Mercantile Law (Trust)

13. Trust Act, 1882

WHAT IS TRUST?
DEFINITIONS [3]
Trust Author Trustee Beneficiary Trust property An obligation annexed to ownership of a property. It arises out of confidence reposed (placing something) by the owner. Confidence may be for benefit of owner or any other person. The person who reposes or declares the confidence The person who accepts the confidence The person for whose benefit the confidence is accepted The subject matter of the trust

EXPLANATION
Ali, a farmer, was suffering from cancer. He was much worried about his children, Asma and Zia, who were only 12 and 10 years old respectively. So, Ali bequeaths (to give or leave) his land property in trust, appointed Aslam (his cousin) as trustee and asked him to use and manage the property and give its benefits to his children (Asma and Zia) during Alis life time and afterwards until Asma and Zia become of 21 years of age. Aslam accepted it. This is a trust. Ali is author. Aslam is Trustee. Asma and Zia are beneficiaries. The land property of Ali is trust property.

TRUSTEE(S)
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.

ACCEPTANCE OF TRUST
It is (of course) not compulsory to accept the trust. A person nominated as trustee may or may not accept it. A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance.

DUTIES OF TRUSTEE
Duty Details A trustee is bound to fulfill the purpose of trust obeying the orders of author. The orders of author may be modified by beneficiaries who are competent to contract. Trustee not bound to obey directions which are illegal, impracticable or injurious to beneficiaries.

1.

To Execute the trust

CA Module B A trustee is bound to acquaint himself (understand) the nature and circumstances of trust. He must obtain transfer of property in his name where necessary He must take out money invested in risky securities. 3. 4. To Protect title Not to set up adverse title 5. To take care Preserve the trust property, maintain and defend title in all suits. He must not set up or aid any title to trust property which is adverse (against) to the interest of beneficiary. A trustee must exercise reasonable care in dealing with property as a man of ordinary prudence deals with his own property. If loss arises in spite of reasonable care, and there is no contract to contrary, he is not responsible. A trustee must get convert the perishable property into property of 6. To convert perishable property permanent nature unless stopped by the trust agreement. This is a case when trust is created for the benefit of several persons in succession and trust property is of wasting nature. If there are more than one beneficiaries, be impartial between them. Must 7. To be impartial not give benefit to one at expense of other. But where he has discretionary power and he exercises it in good faith, the court cannot prevent him. Where a trust is created for benefit or several persons in secession, trustee is bound to stop person in possession of property from any act destructive or injurious to the trust. A trustee is bound to keep clear and complete accounts of trust property. He must be able to provide full and accurate information about the amount and state of trust property on demand by the beneficiary. If the trust property consists of money and cannot be applied to the purpose of trust immediately, trustee is bound to invest the money in securities.

2.

To acquaint himself

8.

To prevent waste To provide accounts To invest trust money

9.

10.

Illustration Facts: Aslam, a trustee, is simply authorized to sell certain land by public auction. Can he sale land by private contract? Solution: He cannot sell the land by private contract because he is not authorized under trust deed. Illustration Facts: Aslam, a trustee for Bano and her children, is directed by the author of trust to lend, on Banos request, trust property to Banos husband, Kumail, on the security of his bond. Kumail becomes insolvent and Bano requests Aslam to make loan. What should Aslam do? Solution: A may refuse to make it as giving of loan would be injurious to beneficiaries.

Mercantile Law (Trust)

Illustration Facts: Aslam, 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. Would he be liable? Solution: Aslam is bound to make good the loss caused thereby to the beneficiary.

LIABILITIES OF TRUSTEE
Liability Details In case of breach, trustee is liable to make good the loss suffered by the beneficiary. A trustee is NOT liable to pay interest except in following cases: When he received interest. When he had to receive but did not receive. A trustee has no liability for the acts of his predecessor. A trustee has no liability for default by his co-trustees except in following cases: When he has delivered trust-property to his co-trustees without seeing to its proper application. When he does not enquire the co-trustees dealing with trust property. When he does not take reasonable steps to protect beneficiarys interest after knowing about breach of trust by co-trustees.

1.

Breach of trust

2.

Predecessors default

3.

Co - trustees default

RIGHTS OF TRUSTEES
1. 2. 3. Details A trustee has right to posses trust instruments and title deeds of To title deed trust property. To be A trustee can reimburse himself out of trust property for expenses reimbursed relating to it (trust property). To be recouped A trustee can recover from the beneficiarys personal interest any overpayment made to such beneficiary. for erroneous If such interest fails, beneficiary is personally liable. overpayment A trustee has right to be indemnified by the person obtaining gain in case of breach of trust. Indemnity by This is to the extent of actual amount received. gainer in case This is in case trustee is not involved in breach. of breach After the completion of duties, trustee has right to settlement of accounts and acknowledgement by the beneficiary that nothing is To due. settlement of accounts Right

4.

5.

CA Module B

POWERS OF TRUSTEE
Power 1. 2. 3. 4. 5. 6. To sell To convey To vary investment To apply property of minor To give receipts In case of death of one trustee or disclaimer by him Details When a trustee is empowered to sell trust property, he may sell it under conditions he thinks fit e.g. in lots etc. He has power to decide reasonable time. A trustee has power to convey or otherwise dispose of the trust property. A trustee may invest in different securities at his own discretion. But needs consent of a beneficiary who is competent of contract and the benefits have been created for his life. A trustee may apply the property of a minor for his maintenance, education, marriage or funeral. A trustee has power to give receipt for any money, property etc. received by him. When one of the several trustees dies, continuing trustees can deal the property except in case of contract to contrary.

DISABILITIES OF TRUSTEES
Disability No renounce 1. after acceptance Details A trustee can not renounce (give up; leave; reject) after the acceptance of trust. A trustee cannot delegate his office to stranger or cotrustees except; Instrument of trust so provide. It is in regular course of business. It is necessary. It is with consent of beneficiary. In absence of agreement to contrary, co-trustees must join for execution of contract. In absence of an express agreement a trustee has no right to remuneration. A trustee cannot use trust property for his own benefit. He cannot use it for a purpose unconnected to trust. A trustee selling the trust property cannot buy it himself or through an agent. A trustee cannot buy beneficiarys interest without the permission of court. A trustee whose duty is to invest money must not invest it on personal security of him or co-trustees.

2. No delegation

3.

Co - trustees should act jointly

4. No charge for services 5. 6. 7. 8. No personal use of trust property Cannot buy trust property sold by him Cannot buy beneficiarys interest No mortgage on personal security

Mercantile Law (Trust)

BENEFICIARY (IES)
RIGHTS OF BENEFICIARY
Right 1. 2. 3. 4. Rent & Profit Specific execution Transfer of possession Inspection Transfer beneficial interest Details Subject to the instrument of trust, beneficiary has right to receive the rents and profits. Trust deed should clearly indicate that it is executed to the extent of beneficiarys interest. Subject to agreement of all beneficiaries, competent to contract, a beneficiary may require the trustee to transfer possession of property in his name or third person. Beneficiary has right to inspect and take copies of trust deed, documents of title of property, accounts and vouchers. Beneficiary may transfer his interest but subject to the law enforceable at that time. But a married woman cannot transfer her rights during her marriage because she has no right to deprive herself from benefit. A beneficiary can sue for execution of trust where all the trustees die, disclaim or are discharged or execution of trust becomes impracticable. Trust shall be executed by the Court until appointment of new trustees. Beneficiary has right that property should be managed by proper number of proper persons. Proper person is one who is not; Person domiciled abroad, alien enemy, insolvent, person having interest inconsistent with beneficiary and; Unless personal law of beneficiary allows otherwise, a married woman and a minor.

5.

6.

Sue for execution of trust

7.

Have proper trustees

When administration of trust involves receipt and custody of money, trustees must be atleast two. Right to compel Beneficiary has right to compel trustee for any act and to stop him 8. trustee from breach of trust. Proceed against Beneficiary has right to get retransferred trust property wrongfully 9. trustees bought by the trustee, if it is unsold by the trustee. Beneficiary has right to follow the trust property if it comes in the hands of third person inconsistently with the trust deed. Follow trust 10. Beneficiary has same right on the sale proceeds of trust property in property trustees or his legal representatives hands as he has on trust property.

CA Module B If the trustee wrongfully sells trust property and afterwards becomes the owner of such property, beneficiary has right to get the property reconverted to trust property. When the trustee mixes the trust property with his own and gets benefit, beneficiary has charge to the whole fund in respect of amount due from him. If a partner being trustee applies trust property for partnership without notice of other partners, he is liable in personal capacity. If he does so with notice of other partners, all are severally and jointly liable.

Reconversion 11. of property 12. Blended property

Wrongful 13. employment of property

LIABILITIES OF BENEFICIARY
1. 2. 3. 4. 5. 6. Liability Breach Secret benefit Fails to proceed Conceals the facts Fails to take reasonable steps Deceives trustees Details If he commits breach of trust. If he knowingly obtains any benefit without knowledge of other beneficiaries. If he fails to proceed against trustees after knowing breach by them. If he conceals facts regarding breach. If he fails to take reasonable steps within rights and duties of beneficiaries. If he deceives and induces the trustee to commit breach.

EXTINGUISHING THE TRUST

EXTINCTION OF TRUST
A trust may be extinguished: a) On completion of purpose. b) On purpose becoming unlawful. c) On Impossibility of purpose by destruction of trust property or otherwise or; d) On revocation of revocable trust.

REVOCATION OF TRUST
Type of trust 1. Trust created by will For payment of debts 2. of author 3. Trust created by words 4. of mouth Others Method At the pleasure of author. When this has not been communicated to the creditors, trust can be revoked at the pleasure of author. By author in exercise of power given to him. On consent of all beneficiaries competent to contract.