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The three certainties — SQE1 Trusts question

A worked single-best-answer question on the three certainties, with why each wrong option is wrong — the way SQE1 traps candidates.

The three certainties

Owen owns 1,000 ordinary shares in Calder Engineering Ltd, all of the same class and registered in his name. In a signed letter to his niece Priya he wrote: 'I now declare that I hold 100 of my Calder shares on trust for you absolutely.' Owen did not identify which 100 shares he meant and did nothing to separate them from the others. Two years later Owen was made bankrupt, and his trustee in bankruptcy claims all 1,000 shares for his creditors.

Which of the following best describes Priya's position?

  1. APriya has no proprietary claim, because a trust of part of a larger holding fails unless the part has been segregated from the rest.
  2. BPriya has no proprietary claim, because a gift of shares is incomplete until the shares are registered in the donee's name.
  3. CPriya has only a personal claim against Owen's bankrupt estate, because a declaration of trust must be supported by consideration.
  4. DPriya is entitled to 100 of the shares, because a declaration of trust of identical intangible shares is valid without segregation.
  5. EPriya is entitled to 100 of the shares only if the declaration was made by deed.
Show answer and reasoning
D is the best answer. Where the subject matter is a number of identical shares of one class in a single company, the Court of Appeal has held that a trust of part of the holding is valid without segregation, because it does not matter which shares are held on trust (Hunter v Moss). The segregation requirement in Re London Wine Co applies to tangible goods. Owen's self-declaration was complete, so the 100 shares do not form part of his estate for his creditors.

Rule: A declaration of trust over part of a holding of identical shares of one class is sufficiently certain without segregation, unlike a trust of part of a bulk of tangible goods.

  • A The requirement for segregation applies to tangible chattels (Re London Wine Co); it does not apply to identical intangible shares (Hunter v Moss). (right rule, wrong facts)
  • B Registration matters only for a transfer of legal title; Owen declared himself trustee, which needs no transfer. (answers a different question)
  • C Equity will not assist a volunteer to perfect an incomplete gift, but a completed declaration of trust is binding without consideration. (wrong rule)
  • E A declaration of trust of personalty such as shares needs no formality at all, still less a deed. (wrong rule)

Source: Hunter v Moss [1994] 1 WLR 452; Re London Wine Co (Shippers) Ltd [1986] PCC 121

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