The Beneficiary Principle and Unincorporated Associations

The Beneficiary Principle and Unincorporated Associations

Introduction

An association is described as any group of persons that come together in the pursuit of common goals or purposes. Such a definition also incorporates partnership and companies that have come together for profit making purposes. Associations also refer to groups of people coming together for a common purpose that may involve non-profit making business. Such organizations may be formed for religious, literary, educational, scientific, or community-wide benefits (Reed 2010). Administration of unincorporated associations is problematic and complex due to the fact that they are not regulated by a particular piece of legislation. For charities requesting donations from the public, there may be a requirement to have the association registered under particular state laws.

The case study for consideration in this paper is the Brighton Orchid Growing Society; an unincorporated association made up of one hundred members. The society planned a ball that raised 10000 that was to go towards the construction of a glass house. The society was a beneficiary of Annabelle’s will of the 1 million contribution that was specifically for the purposes of orchid growing in Sussex and the erection of a physical structure. Following the winding up of the society due to the ecological concerns of orchid growing, the problem lies in the administration of assets under the society. Within the society’s assets are the contributions from the ball and the contribution from Annabelle. There are different considerations as to the administration of the assets of the society such as the return of the contributions or the passing of the contribution to another society.

The Society as an Unincorporated Association

As defined in the introduction, an unincorporated association comes about from the grouping of individuals with a common purpose. An unincorporated does not go through the process of the formal creation of a company (Edwards and Stockwell 2011). The informal creation of an unincorporated association implies that it lacks a legal personality with which to guide certain areas of administration of the association. In most cases, such an association begins with a small number of individuals due to the cheap structure and informality in its administration (Brown 2009). As the membership of the association increases, its running becomes more complex and complicated. The complicated and complex nature of the association becomes the beginning of legal issues not only in its running and administration, but also during its dissolution and addressing of the assets and liabilities (Reed and Ambrose 2007).

The Brighton Orchid Growing Society can be viewed from the dimension of an unincorporated association due to the nature of its operation. Being an orchid growing society, the society may have begun with few members to its current stature of 100 members. The mutual undertakings of the society are orchid growing, and the members of the society have mutual duties, rights, and obligations. In relation to the Income Tax Act of 1970 section 526 (5), an unincorporated association is seen as a non-profit making organization that has no commercial basis and membership is contractual (Durojaiye 2013). The creation of a contract between members of the association is supposed to have terms that define its operation, membership, as well as dissolution and addressing of the assets held by the association (Panesar 2008).

The lack of a legal personality by associations such as the Brighton Society means that there is no legally defined approach to addressing assets within the society. In such a case, ownership of the assets by the society is under the vestment of the treasurer and the association’s officers (Durojaiye 2013). The assumption by members is that the assets held by the officers are for the purposes of the association and cannot be held on trust, as it will offend the rule of perpetuities and the beneficiary principle. Following the general meeting by Brighton Orchids, the decision was that the society would wind up its operations. The treasurer was informed on the decision that involved the sharing of assets according to membership shares. The implication is that within the society’s contractual agreement was the stipulation to share the society’s assets according to shares held by current members. Having no legal personality and with the decision of winding up and sharing of the assets being unanimous among the members, the society did not flout any legal stipulations.

The Beneficiary Principle in Unincorporated Associations

Within the English trusts, laws are the beneficiary principle instituted for the governing of trusts and trust property. According to the beneficiary principle, trusts with no charitable objects and that fail to make the trust property available to the defined beneficiaries are void (Morice v Bishop of Durham 1804). The definition implies that unless the trust is a charitable organization, there must be a definite object to which the court can decree performance in favor (Morice v Bishop of Durham 1804). The definite object as provided in the definition refers to an individual to whom the court can rule in favor. The beneficiary principle may be seen as problematic and frustrating to the settlor who wishes to benefit a particular object that is beyond the definition of a charity (Palowski 2002). The court upholds such a definition and requirement of the beneficiary principle as it is likely for the trustee to breach the trust obligation (Brown 2007).

In the Brighton Orchid scenario, the society became the trustee following Annabelle’s death. The trust would be for purposes of erecting a bronze statue and the cultivation of orchids in Sussex forever. The trust by Annabelle has no defined beneficiary who can ensure that the trust meets its obligation. The beneficiary of the trust is one responsible with the enforcing of the trust such that the trust becomes void once there is no defined beneficiary (Re Recher’s will trust 1972). The voiding of such a trust is because, unlike an individual, an object cannot complain to the court (Durojaiye 2013). The lack of an enforcer in Annabelle’s trust to the Society makes the trust invalid. The invalidity of the trust by Annabelle to which the Society is the trustee implies that the legal recourse by Beatrice and other members unsatisfied with the Society’s decision is hard to ascertain.

From the beneficiary principle, trusts that have no human beneficiary have been regarded as invalid, and this has led to their dismissal by the courts. There are other instances where the court has upheld a trust even without human beneficiaries. One of the trusts within this exception grouping is the trusts for the erection of monuments or graves (Palowski and Brown 2012). Annabelle’s will was that the Society would continue the growing of orchids in Sussex forever, and erect a monument for the Lady Slipper orchid. As such, part of Annabelle’s trust falls within the exception by the law and is classified in the imperfect obligations. Being an imperfect obligation implies that the trust is valid but the court cannot compel the trustee to enforce the trust and are thus a concession to sentiment and human weakness (Palowski and Summers 2007). In this case, Beatrice and other unsatisfied people cannot seek a legal redress in this situation as the discretion is solely on the trustee.

Dissolution and Surplus Assets

As previously discussed, assets in an unincorporated association are shared depending on the membership shares. The contributions made by the fancy dress ball become assets to the society as they build their glass house; however, they are first considered as gifts to the Society. Gifts to an unincorporated association such as the Brighton Society can be viewed from a contract holding theory perspective. In the contract holding theory, a gift is made to the association for purposes stipulated by the association and subject to the association’s constitution. Gifts such as the contributions made in the gala do not offend the perpetuities rule or the beneficiary principle (Atkins 2007). The gifts made were for the purposes of constructing a glass house, and whether or not this purpose was achieved, the gifts are held as property belonging to the association and subject to the contract holding theory. From the contract holding theory, gifts to the associations can be used for the purposes agreed upon by the members who are held together by the association’s constitution (Pearce and Barr 2014). Though it lies in ethics and morality to uphold the purpose for which the gift was intended, the Society has the discretion to change the direction of use of the gift, and the contributor has little control over the gift (Mathews 1995; Ramjohn 2004).

Transfer of gifts to an association means that the gift is construed for the benefit of its members, and to be collectively enjoyed (Ramjohn 2007). The gift is thus an accretion to the association’s capital and is an addition to the Society’s capital. The terms of the contract binding the members of the Society determine the outcome of assets held by members of the association. The mutual contract enables the termination of the society and the determination of the distribution of the property held by the Society. With the accretion of the funds for the glass house to the Society’s capital, the distribution of the assets will be according to the constitution or determination by the members (Hudson 2013). In this case, the members determined that the assets would be distributed according to membership shares, and this is in line with the contract holding theory of gifts made to the association. The contract holding theory is also a valid approach to holding of property by associations, and it satisfies the beneficiary principle, as the members are the Society’s beneficiaries (Davis Virgo and Burn 2013).

During dissolution, the contributions can be treated as assets that can be shared between members or can be returned to the known contributors. The distribution of assets according to the membership subscription is seen as a resulting trust that comes up following the failure of the express trust (Baughen 2010). An express trust comes about during the subscription of membership in the association/society. Considering that the society is a non-charitable association, the express trust is voided for going against the beneficiary principle (Luxon 2007). As such, a resulting trust comes about from the voiding of the express trust and like the contract holding theory, the current members of the association are the beneficiaries (Warburton 1985).

Questions may arise as to what happens to the contributions made by past members who may not benefit from the dissolution of the Society. For the contributions made by past members to the society, the contributions become accumulated funds to the society and are the society’s assets. The consideration is that the property of the former becomes the property of the latter (Durojaiye 2013). The implication is that excess funds of the Society are the properties of the current members of the Society to which previous members cannot lay claim. As such, Annabelle as a former member of the Society cannot lay claim to her share of the assets. Beatrice, Annabelle’s daughter, may wish to claim her mother’s share, but the lack of a legal provision implies that this discretion also lies with the current members of the Society from a concession of human weakness.

On the issue of Annabelle’s trust, the Society may be obliged to erect the statue as intended by Annabelle, and through the provision of the imperfect obligation. The implication is that one aspect of the trust is dealt with, but the issue on the cultivation of orchids in Sussex remains contentious. Annabelle as the testator intended to form a trust that is not only for the help of prevailing associates but also for the continued benefit of the orchid growing society. The trust on the cultivation of orchids in Sussex does not stipulate whether the intended benefit is towards the Brighton Society or for other purposes. Another factor of consideration is the perpetuity in the orchid cultivation that is bestowed upon the Brighton Orchid Society. The trust can be regarded as valid on the basis that it was intended for the benefit of the Society and its future members. The dissolution of the Society implies that the members are the current and the future beneficiaries of the trust and can therefore directly benefit from trust through the contract holding theory. On the other hand, if the intention was for the charitable benefit of other individuals or institutions, the Society may be compelled to transfer the trust to another association aligned to such a purpose.

The raffle tickets and the donations made by community members are regarded as gifts to the unincorporated association and are thus held under the contract holding theory. From the contract holding theory, the members are the beneficiaries and stand to gain from the assets of the society following its dissolution. Beatrice and the unhappy people who attended the ball have no control over the contributions made by the Society or the will left by Annabelle. The lack of a legal position by unincorporated society leaves the administration of most functions to the mutual understanding by members and their concession to human weakness. The Society is indebted through the imperfect obligation to erect a statue according to Annabelle’s will. Once the Society fails to uphold this obligation, Beatrice can seek legal redress in the matter. Regarding the trust for the cultivation of orchids, the Society can argue that they were the intended beneficiaries and will benefit from the trust by sharing the funds according to the membership shares. The members share the surplus funds of the society after adhering to its obligations according to the determination.

 

 

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