A.

THE CONCEPT OF TRUST

The trust is a unique way of owning property under which assets are held by a trustee for
the benefit of another person, or for certain purposes, in accordance with special
equitable obligations.

A trust is an equitable obligation which imposes upon a person (called a trustee) a duty of
dealing with property over which he has control (called the trust property) for the benefit
of persons called beneficiaries or cestuis que trust of whom he himself may be one, and
any of whom may enforce the obligation.

Generally speaking, all kinds of property, whether real or personal, may be held on trust,
but property most frequently held includes land, stocks and shares.

The interests of the beneficiaries are normally described in the instrument creating the
trust. However they may be implied or enforced by law. Further the interest of the
beneficiary is proprietary in the sense that it can be bought or sold, given and or disposed
of by will. It ceases to exist where the legal estate on the property passes to a bonafide
purchaser for value of a legal estate without notice of the trust.

B. NATURE OF A TRUST
A trust must be distinguished from other legal concepts such as bailment, Agency,
Contract, Debts, Conditions and Charges, Powers;

1. BAILMENT
A bailment is the relationship by common law and is a transaction whereby goods are
delivered by one person, the bailor to another, the bailee on terms that usually require the
bailee to hold the goods and ultimately restore them to the bailor. Bailment differs from
the trust concept in the following ways;

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  A Bailor retains property rights over the property bailed; a settler does not
retain any such rights over the trust property.
 Only chattels can be bailed, where as trusts can be made over any property.
 A Bailee exercises rights in his own name; a trustee exercises them in favour
of the beneficiaries.

2. AGENCY
Agency is a contractual arrangement either express or implied, written or verbal whereby
one person may act on behalf of another and bind that other as if he or she acted
personally. The function of an agent is to represent the principle in dealing with third
parties while a trustee does not bring beneficiaries into relationships with third parties.

There are some similarities between trustees and agents;

i. The relationship of trustee and beneficiary is fiduciary in nature while that
of principle and agent is normally fiduciary but not inevitably so.
ii. Both trustees and Agents must act personally and should not delegate their
duties.
iii. Neither of them may make un-authorised profits from their office.
The distinctions are as follows;
i. An agent has no property rights as such in the subject matter of the agency; A
trustee has property rights over the subject matter of the trust.
ii. An agent is entirely controlled by his principal; trustees are only partially
controlled by the beneficiaries, and not at all by the settler or creator of the
trust.
iii. An agent can involve his principal in liability; a trustee can not involve either
the settlor or the beneficiaries in his personal liability.

iv. Because the beneficiary’s right is proprietary, if the trustee disposes of trust
property, the beneficiary can claim and recover it if it is identifiable under the
remedy of tracing.

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 Re Hallets’s Estate (1880) 13 CH.696
In the case of agency the property for which an agent is liable to account to his
principle is only subject to a personal claim against the agent and tracing is not
available to the principle.

3. CONTRACT
A contract is a common law personal obligation resulting from agreement between the
parties. A trust is an equitable relation which can arise independently of an agreement.
There are two primary distinctions;
 Consideration is not necessary to a trust unless incompletely constituted.
 A Contract can be terminated by the parties; a Trust can only be terminated by
the coming to their natural conclusion in any of the following scenarios; By
agreement of all possible beneficiaries, by the Settlor or the trustees if
specifically empowered, by court order.
Contracts can only be enforced by the parties; trusts can be enforced by the beneficiary,
whether a party or not to the creation of a trust.

However, there are situations where the distinction is not easy to draw;
i. Settlement and covenants to settle
Where property is vested in the trustee for settlement, it is held upon the trust of
settlement and the beneficiaries are owners in equity of their interests under the
settlement. However, if the property has not yet been transferred to the trustees but it
is simply subject to the covenant to settle, the beneficiary will only be able to enforce
the covenant if they have given consideration. This is based on the principal that
equity will not assist a volunteer.

ii. Third Party rights under contract

It has been debated regarding questions whether the inability of a third party to sue
upon the contract can be overcome by finding that one of the parties to a contract
contracted as a trustee for him. This is not a question of distinguishing a trust from a

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 contract. The answer depends on whether there is an intention to create a trust for
benefit of a contract which is governed by rules regarding creation of express interest.

iii. An incorporated Association

These are not legal entities; where there is a gift to an unincorporated association,
there has been doubt whether the property held on trust is the property of the
association or whether it belongs absolutely to the members to be dealt with in
accordance with their contract or constitution. The matter is treated as one of
contract, in other-words, what does the contract or constitution provide for?

4. DEBTS
 A debt may or may not be contractual and the duty of the debtor is to repay
money to the creditor. In contrast, the trust does not need to be contractual
and the duty of a trustee is to hold trust property for the beneficiary.
 The obligation of a debtor is personal but a trust is proprietary.
 A trustee should where possible use trust property in income bearing
investment and account to the beneficiary for income. In the case of a debtor,
such an obligation is unnecessary except in so far as provided for in an
agreement express or implied.
Potters V Loppert (1973) CH.399
 Further if money borrowed is stolen from the borrower, he is still under obligation
to repay it. However within trusts, a trustee is not liable for loss which is not
attributed to his negligence.

Morley V Morley 22 ER 817/ (1678) 2 CH.D. 2

Further the words of an instrument may be employed in such a manner as to create both
personal and trust obliagtion thereby creating a situation where a debt and trust exist.

Barclays Bank Ltd V Quitsclose Investment Ltd. 1970 AC 567

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In the above case Rolls Royce Razor Ltd was highly indebted to Barclays Bank and was
in need of 209,000 pounds to pay dividends which had been declared on its shares. The
sum was borrowed from QuitsClose under an arrangement where by the loan was to be
used for that purpose. The money was paid into a separate account at Barclays Bank
which had notice of the nature of the arrangement. Before dividends were paid, Rolls
Razor went into liquidation. The issue was whether the money on the account was
owned by the beneficiary Rolls Razor, in which case Barclays Bank claimed to set it off
against the over draft or whether Rolls Razor had received the money as trustee and still
held it in trust for Quitsclose.

The House of Lords unanimously held that the money had been received in trust to be
applied for payment of dividends that purpose having failed, the money was held in trust
for Quitsclose.

The fact that the transaction was a loan, recoverable by an action at law did not exclude
the implication of a trust. The legal and equitable rights of remedy could coexist, the
bank having notice of the trust could not retain the money against Quitsclose.

5. CONDITIONS AND CHARGES

It is at times complicated to determine whether the gift of property is subject to a trust or
whether it is conditional upon or charged with the duty of making certain payment e.g
there may be a bequest to A but A is also to pay 1000 to B . This situation could give
rise to atleast four different scenarios.
i. The bequest could be condisered as a gift to A upon trust to pay B. in this
situation B would immediately beome entitled in equity to 1000 provided the
property bequeathed was of sufficient value.
ii. The second consruction is that the gift to a is conditional upon him performing
an obligation. In such a case, B obtains no interest in the 1000. A has a
choice of keeping the property and paying the 1000 or declining both.

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 iii. The bequest may be condisered as imposing a charge in property. In such a
situation, A will only be under duty to B if he receives the property.
However, his obligation will be limited to the value of the property.
iv. The bequest may be taken to impose a personal duty on A if he accepts the
gift. This means that A is in position of a debtor.

6. PERSONAL REPRESENTATIVES UNDER A TRUSTEE

The relationship between an executor/administrator to beneficiaries, is not necessarily the
same as that of the trustees and beneficiaries. However, the trustees Act cap 142 applies
to both personal representatives and trustees.

Under s. 2 of the Trustees Act, A trust is defined as including the duties incident to the
office of personal representatives. However, there are few distinctions.
 The basic duty of a personal representative is to distribute the estate where as that
of the trustee is to hold trust property.
 Provisions of the trustees Act relating to the appointment and retirement of
trustees do not apply to personal representatives. These are governed by the
Succession Act Cap 162.

7. POWER OF APPOINTMENT
A power is the authority to given to a person to dispose of property which is not his. The
person who confors the power is known as the donor and the recipient is known as the
donee.
The distincton between trust and power is fundamental.
 Trusts are imperative but powers are discretionary.
 The beneficiaries under trust are the owners in equity of the trust properties.
However the object of the power ownership is nothing less and until the donee of
the power makes an appointment in their favour.
 The donee of a power has no title over the interests he can appoint, whereas a
trustee has a title over the trust property.

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Vestey V IRC (1980) AC 1148
Under a power, persons entitled do not have a right of action against an appointer who
does not appoint in the absence of fraud. However, if property is left on trust for the
division among certain people, the court will compel its division.

Re Weekes Settlement (1897) ch. 289

A woman gave property by will to her husband for life. The power to dispose of it by
will among their children. It was held that there was no gift to such a class as the
husband might appoint but a mere power to appoint with no general intention to benefit
the class in any event.

C. CLASSIFICATION OF TRUSTS

1. EXPRESS TRUSTS
An express trust is one intentionally declared by the creator of the trust who is known as
a settler or if the trust is created by will of the testator.

An express trust is one that has been intentionally created by the setttlor himself through
manifestation of an intention to create one. The most common methods of creation are
by deed or by will or by unsealed writing.

Express trusts are sometimes ubdivided into executed and executory trusts.
An executed trust is one in which the testator or settler has marked in appropriate
technical expression as to what interests are to be taken by all the beneficiaries. On the
other hand, in executory trust, the execution of some further instrument is required in
order to set out the beneficial interest with precision. The property is immediately
subject to a valid trust but it remains executory until the further instrument is duly
executed.

The language of executed trusts is governed by strict rules of construction while the
language of executory trusts is construed more liberally. In the case of Re Bostocks

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Settlement (1921) 2 CH 469; An executed trust where the settler has made use of
technical expression for which the law has laid down rules for expression, equity will
follow the law and give effect to such interpretation.

In the case of an executory trust, equity will attach less importance to the use or omission
of technical terms but will seek to discover the settlers true intention and order the
preparation of a final deed which gives effect to such intentions.

2. IMPLIED TRUSTS
An implied trust is one in which the courts induces from the conduct of the parties or the
circumstances of the transaction, for example, where a person in return for valuable
consideration agrees to settle property for the benefit of another, he immediately becomes
a trustee of that property.
Barnister V Barnister (1948) 2 A.E.R. 133

3. RESULTING TRUSTS
A resulting trust exists where property has been conveyed to another but the beneficial
interest returns or results to the transferer. An example is where the property is conveyed
to a trustee upon certain trust which fail or which do not exhaust the whole beneficial
interest, the undisposed part results to the settler.

An illustration is where if is a gift on trust for A for life and then on trust for B, if A
attains the age of 18 but B dies under the age of 18 in A’s life time, the property will
result to the settler upon the death of A.

4. CONSTRUCTIVE TRUSTS
In contrast with the express trust, which arises from the acts of the parties, constructive
trusts arise by operation of the law and thereby result from the effect of a rule of equity.
According to s.1(5) of the Trustees Act, the expression on trusts and trustees Act, the
expression on Trust and trustees extend to implied and constructive trusts. Constructive
trusts have been established in the following circumstances.

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i. In the case of a trustee who has made profit out of his office such a trustee can be
held to be a constructive trustee of the profit for the benefit of his beneficiary
ii. The position of a stranger to a trust who medals with trust property in such a way
that equity will regard him as a trustee (Selanger United Rubber Estte and
complets V Craddock (1968) 1 WLR 1555.
iii. The relationship of Vendor and Purchaser between execution of a contract and
completion of the conveyance. The vendor is considered a constructive trustee of
the Purchaser. (Hausey V Palmer (1972) 1 WLR 1286

5. STATUTORY TRUSTS
These refer to trusts created by statutes e.g Under the Succession Act where a person dies
intestate, the personal representatives hold the estate on statutory trust for the children
and other relatives of the deceased.

6.PUBLIC AND PRIVATE TRUSTS

Trusts can be generally divided into public and private trusts. A public trust is one which
benefits the public at large or some considerable portion of the public e.g a charitable
trust.

A private trust on the other hand is one which benefits specific individuals irrespective of
whether they are immediately ascertainable and the interests therein defined will fail if
they do not vest within the perpetuity period.