Cy pres doctrine
Encyclopedia
The cy-près doctrine is a legal doctrine
that first arose in courts of equity. The term can be translated (from old Norman French to English) as "as near as possible" or "as near as may be." The doctrine originated in the law of charitable trusts, but has been applied in the context of class action
settlements in the United States.
When the original objective of the settlor or the testator became impossible, impracticable, or illegal to perform, the cy-près doctrine allows the court
to amend the terms of the charitable trust
as closely as possible to the original intention of the testator
or settlor
, to prevent the trust from failing.
For example, in Jackson v. Phillips, the testator
bequeathed to trustees money to be used to "create a public sentiment that will put an end to negro slavery in this country." After slavery was abolished by the Thirteenth Amendment to the United States Constitution
, the funds were applied cy-près to the "use of necessitous persons of African descent in the city of Boston and its vicinity."
under which property disposed of otherwise than to a legal heir was subject to forfeiture in certain circumstances. Following abolition of mortmain, the modern application of the cy-près doctrine has predominantly occurred in relation to charities as these are the most important trusts for a general purpose (not private benefit) permitted under English law.
The Charity Commission for England and Wales has the statutory power to apply the cy-près doctrine on behalf of a charity where, for example, no trustees remain in a charity or the necessary mandate cannot be agreed. These powers extend to a corporate charity or unincorporated association (which the common law rules may not cover). Similar powers apply to the equivalent bodies in Northern Ireland and Scotland. The cy-près doctrine will not be applied where a charity has alternative powers to redirect its funds under its constitution.
In jurisdictions which have retained the English cy-près doctrine but do not have an equivalent state body to the Charity Commission (or in relation to foreign charities' assets in the United Kingdom), charity trustees may seek the approval of the Court to their entry into cy-près arrangements to avoid later accusations of breach of trust.
there is a Uniform Trust Code ("UTC"), which is a model code that various jurisdictions (e.g. states
) may adopt by statute
.
The UTC codifies that cy-près applies only to charitable trust
s where the original particular purpose of the trust has become impossible or impracticable, and the terms of the trust do not specify what is to happen in such a situation.
The UTC provides, in part, that "if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful ... the court may apply cy-près to modify or terminate the trust ... in a manner consistent with the settlor’s charitable purposes."
However, the UTC further provides that the court may not apply cy-près where "[a] provision in the terms of a charitable trust ... would result in distribution of the trust property to a noncharitable beneficiary" and also that cy-près may not be used to violate the rule against perpetuities
.
The UTC also contains a cy-près rule for noncharitable trusts. It provides that "[t]he court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust." This power over trusts other than charitable trusts is not found in English law, or in most common law jurisdictions outside the United States.
Supreme Court endorsed cy-près mechanisms in class action settlements, and other American courts followed. Cy-près mechanisms allow money to be used to promote the interests of class members, rather than reverting to a defendant, which could be seen as a windfall to a defendant charged with breaking the law. Judge Richard Posner
has argued that the term is a misnomer
in the class action context, because cy-près awards serve a punitive effect. Some commentators have criticized the use of cy-près settlements; the American Law Institute
's Draft of the Principles of the Law of Aggregate Litigation proposes limiting cy-près to "circumstances in which direct distribution to individual class members is not economically feasible, or where funds remain after class members are given a full opportunity to make a claim."
Doctrine
Doctrine is a codification of beliefs or a body of teachings or instructions, taught principles or positions, as the body of teachings in a branch of knowledge or belief system...
that first arose in courts of equity. The term can be translated (from old Norman French to English) as "as near as possible" or "as near as may be." The doctrine originated in the law of charitable trusts, but has been applied in the context of class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
settlements in the United States.
When the original objective of the settlor or the testator became impossible, impracticable, or illegal to perform, the cy-près doctrine allows the court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
to amend the terms of the charitable trust
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
as closely as possible to the original intention of the testator
Testator
A testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
or settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
, to prevent the trust from failing.
For example, in Jackson v. Phillips, the testator
Testator
A testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
bequeathed to trustees money to be used to "create a public sentiment that will put an end to negro slavery in this country." After slavery was abolished by the Thirteenth Amendment to the United States Constitution
Thirteenth Amendment to the United States Constitution
The Thirteenth Amendment to the United States Constitution officially abolished and continues to prohibit slavery and involuntary servitude, except as punishment for a crime. It was passed by the Senate on April 8, 1864, passed by the House on January 31, 1865, and adopted on December 6, 1865. On...
, the funds were applied cy-près to the "use of necessitous persons of African descent in the city of Boston and its vicinity."
Application in England and Wales
The cy-près doctrine applied in England and Wales limited the strictness of the rules of mortmainMortmain
Mortmain is a legal term that means ownership of real estate by a corporation or legal institution that can be transferred or sold in perpetuity; the term is usually used in the context of its prohibition...
under which property disposed of otherwise than to a legal heir was subject to forfeiture in certain circumstances. Following abolition of mortmain, the modern application of the cy-près doctrine has predominantly occurred in relation to charities as these are the most important trusts for a general purpose (not private benefit) permitted under English law.
The Charity Commission for England and Wales has the statutory power to apply the cy-près doctrine on behalf of a charity where, for example, no trustees remain in a charity or the necessary mandate cannot be agreed. These powers extend to a corporate charity or unincorporated association (which the common law rules may not cover). Similar powers apply to the equivalent bodies in Northern Ireland and Scotland. The cy-près doctrine will not be applied where a charity has alternative powers to redirect its funds under its constitution.
In jurisdictions which have retained the English cy-près doctrine but do not have an equivalent state body to the Charity Commission (or in relation to foreign charities' assets in the United Kingdom), charity trustees may seek the approval of the Court to their entry into cy-près arrangements to avoid later accusations of breach of trust.
Model Code
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
there is a Uniform Trust Code ("UTC"), which is a model code that various jurisdictions (e.g. states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
) may adopt by statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
.
The UTC codifies that cy-près applies only to charitable trust
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
s where the original particular purpose of the trust has become impossible or impracticable, and the terms of the trust do not specify what is to happen in such a situation.
The UTC provides, in part, that "if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful ... the court may apply cy-près to modify or terminate the trust ... in a manner consistent with the settlor’s charitable purposes."
However, the UTC further provides that the court may not apply cy-près where "[a] provision in the terms of a charitable trust ... would result in distribution of the trust property to a noncharitable beneficiary" and also that cy-près may not be used to violate the rule against perpetuities
Rule against perpetuities
The common law rule against perpetuities forbids some future interests that may not vest within the time permitted; the rule "limit[s] the testator's power to earmark gifts for remote descendants"...
.
The UTC also contains a cy-près rule for noncharitable trusts. It provides that "[t]he court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust." This power over trusts other than charitable trusts is not found in English law, or in most common law jurisdictions outside the United States.
United States class actions
In 1986, the CaliforniaCalifornia
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
Supreme Court endorsed cy-près mechanisms in class action settlements, and other American courts followed. Cy-près mechanisms allow money to be used to promote the interests of class members, rather than reverting to a defendant, which could be seen as a windfall to a defendant charged with breaking the law. Judge Richard Posner
Richard Posner
Richard Allen Posner is an American jurist, legal theorist, and economist who is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago and a Senior Lecturer at the University of Chicago Law School...
has argued that the term is a misnomer
Misnomer
A misnomer is a term which suggests an interpretation that is known to be untrue. Such incorrect terms sometimes derive their names because of the form, action, or origin of the subject becoming named popularly or widely referenced—long before their true natures were known.- Sources of misnomers...
in the class action context, because cy-près awards serve a punitive effect. Some commentators have criticized the use of cy-près settlements; the American Law Institute
American Law Institute
The American Law Institute was established in 1923 to promote the clarification and simplification of American common law and its adaptation to changing social needs. The ALI drafts, approves, and publishes Restatements of the Law, Principles of the Law, model codes, and other proposals for law...
's Draft of the Principles of the Law of Aggregate Litigation proposes limiting cy-près to "circumstances in which direct distribution to individual class members is not economically feasible, or where funds remain after class members are given a full opportunity to make a claim."