THE TRUSTS ACT, 1882, PART 2

CHAPTER IV

OF THE RIGHTS AND POWERS OF TRUSTEES

  1. Right to title– A trustee is entitled to have in his possession the instrument of trust and all the documents of title (if any) relating solely to the trust-property.
  2. Right to re-imbursement of expenses.- Every trustee may reimburse himself, or pay or discharge out of the trust-property, all expenses properly incurred in or about the execution of the trust, or the realization, preservation or benefit of the trust-property, or the protection or support of the beneficiary.

If he pays such expenses out of his own pocket, he has a first charge upon the trust-property for such expenses and interest thereon; but such charge unless the expenses have been incurred with the sanction of a principal Civil Court of original jurisdiction shall be enforced only by prohibiting any disposition of the trust-property without previous payment of such expenses and interest.

If the trust-property fail, the trustee is entitled to recover from the beneficiary personally on whose behalf he acted, and at whose request, expressed or implied, he made the payment, the amount of such expenses.

Right to be recouped for erroneous over-payment.- Where a trustee has by mistake made an over-payment to the beneficiary, he may reimburse the trust-property out of the beneficiary’s interest. If such interest fail, the trustee is entitled to recover from the beneficiary personally the amount of such overpayment.

  1. Right to indemnity from gainer by breach of trust.- A person other than a trustee who has gained an advantage from a breach of trust must

indemnify the trustee to the extent of the amount actually received by such person under the breach; and where he is a beneficiary the trustee has a charge on his interest for such amount.

Nothing in this section shall be deemed to entitle a trustee to be indemnified who has, in committing the breach of trust, been guilty of fraud.

  1. Right to apply to Court for opinion in management of trust– Any trustee may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for its opinion ,advice or direction on any present questions respecting the management or administration of the trust-property other than questions of detail, difficulty or importance, not proper in the opinion of the Court for summary disposal.

A copy of such petition shall be served upon, and the hearing thereof may be attended by, such of the persons interested in the application as the Court thinks fit.

The trustee stating in good faith the facts in such petition and acting upon the opinion, advice or direction given by the Court shall be deemed, so far as regards his own responsibility, to have discharged his duty as such trustee in the subject matter of the application.

The costs of every application under this section shall be in the discretion of the Court to which it is made.

  1. Right to settlement of accounts.- When the duties of a trustee, as such, are completed, he is entitled to have the accounts of his administration of the trust-property examined and settled; and, where nothing is due to the beneficiary under the trust, to an acknowledgement in writing to that effect.
  2. General authority of trustee.- In addition to the powers expressly conferred by this Act and by the instrument of trust, and subject to the restrictions, if any, contained in such instrument, and to the provisions of section 17, a trustee may do all acts which are reasonable and proper for the realization, protection or benefit of the trust-property, and for the protection or support of a beneficiary who is not competent to contract. [********]

Except with the permission of a principal Civil Court of original jurisdiction, no trustee shall lease trust-property for a term exceeding twenty-one years from the date of executing the lease, nor without reserving the best yearly rent that can be reasonably obtained.

  1. Power to sell in lots, and either by public auction or private contract.- Where the trustee is empowered to sell any trust-property, he may sell the same subject to prior charges or not, and either together or in lots, by public auction or private contract, and either at one time or at several times ,unless the instrument of trust otherwise directs.
  2. Power to sell under special conditions.- The trustee making any such sale may insert such reasonable stipulations either as to title or evidence of title, or otherwise, in any conditions of sale or contract for sale, as he thinks fit; and may also buy in the property or any part thereof at any sale by auction, and rescind or vary any contract for sale, and re-sell the property so bought in, or as to which the contract is so rescinded, without being responsible to the beneficiary for any loss occasioned thereby.

Time allowed for selling trust-property.- Where a trustee is directed to sell trust-property or to invest trust-money in the purchase of property, he may exercise a reasonable discretion as to the time of effecting the sale or purchase.

Illustrations

  • A bequeaths property to B, directing him to sell it with all convenient speed and pay the proceeds to C. This does not render an immediate sale imperative.
  • A bequeaths property to B, directing him to sell it at such time and in such manner as he shall think fit and invest the proceeds for the benefit of C. This does not authorize B, as between him and C, to postpone the sale to an indefinite period.
  1. Power to convey.- For the purpose of completing any such sale, the trustee shall have power to convey or otherwise dispose of the property sold in such manner as may be necessary.
  2. Power to vary investment.- A trustee may, at his discretion, call in any trust-property invested in any security and invest the same on any of the securities mentioned or referred to in section 20, and from time to time vary any such investments for others of the same nature.

Provided that, where there is a person competent to contract and entitled at the time to receive the income of the trust-property for his life, or for any greater estate, no such change of investment shall be made without his consent in writing.

  1. Power to apply property of minors, etc., for their maintenance, &c.- Where any property is held by a trustee in trust for a minor, such trustee

may, at his discretion, pay to the guardians (if any) of such minor, or otherwise apply for or towards his maintenance or education or advancement in life, or the reasonable expenses of his religious worship, marriage or funeral, the whole or any part of the income to which he may be entitled in respect of such property; and such trustee shall accumulate all the residue of such income by way of compound interest by investing the same and the resulting income thereof from time to time in any of the securities mentioned or referred to in section 20, for the benefit of the person who shall ultimately become entitled to the property from which such accumulations have arisen: Provided that such trustee may, at any time, if he thinks fit, apply the whole or any part of such accumulations as if the same were part of the income arising in the then current year.

Where the income of the trust-property is insufficient for the minor’s maintenance or education or advancement in life, or the reasonable expenses of his religious worship, marriage or funeral, the trustee may, with the permission of a principal Civil Court of original jurisdiction, but not otherwise, apply the whole or any part of such property for or towards such maintenance, education, advancement or expenses.

Nothing in this section shall be deemed to affect the provisions of any local law for the time being in force relating to the persons and property of minors.

  1. Power to give receipts.- Any trustees or trustee may give a receipt in writing for any money, securities or other moveable property payable, transferable or deliverable to them or him by reason, or in the exercise of any trust or power; and ,in the absence of fraud, such receipt shall discharge the person paying, transferring or delivering the same therefrom, and from seeing to the application thereof, or being accountable for any loss or misapplication thereof.
  2. Power to compound, &c.- Two or more trustees acting together may, if and as they think fit-
  • accept any composition or any security for any debt or for any property claimed;
  • allow any time for payment of any debt;
  • compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account, claim, or thing whatever relating to the trust; and
  • for any of those purposes, enter into, give, execute and do such agreements, instruments of composition or arrangement, releases and other

things as to them seem expedient, without being responsible for any loss occasioned by any act or thing so done by them in good faith.

The powers conferred by this section on two or more trustees acting together may be exercised by a sole acting trustee when by the instrument of trust, if any, a sole trustee is authorized to execute the trusts and powers thereof.

This section applies only if and as far as a contrary intention is not expressed in the instrument of trust, if any, and shall have effect subject to the terms of that instrument and to the provisions therein contained.

This section applies only to trusts created after this Act comes into force.

  1. Power to several trustees of whom one disclaims or dies.- When an authority to deal with the trust-property is given to several trustees and one of them disclaims or dies, the authority may be exercised by the continuing trustees, unless from the terms of the instrument of trust it is apparent that the authority is to be exercised by a number in excess of the number of the remaining trustees.
  2. Suspension of trustee’s powers by decree.- Where a decree has been made in a suit for the execution of a trust, the trustee must not exercise any of his powers except in conformity with such decree, or with the sanction of the Court by which the decree has been made, or, where an appeal against the decree is pending, of the Appellate Court.

CHAPTERV

OF THE DISABILITIES OF TRUSTEES

  1. Trustee cannot renounce after acceptance.- A trustee who has accepted the trust cannot afterwards renounce it except (a) with the permission of a principal Civil Court of original jurisdiction, or (b) if the beneficiary is competent to contract, with his consent, or (c) by virtue of a special power in the instrument of trust.
  2. Trustee cannot delegate.- A trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (a) the instrument of trust so provides, or (b) the delegation is in the regular course of business, or (c) the delegation is necessary, or (d) the beneficiary, being competent to contract, consents to the delegation.

Explanation.- The appointment of an attorney or proxy to do an act merely ministerial and involving no independent discretion is not a delegation within the meaning of this section.

Illustrations

  • A bequeaths certain property to B and C on certain trusts to be executed by them or the survivor of them or the assigns of such survivor. B

dies. C may bequeath the trust-property to D and E upon the trusts of A’s will.

  • A is a trustee of certain property with power to sell the same. A, may employ an auctioneer to effect the sale.
  • A bequeaths to B fifty houses let at monthly rents in trust to collect the rents and pay them to C. B may employ a proper person to collect these

rents.

  1. Co-trustees cannot act singly.- When there are more trustees than one, all must join in the execution of the trust, except where the instrument of trust otherwise provides.
  2. Control of discretionary power.- Where a discretionary power conferred on a trustee is not exercised reasonable and in good faith, such power may be controlled by a principal Civil Court of original jurisdiction..
  3. Trustee may not charge for services.- In the absence of express directions to the contrary contained in the instrument of trust or of a contract to the contrary entered into with the beneficiary or the Court at the time of accepting the trust, a trustee has no right to remuneration for his trouble, skill and loss of time in executing the trust.

Nothing in this section applies to any Official Trustee, Administrator General Public Curator or person holding a certificate of administration.

  1. Trustee may not use trust property for his own profit.- A trustee may not use or deal with the trust-property for his own profit or for any other purpose unconnected with the trust.
  2. Trustee for sale or this agent may not buy.- No trustee whose duty it is to sell trust-property, and no agent employed by such trustee for the purpose of the sale, may, directly or indirectly, buy the same or any interest therein, on his own account or as agent for a third person.
  3. Trustee may not buy beneficiary’s interest without permission.- No trustee, and no person who has recently ceased to be a trustee, may, without the permission of a principal Civil Court of original jurisdiction, buy or become mortgagee or lessee of the trust-property or any part thereof; and such permission shall not be given unless the proposed purchase, mortgage or lease is manifestly for the advantage of the beneficiary. Trustee for purchase.- And no trustee whose duty it is to buy or to obtain a mortgage or lease of particular property for the beneficiary may buy it,

or any part thereof, or obtain a mortgage or lease of it, or any part thereof, for himself.

  1. Co-trustees may not lend to one of themselves.- A trustee or co-trustee whose duty it is to invest trust-money on mortgage or personal security must not invest it on mortgage by, or on the personal security of, himself or one of his co-trustees.

CHAPTER VI

OF THE RIGHTS AND LIABILITIES OF THE BENEFICIARY

  1. Rights to rents and profits.- The beneficiary has, subject to the provisions of the instrument of trust, a right to the rents and profits of the trust- property.
  2. Right to specific execution.- The beneficiary is entitled to have the intention of the author of the trust specifically executed to the extent of the beneficiary’s interest;

Right to transfer of possession.- and, where there is only one beneficiary and he is competent to contract, or where there are several

beneficiaries and they are competent to contract and all of one mind, he or they may require the trustee to transfer the trust-property to him or them, or to such person as he or they may direct.

When property has been transferred or bequeathed for the benefit of a married woman, so that she shall not have power to deprive herself of her beneficial interest, nothing in the second clause of this section applies to such property during her marriage.

Illustrations

  • Certain Government securities are given to trustees upon trust to accumulate the interest until A attains the age of 24, and then to transfer the

gross amount to him. A on attaining majority may, as the person exclusively interested in the trust-property, require the trustees to transfer it immediately to him.

  • A bequeaths Rs.10,000 to trustees upon trust to purchase an annuity for B, who has attained his majority and is otherwise competent to

contract. B may claim Rs.10,000.

  • A transfers certain property to B and directs him to sell or invest it for the benefit of C, who is competent to contract. C may elect to take the

property in its original character.

  1. Right to inspect and take copies of instrument of trust, accounts, & c.- The beneficiary has a right, as against the trustee and all persons

claiming under him with notice of the trust, to inspect and take copies of the instrument of trust, the documents of title relating solely to the trust- property, the accounts of the trust-property and the vouchers (if any) by which they are supported, and the cases submitted and opinions taken by the trustee for his guidance in the discharge of his duty.

  1. Right to transfer beneficial interest.- The beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest:

Provided that when property is transferred or bequeathed for the benefit of a married woman, so that she shall not have power to deprive herself of her beneficial interest, nothing in this section shall authorize her to transfer such interest during her marriage.

  1. Right to sue for execution of trust.- Where no trustees are appointed or all the trustees die, disclaim, or are discharged, or where for any other reason the execution of a trust by the trustee is or becomes impracticable, the beneficiary may institute a suit for the execution of the trust, and the trust shall, so far as may be possible, be executed by the Court until the appointment of a trustee or new trustee.
  2. Right to proper trustees.- The beneficiary has a right (subject to the provisions of the instrument of trust) that the trust-property shall be properly protected and held and administered by proper persons and by a proper number of such persons.

Explanation I.- The following are not proper persons within the meaning of this section:- A person domiciled abroad: an alien enemy: a person having an interest inconsistent with that of the beneficiary : a person in insolvent circumstances; and, unless the personal law of the beneficiary allows otherwise, a married woman and a minor.

Explanation II.- When the administration of the trust involves the receipt and custody of money, the number of trustees should be two at least.

Illustrations

  • A, one of several beneficiaries, proves that B, the trustee, has improperly disposed of part of the trust-property, or that the property is in danger

from B’s being in insolvent circumstances ,or that he is incapacitated from acting as trustee. A may obtain a receiver of the trust-property.

  • A bequeaths certain jewels to B in trust for C. B dies during A’s life-time; then A dies, C is entitled to have the property conveyed to a trustee

for him.

  • A conveys certain property to four trustees in trust for B. Three of the trustees die. B may institute a suit to have three new trustees appointed

in the place of the deceased trustees.

  • A conveys certain property to three trustees in trust for B. All the trustees disclaim. B may institute a suit to have three trustees appointed in

place of the trustees so disclaiming.

  • A, a trustee for B, refuses to act, or goes to reside permanently out of [Pakistan] or is declared an insolvent, or compounds with his creditors,

or suffers a co-trustee to commit a breach of trust. B may institute a suit to have A removed and a new trustee appointed in his room.

  1. Right to compel to any act of duty.- The beneficiary has a right that his trustee shall be compelled to perform any particular act of his duty as such, and restrained from committing any contemplated or probable breach of trust.

Illustrations

  • A contracts with B to pay him monthly Rs.100 for the benefit of C.B writes and signs a letter declaring that he will hold in trust for C the

money so to be paid. A fails to pay the money in accordance with his contract. C may compel B on a proper indemnity to allow C to sue on the contract in B’s name.

  • A is trustee of certain land, with a power to sell the same and pay the proceeds to B and C equally. A is about to make an improvident sale of

the land. B may sue on behalf of himself and C for an injunction to restrain A from making the sale.

  1. Wrongful purchase by trustee.- Where a trustee has wrongfully bought trust property, the beneficiary has a right to have the property declared subject to the trust or retransferred by the trustee, if it remains in his hands unsold, or, if it has been bought from him by any person with notice of the trust, by such person. But in such case the beneficiary must repay the purchase-money paid by the trustee, with interest, and such other expenses (if any) as he has properly incurred in the preservation of the property; and the trustee or purchaser must (a) account for the net profits of the property, (b) be charged with an occupation-rent, if he has been in actual possession of the property, and (c) allow the beneficiary to deduct a proportionate part of the purchase-money if the property has been deteriorated by the acts or omissions of the trustee or purchaser.

Nothing in this section-

  • impairs the rights of lessees and others who, before the institution of a suit to have the property declared subject to the trust or retransferred,

have contracted in good faith with the trustee or purchaser; or

  • entitles the beneficiary to have the property declared subject to the trust or retransferred where he, being competent to contract, has himself,

without coercion or undue influence having been brought to bear on him, ratified the sale to the trustee with full knowledge of the facts of the case and of his rights as against the trustee.

  1. Following trust-property- into the hands of third persons; into that into which it has been converted.- Where trust-property comes into the hands of a third person inconsistently with the trust, the beneficiary may require him to admit formally or may institute a suit for a declaration, that the property is comprised in the trust.

Where the trustee has disposed of trust-property and the money or other property which he has received therefor can be traced in his hands, or the hands of his legal representative or legatee, the beneficiary has, in respect thereof, rights as merely as may be the same as his rights in respect of the original trust-property.

Illustrations

  • A, a trustee for B of Rs.10,000 wrongfully invests the Rs.10,000 in the purchase of certain land. B is entitled to the land.
  • A, a trustee, wrongfully purchases land in his own name, partly with his own money, partly with money subject to a trust for B. B is entitled to

a charge on the land for the amount of the trust-money so misemployed.

  1. Saving of rights of certain transferees.- Nothing in section 63 entitles the beneficiary to any right in respect of property in the hands of-
  • a transferee in good faith for consideration without having notice of the trust, either when the purchase money was paid, or when the

conveyance was executed, or-

  • a transferee for consideration from such a transferee.

A judgment-creditor of the trustee attaching and purchasing trust-property is not a transferee for consideration within the meaning of this section. Nothing in section 63 applies to money, currency notes and negotiable instruments in the hands of a bona fide holder to whom they have passed in circulation, or shall be deemed to affect the Contract Act, 1872, section 108, or the liability of a person to whom a debt or charge is transferred.

  1. Acquisition by trustee of trust-property wrongfully converted.- Where a trustee wrongfully sells or otherwise transfers trust-property and afterwards himself becomes the owner of the property, the property again becomes subject to the trust, notwithstanding any want of notice on the part of intervening transferees in good faith for consideration.
  2. Right in case of blended property.- Where the trustee wrongfully mingles the trust-property with his own, the beneficiary is entitled to a charge on the whole fund for the amount due to him.
  3. Wrongful employment by partner-trustee of trust-property for partnership purposes.- If a partner, being a trustee, wrongfully employs trust- property in the business, or on the account of the partnership, no other partner is liable therefor in his personal capacity to the beneficiaries, unless he had notice of the breach of trust.

The partners having such notice are jointly and severally liable for the breach of trust.

Illustrations

(a) A and B are partners. A dies, having bequeathed all his property to B in trust for Z and appointed B his sole executor. B, instead of winding up the affairs of the partnership, retains all the assets in the business. Z may compel him, as partner, to account for so much of the profits as are derived from A’s share of the capital. B is also answerable to Z for the improper employment of A’s assets.

  • A, a trader, bequeaths his property to B in trust for C, appoints B his sole executor, and dies. B enters into partnership with X and Y in the same trade, and employs A’s assets in the partnership-business. B gives an indemnity to X and Y against the claims of C. Here X and Y are jointly liable with B to C as having knowingly become parties to the breach of trust committed by B.
  1. Liability of beneficiary joining in breach of trust.- Where one of several beneficiaries.-
  • joins in committing breach of trust, or
  • knowingly obtains any advantage therefrom, without the consent of the other beneficiaries ,or
  • becomes aware of a breach of trust committed or intended to be committed, and either actually conceals it, or does not within reasonable time

take proper steps to protect the interests of the other beneficiaries, or

  • has deceived the trustee and thereby induced him to commit a breach of trust.

the other beneficiaries are entitled to have all his beneficial interest impounded as against him and all who claim under him (otherwise than as transferees for consideration without notice of the breach) until the loss caused by the breach has been compensated.

When property has been transferred or bequeathed for the benefit of a married woman, so that she shall not have power to deprive herself of her beneficial interest, nothing in this section applies to such property during her marriage.

  1. Rights and liabilities of beneficiary’s transferee.- Every person to whom a beneficiary transfers his interest has the rights, and is subject to the liabilities, of the beneficiary in respect of such interest at the date of the transfer.

CHAPTER VII

OF VACATING THE OFFICE OF TRUSTEE

  1. Office how vacated.- The office of a trustee is vacated by his death or by his discharge from his office.
  2. Discharge of trustee.- The trustee may be discharged from his office only as follows:-
  • by the extinction of the trust;
  • by the completion of his duties under the trust;
  • by such means as may be prescribed by the instrument of trust;
  • by appointment under this Act of a new trustee in his place;
  • by consent of himself and the beneficiary, or, where there are more beneficiaries than one, all the beneficiaries being competent to contract; or
  • by the Court to which a petition for his discharge is presented under this Act.
  1. Petition to be discharged from trust.- Notwithstanding the provisions of section 11, every trustee may apply by petition to a principal Civil Court of original jurisdiction to be discharged from his office; and, if the Court finds that there is sufficient reason for such discharge, it may discharge him accordingly, and direct his costs to be paid out of the trust-property. But, where there is no such reason, the Court shall not discharge him, unless a proper person can be found to take his place.
  2. Appointment of new trustee on death, &c.- Whenever any person appointed a trustee disclaims, or any trustee, either original of substituted, dies, or is for a continuous period of six months absent from [Pakistan], or leaves [Pakistan] for the purpose of residing abroad, or is declared an insolvent, or desires to be discharged from the trust, or refuses or becomes, in the opinion of a principal Civil Court of original jurisdiction, unfit or personally incapable to act in the trust, or accepts an inconsistent trust, a new trustee may be appointed in his place by-
  • the person nominated for that purpose by the instrument of trust (if any), or
  • if there be no such person, or no such person able and willing to act, the author of the trust if he be alive and competent to contract, or the

surviving or continuing trustees or trustee for the time being, or legal representative of the last surviving and continuing trustee, or (with the consent of the Court) the retiring trustees, if they all retire simultaneously, or (with the like consent) the last retiring trustee.

Every such appointment shall be by writing under the hand of the person making it.

On an appointment of a new trustee the number of trustees may be increased.

The Official Trustee may, with his consent any by the order of the Court, be appointed under this section, in any case in which only one trustee is to be appointed and such trustee is to be the sole trustee.

The provisions of this section relative to a trustee who is dead include the case of a person nominated trustee in a will but dying before the testator, and those relative to a continuing trustee include a refusing or retiring trustee if willing to act in the execution of the power.

  1. Appointment by Court.- Whenever any such vacancy or disqualification occurs and it is found impracticable to appoint a new trustee under section 73, the beneficiary may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for the appointment of a trustee or a new trustee, and the Court may appoint a trustee or a new trustee accordingly.

Rules for selecting new trustees.- In appointing new trustees, the Court shall have regard (a) to the wishes of the author of the trust as expressed in or to be inferred from the instrument of trust; (b) to the wishes of the person, if any, empowered to appoint new trustees; (c) to the question whether the appointment will promote or impede the execution of the trust; and (d) where there are more beneficiaries than one, to the interests of all such beneficiaries.

  1. Vesting of trust-property in new trustees.- Whenever any new trustee is appointed under section 73 or section 74, all the trust-property, for the time being vested in the surviving or continuing trustees or trustee, or in the legal representative of any trustee, shall become vested in such new trustee, either solely or jointly with the surviving or continuing trustees or trustee, as the case may require.

Powers of new trustees.- Every new trustee so appointed, and every trustee appointed by a Court, either before or after the passing of this Act, shall have the same powers, authorities and discretions, and shall in all respects act, as if he had been originally nominated a trustee by the author of the trust.

  1. Survival of trusts.- On the death or discharge of one of several co-trustees, trust survives and the trust-property passes to the others, unless the instrument of trust expressly declares otherwise.

CHAPTER VIII

OF THE EXTINCTION OF TRUSTS

  1. Trust how extinguished.- A trust is extinguished-
  • when its purpose is completely fulfilled; or
  • when its purpose becomes unlawful; or
  • when the fulfilment of its purpose becomes impossible by destruction of the trust-property or otherwise; or
  • when the trust, being revocable, is expressly revoked.
  1. Revocation of trusts.- A trust created by will may be revoked at the pleasure of the testator.

A trust otherwise created can be revoked only-

  • where all the beneficiaries are competent to contract-by their consent;
  • where the trust has been declared by a non-testamentary instrument or by word of mouth- in exercise of a power of revocation expressly

reserved to the author of the trust; or

  • where the trust is for the payment of the debts of the author of the trust, and has not been communicated to the creditors-at the pleasure of the

author of the trust.

Illustration

A conveys property to B in trust to sell the same and pay out of the proceeds the claims of A’s creditors. A reserves no power of revocation. If no communication has been made to the creditors, A may revoke the trust. But if the creditors are parties to the arrangement, the trust cannot be revoked without their consent.

  1. Revocation not to defeat what trustees have duly done.- No trust can be revoked by the author of the trust so as to defeat or prejudice what the trustees may have duly done in execution of the trust.

CHAPTER IX

OF CERTAIN OBLIGATIONS IN THE NATURE OF TRUSTS

  1. Where obligation in nature of trust is created.- An obligation in the nature of a trust is created in the following cases.
  2. Where it does not appear that transferor intended to dispose of beneficial interest.- Where the owner of property transfers or bequeaths and it cannot be inferred consistently with the attendant circumstances that he intended to dispose of the beneficial interest therein, the transferee or legatee must hold such property for the benefit of the owner or his legal representative.

Illustrations

(a) A conveys land to B without consideration and declares no trust of any part. It cannot, consistently with the circumstances under which the transfer is made, be inferred that A intended to transfer the beneficial interest in the land. B holds the land for the benefit of A.

  • A conveys to B two fields, Y and Z, and declares a trust of Y, but says nothing about Z. It cannot, consistently with the circumstances under

which the transfer is made, be inferred that A intended to transfer the beneficial interest in Z. B holds Z for the benefit of A.

  • A transfers certain stock belonging to him into the joint names of himself and B. It cannot, consistently with the circumstances under which

the transfer is made, be inferred that A intended to transfer the beneficial interest in the stock during his life. A and B hold the stock for the benefit of A during his life.

  • A makes a gift of certain land to his wife B. She takes the beneficial interest in the land free from any trust in favour of A, for it may be

inferred from the circumstances that the gift was for B’s benefit.

  1. Transfer to one for consideration paid by another.- Where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration.
  2. Trust incapable of execution of executed without exhausting trust– Where a trust is incapable or being executed, or where the trust is completely executed without exhausting the trust-property, the trustee, in the absence of a direction to the contrary, must hold the trust- property, or so much thereof as is unexhausted, for the benefit of the author of the trust or his legal representative.

Illustrations

  • A conveys certain land to B- “upon trust,” and no trust is declared; or

“upon trust to be thereafter declared,” and no such declaration is ever made; or

upon trusts that are too vague to be executed; or

upon trusts that become incapable of taking effect; or

“in trust for C,” and C renounces his interest under the trust.

In each of these cases B holds the land for the benefit of A.

  • A transfers Rs.10,000 in the four per cents, to B, in trust to pay the interest annually accruing due to C for her life. A dies. Then C dies. B

holds the fund for the benefit of A’s legal representative.

  • A conveys land to B upon trust to sell it and apply one moiety of the proceeds for certain charitable purposes, and the other for the

maintenance of the worship of an idol. B sells the land, but the charitable purposes wholly fail, and the maintenance of the worship does not exhaust the second moiety of the proceeds. B holds the first moiety and the part unapplied of the second moiety for the benefit of A or his legal representative.

  • A bequeaths Rs.10,000 to B, to be laid out in buying land to be conveyed for purposes which either wholly or partially fail to take effect. B

holds for the benefit of A’s legal representative the undisposed of interest in the money or land if purchased.

  1. Transfer for illegal purpose.- Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor.
  2. Bequest for illegal purpose.- Where a testator bequeaths certain property upon trust and the purpose of the trust appears on the face of the will to be unlawful, or during the testator’s life-time the legatee agrees with him to apply the property for an unlawful purpose, the legatee must hold the property for the benefit of the testator’s legal representative.

Bequest of which revocation is prevented by coercion.- Where property is bequeathed and the revocation of the bequest is prevented by coercion, the legatee must hold the property for the benefit of the testator’s legal representative.

  1. Transfer pursuant to rescindable contract.- Where property is transferred in pursuance of a contract which is liable to rescission or induced by fraud or mistake, the transferee must, on receiving notice to that effect, hold the property for the benefit of the transferor, subject to repayment by the latter of the consideration actually paid.
  2. Debtor becoming creditor’s representative.- Where a debtor becomes the executor or other legal representative of his creditor, he must hold the debt for the benefit of the persons interested therein.
  3. Advantage gained by fiduciary.- Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

Illustrations

  • A, an executor, buys at an undervalue from B, a legatee, his claim under the will. B is ignorant of the value of the bequest. A must hold for the

benefit of B the difference between the price and value.

  • A, a trustee, uses the trust-property for the purpose of his own business. A holds for the benefit of his beneficiary the profits arising from such user.
  • A, a trustee, retires from his trust in consideration of his successor paying him a sum of money. A holds such money for the benefit of his

beneficiary.

  • A, a partner, buys land in his own name with funds belonging to the partnership. A holds such land for the benefit of the partnership.
  • A, a partner, employed on behalf of himself and his co-partners in negotiating the terms of a lease, clandestinely stipulates with the lesser for

payment to himself of a lakh of rupees. A holds the lakh for the benefit of the partnership.

  • A and B are partners. A dies. B, instead of winding up the affairs of the partnership, retains all the assets in the business. B must account to A’s

legal representative for the profits arising from A’s share of the capital.

  • A, an agent employed to obtain a lease for B, obtains the lease for himself. A holds the lease for the benefit of B.
  • A, a guardian, buys up for himself incumbrances on his ward B’s estate at an undervalue. A holds for the benefit of B the incumbrances so bought, and can only charge him, with what he has actually paid.
  1. Advantage gained by exercise of undue influence.- Where, by the exercise of undue influence, any advantage is-gained in derogation of the interests of another, the person gaining such advantage without consideration, or with notice that such influence has been exercised, must hold the advantage for the benefit of the person whose interests have been so prejudiced.
  2. Advantage gained by qualified owner.- Where a tenant for life, co-owner, mortgagee or other qualified owner of any property, by availing himself of his position as such, gains an advantage in derogation of the rights of the other persons interested in the property, or where any such owner, as representing all persons interested in such property, gains any advantage, he must hold, for the benefit of all persons so interested, the advantage so gained, but subject to repayment by such persons of their due share of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted, in gaining such advantage.

Illustrations

(a) A, tenant for life of lease hold property, renews the lease in his own name and for his own benefit. A holds the renewed lease for the benefit of all those interested in the old lease.

[***]

  1. Property acquired with notice of existing contract.- Where a person acquires property with notice that another person has entered into an existing contract affecting that property, of which specific performance could be enforced, the former must hold the property for the benefit of the latter to the extent necessary to give effect to the contract.
  2. Purchase by person contracting to buy property to be held on trust.- Where a person contracts to buy property to be held on trust for certain beneficiaries and buys the property accordingly, he must hold the property for their benefit to the extent necessary to give effect to the contract.
  3. Advantage secretly gained by one of several compounding creditors.- Where creditors compound the debts due to them, and one of such creditors, by a secret arrangement with the debtor, gains an undue advantage over his co-creditors, he must hold for the benefit of such creditors the advantage so gained.
  4. Constructive trusts in cases not expressly provided for.- In any case not coming within the scope of any of the preceding sections, where there is no trust, but the person having possession of property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be), to the extent necessary to satisfy their just demands.

Illustrations

  • A, an executor, distributes the assets of his testator B to the legatees without having paid the whole of B’s debts. The legatees hold for the

benefit of B’s creditors, to the extent necessary to satisfy their just demands, the assets so distributed.

  • A by mistake assumes the character of a trustee for B, and under colour of the trust receives certain money. B many compel him to account for

such moneys.

  • A makes a gift of a lakh of rupees to B, reserving to himself, with B ’ s assent, power to revoke at pleasure the gift as to Rs. 10,000. The gift is void as to Rs.10,000, and B holds that sum for the benefit of A.
  1. Obligor’s duties, liabilities and disabilities.- The person holding property in accordance with any of the preceding sections of this Chapter must, so far as may be, perform the same duties, and is subject, so far as may be, perform the same duties, and is subject, so far as may be, to the same liabilities and disabilities, as if he were a trustee of the property for the person for whose benefit he holds it:

Provided that (a) where he rightfully cultivates the property or employs it in trade or business, he is entitled to reasonable remuneration for his trouble, skill and loss of time in such cultivation or employment; and (b) where he holds the property by virtue of a contract with a person for whose benefit he holds it, or with any one through whom such person claims, he may, without the permission of the Court, buy or become lessee or mortgagee of the property or any part thereof.

  1. Saving of rights of bona fide purchasers.- Nothing contained in this Chapter shall impair the rights of transferees in good faith for consideration, or create an obligation in evasion of any law for the time being in force.

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.