THE TRUSTS ACT, 1882, PART 1

(II of 1882)

[28th January, 1882]

An Act to define and amend the law relating to Private Trusts and Trustees.

Preamble. WHEREAS it is expedient to define and amend the law relating to private trusts and trustees; it is hereby enacted as follows:-

CHAPTER I

PRELIMINARY

  1. Short title .Commencement.- This Act may be called “The [***] Trusts Act, 1882”: and it shall come into force on the first day of March, 1882.

Local extent. Savings.- [It extends to [the whole of [the Punjab.]]. But nothing herein contained affects the rules of [Muslim] law as to waqf, or the mutual relations of the members of an undivided family as determined by any customary or

personal law, or applies to public or private religious or charitable endowments, or to trusts to distribute prizes taken in war among the captors; and nothing in the second Chapter of this Act applies to trusts created before the said day.

  1. [Repeal of enactments.- *****]
  2. Interpretation– “trust”: A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and

accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner:

“author of the trust”: “trustee”: “beneficiary”: “trust property”: “beneficial interest”: “instrument of trust”: The person who reposes or declares the confidence is called the “author of the trust”: the person who accepts the confidence is called the “trustee” : the person for whose benefit the confidence is accepted is called the “beneficiary” : the subject-matter of the trust is called “trust-property” or “trust-money”: the “beneficial interest” or “interest” of the beneficiary is his right against the trustee as owner of the trust-property; and the instrument, if any, by which the trust is declared is called the “instrument of trust”:

“breach of trust”: a breach of any duty imposed on a trustee, as such, by any law for the time being in force, is called a “breach of trust”:

[“Government” means Government of the Punjab;]

“registered”: and in this Act, unless there be something repugnant in the subject or context, “registered” means registered under the law for the registration of documents for the time being in force:

“notice”: a person is said to have “notice” of a fact either when he actually knows that fact, or when, but for willful abstention from inquiry or gross negligence, he would have known it, or when information of the fact is given to or obtained by his agent, under the circumstances mentioned in the Contract Act, 1872, section 229;

Expressions defined in Act IX of 1872. and all expressions used herein and defined in the Contract Act, 1872, shall be deemed to have the meanings respectively attributed to them by that Act.

CHAPTER II

OF THE CREATION OF TRUSTS

  1. Lawful purpose.- A trust may be created for any lawful purpose. The purpose of a trust is lawful unless it is (a) forbidden by law, or (b) is of such

a nature that, if permitted, it would defeat the provisions of any law, or (c) is fraudulent, or (d) involves or implies injury to the person or property of another, or (e) the Court regards it as immoral or opposed to public policy.

Every trust of which the purpose is unlawful is void. And where a trust is created for two purposes, of which one is lawful and the other unlawful, and the two purposes cannot be separated, the whole trust is void.

Explanation.- In this section, the expression “law” includes, where the trust property is immoveable and situate in a foreign country, the law of such country.

Illustrations

  • A conveys property to B in trust to apply the profits to the nurture of female foundlings to be trained up as prostitutes. The trust is void.
  • A bequeaths property to B in trust to employ it in carrying on a smuggling business, and out of the profits thereof to support A’s children. The

trust is void.

  • A, while in insolvent circumstances, transfers property to B in trust for A during his life, and after his death for B. A is declared an insolvent.

The trust for A is invalid as against his creditor.

  1. Trust of immoveable property.- No trust in relation to immoveable property is valid unless declared by a non-testamentary instrument in writing

signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee.

Trust of moveable property .- No trust in relation to moveable property is valid unless declared as aforesaid, or unless the ownership of the property is transferred to the trustee.

These rules do not apply where they would operate so as to effectuate a fraud.

  1. Creation of trust.- Subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any

words or acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust-property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.

Illustrations

  • A bequeaths certain property to B, “having the fullest confidence that he will dispose of it for the benefit of C”. This creates a trust so far as regards A and C.
  • A bequeaths certain property to B, “hoping he will continue it in the family”. This does not create a trust, as the beneficiary is not indicated

with reasonable certainty.

  • A bequeaths certain property to B, requesting him to distribute it among such members of C’s family as B should think most deserving. This

does not create a trust, for the beneficiaries are not indicated with reasonable certainty.

  • A bequeaths certain property to B, desiring him to divide the bulk of it among C’s children. This does not create a trust, for the trust-property

is not indicated with sufficient certainty.

  • A bequeaths a shop and stock-in-trade to B, on condition that he pays A’s debts and a legacy to C. This is a condition, not a trust for A’s

creditors and C.

  1. Who may create trusts.- A trust may be created-,
  • by every person competent to contract, and,
  • with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor;

but subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust-property.

  1. Subject of trust.- The subject-matter of a trust must be property transferable to the beneficiary.

It must not be merely beneficial interest under a subsisting trust.

  1. Who may be beneficiary.- Every person capable of holding property may be a beneficiary.

Disclaimer by beneficiary.- A proposed beneficiary may renounce his interest under the trust by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent therewith.

  1. Who may be trustee.- Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.

No one bound to accept trust.- No-one is bound to accept a trust.

Acceptance of trust.- A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance.

Disclaimer of trust.- Instead of accepting a trust, the intended trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the trust property from vesting in him.

A disclaimer by one of two or more co-trustees vests the trust-property in the other or others, and makes him or them sole trustee or trustees from the date of the creation of the trust.

Illustrations

  • A bequeaths certain property to B and C, his executors, as trustees for D, B and C prove A’s will. This is in itself an acceptance of the trust, and B and C hold the property in trust for D.
  • A transfers certain property to B in trust to sell it and to pay out of the proceeds A’s debts. B accepts the trust and sells the property. So far as

regards B, a trust of the proceeds is created for A’s creditors.

  • A bequeaths a lakh of rupees to B upon certain trusts and appoints him his executor. B severs the lakh from the general assets and appropriates

it to the specific purpose. This is an acceptance of the trust.

CHAPTER III

OF THE DUTIES AND LIABILITIES OF TRUSTEES

  1. Trustee to execute trust.- The trustee is bound to fulfil the purpose of the trust, and to obey the directions of the author of the trust given at the time of its creation, except as modified by the consent of all the beneficiaries being competent to contract.

Where the beneficiary is incompetent to contract, his consent may, for the purposes of this section, be given by a principal Civil Court of original jurisdiction.

Nothing in this section shall be deemed to require a trustee to obey any direction when to do so would be impracticable, illegal or manifestly injurious to the beneficiaries.

Explanation.- Unless a contrary intention be expressed, the purpose of a trust for the payment of debt shall be deemed to be (a) to pay only the debts of the author of the trust existing and recoverable at the date of the instrument of trust or, when such instrument is a will, at the date of his death, and (b) in the case of debts not bearing interest, to make such payment without interest.

Illustrations

  • A, a trustee, is simply authorized to sell certain land by public auction. He cannot sell the land by private contract.
  • A, a trustee of certain land for X, Y and Z, is authorized to sell the land to B for a specified sum, X, Y and Z, being competent to contract,

consent that A may sell the land to C for a less sum. A may sell the land accordingly.

  • A, a trustee for B and her children, is directed by the author of the trust to lend, on B’s request, trust-property to B’s husband, C, on the

security of his bond. C becomes insolvent and B requests A to make the loan. A may refuse to make it.

  1. Trustee to inform himself of state of trust– A trustee is bound to acquaint himself, as soon as possible, with the nature and circumstances of the trust-property; to obtain, where necessary, a transfer of the trust-property to himself; and (subject to the provisions of the instrument of trust) to get in trust-moneys invested on insufficient or hazardous security.

Illustrations

  • The trust-property is a debt outstanding on personal security. The instrument of trust gives the trustee no discretionary power to leave the debt

so outstanding. The trustee’s duty is to recover the debt without unnecessary delay.

  • The trust-property is money in the hands of one of two co-trustees. No discretionary power is given by the instrument of trust. The other co­

trustee must not allow the former to retain the money for a longer period than the circumstances of the case required.

  1. Trustee to protect title to trust– A trustee is bound to maintain and defend all such suits, and (subject to the provisions of the

instrument of trust) to take such other steps as, regard being had to the nature and amount or value of the trust-property, may be reasonably requisite for the preservation of the trust-property and the assertion or protection of the title thereto.

Illustration

The trust-property is immoveable property which has been given to the author of the trust by an unregistered instrument. Subject to the provisions of the [Registration Act, 1908 (XVI of 1908)], the trustee’s duty is to cause the instrument to be registered.

  1. Trustee not to set up title adverse to beneficiary.- The trustee must not for himself or another set up or aid any title to the trust-property adverse to the interest of the beneficiary.
  2. Care required from trustee.- A trustee is bound to deal with the trust-property as carefully as a man of ordinary prudence would deal with such property if it were his own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for the loss, destruction or deterioration of the trust-property.

Illustrations

  • A, living in [Lahore] is a trustee for B, living in [Rawalpindi]. A remits trust-funds to B by bills drawn by a person of undoubted credit in

favour of the trustee as such, and payable at [Rawalpindi]. The bills are dishonored. A is not bound to make good the loss.

  • A, a trustee of leasehold property, directs the tenant to pay the rents on account of the trust to a banker, B, then in credit. The rents are

accordingly paid to B, and A leaves the money with B only till wanted. Before the money is drawn out, B becomes insolvent. A, having had no reason to believe that B was in insolvent circumstances, is not bound to make good the loss.

  • A, a trustee of two debts for B, releases one and compounds the other, in good faith, and reasonably believing that it is for B’s interest to do
  1. A is not bound to make good any loss caused thereby to B.
  • A, a trustee directed to sell the trust-property by auction ,sells the same, but does not advertise the sale and otherwise fails in reasonable

diligence in inviting competition. A is bound to make good the loss caused thereby to the beneficiary.

  • A, a trustee for B, in execution of his trust, sells the trust-property, but from want of due diligence on his part fails to receive part of the

purchase money. A is bound to make good the loss thereby caused to B.

  • A, a trustee for B of a policy of insurance, has funds in hand for payment of the premiums. A neglects to pay the premiums, and the policy is

consequently forfeited. A is bound to make good the loss to B.

  • A bequeaths certain moneys to B and C as trustees, and authorizes them to continue trust-moneys upon the personal security of a certain firm

in which A had himself invested them. A dies, and a change takes place in the firm. B and C must not permit the moneys to remain upon the personal security of the new firm.

  • A, a trustee for B, allows the trust to be executed solely by this co-trustee, C. C misapplies the trust-property. A is personally answerable for

the loss resulting to B.

  1. Conversion of perishable property.- Where the trust is created for the benefit of several of persons in succession, and the trust-property is of a wasting nature or a future or reversionary interest, the trustee is bound, unless an intention to the contrary may be inferred from the instrument of trust, to convert the property into property of a permanent and immediately profitable character.

Illustrations

  • A bequeaths to B all his property in trust for C during his life, and on his death for D and on D’s death for E. A’s property consists of three

lease-hold houses, and there is nothing in A’s will to show that he intended the houses to be enjoyed in specie. B should sell the houses, and invest the proceeds in accordance with section twenty.

  • A bequeaths to B his three leasehold houses in [Lahore] and all the furniture therein in trust for C during his life, and on his death for D, and

on D’s death for E. Here an intention that the houses and furniture should be enjoyed in specie appears clearly, and B should not sell them.

  1. Trustee to be impartial.- Where there are more beneficiaries than one, the trustee is bound to be impartial, and must not execute the trust for the advantage of one at the expense of another.

Where the trustee has a discretionary power, nothing in this section shall be deemed to authorize the Court to control the exercise reasonably and in good faith of such discretion.

Illustration

A, a trustee for B, C and D, is empowered to choose between several specified modes of investing the trust-property. A in good faith chooses one of these modes. The Court will not interfere, although the result of the choice may be to vary the relative rights of B, C and D.

  1. Trustee to prevent waste.- Where the trust is created for the benefit of several persons in succession and one of them is in possession of the trust property, if he commits, or threatens to commit, any act which is destructive or permanently injurious thereto, the trustee is bound to take measures to prevent such act.
  2. Accounts and information.- A trustee is bound (a) to keep clear and accurate accounts of the trust-property, and (b), at all reasonable times, at the request of the beneficiary, to furnish him with full and accurate information as to the amount and state of the trust-property.
  3. Investment of trust– Where the trust-property consists of money and cannot be applied immediately or at an early date to the purposes of the trust, the trustee is bound (subject to any direction contained in the instrument of trust) to invest the money on the following securities, and on no others:-
  • in promissory notes, debentures, stock or other securities [of any[Provincial Government]or] of the [Federal Government], [***]:

[Provided that securities, both the principal whereof and the interest whereon shall have been fully and unconditionally guaranteed by any such Government, shall be deemed, for the purposes of this clause, to be securities of such Government;]

[(b) ***]

[(bb) *****]

[(c) ******]

[(d) ****]

  • on a first mortgage of immoveable property situate in [a Province]: Provided that the property is not a leasehold for a term of years and that

the value of the property exceeds by one-third, or, if consisting of buildings, exceeds by one-half, the mortgage-money; or

  • on any other security expressly authorized by the instrument of trust, or by any rule which the [Lahore High Court] may from time to time

prescribe in this behalf [;or]

[(g) in bonds, redeemable capital, debt securities or instruments issued by the Pakistan Water and Power Development Authority and in listed securities subject to the conditions as may be prescribed by the Government [;or]

[(h) in units issued by schemes established under the Asset Management Companies Rules, 1995.]

Provided that, where there is a person competent to contract and entitled in possession to receive the income of the trust-property for his life, or for any greater estate, no investment on any security mentioned or referred to in [clauses (e) and (f)] shall be made without his consent in writing.

20A. Power to purchase redeemable stock at a premium.-(1) A trustee may invest in any of the securities mentioned or referred to in section 20, notwithstanding that the same may be redeemable and that the price exceeds the redemption value:

[***]

(2) A trustee may retain until redemption any redeemable stock, fund or security which may have been purchased in accordance with this section.]

  1. Mortgage of land pledged to Government under Act XIX of 1883. Deposit in Government Savings Bank.- Nothing in section 20 shall apply to investments made before this Act comes into force, or shall be deemed to preclude an investment on a mortgage of immoveable property already pledged as security for and advance under the [Land Improvement Loans Act, 1883]. or, in case the trust-money does not exceed three thousand rupees, a deposit thereof in a Government Savings Bank.
  2. Sale by trustee directed to sell within specified time.- Where a trustee, directed to sell within a specified time extends such time, the burden of proving, as between himself and the beneficiary, that the latter is not prejudiced by the extension lies upon the trustee, unless the extension has been authorised by a principal Civil Court of original jurisdiction.

Illustration

A bequeaths property to B, directing him with all convenient speed and within five years to sell it, and apply the proceeds for the benefit of C. In the exercise of reasonable discretion, B postpones the sale for six years. The sale is not thereby rendered invalid, but C, alleging that he has been injured by the postponement, institutes a suit against B to obtain compensation. In such suit the burden of proving that C has not been injured lies on B.

  1. Liability for breach of trust.- Where the trustee commits a breach of trust, he is liable to made good the loss which the trust-property or the beneficiary has thereby sustained, unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of the facts of the case and of his rights as against the trustee.

A trustee committing a breach of trust is not liable to pay interest except in the following cases:-

  • where he has actually received interest:
  • where the breach consists in unreasonable delay in paying trust-money to the beneficiary:
  • where the trustee ought to have received interest, but has not done so:
  • where he may be fairly presumed to have received interest.

He is liable, in case (a), to account for the interest actually received, and, in cases (b), (c) and (d), to account for simple interest at the rate of six per cent, per annum, unless the Court otherwise directs.

  • where the breach consists in failure to invest trust-money and to accumulate the interest or dividends thereon, he is liable to account for

compound interest (with half-yearly rests) at the same rate.

  • where the breach consists in the employment of trust-property or the proceeds thereof in trade or business, he is liable to account, at the option

of the beneficiary, either for compound interest (with half-yearly rests) at the same rate, or for the net profits made by such employment.

Illustrations

  • A trustee improperly leaves trust-property outstanding, and it is consequently lost: he is liable to make good the property lost, but he is not

liable to pay interest thereon.

  • A bequeaths a house to B in trust to sell it and pay the proceeds to C, B neglects to sell the house for a great length of time, whereby the house

is deteriorated and its market price falls. B is answerable to C for the loss.

  • A trustee is guilty of unreasonable delay in investing trust-money in accordance with section 20, or in paying it to the beneficiary. The trustee

is liable to pay interest thereon for the period of the delay.

  • The duty of the trustee is to invest trust-money in any of the securities mentioned in [section 20, clause (a)]. Instead of so doing, he retains the

money in his hands. He is liable, at the option of the beneficiary, to be charged either with the amount of the principal money and interest, or with the amount of such securities as he might have purchased with the trust-money when the investment should have been made, and the intermediate dividends and interest thereon.

  • The instrument of trust directs the trustee to invest trust-money either in any such securities or on mortgage of immoveable property. The

trustee does neither. He is liable for the principal money and interest.

  • The instrument of trust directs the trustee to invest trust-money in any of such securities and to accumulate the dividends thereon. The trustee

disregards the direction. He is liable, at the option of the beneficiary, to be charged either with the amount of the principal money and compound interest, or with the amount of such securities as he might have purchased with the trust-money when the investment should have been made, together with the amount of the accumulation which would have arisen from a proper investment of the intermediate dividends.

  • Trust-property is invested in one of the securities mentioned in [section 20, clause (a)]. The trustee sells such security for some purpose not

authorized by the terms of the instrument of trust. He is liable, at the option of the beneficiary, either to replace the security with the intermediate dividends and interest thereon, or to account for the proceeds of the sale with interest thereon.

  • The trust-property consists of land. The trustee sells the land to a purchaser for a consideration without notice of the trust. The trustee is liable,

at the option of the beneficiary, to purchase other land of equal value to be settled upon the like trust, or to be charged with the proceeds of the sale with interest.

  1. No set-off allowed to trustee.- A trustee who is liable for a loss occasioned by a breach of trust in respect of one portion of the trust-property cannot set-off against his liability a gain which has accrued to another portion of the trust-property through another and distinct breach of trust.
  2. Non-liability for predecessor’s default.- Where a trustee succeeds another, he is not, as such, liable for the acts or defaults of his predecessor.
  3. Non-liability for co-trustee’s default.- Subject to the provisions of sections 13 and 15, one trustee is not, as such ,liable for a breach of trust committed by his co-trustee:

Provided that, in the absence of an express declaration to the contrary in the instrument of trust, a trustee is so liable-

  • where he has delivered trust-property to his co-trustee without seeing to its proper application:
  • where he allows his co-trustee to receive trust-property and fails to make due enquiry as to the co-trustee’s dealings therewith or allows him to

retain it longer than the circumstances of the case reasonably require:

  • where he becomes aware of a breach of trust committed or intended by his co-trustee, and either actively conceals it or does not within a

reasonable time take proper steps to protect the beneficiary’s interest.

Joining in receipt for conformity.- A co-trustee who joins in signing a receipt for trust-property and proves that he has not received the same is not answerable, by reason of such signature only, for loss or misapplication of the property by his co-trustee.

Illustration

A bequeaths certain property to B and C, and directs them to sell it and invest the proceeds for the benefit of D. B and C accordingly sell the property, and the purchase-money is received by B and retained in his hands. C pays no attention to the matter for two years, and then calls on B to make the investment .B is unable to do so, becomes insolvent, and the purchase-money is lost. C may be compelled to make good the amount.

  1. Several liability of co– Where co-trustees jointly commit a breach of trust, or where one of them by his neglect enables the other to commit a breach of trust, each is liable to the beneficiary for the whole of the loss occasioned by such breach.

Contribution as between co-trustees.- But as between the trustees themselves, if one be less guilty than another and has had to refund the loss, the former may compel the latter, or his legal representative to the extent of the assets he has received, to make good such loss; and, if all be equally guilty, any one or more of the trustees who has had to refund the loss may compel the others to contribute.

Nothing in this section shall be deemed to authorize a trustee who has been guilty of fraud to institute a suit to compel contribution.

  1. Non-liability of trustee paying without notice of transfer by beneficiary.- When any beneficiary’s interest becomes vested in another person, and the trustee, not having notice of the vesting ,pays or delivers trust-property to the person who would have been entitled thereto in the absence of such vesting, the trustee is not liable for the property so paid or delivered.
  2. Liability of trustee where beneficiary’s interest is forfeited to Government.- When the beneficiary’s interest is forfeited or awarded by legal adjudication [to the Government], the trustee is bound to hold the trust-property to the extent of such interest for the benefit of such person in such manner as [the [Government]may direct in this behalf.
  3. Indemnity of trustees.- Subject to the provisions of the instrument of trust and of sections 23 and 26, trustees shall be respectively chargeable only for such moneys, stocks, funds and securities as they respectively actually receive and shall not be answerable the one for the other of them, nor for any banker, broker or other person in whose hands any trust-property may be placed, nor for the insufficiency or deficiency of any stocks, funds or securities, nor otherwise for involuntary losses.

Disclaimer:

The information contains in this web-site is prepared for educational purpose. This site may be used by the students, faculties, independent learners and the learned advocates of all over the world. Researchers all over the world have the access to upload their writes up in this site. In consideration of the people’s participation in the Web Page, the individual, group, organization, business, spectator, or other, does hereby release and forever discharge the Lawyers & Jurists, and its officers, board, and employees, jointly and severally from any and all actions, causes of actions, claims and demands for, upon or by reason of any damage, loss or injury, which hereafter may be sustained by participating their work in the Web Page. This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability and the consequences thereof, as well as those now disclosed and known to exist.  The provisions of any state’s law providing substance that releases shall not extend to claims, demands, injuries, or damages which are known or unsuspected to exist at this time, to the person executing such release, are hereby expressly waived. However the Lawyers & Jurists makes no warranty expressed or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product process or service by trade name, trade mark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation or favouring by the Lawyers & Jurists. The views and opinions of the authors expressed in the Web site do not necessarily state or reflect those of the Lawyers & Jurists. Above all, if there is any complaint drop by any independent user to the admin for any contents of this site, the Lawyers & Jurists would remove this immediately from its site.