held that a gift to a foundation of which the donor was one of the trustees was effective, because he couldn't be allowed to deny it.

How it comes up in exams

For constitution of trusts and gifts:

1. Which method did the owner use: outright gift, transfer to trustees, or self-declaration?
2. If it was a transfer, did they comply with the formalities for that type of property? Land needs a deed and registration; shares need a completed stock transfer form and registration; chattels need delivery or a deed; equitable interests need signed writing (s 53(1)(c) of the Law of Property Act 1925).
3. If the transfer is incomplete, can any exception help (Re Rose, Pennington v Waine, Strong v Bird, DMC, estoppel)?
4. If not, the volunteer can't enforce it (Milroy v Lord).

Frequently asked questions