Mid-Term Assignment on

Laws on Equity and Trust

Law 225

Submitted by-
Manjare Hassin Raad
ID: 191100047
5th Semester
Summer-2020

Submitted to-
Ms. Sharmin Akter
Assistant Professor
Eastern University
Dhaka
 Answer to the question no: 1

 What are maxims?

Maxims are a collection of legal truisms, i.e. the true and actual facts are the basis
of legal statements, which are used as ‘rules of thumb’. Furthermore, they are not
binding but they only provide guidelines for every situation in which equity
developed. According to Professor Walker D.M,
“Maxims are short, pithy formulations of broad and general principles of
common sense and justice.”1
 What are ‘maxims of equity’?
Equity means fairness and natural justice. ‘Maxims of equity’ are the legal
maxims that serve as a set of general principles which are said to govern the way in
which equity operates. They were created by the Chancellors of the Chancery
Court as compliment of natural justice. But these maxims do not cover the whole
concept and grounds on equity.
‘Municipal Corporation of Delhi V Nirmal Sachdeva’ (2001): The Court observed
that the ‘maxims of equity’ are not to be treated as positive laws to be applied
literally and to their widest possible insufficiency since equity does not demand
that its suitors shall have to lay themselves blameless.2
 List of the 12 equitable maxims:
There are twelve equitable maxims which are given below:
1. Equity will not suffer a wrong to be without a remedy.
2. Equity follows the law.
3. He who seeks equity must do equity.
4. He who comes into equity must come with clean hands.
5. Delay defeats equities.
6. Equality is equity.
7. Equity looks to the intent rather than the form.
8. Equity looks on that as done which ought to be done.
9. Equity imputes an intention to fulfill an obligation.
1
‘The Scottish Jurists, 1985’ by Professor Walker D.M
2
2001, 10 SCC 364
10. Where the equities are equal, the first in time shall prevail.
11. Where there is equal equity, the law shall prevail.
12. Equity acts in personam.3

 Theme of the first maxim:

The first maxim of equity is ‘Equity will not suffer a wrong to be without a
remedy’. It means that where a law gives a person a right, it also gives a remedy.
And, it reveals that the equity court has been evolved to provide against violation
of rights especially when the common law court fails to provide that kind of
remedy. So, it will be fair to mention that this maxim is the source of entire
jurisdiction of equity.
‘Ashby V White’ (1703): It was held that if a law gives a man a right, he must
enjoy it and if he fails to enjoy that right, he will get a proper remedy from the
court.4
 Exception of the first maxim:
There are two exceptions of the first maxim. One of them indicates that a person is
deprived of his remedy by the equity court because of his own personal negligence
like destroying evidence. The core reason behind this maxim is that there is also an
established maxim which is ‘Delay defeats equities’. And, this maxim is
considered the exception of the first maxim. And, now I am going to discuss about
this maxim.

3
‘Law on Equity and Trust in Bangladesh’ by Md. Abdul Halim (Barrister)
4
1703 2LD RAYM 933
 ‘Delay defeats equities.’
Or
‘Vigilantibus, non dormentibus, jura subvenient.’
 Meaning:
This maxim means that an equitable claim can be barred in that case in which a
party, who demands such claim, does unreasonable delay in seeking some relief
and for which no limitation-period is provided through law of limitation. So, when
a person sleeps over his/her right, he/she is not entitled to any relief. He/she cannot
approach the court after a long lapse. Courts do not provide a lenient attitude
towards lawsuits introduced after a long lapse. Due to this settled principle, equity
helps only those who are vigilant and does not help those who are indolent.
 Who are vigilant?
a) Vigilant indicates to be keenly watchful to detect danger, or wary of danger. It
also refers to being ever awake and alert, or sleeplessly watchful.
b) Vigilant persons are attentive to discover and evade dangers. The law usually
helps vigilant persons.
 Who are indolent?
a) An indolent person is habitually slow and lazy.
b) Indolent persons are not watchful and they neglect every law related issues.
c) If someone injures an indolent, he/she will delay to take legal action.

 Example:
Bashar made a contract with Ahmad for sale of his white car. But he sold his black
car to Ahmed and he knew this fraud, but remind silent for next ten years. Now
Ahmad cannot avail an equitable relief against Bashar’s fraud because Ahmad
gave his introduction as indolent, not vigilant.

Delay defeats equity

 Types of Delay

1. Material
Delay

2. Immaterial
Delay

 Material Delay:
This delay is also known as fatal/material/crucial delay. It means unreasonable
delay which is unacceptable when a person wants to get equitable remedy from the
equity court. Mainly, this maxim deals with material delay. In the following three
cases delay is fatal for a party-
a) As a result of delay when the available evidence is lost or destroyed,
b) When the other party is induced to assume or draw an inference from one’
conduct that one has waived his right,
c) Delay provides a ground to the other party and leads him to believe that one has
agreed to abandon or release his rights.
United States v. Lopez (2006): The US Court held that unreasonable delay refers to
that period of time, in excess of 6 hours after a defendant's arrest, that it is not
legitimately excused.5

5
U.S. Dist. LEXIS 33455
 Immaterial delay:
This delay is reasonable delay by the equity court when a person wants to get
equitable relief. In the following cases delay is not fatal-
a) If the delay refers to the amount of time that is fairly required to do whatever is
required to be done, conveniently under the permitted circumstances,
b) If the delay is interpreted by the court in the in light of the nature, purpose, and
circumstances of each case.

Two Prevalent
Doctrines

Laches
Acquiescence

 Doctrine of Laches:
The literal meaning of Laches is slackness. It is the legal doctrine that an
unreasonable delay in seeking a remedy for a legal right or claim will prevent it
from being enforced or allowed if the delay has prejudiced the opposing party. The
doctrine is an equitable defense that seeks to prevent ‘legal ambush’ from a party
who is negligent in failing to timely make a claim. It recognizes that the opposing
party's ability to obtain witnesses and other evidence diminishes over time, due to
unavailability, fading memory, or loss. Disallowing the negligent party's action on
the ground of Laches is a form of ‘Estoppel’ which means to stop from denying the
fact and this doctrine is based on delay.
The theory behind allowing the defense is that the law shouldn't aid those who
‘sleep on their rights’. For a defense of Laches to succeed, it must be proven that
the party invoking the doctrine has changed its position as a result of the delay,
resulting in being in a worse position now than at the time the claim should have
been brought.
So, the legal characteristics for Laches are:
a) The nature of this delay in this doctrine is sufficient to prevent a party from
obtaining an equitable remedy.
b) This unreasonable delay is a great weapon of defense by the defendant against
the plaintiff.
c) If the plaintiff is passive and apathetic to his rights for a considerably longer
time than prescribed, his delay does not remain a mere delay but a delay that
has worked to his disadvantage.
Example: The delay in bringing the claim may have caused much larger potential
damages to be awarded; the ability to pay the claim is lacking due to assets being
otherwise used in the meantime; the property sought to be recovered has already
been sold; or evidence or testimony may no longer be available to defend against
the claim.
 Doctrine of Acquiescence:
Acquiescence is an Assent to an infringement of rights, either express or implied
from conduct, by which the right to equitable relief is normally lost. One may
acquiesce in that which does not meet his views but which he does not care to
contest. It takes place when a person with full knowledge of his owns rights, and of
his own rights and of any acts which infringe them, has either at the time or after
infringement, by his conduct led the person responsible for the infringement to
believe that he has waived or abandoned his rights. According to Snell,
“Acquiescence primarily means conduct from which it can be inferred that a
party has waived his rights. Thus an injunction to restrain the use of a house as
a shop was refused on proof that the plaintiff had himself brought goods there;
acquiescence in a small breach will not bar proceeding to restrain a wider
breach.”6
So, the legal characteristics for Acquiescence are:
a) Acquiescence is an active state on behalf of the plaintiff.
b) Plaintiff is absolutely debarred to get an equitable remedy.
c) Acquiescence is more severe state than Laches.
Example: In ‘Duke of Leeds V Earl of Amherst’ (1846) case, a new beer company
is concerned that the proposed label for its beer might infringe on the trademark of
its competitor. It submits the label to its competitor's general counsel, who does not
object to its use. The new company files an application in the Patent and
Trademark Office to register the label as its trademark and starts to use the label on
the market. The competitor does not file any objection in the Patent Office. Several
years later, the competitor sues the new company for infringing on its trademark
and demands an accounting of the new company's profits for the years it has been
using the label. A court will refuse the accounting, since by its acquiescence the
competitor tacitly approved the use of the label. The competitor, however, might
be entitled to an Injunction barring the new company from further use of its
trademark if it is similar to the competitor's label as to amount to an infringement.7

1.
Bombay
Case

Relevant Cases on
the discussed
maxim (Delay
defeats equity)
2. 3.
Allcord V Bablani
Skinner Case

6
B.M.Gandhi, ‘Equity, Trusts and Specific Relief’(Lucknow: Eastern Book Company) Ed 4 p74
7
(1846) 2 PH 117
 Chatrabhuj V Mansukhram (1925)/ Bombay Case:
Summary: The plaintiff allowed his land to be occupied by the defendant and this
was accepted silently by him even beyond the period of limitation. On a suit by the
plaintiff for the possession of the land it was decided that as the period of
limitation to recover possession had expired, no relief could be granted.8
In this case, there is an adverse possession. Adverse possession indicates that
someone may acquire title to the land of another through certain acts over a
defined period of time, e.g. twelve years possession of a property is an adverse
possession in many countries including Bangladesh. Such acts must continue
uninterrupted for the time period defined by state laws, which vary by state. In
general, the acts of possession must be overt, hostile, exclusive, uninterrupted, and
under a claim of right, etc., so as to give the owner or others claiming entitlement
to possession notice and an opportunity to counter the adverse possession. Certain
public property is not subject to adverse possession, e.g. in New York, public
agencies holding property for a public purpose are not subject to claims of adverse
possession. But it is an unlawful possession because there is no actual ownership
for the adverse possession person.
 Allcord V Skinner (1887):
Summary: Miss Allcard was introduced by the Revd Mr Nihill to Miss Skinner, a
lady superior of a religious order named "Protestant Sisters of the Poor". She
had to observe vows of poverty and obedience. Three days after becoming a
member, Miss Allcard made a will bequeathing all property to Miss Skinner, and
passed on railway stock that she came into possession of in 1872 and 1874. She
then claimed the money back after she left the sisterhood. The court held that she
was unduly influenced but barred by Laches from getting restitution. And in any
case she would only have been able to recover as much of the gift as remained in
the defendant’s hands after some of it had been spent in accordance with her
wishes.9
 ‘Union of India V Kishorial Bablani’/Bablani Case (1999):
Summary: In this case, the maxim was applied to service law area. The
respondent, in this case, successfully passed IAS and allied services Examination
in 1974.Due to error in computation of vacancies by the department he was placed
8
AIR 1925 Bombay 183
9
(1887) 36 Ch D 145
in class II post in 1976 instead of Class one post .The respondent represented in
1983.His representation was rejected in 1985.He therefore moved the court.
Contention of the department was that it was not possible to reopen the issue after
several years .The tribunal in 1994 allowed respondent’s application. Against this
the Union of India came in appeal. It also granted benefit of Class 1 post of the
respondent. Other persons claimed similar benefit. Denying relief to other persons,
the Supreme Court held that delay defeats equity, is a well known principle
jurisprudence. Delay of 15 and 20 years cannot be overlooked when an applicant
before the court seeks equity. During all these year, the respondent had no legal
right to any particular post. After more 10 years, the process of selection and
notification of vacancies cannot be and ought not to be reopened in the interest of
proper functioning and morale of the concerned services. It would also jeopardize
existing position of large member of members of that service.10
 Limitations of the maxim:
The maxim of ‘delay defeats equities’ will not apply-
a) Where the law of limitation, e.g. Limitation Act expressly applies,
b) Where it apply by analogy,
c) Where the law of limitation does not apply but the cases are governed by
ordinary rules Laches.11
So, from the above discussion, it is clear that the first maxim will not applicable in
case of personal negligence because delay defeats equities.
Answer to the question no: 2
 Stand Point:
If the claimants have same equitable rights, I can determine the priority because
the doctrine of priority is an equitable doctrine. So, priority is explained in the
following two maxims-
a) Where the equities are equal, the first in time shall prevail.
b) Where there is equal equity, the law shall prevail.
These maxims clarify the prior interest to the property for a claimant. Let me
discuss them below:

10
(1999)1 SCC 729
11
‘Law on Equity and Trust in Bangladesh’ by Md. Abdul Halim (Barrister)
 What is ‘Doctrine of Priority’?
In general sense, priority is the state of being first in time, place, or rank. It
implies preference. It is the privilege of preferential treatment. It is something that
ought to be considered, dealt with, in the earlier stage of proceedings. So, priority
is the fact or condition of being earlier or antecedent. It is the state or quality of
being earlier in time, occurrence, etc. It is precedence in time, order, importance,
rank, privilege, etc. It is an interest having prior claim to consideration.
In legal sense, priority is the right of a party to satisfy its own claim of interest first
in comparison to others. It is a principle of natural justice that if rights are created
in favor of two persons at different times, the one who has the advantage in time
should also have the advantage in law. This rule, however, applies only to cases
where the conflicting equities are otherwise equal.
Section 48 of ‘The Transfer of Property Act, 1882’ is based on this doctrine. It
specifies that
a) The transferor transfers the rights in the same immovable property.
b) At different times, one interest created should be prior in time and another
should be subsequent.
c) Such rights created cannot be enjoyed in full extent together.
d) Then, each later right created is subject to the previously created rights.12
Example: Alam mortgages his property to Sharif for 90,000/- and then sells the
property to Kamal. Here two transfers have taken place. Now Kamal owns the
property but according to the law, the property is still subject to the mortgage and
in case of default of payment of the loan, the mortgagee can cause the property to
be sold as the later transfer is subject to the prior transfer.
 When is Priority important?
Questions of priority may arise where there are rival conveyances of land or
assignments of beneficial interests in trust funds. Usually such questions arise in
connection with mortgages.

12
ACT NO. IV Of 1882
 “Where the equities are equal, the first in time shall prevail.”
Or,
“QUI PRIOR EST TEMPORE, POTIOR EST JURE.”
 Meaning:
This maxim is concerned with the priority that is to say which of interests prevails
in the time of conflict. The general rule, is that interests take effect in order of their
creation, but, as regards equitable interests, these may be defeated if a bona fide
purchaser acquires a subsequent legal estate without notice of the equitable one.
So, the requirements of a bona fide purchase for value without notice are three.
They are-
a) The defendant must have the legal estate vested himself, or in some person on
behalf.
b) He must have given value.
c) He must have had no notice of the equitable interest at the time when he gave
his consideration for the conveyance.13
Thus, where there are two competing equitable interests, the general rule of equity
is that the person whose equity attached to the property first will be entitled to
priority over the other. Where the equities are equal and neither claimant has the
legal estate, the first in time prevails.
 Example:
A man advertises a small boat for sale in the classified section of the newspaper.
The first person to see the ad offers him 20,000 Taka less than the asking price, but
the man accepts it. That person says he or she will pick up the boat and pay for it
on Saturday. Meanwhile another person comes by, offers the man more money,
and the man takes it. And, now the question is who owns the boat? According to
the maxim, the first buyer gets the boat, and the second buyer gets his or her
money back because in this case, time will prevail.

13
Snell’s Principles of Equity
 “Where there is equal equity, the law shall prevail.”
 Meaning:
This maxim expresses that if two persons have equal equitable claims upon the
same subject-matter, i.e. if each is equally is entitled to protection and aid of the
equity court with respect to his equitable claim and one of them also obtains the
legal claim in the same subject-matter, then he who has the legal claim will prevail.
So, the legal estate prevails over the equitable estate, i.e. the person possessing the
legal estate is entitled to priority over any person having merely an equitable estate
in that property because ‘equity follows the law’.
 Example:
A company that had been collecting sales tax and turning it over to the state
government found that it had overtaxed and overpaid by 2%. It applied for a
refund, but the state refused. The court upheld the state on the ground that the
money really belonged to the customers of the company. Since the company had
no better right to the money than the state, the court left the money with the state.

1. Cave V
Cave

Relevant
cases for the
above two
2. Re Samuel
maxims
Allen & Sons 3. Rice V
Ltd. Case Rice
 ‘Cave V Cave’ (1880):
Fact: The sole trustee under a marriage settlement was also a solicitor. He and a
member of the family fraudulently used the money to purchase the freehold in a
house, upon which he raised a legal mortgage, followed by a number of equitable
mortgages. When the fraud was discovered the house raised less money than all the
claims on it, and the issue was the order in which claimants were to be paid.
In this case, the question arose of the priority of an equitable interest, a legal
interest and an equitable interest created in that order. The interests were a
beneficial interest under a trust, a legal mortgage created without notice of the
prior beneficial interest and a legal mortgage created without notice of an equitable
mortgage.
Issue: The issue stands which claimant would be paid first.
Decision: The court held that the legal claim would get the payment first because
the first mortgagee had no notice that there was equal equity as between him and
the beneficiaries which indicates that “Where there is equal equity, the law shall
prevail.” Subsequent mortgagees had only equitable estates, however, which
although they too had no notice of the beneficiaries’ rights took subject to those
prior rights. This is an application of the equitable maxim that “Where the
equities are equal, the first in time shall prevail.”14
 Re Samuel Allen & Sons Ltd. Case (1934):
Fact: A company hired machinery from X under a hire-purchase agreement by
which the property in the machinery was not to pass to the company until all
installments had been paid. A right was given to X to remove the machinery on the
company’s failure to pay an installment. The machinery was fixed on the business
premises of which the company was the legal owner, and so the legal interest in the
machinery vested in the company. Afterwards the company created an equitable
mortgage of the premises in favor of a mortgage that had no notice of the hire
purchase agreement.
Issue: Can X exercise his right to remove the machinery when the company fails
to pay installment?

14
1880 15 Ch D 639
Decision: It was held that X’s right to remove fixtures was an equitable interest in
the land, and that as it had attached before equitable mortgage was created. It had
priority over the mortgagee’s right.15
 Rice V Rice (1853):
Fact: The vendors sold a house for a sum before that sum was paid in full; they
conveyed title to the purchaser. The purchaser then absconded, and mortgaged the
property to the mortgagee, who had no idea of the circumstance.
Issue: Whose equitable interest is better?
Decision: The court held that the rule should be, when two equitable interests are
the same in all respects except time, and then time shall prevail. Time
considerations should be a last resort. A person must look at whether one interest is
better. When determining which equitable interest is better, the Courts must look at
the nature and condition of their respective equitable interests, the circumstances
and manner of their acquisition, and the conduct of each party. The possession of
the title gives better equity generally. There are exceptions to this though.16
 Personal Evaluation:
According to my understanding, if there is a conflict between equitable claims,
then time shall prevail and so, doctrine of priority is applicable. But if there is a
conflict between legal and equitable claim, then the law shall prevail and so,
doctrine of priority is inapplicable.

15
(1934) St R Qd 287
16
(1853) 61 E R 646
 Answer to the question no: 3

 What is ‘Trust’?
General Explanation
In general sense, a relationship created at the direction of an individual, in which
one or more persons hold the individual's property subject to certain duties to use
and protect it for the benefit of others is called trust. Individuals may control the
distribution of their property during their lives or after their deaths through the use
of a trust. There are many types of trusts and many purposes for their creation. A
trust may be created for the financial benefit of the person creating the trust, a
surviving spouse or minor children, or a charitable purpose. Though a variety of
trusts are permitted by law, trust arrangements that are attempts to evade creditors
or lawful responsibilities will be declared void by the courts.
Scholar’s Explanation
According to Henry Campbell Black,
“An equitable or beneficial right or title to land or other property, held for the
beneficiary by another person, in whom resides the legal title or ownership,
recognized and enforced by courts of chancery is known as trust.”17
According to Moorman, Deshpande and Zaltman (1993),
“Trust is defined as a willingness to rely on an exchange partner in whom one
has confidence.”18
According to Deutsch (1958),
“An individual may be said to have trust in the occurrence of an event if he
expects its occurrence and his expectations lead to behavior which he perceives
to have greater negative consequences if the expectation is not confirmed than
positive motivational consequences if it is confirmed.”19

17
Black’s Law Dictionary
18
‘Principles of Equity and Trusts’ by Samantha Hepburn
19
Ibid
 Legal Explanation
First of all, trust is a contract. Under section 2(h) of ‘The Contract Act, 1872’, an
agreement enforceable by law is a contract.20
The legal definition of trust is provided under section 3 of ‘The Trust Act, 1882’.
According to this section, a trust is the legal relationship between one person, the
trustee, having an equitable ownership or management of certain property and
another person, the beneficiary, owning the legal title to that property.21
So, in a trust, there must be an author of the trust, trustee and one or more
beneficiaries.
Personal Explanation
According to my understanding, a fiducial-three-parties-contract between two
parties to give benefit to a third party is called a trust, e.g. charity is a trust. So,
there must be fiducial relationship among the parties to constitute a trust.
Example: Sharif bequeaths certain property to Baker providing that Baker will hold
and maintain property for the benefit of Ayesha, Sharif’s daughter. Here, it is a
trust where Sharif is the author of the trust, Baker is the trustee and Ayesha is the
beneficiary.
 Creation of the Trust:
The creation of trust is determined in the Trust Act in section (4-10). These
sections are based on a popular English case. The three essential elements for the
declaration of an effective express trust, also known as the ‘three certainties’
named by Lord Landsdale in ‘Knight V Knight’ (1860). They are-
a) Certainty of word: The words must be capable of being constructed as
imperative and not merely discretionary. Merely sayings ‘I hope or desire’
does not satisfy the requirement of law. The language must make it certain that
the settler intended to constitute a trust binding on the person to whom the
property was given. This is ‘certainty of words’.22
b) Certainty of subject-matter: The subject-matter must be certain. The first
taker should have no discretionary power to withdraw any part of the subject-

20
ACT NO. IX Of 1872
21
Act No. II of 1882
22
(1860) 3 Beav 148, 173
 matter from the object of the trust. The property which is to be bound by the
trust must be definite. This is ‘certainty of subject-matter’.23
c) Certainty of object: The object, i.e. persons intended to have the benefit of the
recommendation, should be such as may be ascertained with reasonable
certainty. This is ‘certainty of object’.
So, from the above discussion, it is clear that these certainties reflect the mentioned
sections of the Trust Act. So, there are some legal requirements for creating a trust.

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Creation of trust
under The Trust
Act, 1882

1. Parties:
23
Ibid
Under section 3 of ‘The Trust Act, 1882’, three parties must be needed to
constitute a trust. They are-
a) Author of the Trust: The creator of the trust is known as ‘author of the
trust’. He is also known as ‘testator’. Under section 7 of the Act, he must be
competent to contract including ‘age of majority’, ‘sound mind’ and ‘not
disqualified by law’ under section 11 of ‘The Contract Act, 1872’. Section 7
also provides that if a minor wants to create a trust, he needs to get permission
from the ‘Civil Court of Original Jurisdiction’. Original jurisdiction is the
jurisdiction of the Court where a case begins and hears the case for the first
time.
b) Trustee: The administrator of the trust property is known as ‘trustee’. Under
section 10 of the Act, 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.
c) Beneficiary: The persons for whose benefit trust is created are called
‘beneficiary’. Beneficiary can be one or more than one. And, the beneficial
interest is the right against the trustee. Under section 9 of the Act, the
beneficiary must have the legal capacity to hold the property and he can reject
his beneficial interest by giving notice to the trustee.
However, ‘fiduciary relationship’ is the core part to be needed among the parties.
A fiduciary relationship exists in the law of trusts whenever the testator relies on
the trustee and places special confidence in him. The trustee must act in good faith
with strict honesty and due regard to protect and serve the interests of the
beneficiaries. The trustee also has a fiduciary relationship with the beneficiaries of
the trust. So, without fiduciary relationship, a trust is impossible to constitute.
2. Lawful Purpose:
Section 4 of the Act, a trust can only be created for any lawful purpose. But the
purpose would be considered unlawful when-
a) It is forbidden by law,
b) It is not forbidden by law but it would defeat the provisions of any law,
c) It is fraudulent,
d) It injures the person or the property of another,
e) The Court regards it as immoral or opposed to public policy.
Points to be noted:
a) If the purpose is unlawful, then the trust is void.
b) If a trust is created for lawful and unlawful purpose where two purposes cannot
be separated, then the whole trust is void.
c) If a trust is created for lawful and unlawful purpose where two purposes can be
separated, then the separate lawful purpose is valid and separate unlawful
purpose is void.
d) In this proviso, law includes where the trust-property is immoveable and situate
in a foreign country, the law of such country.

3. Reasonable Certainty:
Section 6 of the Act provides the condition precedents to be fulfilled for the
creation of a trust. According to this section, a trust is created when the ‘author of
the trust’ indicates with reasonable certainty by any words or acts-
a) He has an intention to create a trust,
b) The purpose of the trust,
c) The beneficiary
d) The trust property
e) Transferring the trust property to the trustee except where the trust is made by
will or the author of the trust is to be a trustee.

4. Subject-matter of the trust:

Under section 3 of the Act, the subject-matter of the trust is called ‘trust property’
or ‘trust money’. Another one is ‘instrument of trust’, also known as ‘trust
document’. It means an instrument by which trust is made that contains terms of
the trust including any amendment.
5. Formalities of trust property:
Under section 5 of the Act, if the trust property is immovable property, then it must
be a written-registered and non-testamentary instrument like mortgage or sale
signed by the ‘author of the trust’ or ‘trustee’ or, it may be created by will in
which case registration is optional.
Section 5 also specifies that if the trust property is movable property, the
requirements for immovable property must be included as well as the ownership of
the property is transferred to the trustee.

 Author of the  Trustee (Legal

Trust (Absolute owner,
ownership) conditional right)

Transfers his
legal title Lawful purpose
to give benefit

 Beneficiaries
(Equitable title)

Mode of constituting a
trust
 Answer to the question no: 4
 What is ‘Breach of Trust’?
Breach of trust is a trustee’s failure to act in accordance with the terms of the trust
or the trustee’s general fiduciary obligations. The trustee is subject to removal in
the case of breach of trust and also creates personal liability. Whether or not the
violation was willful, fraudulent, negligent, or inadvertent, a trustee is said to have
committed breach of trust if a duty imposed on him/her by equity was violated.
Under section 3 of ‘The Trust Act, 1882’, an act by a trustee which is not
authorized by either trust document or by law is called breach of trust.24 So, when a
trustee fails to perform his duties under section (11-20) of the Act, he commits a
breach of trust.
 Liabilities for ‘Breach of Trust’:
For committing breach of trust, the trustee shall be obliged to restore the trust to
the position it was in before the breach occurred. This may be achieved by
returning such assets as have been lost to the trust. However, where this is not
possible, the trustee must financially compensate the trust for the loss. Even where
a breach has not resulted in any loss to the trust, the trustee must nonetheless
rectify the breach and is responsible for any and all costs associated with such
rectification. Similarly, in circumstances where the breach has resulted in a profit
to the trustee, this profit must be surrendered to the trust without delay.
According to Keeton,
“A breach of trust consists in some improper act, neglect, default or omission of
a trustee in respect of the trust property or of a beneficiary’s interest in it. A
breach of trust may be active or passive.”
Personal comments on Keeton’s speech: To buy the trust property on his own
account or to mix the trust property with trustee’s own money is instances of
‘active breach’. On the other hand, ‘passive breach’ results from omissions and is
more likely to be committed by unwary trustees.
Section 23 of ‘The Trust Act, 1882’ mentions that if the trustee commits a breach
of trust, he is liable to make good the loss unless-

24
Act No. II of 1882
a) The beneficiary commits a fraud with the trustee to commit breach of trust.
b) The competent beneficiary has without coercion or undue influence having
been brought to bear on him concurred in the breach.
c) The beneficiary silently accepts with full knowledge of facts of the case and of
his rights as against the trustee.25
Besides, this section elaborates two types of consequences whether he is liable or
not.
 When is not a trustee liable?
Under section 23, a trustee committing a breach of trust is not liable to pay interest
except in the following cases:
a) Where he has actually received interest;
b) Where the breach has committed in unreasonable delay in paying trust-money
to the beneficiary;
c) Where the trustee ought to have received interest, but has not done so;
d) Where he may be fairly presumed to have received interest.26
Example: A trustee improperly leaves trust-property and it is consequently lost: he
is liable to make good the property lost, but he is not liable to pay interest thereon.
‘Hukumchand Gulabchand Jain vs Fulchand Lakhmichand Jain’ (1965): Two
questions arise for consideration and they are whether the trustee is liable to pay
simple interest on the trust capital in his hands and if he is so liable what rate of
interest be charged from him in the present case. Interest can be allowed on
equitable grounds only as no statutes in force during the period in suit and dealing
with public charitable trusts made the trustee liable to pay interest. The Trusts Act
does not apply to public or private religious or charitable endowments and
therefore the provisions of section 23 thereof cannot be used for charging interest
from the appellant trustee. The Charitable and Religious Trusts Act has no
provision which provides for charging the trustee with interest.27

25
Ibid
26
Ibid
27
1965 AIR 1692
 When is a trustee liable?
Under section 23, a trustee is liable for committing breach of trust in the following
cases:
a) To account for the interest actually received;
b) To account for simple interest at the rate of six per cent. per annum, unless
Court otherwise directs;
c) 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;
d) 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.28
Example: 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.
‘Armitage v Nurse’ (1998): The Court held that a trustee is said to be accountable
on the footing of willful default when he is accountable not only for money which
he has in fact received but also for money which he could with reasonable
diligence have received. It is sufficient that the trustee has been guilty of a want of
ordinary prudence.29
Personal Comments: According to my understanding, it is to be noted that it is
not necessary that a beneficiary should reap benefit from the breach of trust which
he investigates. What is necessary is that breach of trust occurred and beneficiary
concurred with the act of the trustee.

28
Act No. II of 1882
29
(1998) Ch 241 (CA) 252