#constitution #equity #law
Enforcement of Covenants to Settle
- Consideration given The parties to the marriage, and the issue of it, are within the marriage consideration, that is to say, equity treats them as though they had given consideration; so they are not volunteers. In Pullan v Koe [1913] 1 Ch 9, the covenant was enforceable on behalf of the children of the marriage, who could trace the wife’s after-acquired £285 as trust property (as soon as acquired by equity looking on as done that which ought to be done) into bonds purchased by her husband with the money.
- No consideration In contrast to this, the covenant was not enforced in Re Plumptre’s Marriage Settlement [1910] 1 Ch 609. The trustees could not specifically enforce the covenant in equity in favour of next of kin, as they were not within the marriage consideration and so were volunteers.
- Beneficiary a party to the covenant Where the beneficiary is a party to the covenant to settle and the settlor refuses or fails to settle the covenanted property, the beneficiary can sue on the covenant. Specific performance in equity will not be available, assuming there is no consideration for the covenant, but damages at common law will be. In Cannon v Hartley [1949] Ch 213 under a deed of separation made between H, W and their daughter, H covenanted to settle after-acquired property on certain trusts benefiting W and the daughter. When H later acquired the covenanted property, he refused to settle it. His daughter sued for damages. Romer J distinguished Re Kay’s Settlement and Re Pryce (see below), saying: In the present case the plaintiff [the daughter], although a volunteer, is not only a party to the deed of separation but is also a direct covenantee under the very covenant upon which she is suing ... She is not asking for equitable relief but for damages at common law for breach of covenant. He ordered H to pay damages for breach of covenant.
- No consideration and beneficiary not a party Where the benefit of the covenant itself is not property held on trust because there was no intention to create a trust of the covenant itself, equity will not grant specific performance of the covenant if there is no consideration. Unless the beneficiaries were parties to the covenant (uncommon), they could not sue for damages at common law, under the general rule that only the parties to the contract can sue on it – Tweddle v Atkinson (1861) 1 B & S 393. An alternative might be for the trustees, who commonly are parties, to sue for damages for breach of covenant. However, several first instance decisions suggested they cannot do so as it ‘would be to give the [beneficiaries] by indirect means relief they cannot obtain by any direct procedure’– Re Pryce [1917] 1 Ch 234. Note, similarly, Re Kay’s Settlement [1939] Ch 329 and Re Cook’s Settlement Trusts [1965] Ch 902. Indeed, since ex hypothesi, the benefit of the covenant itself was not held on trust for the beneficiaries, any damages that represented the traceable value of the covenant could not be held on trust for them, neither could the trustees beneficially retain the damages for themselves. Such damages could only be held on a resulting trust for the settlor, which makes it pointless to permit the trustees to sue the settlor on his covenant
- Effect of Contracts (Rights of Third Parties) Act 1999 Where a beneficiary is not a party to the deed, the rules on ‘privity of contract’ prevented him suing at common law – Tweddle v Atkinson. The Contracts (Rights of Third Parties) Act 1999, s1 provides that, where a term of a contract purports to confer a benefit on a third party, they may enforce the term in their own right, unless it appears the parties did not intend this – s 1(2). It remains to be seen how the courts will apply this to covenants to settle, in particular with regard to whether a gratuitous promise in a deed can be regarded as a contract and to the question of intention under s 1(2). It may be that in the absence of expressly creating a completely constituted trust of the covenant, a settlor will be regarded as not intending the covenant to be enforceable by beneficiaries already benefiting from property vested in their trustees. If the beneficiary can sue under this Act, they can obtain any remedy that would have been available had they been a party – s 1(5). This would appear to put the beneficiary in the same position as the daughter in Cannon v Hartley – i.e. they could obtain damages at common law but not, in the absence of consideration, specific performance.
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