History of equity and trusts
The history of equity and trusts concerns the origin of the body of rules known as
.The law of trusts was constructed as a part of "
Equitable doctrines |
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Doctrines |
Defences |
Equitable remedies |
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Related |
Roman precursors to trusts
These testamentary devices however, did not develop into the inter vivos (living) trusts which apply the creator lives and would develop in England in the Middle Ages that created the basis for the modern English trust.
Medieval origins
Emergence of the Court of Chancery
The origin of the trust has to be traced to medieval England,
Despite this, the Kings were accepted to retain the right to administer justice in special cases where common law was 'deficient' and the matter in question did not involve 'life, limb or property'.[4] The way this special grace was administered was through a petition to the King. Most of the petitions (also known as 'bills') received no special redress but in some truly exceptional cases there would be some special treatment or dispensation which according to Sir John Baker, can be seen as 'the beginning of newer jurisdictions'.[4] As the number of these petitions grew, it became common for the King to delegate addressing the petitions to either His Council or to a particular official most commonly, the Lord Chancellor. As it became usual to delegate the petitions to the Lord Chancellor it became common for petitioners to simply address the Lord Chancellor directly and not the King giving rise to the Court of Chancery. This process of petitioning the King also served to create other courts like the Court of Requests.
Medieval Lords Chancellor tended to be either senior clerics (Bishops and Archbishops)[note 1] or experienced lawyers. Thus, when asked to deal with petitions asking for some special redress from the common law they did so from their own conscience, often drawing wisdom from Biblical or Philosophical conceptions of what was just in a particular case.[2] It is important to remark that originally they were seen as merely addressing particular cases and could neither affect parties not named in the decrees the Chancellor gave nor change the law. These decrees 'enjoined' the parties to act in a particular way, giving rise to Equity's distinctive remedy: the Injunction.[5] While the Common Law almost invariably awarded money damages, Equity was able to force defendants to act a particular way on penalty of being imprisoned for contempt court.
Before 1400, a lot of the petitions involved cases where a feudal superior abused their privileged position for which the plaintiff sought redress. Between 1400 and 1600 however, it is possible to detect a shift. The Chancellor still decided the cases solely on his conscience, but recourse to his court ceased being an exceptional matter and started to become more normal.[5] Indeed, by 1579 it had become a busy court that was regularly sending away poor litigants,[note 2] which would have been the staple of its earlier business, in order to address more substantial disputes.[6]
Uses of land as direct precursors to trusts
Early history of the Use
According to common law there was only one person who said to have a right to land, which was the person entitled to seisin. However, the Lord Chancellor would hold that somebody was bound by good conscience to hold some land they had the right to ad opus alterius (for the benefit of another). At first, these nascent trusts were intended to be temporary. e.g. when a tenant by copyhold (a kind of tenure where the tenant was obliged to perform manorial duties to his lord who left the original deeds in the manorial roll) wanted to convey his land to another the procedure until 1925 was to surrender the land to the lord. He then held it for the benefit of the transferee until the lord admitted him as his feudal tenant.[7]
This holding of land for the benefit of another was found to be helpful when conveying land to those who were forbidden to own any. In particular, the Franciscans swore an oath of poverty that meant they could not own land directly. Furthermore, as Baker notes, Franciscan friars lacked the corporate personality that monks organised in abbeys and priories allowed them to own property through the abbey or priory.[8] This oath of poverty, as confirmed by the papal bull Quo elongati (1230), did not prevent them from enjoying the benefits of said land like rents and free accommodation.[9] While a statute of 1391[10] prohibited the creation of uses for the benefit of religious corporations as these violated the several statutes of mortmain that gave the Crown oversight over donations of land to the Church. This was particularly important as the King had the right to charge a fee for issuing a licence that would allow a donor to gift land to the Church.[11]
The Chancery's role in enforcing Uses
The Common Law, would not take notice of uses one effect of this as Baker notes, is that uses could be utilised to put land outside the reach of creditors.[11] Another effect, is that it left those entitled to the benefit of the land (called the cestui que use) without recourse in the Common Law courts. Initially, uses would have been a mere matter of morality. It was only by appointing several notable local people, threatened with the shame of depriving another of their inheritance, that due execution of the use could be guaranteed.
There are some evidences that there may be recourse in the Ecclesiastical courts, as they dealt with breaches of oaths (also called fidei laesio). Furthermore, the Church courts had jurisdiction over wills (which regularly employed uses). Indeed as Baker notes in 1375, a group of feoffees (ie those to whom land was transferred to hold for the benefit of another) were excommunicated for breaching the conditions of the use they were supposed to execute.[12]
Uses were a matter of good conscience, it was the Court of Chancery, however, it was suited to pick up the mantle of enforcing the cestui que use's moral right, creating the modern trust in the process. It is impossible to date the exact time at which the Chancery began enforcing uses, "but it was well established by the 1420s".[12]
The 15th century, not only saw the work of the Chancery come to be characterised by the Use, but it began to give the Use some of the hallmarks of an interest in property. e.g.while it was still purely based on the conscience of the feoffee, where all of the feoffees died, the heir of the last one to die remained bound. Likewise, rules like that of Equity's darling, began to emerge in the 1450s. However in early 1465, there was something that strongly resembles the modern resulting trust.[13]
Early modern period
Henry VIII, fiscal feudalism and the Use
Wills of Land
By 1502, Frowyk CJ remarked that most English land was held subject to a use. The reason for this was that it enabled landowners to circumvent the Common Law's strict rules of succession. Under these rules land was not devisable by will but was instead always inherited by the heir-at-law. Uses, however, allowed for creative solutions e.g. those excluded by the rules, such as younger sons, daughters, illegitimate children could be provided for. Likewise, the provisions for widows could be enlarged and charities could be gifted to as well as debts paid off from land.[14] This was achieved by a dying testator conveying land to feoffees, which could be friends, legal advisers or other local gentry, to the use of executing his will.[15]
Indeed, this practice of conveying to feoffees became so common that not only was it done shortly before death but it could be done long before during the life of the landowner, and the transfer simply to the use of the landowner. This still gave the landowner all the control he needed as the feoffees were obliged to execute his instruction both while alive but also by his will, since this interest under a use came to be seen as devisable legal interest under a will.[15]
Purchasers of land however, often complained that they could be burdened by uses unknown to them. The Chancery would, consider them innocent if they were unaware of the use and had paid for the land, but this still required them to answer to a suit in Chancery, which could be cumbersome and expensive. Despite attempts in the late 15th century to resolve this,[note 3] this complaint remained.
Fiscal feudalism
Furthermore, the use as a method of evading the feudal law of succession to land threatened the revenue of the Crown. Lords,particularly the Crown, had certain rights over their tenants' land sometimes called 'incidents of tenure'.[16] Some of the most important were wardship and premier seisin. Under these doctrines, the Crown had the right to enjoy the profit of the tenant's land until he was of age (21) and to select a suitable marriage for the ward, something that could involve a profitable transaction for the Crown as it was allowed to sell the right to marry a rich heir. Likewise, under premier seisin, the Crown could claim the profits of an heir's land for a year.[16]
These rights were an important source of income for the cash-short English monarchs. Henry VII and Henry VIII, who often faced increasingly expensive foreign wars, were determined to protect and increase their revenue from these rights as lord. Some scholars have called this phenomenon, "Fiscal Feudalism".[17] In 1529, Henry VIII proposed a bill that would restore feudal incidents where land had been conveyed to the use of executing the landowners will but only at one third of the levels that the Common Law demanded. The House of Commons rejected the bill in 1531, at which point the King threatened that if they would not accept his proposal he would seek to enforce his feudal rights as far as the Law allowed. Within the circles of the King's legal advisers the view came to prevail that Uses of land were deceitful and thus were actually contrary to conscience to enforce. To this end, in 1532, Thomas Audley was made Lord Keeper of the Great Seal[note 4] and Lord Chancellor the following year. Furthermore, the King's Secretary Thomas Cromwell was appointed Master of the Rolls in 1534.
Lord Dacre's case and the Statutes
An opportunity to restore the full force of the English feudal law of inheritance (and thus the King's incidents) came when Lord Dacre died in 1533.[18] He had left a will of land through a Use and had thus deprived the King of his rights to wardship and premier seisin. Thus, when the case came up in 1535 Audley and Cromwell summoned the common law judges to discuss the case.[19] After initially dividing evenly on the question, Henry VIII "coaxed or coerced"[18] them to unanimously agree with his (extreme) position that uses of land intended to allow for wills of land were fraudulent and thus should not be enforced by the Chancery, or indeed the Common Law. This had the effect of invalidating any and all wills of land. Furthermore, however, this decision threw into question all previous wills of land that had been common to make for over a century.[20]
This decision and the confusion it caused made Commons agree to a new version of the bill the King had presented in 1529. This became the Statute of Uses (1536). While a clause in the statute ratified the validity of all wills of land prior to Lord Dacre's case, the main provision of the statute was to abolish absolutely the power to bequeath land by will. It did this via a legal fiction called 'executing the Use'.[21] The statute could not simply abolish uses because that would have given an enormous windfall to all the lawyers or friends who held the land for the beneficial landowners. Instead the statute mandated that where a person held land for the benefit or to the use of another person, this other person was to be held, for all intents and purposes, as if they held (or were seised of) the land directly.[21] This meant the intended cestui que use would always die owning the land, thus owing feudal incidents to the King (or a mense lord).
The statute was very successful in restoring the Crown's feudal revenues and its draftsmanship was later much admired. It was profoundly unpopular however. In particular, it contributed to the 1536 Pilgrimage of Grace. This was an uprising that started in Yorkshire and spread across the North which sought to reverse some of Henry VIII's most controversial policies, such as the Dissolution of the monasteries, the break with the Roman Catholic Church, but also the Statute of Uses. While the Pilgrimage was itself unsuccessful, the idea that a loophole or work around the prohibition of wills of land could be found began to take hold in legal circles. By 1540 it became clear that lawyers were close to finding a way to evade the Statute of uses and indeed some lawyers were even imprisoned in the Tower of London for advising Sir John Shelton on possible ways to achieve this. This fear of losing the revenues resulted in the King offering the House of Commons a compromise similar to the one he had offered in 1529. A bill was introduced and this time it would pass successfully through the House of Commons to become the Statute of Wills (1540). This piece of legislation gave landowners the explicit right to make common law wills over a maximum of two thirds of their land, forcing them to let their heirs-at-law inherit one third, thus preserving one-third of the feudal incidents.
This compromise was successful in preserving a substantial amount of revenue through the late Tudor and early Stuart period.[note 5][22] Fiscal feudalism would die, however, with the abolition of the Monarchy in the Commonwealth period, when feudal incidents were abolished, a measure that was confirmed during the Restoration in 1660.[23]
History of the Use post-Statute of Uses
Uses as conveyancing
Before the Statute of Uses, conveyancing required a formal ceremony to deliver seisin to the transferee of land. While the requirement of the ceremony had relaxed over the centuries, and indeed the transferor's feudal lord had not been involved since the statute Quia Emptores of 1290, there remained a requirement to be actually present on the land and for a symbolic object (like a piece of earth or a key) to pass between the parties doing the transfer.[24] The Chancery had long implied a Use where a vendor contracted to sell land to a purchaser so that the former held the land to the use of the latter. This was analogous to the modern Vendor-Purchaser Constructive Trust.
The 1536 statute meant, that these Uses were executed immediately upon the contract of sale being agreed thus passing title to the that before certain critical things could be done. This included investigating whether the seller actually had good title to the land but also conveyed title before the purchase price was handed over. While this was thought to be inconvenient, the advantage of being able, for the first time, to convey land privately and at a distance was too large. Thus, Parliament hastily passed in 1536 an emergency piece of legislation, the Statute of Enrolments. This provided that where a Use was created by a bargain, it was not to be executed unless it was made by deed and until it was enrolled at one of the Common Law Courts.[25]
Active Uses and the Use upon a Use: Birth of the Modern Trust
While the Statute of Uses ended the practice of creating uses as a means of creating valid wills of land, the Statute was not held to execute all Uses. This would serve as the birthplace of the trust. Some Uses had active duties the feoffees had to fulfill, such as managing an estate or collecting and distributing income, or paying debts.[26] These 'active' Uses could not be executed automatically by the Statute and were thus excluded. Amongst these charitable uses were able to continue undisturbed directly becoming what are now called charitable trusts when the nomenclature changed. Another category of Use that was excluded from the application of the Statute of 1536 was the "double Use"[27] or the 'Use upon a Use'. There were two main variations of this type of Use. Under the first, land owned by A would be conveyed to X 'to the use of X himself to the use of B.' Alternatively, A could convey to X 'to the use of Y to the use of B'. Under either of these arrangements the Statute would execute the initial Use (ie either X or Y would immediately stand seised to the use of B), but the second Use was not, allowing therefore for the creation of Uses of land so long as an intermediary was inserted before the intended beneficiary.[27][28] The first reported case where this arrangement was enforced in Chancery was Bertie v Herenden. In that case the dowager Duchess of Suffolk had fled to Poland to avoid persecution as a protestant during the reign of Mary and had conveyed land to a lawyer 'to his use' but secretly on trust to be reconveyed to her.[27]
These double Uses became commonplace in the first few decades after the Statue of Wills[29] and by the 18th century Baker notes it had become common form to convey thus:[27]
to X and his heirs unto and to the use of Y and his heirs, in trust nevertheless of Z.
This type of conveyance to create a trust would indeed be the most usual until 1926 when the Statute of Uses was finally abolished by the Law of Property Act 1925. The change of nomenclature from Use to Trust was not immediate and is not clear cut, but rather it was a gradual process. Contemporary scholars like Neil Jones, generally draw a line between uses/trusts created before the Statute of Uses, calling them Uses, and those created after, calling them Trusts, following the common words of conveyance cited above.[29] Thus, the 'pedigree' of the modern trust can be directly linked to those post-Statute Uses.