Constitution of the trust - gifts vs trust (also confused)!

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suffocation1992
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Hi, any help would be appreciated.

I'm a little confused as to why the various books start this topic by discussing gifts and then move onto 'the trust must be validly constituted.'

Is this because gifts can be made in three ways (Milroy v Lord)
(i) outright gift
(ii) self-declaration of trust by settlor for a beneficiary
(iii) transferring the gift to a trustee to hold on trust for the beneficiary

So a gift will normally not fall within the realm of trusts law if it is effectively disposed of and vests in the donee. A trust WILL be required if the gift is 'imperfect' i.e. it never reaches the intended donee, or a promise to make the gift fails for whatever reason?? Is this correct?

So if there is an imperfect gift, there must be a validly constituted trust (by self declaration of transferring the trust to a trustee)?

Sorry,I am confused about the relationship between gifts and trusts and we went over it very quickly last year.
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jacketpotato
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The phrases "equity won't perfect an imperfect gift" and "trust must be validly constituted" are really just complicated ways of expressing the same thing.

Its all about legal title. To make a gift, you need to transfer legal title to the donee. To create a trust, the trustee needs to have legal title.

Both phrases express the idea that the law will not step in to save you if you haven't complied with the formalities necessary to transfer legal title. If you want to gift someone a chattel like a book, you must put the donee in possession. If you want to gift someone a car, you must put the donee's name on the logbook. If you want to gift someone a house, you must register the donee as owner. If you want to gift shares, you must ensure that the donee's name is on the company's register of shares. If you haven't done this, there is no valid gift and equity won't save you. In this paragraph you can substitute the words "donee" for "trustee" and "gift" for "trust".

Going back to the three ways of making a gift, we can see that (i) and (iii) require a transfer of legal title and (ii) doesn't.

Distinguish between trusts and gifts by looking at certainty of intention, not by looking at issues of title. Look at what was intended then look at whether the right formalities are in place. The distinction between a gift and transferring property to a trustee isn't important here because you need to transfer legal title in both cases. The important distinction is between gifts and declarations of trust; you will appreciate that a gift requires you to comply with the formalities to transfer legal title whereas holding something for someone else on trust does not.
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suffocation1992
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(Original post by jacketpotato)
The phrases "equity won't perfect an imperfect gift" and "trust must be validly constituted" are really just complicated ways of expressing the same thing.

Its all about legal title. To make a gift, you need to transfer legal title to the donee. To create a trust, the trustee needs to have legal title.

Both phrases express the idea that the law will not step in to save you if you haven't complied with the formalities necessary to transfer legal title. If you want to gift someone a chattel like a book, you must put the donee in possession. If you want to gift someone a car, you must put the donee's name on the logbook. If you want to gift someone a house, you must register the donee as owner. If you want to gift shares, you must ensure that the donee's name is on the company's register of shares. If you haven't done this, there is no valid gift and equity won't save you. In this paragraph you can substitute the words "donee" for "trustee" and "gift" for "trust".

Going back to the three ways of making a gift, we can see that (i) and (iii) require a transfer of legal title and (ii) doesn't.

Distinguish between trusts and gifts by looking at certainty of intention, not by looking at issues of title. Look at what was intended then look at whether the right formalities are in place. The distinction between a gift and transferring property to a trustee isn't important here because you need to transfer legal title in both cases. The important distinction is between gifts and declarations of trust; you will appreciate that a gift requires you to comply with the formalities to transfer legal title whereas holding something for someone else on trust does not.
Fantastic, thank you very much for clearing this up!
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Jilly.0
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(Original post by jacketpotato)
The phrases "equity won't perfect an imperfect gift" and "trust must be validly constituted" are really just complicated ways of expressing the same thing.

Its all about legal title. To make a gift, you need to transfer legal title to the donee. To create a trust, the trustee needs to have legal title.

Both phrases express the idea that the law will not step in to save you if you haven't complied with the formalities necessary to transfer legal title. If you want to gift someone a chattel like a book, you must put the donee in possession. If you want to gift someone a car, you must put the donee's name on the logbook. If you want to gift someone a house, you must register the donee as owner. If you want to gift shares, you must ensure that the donee's name is on the company's register of shares. If you haven't done this, there is no valid gift and equity won't save you. In this paragraph you can substitute the words "donee" for "trustee" and "gift" for "trust".

Going back to the three ways of making a gift, we can see that (i) and (iii) require a transfer of legal title and (ii) doesn't.

Distinguish between trusts and gifts by looking at certainty of intention, not by looking at issues of title. Look at what was intended then look at whether the right formalities are in place. The distinction between a gift and transferring property to a trustee isn't important here because you need to transfer legal title in both cases. The important distinction is between gifts and declarations of trust; you will appreciate that a gift requires you to comply with the formalities to transfer legal title whereas holding something for someone else on trust does not.
does the three certainties test of trusts apply to conditional gifts as well despite it being a trust principle then? i.e. If I want to give 10 horses out of my twenty to a friend, I need to segregate it out, or the gift will fail?
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jacketpotato
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(Original post by Jilly.0)
does the three certainties test of trusts apply to conditional gifts as well despite it being a trust principle then? i.e. If I want to give 10 horses out of my twenty to a friend, I need to segregate it out, or the gift will fail?
Yes - certainty of subject matter is a fundamental principle of property law because you can't have property rights if you don't know what the piece of property is. The law can't recognise a gift of "10 horses" unless there is some way to tell which 10 horses belong to the friend and which belong to you.

The only way to save such a gift would be understanding the words to mean "a 50% interest in each of the 20 horses" as per Re Goldcorp, but this is quite artificial and very difficult to do with something like horses.
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(Original post by jacketpotato)
Yes - certainty of subject matter is a fundamental principle of property law because you can't have property rights if you don't know what the piece of property is. The law can't recognise a gift of "10 horses" unless there is some way to tell which 10 horses belong to the friend and which belong to you.

The only way to save such a gift would be understanding the words to mean "a 50% interest in each of the 20 horses" as per Re Goldcorp, but this is quite artificial and very difficult to do with something like horses.
what if it is a testamentary gift and not an outright gift? My friend said s9 of the Wills Act will perfect the gift for you but does that apply to certainties of gifts too i.e. the executor has the legal title to decide on the subject matter?

Though that will be abit weird since a live transferor has the legal title to decide too...
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jacketpotato
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(Original post by Jilly.0)
what if it is a testamentary gift and not an outright gift? My friend said s9 of the Wills Act will perfect the gift for you but does that apply to certainties of gifts too i.e. the executor has the legal title to decide on the subject matter?

Though that will be abit weird since a live transferor has the legal title to decide too...
In the testamentary context the issues are slightly different. There are no strict property law issues with certainty of subject matter or constitution because legal title remains with the dead person's estate until the executor carries out the will.

Think about what constitution is and when it happens. To constitute a gift you need to transfer legal title to the donee. This doesn't happen just because you made a will or because you died, it happens when your executor (who acts on your behalf) actually transfers the property to you. That is the point at which you get a property right so that is the point at which we need to be able to identify the property. Simply because you have a valid will under s9 WA doesn't mean there is constitution - I could make a will leaving you a "red ferrari" but have never and may never own a car of that description, so logically I can't give you legal title to something that never existed.

If the will is ambiguous or we can't locate the property - e.g. the will says "10 horses to Fred" but the testator owned 20 horses - the law of wills has rules to deal with that, separate from the law of property. We only need to know which 10 horses they are at the time the executor gives them to you, I'm not a wills expert but understand that the executor would be able to select 10 horses out of the 20. The gift would become constituted when the executor puts you in possession of the 10 horses he selected, because legal title to chattels passes with possession.
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(Original post by jacketpotato)
In the testamentary context the issues are slightly different. There are no strict property law issues with certainty of subject matter or constitution because legal title remains with the dead person's estate until the executor carries out the will.

Think about what constitution is and when it happens. To constitute a gift you need to transfer legal title to the donee. This doesn't happen just because you made a will or because you died, it happens when your executor (who acts on your behalf) actually transfers the property to you. That is the point at which you get a property right so that is the point at which we need to be able to identify the property. Simply because you have a valid will under s9 WA doesn't mean there is constitution - I could make a will leaving you a "red ferrari" but have never and may never own a car of that description, so logically I can't give you legal title to something that never existed.

If the will is ambiguous or we can't locate the property - e.g. the will says "10 horses to Fred" but the testator owned 20 horses - the law of wills has rules to deal with that, separate from the law of property. We only need to know which 10 horses they are at the time the executor gives them to you, I'm not a wills expert but understand that the executor would be able to select 10 horses out of the 20. The gift would become constituted when the executor puts you in possession of the 10 horses he selected, because legal title to chattels passes with possession.
so the 3 certainties are needed in outright gifts and for testamentary gifts, we follow the wills act, which will enable executors to segregate the gift for us.

If the 3 certainties apply then, why doesn't the beneficiary rule apply to gifts (both outright and testamentary gifts) and testators/transferors are allowed to make gifts (e.g. to unincorporated associations) for a purpose?

can i just confirm that testamentary gifts AND outright gifts are both, not trusts?
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jacketpotato
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(Original post by Jilly.0)
so the 3 certainties are needed in outright gifts and for testamentary gifts, we follow the wills act, which will enable executors to segregate the gift for us.

If the 3 certainties apply then, why doesn't the beneficiary rule apply to gifts (both outright and testamentary gifts) and testators/transferors are allowed to make gifts (e.g. to unincorporated associations) for a purpose?

can i just confirm that testamentary gifts AND outright gifts are both, not trusts?
The requirements for a gift are intent to transfer title and delivery. These have the same function as certainty of intention and certainty of subject matter in trusts law.

There is no certainty of objects issue with gifts. The problem of objects does not arise because the donee is the beneficiary. There is no separation of legal and equitable title; equity follows the law and the donee becomes the owner of the gift in both law and equity. The donee simply becomes the owner of the property. He can do whatever he wants with that property regardless of the donor's purpose.

The reason we have the beneficiary rule for private purpose trusts is that an abstract purpose can't have property rights and can't enforce them. The problem doesn't arise for gifts because there is no separation of legal and equitable title; there is no need for the beneficiary (or equitable owner) to enforce his interests against the trustee (or legal owner) because they are the same person.

If the donor wants to limit the use of the property in a legally enforceable way he would either need to retain an equitable interest in the property (i.e. a trust) or he would need to use a contract where a promise to use the property in a certain way is the consideration. Either way it would no longer be a gift.
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(Original post by jacketpotato)
The requirements for a gift are intent to transfer title and delivery. These have the same function as certainty of intention and certainty of subject matter in trusts law.

There is no certainty of objects issue with gifts. The problem of objects does not arise because the donee is the beneficiary. There is no separation of legal and equitable title; equity follows the law and the donee becomes the owner of the gift in both law and equity. The donee simply becomes the owner of the property. He can do whatever he wants with that property regardless of the donor's purpose.

The reason we have the beneficiary rule for private purpose trusts is that an abstract purpose can't have property rights and can't enforce them. The problem doesn't arise for gifts because there is no separation of legal and equitable title; there is no need for the beneficiary (or equitable owner) to enforce his interests against the trustee (or legal owner) because they are the same person.

If the donor wants to limit the use of the property in a legally enforceable way he would either need to retain an equitable interest in the property (i.e. a trust) or he would need to use a contract where a promise to use the property in a certain way is the consideration. Either way it would no longer be a gift.
OMG jacketpotato u are literally the saviour of the day for me! So no, three certainties are just for trusts, but certain principles of gifts look similar to the three certainties test, since gifts will fail for want of intention/segregation of subject matter except in testamentary gift cases-yes?

Last qn: Are both testamentary gifts and outright gifts not trusts? Cos I know for one that the legal title goes to the executor before it reaches the intended "beneficiary" of the gift which makes it look like a trust. Or maybe testamentary gifts are trusts and outright gifts aren't? My question arose because, not so much for outright gifts but testamentary gifts can be a conditional gift situation which makes them subject to trust rules for want of certainty of objects ( like in Re Allen, or in cases where the testator says "give my painting to the prettiest girl in my family").
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jacketpotato
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(Original post by Jilly.0)
OMG jacketpotato u are literally the saviour of the day for me! So no, three certainties are just for trusts, but certain principles of gifts look similar to the three certainties test, since gifts will fail for want of intention/segregation of subject matter except in testamentary gift cases-yes?

Last qn: Are both testamentary gifts and outright gifts not trusts? Cos I know for one that the legal title goes to the executor before it reaches the intended "beneficiary" of the gift which makes it look like a trust. Or maybe testamentary gifts are trusts and outright gifts aren't? My question arose because, not so much for outright gifts but testamentary gifts can be a conditional gift situation which makes them subject to trust rules for want of certainty of objects ( like in Re Allen, or in cases where the testator says "give my painting to the prettiest girl in my family").
On reflection, I want to backtrack from what I said previously about wills - I have thought about this and have got myself in a bit of a pickle between English law and the succession/property/trust laws of another common law jurisdiction I have recently studied.

My understanding of English law - bearing in mind that its been 3-years since I studied this - is that you do need certainty of subject matter and the other certainties when making dispositions in a will because English wills are trusts - the executor holds property on trust for the beneficiaries. If a problem question presents you with a will, the provisions of that will would need to comply with the three certainties so you would talk about the three certainties and constitution if these are problematic issues.

Outright gifts are not trusts because there is never any separation of legal and equitable ownership. Legal title to the property and the beneficial interest in the property pass at the same time. If legal title hasn't passed for whatever reason, it the gift is incomplete and ineffective.
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(Original post by jacketpotato)
On reflection, I want to backtrack from what I said previously about wills - I have thought about this and have got myself in a bit of a pickle between English law and the succession/property/trust laws of another common law jurisdiction I have recently studied.

My understanding of English law - bearing in mind that its been 3-years since I studied this - is that you do need certainty of subject matter and the other certainties when making dispositions in a will because English wills are trusts - the executor holds property on trust for the beneficiaries. If a problem question presents you with a will, the provisions of that will would need to comply with the three certainties so you would talk about the three certainties and constitution if these are problematic issues.

Outright gifts are not trusts because there is never any separation of legal and equitable ownership. Legal title to the property and the beneficial interest in the property pass at the same time. If legal title hasn't passed for whatever reason, it the gift is incomplete and ineffective.
Right, so testamentary gifts are a form of trust while outright gifts are not?

What is the explanation for the lack of the need for 3 certainties in outright gifts then? Or do you stand by what you said about it needing the 3 certainties but we do not call them 3 certainties under trust principles, but failing for want of intention and delivery under the Milroy case?
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Neither form of gift needs the three certainties, since you can make a testamentary or outright gift to an unincorporated association or a company where it would normally fail for lack of certainty of objects if you tried to make a trust in their favour.
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(Original post by Jilly.0)
Right, so testamentary gifts are a form of trust while outright gifts are not?

What is the explanation for the lack of the need for 3 certainties in outright gifts then? Or do you stand by what you said about it needing the 3 certainties but we do not call them 3 certainties under trust principles, but failing for want of intention and delivery under the Milroy case?
Traditionally, the requirements for a gift are described as (1) intent and (2) delivery. Intent is about intent to transfer legal title and delivery is about actually passing legal title. If you are getting confused, I wouldn't overcomplicated it - just remember that gifts need intent and delivery and trusts need the three certainties plus constitution.

The logic of the intent requirements is simply to work out what the settlor/donor is trying to achieve. Is he trying to make a gift or is he trying to make a trust? In questions where certainty of intention is at issue, the problem is likely to be distinguishing between whether A intended to make an absolute gift to B (albeit with the hope that B uses the gift for C's benefit), or whether he intended for B to hold the property on trust for C.

The point of the certainty of subject matter requirement is we have to know what the trust property is. You can't say that a beneficiary has property rights if you don't know what property he has an interest in.

Its similar with gifts. With a gift, we obviously have to know what property is actually being gifted. But this is covered by the "delivery" requirement: the gifted property is the property in which legal title passes to the donee. Accordingly, the "certainty of subject matter" and "constitution" requirements for a trust are both covered by "delivery": we need to pass legal title, but you can only pass legal title if the property is identifiable.

We need to consider certainty of subject matter and constitution separately in trusts law. Although the property must always be identifiable and the trustees must always have legal title to the property, we can have a situation where legal title doesn't actually change (if legal title had to change, that would incorporate certainty of subject matter because you can only transfer legal title in identifiable property). For example, A can declare that he holds some of his property on trust for B.

Certainty of objects wouldn't make any sense with gifts. With a trust, A gives property to B who holds it for C. Certainty of objects is about knowing who C is. With a gift, A gives property to B. We don't need a requirement of certainty of objects because there are no objects, there is no C in the equation because legal and equitable title stay together.

Thinking of it in this way, for a gift the requirements are a bit like certainty of intention (intent to pass legal title) and constitution (need to actually pass legal title). We don't need a separate requirement of certainty of subject matter because the property must be identifiable in the first place for there to be a transfer of legal title. We don't need any certainty of objects requirement.
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(Original post by jacketpotato)
Traditionally, the requirements for a gift are described as (1) intent and (2) delivery. Intent is about intent to transfer legal title and delivery is about actually passing legal title. If you are getting confused, I wouldn't overcomplicated it - just remember that gifts need intent and delivery and trusts need the three certainties plus constitution.

The logic of the intent requirements is simply to work out what the settlor/donor is trying to achieve. Is he trying to make a gift or is he trying to make a trust? In questions where certainty of intention is at issue, the problem is likely to be distinguishing between whether A intended to make an absolute gift to B (albeit with the hope that B uses the gift for C's benefit), or whether he intended for B to hold the property on trust for C.

The point of the certainty of subject matter requirement is we have to know what the trust property is. You can't say that a beneficiary has property rights if you don't know what property he has an interest in.

Its similar with gifts. With a gift, we obviously have to know what property is actually being gifted. But this is covered by the "delivery" requirement: the gifted property is the property in which legal title passes to the donee. Accordingly, the "certainty of subject matter" and "constitution" requirements for a trust are both covered by "delivery": we need to pass legal title, but you can only pass legal title if the property is identifiable.

We need to consider certainty of subject matter and constitution separately in trusts law. Although the property must always be identifiable and the trustees must always have legal title to the property, we can have a situation where legal title doesn't actually change (if legal title had to change, that would incorporate certainty of subject matter because you can only transfer legal title in identifiable property). For example, A can declare that he holds some of his property on trust for B.

Certainty of objects wouldn't make any sense with gifts. With a trust, A gives property to B who holds it for C. Certainty of objects is about knowing who C is. With a gift, A gives property to B. We don't need a requirement of certainty of objects because there are no objects, there is no C in the equation because legal and equitable title stay together.

Thinking of it in this way, for a gift the requirements are a bit like certainty of intention (intent to pass legal title) and constitution (need to actually pass legal title). We don't need a separate requirement of certainty of subject matter because the property must be identifiable in the first place for there to be a transfer of legal title. We don't need any certainty of objects requirement.
I asked my tutor, also an academic, and he mentioned that three certainties are needed apparently..for gifts... If there is a purpose gift, there will be an implied purpose trust, which will fail for want of beneficiaries. If I give you £10 and say that must be for cleaning your windows, it will be an implied trust because outright gifts must be at free disposal of the transferee
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(Original post by Jilly.0)
I asked my tutor, also an academic, and he mentioned that three certainties are needed apparently..for gifts... If there is a purpose gift, there will be an implied purpose trust, which will fail for want of beneficiaries. If I give you £10 and say that must be for cleaning your windows, it will be an implied trust because outright gifts must be at free disposal of the transferee
This is a definitional difference. If its a gift subject to an enforceable condition, its not an (outright) gift.

If the donor wants to enforce a condition over a piece of property (rather than a contractual right), he can only achieve this by way of a trust. If you tell someone "you can have my car, but I want a right to ensure you can only use it to drive my kid to soccer practice" that's not an outright gift if you are retaining an equitable interest in the car.
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(Original post by Jilly.0)
I asked my tutor, also an academic, and he mentioned that three certainties are needed apparently..for gifts... If there is a purpose gift, there will be an implied purpose trust, which will fail for want of beneficiaries. If I give you £10 and say that must be for cleaning your windows, it will be an implied trust because outright gifts must be at free disposal of the transferee
If I give a £10 note to McDonalds (the company) then it will be a valid gift. However, I cannot leave £10 on trust for the benefit of McDonalds, because there are no objects.

So clearly the three certainties cannot apply to gifts since in particular, certainty of objects doesn't apply. Indeed speaking of 'objects' doesn't make sense in terms of gifts. The objects of a trust are the people with an equitable interest in the subject matter. If I gift McDonalds £10 there is no equitable interest in that £10.
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If I give a £10 note to McDonalds (the company) then it will be a valid gift. However, I cannot leave £10 on trust for the benefit of McDonalds, because there are no objects.

So clearly the three certainties cannot apply to gifts since in particular, certainty of objects doesn't apply. Indeed speaking of 'objects' doesn't make sense in terms of gifts. The objects of a trust are the people with an equitable interest in the subject matter. If I gift McDonalds £10 there is no equitable interest in that £10.
If u give £10 to polish Macdonalds' windows, it's already not a gift. It's an implied trust. At least tts what my tutor said.
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(Original post by Jilly.0)
If u give £10 to polish Macdonalds' windows, it's already not a gift. It's an implied trust. At least tts what my tutor said.
Remember that you need certainty of intention. You'd have to intend there to be a trust - i.e. retain an equitable interest - or the necessary intent isn't present. There is a difference between a situation where I give you £10 and merely hope you will use it to buy books (gift) and give you £10 while intending that you can only spend the money on boks (trust).

See http://en.wikipedia.org/wiki/Quistcl...in_English_law. This area will make more sense once you have studied resulting trusts and quistclose trusts.
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(Original post by Jilly.0)
If u give £10 to polish Macdonalds' windows, it's already not a gift. It's an implied trust. At least tts what my tutor said.
Yes, but you said that gifts required the 3 certainties.

I didn't say anything about giving McDonalds £10 to polish their windows, I said that I was giving McDonalds £10. What they do with it is their business. That is the definition of a gift, and it requires no certainty of objects!

I'm not even entirely convinced that gifts require certainty of intention either. Consider the situation where a company sends an unsolicited product to your house, asking you to either return it or pay the price. In English law, that is a gift, you can just keep it and not pay the price - but it also seems certain that the intention of the company was not to make a gift.
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