Re Smith [1928] Ch. 915

Key Point

This case illustrated the application of the Saunders v Vautier rule in 3 different circumstances:

Where the trustee has the discretion as to the amount of funds to be applied a particular beneficiary, that beneficiary cannot demand the entire fund to be handed to him or direct its application
Where the trustee has the discretion as to the method but not to the amount of funds to be applied to a particular beneficiary, that beneficiary can demand the entire fund to be handed to him or direct its application
Where the trustee has the discretion as to the amount of funds to be applied to the first beneficiary, with the remainder to be applied to the second beneficiary, the two beneficiaries can together demand the entire fund to be handed to them or direct its application (demonstra

The Public Trustee held a fund on a discretionary trust for the benefit of Mrs Aspinall (A), with the remainder passing to her children in equal shares.
The Public Trustee had the discretion to determine the amount of funds to be distributed to A and whether it was to come from the income or capital of the funds
Mrs Aspinall was alive when all her children reached majority age. Subsequently, A and her children mortgaged their trust interests to the Legal and General Assurance Co.
The mortgagee sought payment of the whole income by the trustees until the mortgage was paid off

The Public Trustee was bound to pay the income from the trust fund to the mortgagee as the beneficiaries were entitled to direct the payment of funds to the mortgagee

‘Where there is a trust under which trustees have a discretion as to applying the whole or part of a fund to or for the benefit of a particular person, that particular person cannot come to the trustees, and demand the fund; for the whole fund has not been given to him but only so much as the trustees think fit to let him have. But when the trustees have no discretion as to the amount of the fund to be applied, the fact that the trustees have a discretion as to the method in which the whole of the fund shall be applied for the benefit of the particular person does not prevent that particular person from coming and saying: “Hand over the fund to me.”‘
‘What is to happen where the trustees have a discretion whether they will apply the whole or only a portion of the fund for the benefit of one person, but are obliged to apply the rest of the fund, so far as not applied for the benefit of the first named person, to or for the benefit of a second named person? There, two people together are the sole objects of the discretionary trust and, between them, are entitled to have the whole fund applied to them or for their benefit.’