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

1.

To Execute
the trust

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.

CA Module B

2.

To acquaint
himself

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.

8.

9.

10.

To be
impartial

To prevent
waste
To provide
accounts
To invest
trust money

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.

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.

1.

Breach of trust

2.

Predecessors
default

A trustee has no liability for the acts of his predecessor.

Co - trustees
default

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.

3.

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.

RIGHTS OF TRUSTEES
Right

1.
2.
3.

4.

5.

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 settlement
due.
of accounts

CA Module B

POWERS OF TRUSTEE
Power

1.
2.
3.
4.
5.
6.

Details
When a trustee is empowered to sell trust property, he may sell it
To sell
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
To convey
property.
A trustee may invest in different securities at his own discretion. But
To vary investment needs consent of a beneficiary who is competent of contract
and the benefits have been created for his life.
To apply property
A trustee may apply the property of a minor for his
of minor
maintenance, education, marriage or funeral.
A trustee has power to give receipt for any money, property etc.
To give receipts
received by him.
In case of death of
When one of the several trustees dies, continuing trustees can
one trustee or
deal the property except in case of contract to contrary.
disclaimer by him

DISABILITIES OF TRUSTEES
Disability
No renounce after
1.
acceptance

2. No delegation

3.

Co - trustees should
act jointly

4. No charge for services

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.

5.

No personal use of
trust property

A trustee cannot use trust property for his own benefit. He

cannot use it for a purpose unconnected to trust.

6.

Cannot buy trust

property sold by him

A trustee selling the trust property cannot buy it himself or

through an agent.

7.

Cannot buy
beneficiarys interest

A trustee cannot buy beneficiarys interest without the

permission of court.

8.

No mortgage on
personal security

A trustee whose duty is to invest money must not invest it on

personal security of him or co-trustees.

Mercantile Law (Trust)

BENEFICIARY (IES)
RIGHTS OF BENEFICIARY
Right
1.

Rent & Profit

2.

Specific
execution

3.

Transfer of
possession

4.

Inspection

5.

Transfer
beneficial
interest

6.

Sue for
execution of
trust

7.

Have proper
trustees

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.

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

Reconversion
11.
of property
12.

Blended
property

Wrongful
13. employment
of property

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.

LIABILITIES OF BENEFICIARY
1.

Liability
Breach

2.

Secret benefit

3.

Fails to proceed

4.

Conceals the facts

Fails to take

5.
6.

Details

reasonable steps
Deceives trustees

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