Equity & Trusts - Covenants and After Acquired Property

This short lecture deals with situations where a person has made a promise in the form of a covenant under a deed to settle a trust for someone on after-acquired property; in other words property that they expect to receive in the future.

At the heart of this is a contradiction that a person cannot create a trust over property they do not have a proprietary interest in and yet a covenant is a legal promise that can be enforced in contract law as per Hall v Palmer [1844].

In theory this can be resolved by construing the covenant itself as property as was seen in Fletcher v Fletcher [1844] but this requires very clear wording to this effect.

As an alternative the parties can sue under contract law although the remedy of specific performance is only available if the beneficiaries have given consideration as per Pullan v Koe [1913]. If they have not then they may still be entitled to damages as in the later case of Cannon v Hartley [1949].

This area of the law was shaken up by the Contracts (Rights of Third Parties) Act 1999 which got around the concept of privity of contract in situations where a contract was made for the benefit of a third party. Now the third party can also sue under contract law.

Finally it is important to note that a ‘trustee’ cannot force the settlor to establish a trust when they do actually receive the property. Given that no trust is actually considered to exist this would be regarded as vexatious litigation and would only establish a resulting trust where the property would return to the settlor anyway.