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FORMALITIES and CONSTITUTION OF TRUSTS (Lecture 3) The rule in MILROY v LORD (LL.B, PGDL, CILEX) - YouTube
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Hello and welcome back to BiteSizeLaw.
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I'm Amanda and I'm a private tutor in property
law.
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This is the third video in my series on Formalities
and Constitution and today I'm going to be
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looking at the very important principle from
the case of milroy v lord and then I'm going
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to be working on the fourth and fifth videos
in which I'm going to be looking at the exceptions
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to the rule that we're going to look at today
and then finally I'm going to take you through
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a couple of examples to show you how it all
fits together.
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Before we begin to look at the case there
are just a couple of points that I want to
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talk to you about.
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The first one is just a very basic overview.
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So as a property law student facing a problem
on formalities and constitution, you will
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often be required to work out what the relevant
rule is in order to advise a property owner
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on how to achieve what they want to achieve
or, probably more likely, is that you will
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have a scenario where you are told what a
property owner has done and you need to work
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out the consequences of those actions.
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So in 'Constitution' you will be looking at
whether the property owner achieved what they
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intended to achieve or not.
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Another point I want to quickly mention which
you need to appreciate if you are advising
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in a situation where the property owner has
died is that that you can only give away your
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property that you own beneficially when you
die in your will.
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So any property that you give away before
you die doesn't pass under your will and this
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includes putting property into a trust before
you die.
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So if you dispose of property during your
lifetime (so if you give it away or if you
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sell it or destroy it) then it can't pass
under your will to the beneficiaries of your
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estate.
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And just to stress - if you are holding property
on trust for somebody else then you are not
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the beneficial owner of that property so it
isn't part of your estate when you die or
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if you become bankrupt
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Here is a reminder of what we saw in the last
video when we looked at what we mean by 'constitution'.
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So when making a voluntary disposition of
property the legal requirements to transfer
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the property must be complied with.
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So it's about voluntary dispositions i.e.
gratuitous dispositions.
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So we are dealing with GIFTS here.
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So we are not looking at a situation where
there is a contract.
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And, again, just another quick recap from
video one - why does all this matter?
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Well the usual scenario you will be asked
to advise on in an assessment or to discuss
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in a seminar is that the property owner has
attempted to dispose of an item of property
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they own by making a gift and then he or she
either dies or becomes bankrupt or simply
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changes their mind and you have to decide
whether the property passes under the terms
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of the will or if the trustee in bankruptcy
can use the property to pay off the bankruptcy
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creditors or in the case where the property
owner has changed their mind; who is entitled
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to the property?
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So what you are looking for is who is the
beneficial owner of the property?
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If the property owner successfully transferred
his or her ownership then they were no longer
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the beneficial owner.
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So if they successfully set up a trust of
the property then the property owner is no
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longer the beneficial owner and when the property
owner dies the property doesn't form part
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of his estate so it won't go to the beneficiaries
of his will.
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Now let's look at the important case of Milroy
v Lord and here's what happened in the case.
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(I mwould normally encourage you to read as
many of the cases as you possibly can but
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in this instance the facts are quite complicated
so I wouldn't advise that you try to read
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the case in full.)
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So the property owner (the 'settlor') intended
to set up a trust for his niece but unfortunately
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he used the incorrect formalities to transfer
the intended trust property and the uncle
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(the settlor) then died.
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The niece (the intended beneficiary) was a
volunteer, she hadn't provided any consideration,
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the trust wasn't constituted before the settlor
died and therefore we have a situation where
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we have an 'imperfect gift'.
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And the issue was - who was entitled to the
shares?
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Could the niece claim that she should be entitled
to the shares or did they form part of her
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uncle's estate and go to the beneficiaries
of his will?
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In the case Turner LJ identified three different
methods of making voluntary dispositions and
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he called them the different 'modes' which
is the terminology I'm going to use as well.
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You may recognise these as I introduced them
to you in video 2 in this series of lectures.
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So you can either make (1)an outright gift
(2) you can transfer the property into a trust
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or (3) you can declare yourself to be a trustee.
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This is the principle that we can distill
from the case - the property owner must do
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everything necessary in order to transfer
the property.
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So the property owner must comply with all
the relevant formalities to transfer that
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type of property.
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If the property owner does do everything necessary
the gift is 'perfected' (as we would say).
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So if a property owner is making an outright
gift to you then you become the new owner
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and it belongs to you absolutely and beneficially,
and if it's a trust - the trustees now hold
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the property on trust for you and the court
will enable you to enforce your rights in
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the property against the trustees and sometimes
against third parties as well.
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This is despite the fact that you haven't
provided any consideration for the disposition.
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But what happens if the property owner doesn't
transfer the property?
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In that situation you have an 'imperfect'
gift and this is what Turner LJ said; 'If
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the voluntary disposition is intended to be
effectuated by one of the modes to which I
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have referred, the court will not give effect
to it by applying another of those modes'.
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So equity won't step in and help the volunteer
beneficiary if it's a trust or a donee if
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it's an outright gift.
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Essentially the court is mistrustful of gifts
; if the beneficiary or the donee hasn't given
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anything in return then the court wants to
make absolutely sure that the property owner
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actually wanted to complete the gift.
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Continuing on here is what Turner LJ says;
'If it is intended to take effect by transfer,
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the court will not hold the intended transfer
to operate as a declaration of trust'.
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So what does he mean by that?
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Essentially what Turner LJ is saying here
is that if you use one mode and get it wrong;
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the court won't substitute a different mode
to give effect to your gift.
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So let's just see how that could work.
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Here is a reminder of what we saw in the last
video.
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A property owner is declaring that he is holding
his shares in BSL Ltd. on trust for his children.
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And what we now know is that is 'mode 3'.
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This example is taken from the last video
and (as we saw in the last video) there is
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no need to transfer the trust property because
the property owner (the settlor) already has
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legal title to the property.
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So you could say that the trust is already
constituted.
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So, to reiterate, where the settlor is the
trustee there's nothing for him to do to constitute
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this trust.
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He does however, of course, have to DECLARE
the trust; the trust doesn't just materialise
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from nowhere.
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But, if the trust property is pesonalty, he
can declare the trust (as this settlor has
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done here) by simply stating that from now
on he is holding his shares on trust and as
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it's a trust of personalty (it's not land);
he can do this orally.
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So if, for example, the father of the bride
stands up at the wedding reception and says,
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in front of all the family members and all
the friends, that he is making a wedding gift
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to the happy couple by saying that he is holding
his shares in the family company on trust
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for them; that's it - the trust becomes effective.
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Job done.
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Imagine the same scenario; the father of the
bride declares a trust of his shares but this
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time it's a trust by transfer to trustees;
so it's 'mode two' The declaration of trust
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is perfectly valid but, before the father
has time to complete a share transfer form
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to constitute this trust and transfer it to
the trustees, he suffers a fatal heart attack.
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So he hadn't done everything necessary to
transfer title to the trust property to the
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trustees before he died.
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Now in that situation it would be tempting
for the beneficiaries to argue why can't the
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court simply substitute mode 3 instead?
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That gets around the problem of this imperfect
gift of shares - it would solve the problem
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that the trust wasn't constituted.
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But, unfortunately for the intended beneficiaries,
Milroy v Lord states that you cannot do this
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- you can't substitute the intended mode for
a different mode.
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So you can't substitute the intended mode
2 (as it is in this case) for mode 3.
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Equity will not help the volunteer couple
- it [equity] won't perfect the gift by substituting
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the intended mode (which required a transfer
of title) with mode 3.
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So the core meaning of 'equity will not perfect
an imperfect gift' is that the court will
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not substitute a trust for a failed transfer.
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So you can't substitute mode 3 for mode 1
or more mode 2.
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In other words the property owner must get
it right and constitute the gift.
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So for each voluntary disposition that you
are looking at in a question; you need to
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identify the intended mode.
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So just so look at the wording and, usually,
it will be fairly straightforward.
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So here are just some examples for you, ''I
am giving you all my shares in BLS limited.
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Do what you like with them'.
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That would be evidence of an intention to
make an outright gift.
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The second one, "I am setting up a trust of
my shares in BSL limited.
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Tony and Tamzin will hold the shares on trust
for you until you're 25".
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In that case the intention is to use mode
2.
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The settlor wants to set up a trust by transfer.
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here is something for you to consider; when
you are looking at a question on 'Formalities
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and Constitution' and you run through the
three certainties very quickly (so you check
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that the certainty of subject matter and certainty
of objects) and usually they will be very
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very clear in a question that is essentially
on 'constitution'.
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And what I do is I deal with certainty of
intention last.
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So i look at subject matter and objects and
then I deal with certainty of intention at
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which point I would distinguish very clearly
between a trust by transfer to trustees and
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a trust where the property owner is declaring
himself a trustee.
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If you do it in that order it does avoid some
repetition and I think it helps the answer
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just flow a bit better.
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And then you need to see whether the gift
was perfected or not and if not then advise
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the beneficiary that prima facie equity will
not assist them by giving them a remedy.
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And, of course it's a gift, so they can't
sue for breach of contract.
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As I mentioned at the beginning of the video,
I am a private tutor in property law so if
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you are interested in in private tuition please
feel free to contact me.
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My details are on the slide there.
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I would also really appreciate it if you would
subscribe to my channel or 'like' or 'share'
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my videos as it really does make a difference.
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I am new to this so it will give me an incentive
to carry on.
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please also feel free to write comments in
the box about the video.
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I can't enter into a personal correspondence
about your particular assessment question
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in this way but if you have any comments to
make about the content of this video I would
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be delighted to hear from you.
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so now we have looked at the principle in
Milroy v Lord let's see how we can put that
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all together.
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On this slide I've just set out a common theme
to problem questions on formalities and constitution.
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I will be going through an example with you
in the final video but here is how an answer
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to a question involving constitution would
normally unfold.
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So you need to explain the relevant law and
apply it and then conclude whether the gift
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was perfect or not.
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If the gift is imperfect; you would need to
explain that the court won't substitute mode
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3 for the intended mode.
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And so you would conclude that, prima facie,
the court would not perfect this gift.
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But, as we'll see in the next video, this
can only be an interim conclusion because
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the case law has developed post Milroy v Lord
and there are various exceptions to this rule
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which might apply.
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I'm going to be having a look at some of the
most important exceptions in the next video.
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Thank you so much for watching.
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I hope that you found this video helpful.
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Ido also post on 'thestudentroom' in the 'law
study forum' occasionally, so if you want
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to have a look at some of the things that
I've been involved in in that chat room then
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please head over to that website.
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My username is 'bitesizelaw' and more recently
I'm 'lawschoolhack'.
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You can tell it's me by the watermelon logo.
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In my next video I'm going to be looking at
the developments since Milroy v Lord.
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Thank you again for watching good luck with
your studies.
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(Amanda Grant)
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you
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