Notes on Acts and Laws

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Contents

 

PART II

Chapter 3 : The Law of Specific Relief

Chapter 4 : The Law of Trust

 

Nature that the law permits its Specific Performance

(ii) Where the Plaintiff is a person in whose favour Specific Performance can be granted.

(iii) Where the Defendant is a person against whom Specific Performance might be granted.

The question is : Is the Court bound to grant Specific Relief in such cases ?

The answer to this question is contained in Sec. 22.

(A) Section 22 lays down general rules—(1) It says that Specific Relief is discretionary. The Court may grant it or may refuse it. The Court is not bound to grant it merely because it is lawful.

(2) The discretion of the Court is not arbitrary, sound and reasonable, guided by judicial principles.

(B) Section 22 also specifies cases in which Court may exercise discretion not to grant Specific Performance and cases in which Court may exercise discretion to grant Specific Performance.

 

Cases in which Court may exercise discretion not to grant Specific Performance

(i) Where Specific Performance would give unfair advantage over the Defendant.

(ii) Where Specific Performance would involve some hardship on the Defendant which he did not foresee and non-performance would not involve such hardship on the Plaintiff.

 

Cases in which Court may exercise discretion to grant Specific Performance

Where the Plaintiff has done substantial acts or suffered losses in consequence of a contract capable of Specific Performance.

 

Damages and Specific Performance

Sections 19,20,29.

Two remedies for breach. Are the mutually exclusive or are they complimentary ? Does one bar the other ?

These are question which are considered in Sections 19, 20, 29. The rules contained in these three may be summarised as below:

19.  (i) In the same suit, a Plaintiff can ask for both in addition or in substitution.

(iii) In a suit where Court decides not to grant Specific Performance Court can grant Compensation to Plaintiff if entitled.

(iv) If one suit Court may grant compensation in addition to Specific Performance if it comes to the conclusion to Specific Performance is not enough.

20. (v) The fact that liquidated damages have been agreed upon is no bar to Specific Performance.

29. (vi) If suit for Specific Performance is decreed, it will be a bar to a suit for damages.

PART I

The Law of Specific Relief

INTRODUCTORY

1. The enactment which defines Specific Relief.

1. The law as to specific relief is contained in the Specific Relief Act I of 1877.

2. Before the passing of the Specific Relief Act the law as to Specific Relief was contained in Sections 15 and 192 of the Civil Procedure Code (Act VIII) of 1859.

3. The law was fragmentary. Section 15 dealt with declaratory decrees and Section 192 dealt with Specific performance of contracts.

4. The Act aims to define and amend the law relating to Specific Relief obtainable in Civil Court.

 

II. The nature of the Law of Specific Relief

1. Laws fall into three categories.—

(a)                Those which define Rights.

(b)                Those which define Remedies.

(c)                 Those which define Procedure.

2. Illustrations.

(Space left blank—ed.)

3. The Law of Specific Relief belongs to the second category. It is a law which deals with Remedies.

3. The term 'relief is only another word for remedy which a Court is allowed by law to grant to suitors.

III. What is meant by Specific Relief ?

1. Specific Relief is one kind of remedy recognised by law. Its nature can be best understood by distinguishing the different remedies which the law allows to a person whose right has been invaded.

2. A right to be real must have a remedy. No right can give protection if there is no remedy provided for its vindication. Law therefore invariably provides a remedy for a breach of a right.

3. The general remedy provided by law for a breach of a right is monetary repairation called compensation or damages.

4. This remedy of money compensation is not an adequate remedy in all cases. The loss of some things can be compensated by payment of money. The loss of others cannot be compensated by money. Their loss can be made good by the return of the very same article. Similarly, the refusal to perform an obligation may be compensated by money. In other cases, the only adequate remedy is to compel the performance of the very same obligation.

5. Thus there are two kinds of remedies provided by law :

(a) those under which the suitor is granted the very same things to which he is entitled, by virtue of the right he has acquired against his opponent; and

(b) those under which the suitor is granted not the very same thing to which he was entitled, but money compensation or damages in lieu thereof.

6. Specific Relief is the name given to the first kind of remedy.

7. The relief is called specific because it is relief in specie, i. e. in terms of the very thing to which a suitor is entitled.

 

IV. What Specific Reliefs are provided for in the Specific Relief Act.

1. The forms of Specific Reliefs provided for in the Specific Relief Act form under four divisions :

( 1 ) Taking possession of property and delivering it to the claimant who is out of possession.

(2) Requiring Performance of Contract.

(3) Compelling the Performance of a Statutory Duty.

(4) Preventing the doing of a wrong.

2. The subdivisions of the 4th category are :

(i)                             Rectification of an instrument.

(ii)                            Rescission of an instrument.

(iii)                           Cancellation of an instrument.

(iv)                          Declaration of status.

(v)                            Receivers—appointment of—

(vi)                          Injunctions.

 

V. Other Laws defining Specific Reliefs.

1. These are not the only specific remedies administered by courts in India. There are other specific remedies recognised by the Indian Law and which are enforced by courts in India.

2. These specific remedies outside the Specific Relief Act are:

(i) Taking an account of the property of a deceased person and  administering the same.

(ii)  Taking accounts of a trust and administering the trust property.

(iii) The foreclosure of the right to redeem or sale of the mortgaged property.

(iv) Redemption and re-conveyance of mortgaged property.

(v)  Dissolution of partnership, taking partnership accounts, realising     

      assets ; discharging debts of partnership, etc.

3.  We are not concerned with these.

 

PART II

Consideration of the Different Kinds of Specific Reliefs Recognised by the Act.

Division I

Recovery of possession of Property Sections 8, 9, 10 and 11

1. Recovery of Possession of immovable property

—Sections 8,9.

2. Recovery of Possession of movable property

—Sections 10, II.

Recovery of Possession of Immovable Property.

1. The Question is—

When can a person, who has lost possession of immovable property and sues to recovery possession thereof—be granted possession thereof instead of damages or compensation for the loss of possession.

2. The emphasis is on the nature of the relief—i.e. the recovery of the specific piece of property of which possession is lost. The relief by way of damages or compensation is always open under the general law. Question is when can an injured person insist upon specific relief for the recovery of property.

3. The cases in which a person has lost possession of immovable property fall under two classes.—

(i) The case of a person who is entitled to possession but who has lost possession.

(ii) The case of a person who had possession but who has lost  possession.

4. The difference consists in being entitled to possession and being in possession.

5. These two cases are dealt with in Sections 8 and 9. Both provide that in either case the Plaintiff shall be entitled to Specific Relief by way of recovery of property.

6. Requirements of Section 8.

(i) Prove that you have a title to possession and you will succeed in recovering possession by way of specific relief.

7. Requirements of Section 9.

1. Prove that you were in possession with in six months prior to the date of suit.

2. Prove that you were dispossessed without your consent or otherwise than in due course of law.

A                  in possession      is dispossessed by B

I.  a with title                    "          is             "              without title

II.  a without title          "          is             "              with title

III. a without title          "          is             "              without title

1. In all three cases A can recover possession if he brings suit under Section 9 i.e. within six months—irrespective of the question of title.

2. If he brings a suit after six months, he must rely on title so that A can recover possession in

(i)         —because he has a title.

    (iii)     —because he has a possessory title.

But cannot recover in (ii) because B has title and A has not.

 

Who can maintain a suit under Section 10

1. According to Section 10, only a person entitled to the possession of the suit property can sue.

2. Meaning of " entitled to possession "

3.Title to possession may arise

(i) as a result of ownership or

(ii) independently of ownership, as a temporary or special right to present possession

4. Title to possession as a result of ownership.

(i) Ownership may be bare legal ownership or it may be legal ownership coupled with beneficial interest.

(ii) It is not necessary that a legal owner must have also a beneficial interest in the properly to have a right to maintain a suit under Section 10.

(iii) This is made explicit in Explanation I, where a trustee is permitted to sue for the possession of the trust properly although he has no beneficial interest in it.

5. Title to possession independently of ownership

1. Title to possession independently of ownership may arise in two ways.—

(i)    By the act of owner.

(ii)   (ii) Otherwise than by the act of the owner.

(i) title to possession BY THE act oF the owner

(i) The owner may by his own act create in another person a right to the possession of the thing which belongs to him as owner.

(ii) Illustrations of such a right to possession are to be found in Bailment and lien.

(1)  Simple bailment cover the cases of.—

(i) loan

(ii) custody

(iii) carriage

(iv) agency.

(2) Other Bailments.

1. Pawn

2.  Hire.

2. Difference between Simple Bailment and other Bailments of Pawn or Hire.-

(i) In Simple Bailment the owner (Bailer) has a right to possession and the Bailee has legal possession. The Bailee being entitled to possession can maintain a suit to recover possession. The Bailer having a right to possession can also maintain a suit to recover possession against any person other than a Bailee.

(ii) In other Bailments of Pawn or Hire—The Bailer has no right to possession. The right to possession is vested in the Pawnee or Hirer during the continuance of the Bailment and it is only the Bailee (Pawnee or Hirer) who can maintain a suit for the recovery of possession.

3. Lien is an illustration of a right to possession arising out of the act of the owner.—

( 1 ) Lien is a right to possession of a thing which arises out of debt due by the owner.

(2) The right to possession of the owner is thus temporarily vested in another.

4. All that is necessary to maintain a suit is a right to present possession.—

(i) The right of present possession may arise out of ownership or may not. (ii) Right to present possession may be special or temporary.

(ii) right to POSSESSION OTHERWISE THAN BY THE ACT OF THE OWNER.—

(1) The founder of lost goods has a right to possession.

(2) It is not the result of the act of the owner.

(3) But it is good against all the world except the true owner.

 

II. Against whom can such a suit be maintained

1. A suit under Section 10 can be maintained against any one and can be maintained even against the true owner.

2. All that is necessary is that the Plaintiff must be entitled to possession.

 
Section 11. Movable Property

1. Q. 1.—Who can maintain a suit under Section 11.

A.—The person entitled to immediate possession.

2. Q. 2.—Against whom can such a suit be maintained ?

    A.—Against any person if he is not owner.

The Defendant must not be the owner. If he is, then Section 10 would apply.

3. Q. 3.—In what case will there be specific relief by way of recovery of possession ?

A.—(i) Where the person who holds the thing is the agent or trustee of the claimant.

(ii) Where compensation for money would not be adequate compensation to the claimant for the loss.

(iii) Where it is extremely difficult to ascertain actual damage caused by its loss.

(iv) Where the possession of the person is the result of a wrongful transfer from the claimant.

Specific Relief regarding Possession of Property

They are dealt with in Sections 8—II.

Section 8. Recovery of specific immovable property by a person entitled to the possession thereof.

Section 9. Recovery of possession of specific immovable property by a person who is dispossessed.

Section 10. Recovery of possession of specific movable property by a person entitled to its possession.  (1) By reason of ownership (2) By reason of temporary or special rights (Trustee) Bailment Pawn.

Section II. Recovery of possession of Specific immovable property by a person who is entitled to its immediate possession. This applies when the person having possession is not owner

 

What is meant by possession in Law ?

Legal possession is a compound of two ingredients : Corpus and animus domini.

Note:—

(i) Legal Possession does not involve the element of title or right. Legal Possession is wholly independent of right or title. Legal Possession may be lawful or unlawful.

If a possessor acquired his de facto possession by a means of acquisition recognised by the Law (Justis fitulus) he has a lawful possession ; if he did not so acquire it (as in the case of a thief) he has legal possession, but it is an unlawful one.

(ii) Legal Possession confers more than a personal right to be protected against wrong-doers : it confers a qualified right to possess, a right in the nature of property, which is valid against every one, who cannot show a prior and-better title.

There are two elements in legal possession. (i) Corpus, i.e. the physical relation. (ii) Animus, i. e. the mental relation.

Corpus or physical relation does not mean physical contact only. It also includes physical contact resumable at pleasure.

The essence of corpus is the power, to exclude others from the use of a thing, i. e. an effective occupation or control according to the nature of the thing possessed.

Animus is the intention of exercising such power of dealing with a thing at pleasure and excluding others—animus domini.

Three forms of animus

The mental attitude of the physical possessor in regard to the object of his possession may assume three degrees.—

First.—His intention may be merely to protect the thing. There is no assertion of right—Servant's possession of masters goods.

Second.—Intention to control for certain limited purposes —e. g. tenant—intention to exclude every one except the owner.

Thirdly.—Intention amounting to a denial of the right of every other person—This is the real animus domini.

Distinction between Possession and Trespass          

1. What the plaintiff is to prove in such cases is possession of the disputed property and not mere isolated acts of trespass over that property. He must prove—

(i) That he exercised acts which amounted to dominion, the nature of these acts of dominion varies with the nature of the property.

(ii) That the act of dominion was exclusive.

2. If the occupation of the piff., as indicated by those acts, has been peaceable and uninterrupted and has extended over a sufficient length of time, the inference may properly be drawn that the plaintiff was in possession.

Objects of Section 8 and 9.

(i) Section 8 of the Act provides that the person entitled to the possession of specific immovable property may recover it in the manner prescribed by the C. P. C., i.e., by a suit for ejectment on the basis of title.

(ii) Section 9 gives a summary remedy to a person, who has, without his consent been dispossessed of immovable property otherwise than in due course of Law for recovery of possession without establishing title.

Section 9.                       

This Section deals with the subject of unlawful dispossession, and gives to the person dispossessed the alternative of two remedies.—

(i) He may simply prove the fact of his unlawful dispossession, in a suit instituted by him within six months thereof, recover possession of the property. The question of his title to the property is quite immaterial.

(ii) He may recover possession by relying on his title in a suit brought by him for that purpose. Here his success depends upon his proof of title.

The former remedy is called remedy by way of a possessory suit and is enacted in Section 9. The latter is the ordinary remedy of a suit based on title and is embodied in Section 8.

Nature and object of Section 9.

(i) To prevent people from taking the law into their own hands, however good their title may be.

(ii) To prevent the shifting of the burden of proof owing to dispossession—-Possession being prima facie evidence of title.

Anterior possession per se constitutes a perfect title to property as between the dispossessed and the dispossessor, in a suit under Section 9, i. e. within six months of the dispossession.

Question.—What is the effect of anterior possession in a suit for possession by a person, who is dispossessed after 6 months have elapsed and a suit under Section 9 is barred ?

The following propositions have been judicially established :—

(i) Possession for a period of sixty years and upwards is sufficient to create a title in the possessor which no one can question.—8 D.R. 386.

(ii) Adverse possession for l2 years under article l42 is itself title even  against the rightful owner himself.

Consequently, where in a suit for possession, a plea of adverse possession during the prescribed period of limitation is set up by the Defdt. the question of limitation becomes a question of title, and the Plff. must furnish prima fade proof of subsisting title at the dale of his suit, before the Defdt. is required to establish his adverse possession.

(iii) Prior possession, however short, is itself a title against a mere wrong-doer and a bare plea of anterior possession, and dispossession, is in fact a good ground for recovery of possession,

(1) Where the dispossessor can Drove no title, or

(2) Where neither party can prove a title.

 

Statement of the Position

A

Is

B

in Possession

dispossessed

 

 

 

by

 

 

(a) with title

(b) without title

 

(a) without title

(b) with title

 

1. Suit brought within 6 months.-

 

(a) and (a)  |


       (b) and (b) |          A can recover possession under Section 9 irrespective of

(b) and (a)  |      title.


 

II. In a suit brought after six months.-

 (a) and (a) |         A can recover because the title is in A.

 (b) and (b) |        A cannot  recover because the title is in B.

 (b) and (a) |        A can recover because A’s anterior possession.

 

Entitled to Possession

A right to possession exists either.—

(i)    as a part of ownership or

(ii)   independently of ownership, as a temporary or special right.

These special rights arise either.—

(i)    by the act of the owner or,

(ii)   otherwise than by the act of the owner.

I.       By act of the owner

        (1) Bailment and (2) Lien

Bailment is (1) simple and (2) special of Pawn and Hire

(i) Simple Bailments e. g. loan, custody, carriage and agency.

In simple Bailments, the Bailor has a right to Possession and the Bailee has legal possession.

A is Bailor and B is Bailee. Both can recover possession against C.   A can recover possession as against B.

(ii) Special Bailment.— Pawn and Hire

Bailor has no right to possession during the continuance of the bailment and he only can recover possession.

Lien. Arises out of debt—the Vendor having the right to possession of the thing sold, until the purchaser has paid the purchase money.

II. Right to possession otherwise than by act of owner

Finder of lost goods—entitled to possession as against all the world except the owner.

 

PART II
DIVISION II
Performance of Contract

Specific Performance of a Contract is "its actual execution according to its stipulations and terms; and is contrasted with damages or compensation for the non-execution of the contract.

It is a species of Specific Relief, afforded by ordering a party to do the very act which he is under an obligation ex-contractor to do.

Specific Performance of a Contract

Sections 12 and 21 deal with Specific Performance of a Contract.

Section 21.—Defines contracts which cannot be specifically enforced.

Section 12.—Defines contracts which may be specifically enforced.

Section 27.—There are eight sorts of contracts which are not specifically enforceable.—

(i) Contracts   for the non-performance of which money compensation is an adequate relief.

(ii) Contracts   (i) running into minute details.

(ii) dependent on personal qualifications or volition of parties.

(iii) is such that Court cannot enforce Specific Performance of its material terms.

(iii) Contracts  the terms of which the Court cannot find with reasonable certainty—e. g. necessary appliances.

(iv) Contracts   which in its nature is revocable e. g. Partnership without duration.

(v) Contracts   by trustees in excess of their powers, or in breach of their trust.

 (vi) Contracts  by company in excess of its powers.

(vii) Contracts the performance of which involves the performance of a continuous duty extending over a longer period than 3 years from its date.

(viii) Contracts material part of the subject-matter supposed by both to exist has ceased to exist.

(ix) Contracts to refer a controversy to arbitration.

Note. Practically   Specific Performance because no right of suit is given.

Specific Performance of Contracts

Section 12

1. There are four cases in which Specific Performance may be enforced.

(i)                            Where act promised is in performance of a trust.

(ii)                           Where there is no standard to ascertain actual damage.

(iii)                          Damages, no adequate relief. (iv) Compensation for non-performance cannot be got.

Contract

The first question to be determined by the Court in a suit for Specific Performance of an agreement is, whether the agreement in question is a contract or not. Section 4 (a)—right to relief unless agreement is a contract.

The following agreements are not contracts because they are not enforceable and are therefore excluded:—

(i) Incomplete agreements—Parties not gone beyond the stage of negotiations; (ii) Agreements which are void.

(iii) Contingent agreement—until the contingency has applied . . . should be " arisen " .

Voidable contracts are not excluded.

There must always be a contract before the Court which has been unperformed.

Mutuality—The remedy by way of specific performance is mutual, i. e., the vendor may bring his action in all cases where the purchaser can be sure for specific performance.

This principle of mutuality applies both in the case of immovables and movable.

Doctrine of mutuality— This means, that at the time of making of the contract, there must have been consideration on both sides or promises mutually enforceable by the parties. Hence specific of performance of a gratuitous promise under Seal will not be granted nor can an infant enforce a contract by this remedy. His promise is not enforceable against himself and it is a general principle of Courts of equity to interfere, only where the remedy is mutual.

Section 13

Specific performance of con tract and impossibility of performance. Section 56 of the Contract Act.

Section 56 clause 2 enacts a general rule. It lays down when a contract becomes void.

This rule covers every ground of impossibility and is based on the assumption, that there is, in all cases of contract, an implied condition that performance shall be possible.

Impossibility in relation to contract.

Impossibility

(1) at the time or (2) subsequently

        |

 |                                           |

Physically or legally impossible.      Or subject matter of contract not existent.

 

Subsequent Impossibility

Whether a party can be relieved upon discovery, subsequent impossibility depends upon—

(i) Whether the contract is conditional or unconditional.

(I) If unconditional— must perform

(II) If conditional— on three circumstances

(i) Continuing legality.

(ii) Conditional by express terms—

(iii) Conditional by implication— continued existence of the subject-matter of the thing in Sec. 56 Contract Act.— subsequent in possibility— the Contract is void.

might on two grounds.—

(i)    The thing agreed to is physically or legally impossible.

(ii)   The subject matter of the contract is non-existent.

Such Impossibility might be either.— (i) Initial or subsequent.

If impossible, the contract is void and no question of Specific Performance arises whether the impossibility is initial or subsequent.

Section 13 of the Specific Relief Act establishes an exception to Section 56 of the Contract Act in respect of one species of impossibility i. e. impossibility by reason of non-existence of the subject-matter.

Section 13 says that Specific Performance of a contract may be enforced even though the subject-matter is partly destroyed.

Sale of a house— Destruction by cyclone— purchaser may be compelled to perform.

Section 13 enacts an exception

It deals with the case where a portion of the subject matter ceases to exist.

The rule shortly expressed.—

Because A, owing to special inevitable circumstances, is unable to perform his promise, it is no reason why B should not perform his, especially as he might have protected himself by making the performance of his promise conditional upon performance by A. Having made an unqualified promise he must stand by it.

Specific Performance of a Part of a Contract

Can the Court decree the performance of a part of the contract? This question is dealt-with in Section 14-17.

Section17 enacts a general rule. It lays that the Court will not, as a general rule, compel specific performance of a Contract, unless it can execute the whole contract. Specific performance must be of the whole or nothing.

Sections 14, 15, 16 form exceptions to the rule.

Exceptions : The promises undertaken— may be divisible or indivisible.

1. Divisible promises i. e. promises— one part stands on a separate and independent footing from another part. If the former can and might be specifically performed it will be so enforced, although the latter cannot or ought not to be specifically enforced— Section 16.

II. Indivisible promisers.— The part which cannot be performed may— (i) Admit of compensation by money or, (ii) It may not. (A) Admits of compensation— Two cases

It may bear—

(i) A small proportion to the whole undertaking, (ii) A large proportion to the whole undertaking.

If— (i) it bears a small proportion, then a party sue for specific performance of either part and for damages for non-performance of the balance— Section 14.

If—(ii) itbesrs a large proportion, then the promise may sue for Specific Performance of the remaining part, if he relinquishes all claim to further performance and all right to damages.

(B) Part which cannot be performed, does not admit of compensation

Then the promisee may sue for Specific Performance of the remaining part, if he relinquishes all claim to further performance and all right to damages— Section 15.

Illustration

A contracts to sell to B an estate with a house and garden for 1 lakh. The garden is important for the enjoyment of the house. It turns out that A is unable to convey the garden.

Can B obtain specific performance to the contract ?—Yes, if B is willing to pay the price agreed upon and to take the estate and house without garden, waiving all rights to compensation either for the deficiency or for loss sustained by him through A's neglect or default.

There are thus four exceptions to the rule.

I. Where parts are divisible— Specific Performance can be decreed of one part though not of all parts— Section 16.

2. Where parts being in divisible part which cannot be performed admits of compensation and bears a small proportion to the whole, the party may sue for Specific Performance — Section 14.

.3. Where parts being indivisible, part which cannot be performed admits of compensation and bears a large proportion to the whole undertaking, the promisee may sue for Specific Performance of the remaining i. e. of the part which can be performed provided he relinquishes all claim to further performance and all right to damages— Section 15.

4. Where parts being indivisible, the part which cannot be performed does not admit of compensation and bears a large Specific Performance of the part which can be performed may be decreed within the terms mentioned in Section 15.

Specific Performance of a Contract

Where the Vendor or Lessor has an Imperfect Title

1. The rule as to this is contained in Section 18.This Section deals with four clauses:—

(i) Where Vendor/Lessor has acquired good title after the contract. (ii) Where procuring of the consent of other persons is necessary. (iii) Where encumbered property is sold as though it was unencumbered.

(iv) Where deposit has been paid and the suit for Specific Performance has been dismissed.

Clause ( a).—Is based on the undeniable proposition that when a person enters into a contract without the power of performing that contract, and subsequently acquires the power of performing that contract, he is bound to do so.

Illus. An heir apparent, who contracts to sell the property to which he is heir, will be compelled to specifically perform such contract if and when he succeeds to the property.

Whatever interest the seller acquires in the property subsequently to the contract, he will be compelled to convey to the purchaser.

Clause (b).—Is based upon the proposition that where the validity of a contract is dependent upon the concurrence of a stranger to the contract, and the stranger to the contract is bound to convey at the request of the Vendor or lessor, the Vendee and the lessee can compel him to obtain such concurrence.

Clause (c).—Is based upon the proposition that where the property sold or leased is represented as being free from encumbrance but is encumbered, the Vendor shall be compelled to free it from encumbrance sale of property which is mortgaged— Provided the price is not above the mortgage money.

Clause (d).—Clauses (a), (b) and (c) cover cases where the purchaser or lessee is the plaintiff suing for perfection of title.

Clause (d) covers a case, where the suit is brought by the Vendor or lessor for Specific Performance and it fails because of his not being able to perfect the title.

In such a case the Court cannot only dismiss the suit with costs, but proceeds to award to the defendant purchaser a special relief viz—the return of his deposit with interest and his cost and a lien for all these on the property agreed to be sold or let.

General Rule regarding deposit.—Deposit is paid as a guarantee for the performance of the contract and where the contract fails by reason of the default of the purchaser, the vendor is entitled to retain the deposit.

Rights of Parties to a Contract to sue for Specific Performance

Four cases to be considered:—

I. For whom contracts may be specifically enforced.

II. For whom contracts cannot be specifically enforced.

III. Against whom contracts may be specifically enforced.

IV. Against whom contracts cannot be specifically enforced.

1. For whom contracts may be specifically enforced.

Section 23  deals with the question Who may obtain Specific Performance ? Clause (a) any party thereto. Clause (b) (i) an assignee from a promisee. (ii) Legal representative of a promisee after his death. (iii) an undisclosed principal of a promisee.

Each of these may obtain Specific Performance of a contract in which he is interested, but each is subject to the proviso that the contract must not be a personal one, nor must the contract prohibit the assignment of the interest of the Promisee.

(c) Persons entitled to the benefit of a marriage contractor compromise of doubtful rights between members of the same family. (d) Remainder man on a contract made by a tenant for life. (e) Reversioner in possession. (f) Reversioner in remainder. (g) New company on amalgamation. (h) Company on a contract made by the promoters.

 

Cases where contract cannot be specifically enforced except by varying it—Sec. 76.

(1) By mistake or fraud the contract is in terms different from that which the Deft. supposed it to be.

(2) Deft. entered into contract under a reasonable misapprehension as to its effect between Deft. and Plff.

(3) Enters into a contract relying upon some misrepresentation by the Plff.

(4) Where the object is to produce a certain result which the contract fails to produce,                   

(5) Where Parties have agreed to vary it. Comment.

Sections 91, 92. Evidence Act.-—A plff. cannot give oral evidence to make out a variation. It does not debar a deft. from showing that by reason of fraud or misrepresentation, the writing does not contain the whole contract ; he can under provision I to S. 92 give oral evidence to prove that there is variation.

Plff. in that case cannot have a decree unless he submits to the variation; the Plff. is put on his election either (1) to have his action for Specific Performance dismissed or (2) have it subject to variation. If he elects not to accept the variation, he does not lose his remedy of damages.

 

II. Persons for whom contracts cannot be specifically enforced. This is dealt with in Sections 24 and 25.

Section 24

(i) Who could not recover compensation for its breach. (ii) Who has become incapable of performing or voilates any essential

term of the contract. (iii) Who has already chosen his remedy and obtain satisfaction for the

alleged breach. (iv) Who, previously to the contract had notice that a settlement had

been made and was in force.

This Section is distinguishable from Section 23 in that the defence to Specific Performance is not founded on anything in the contract itself but is based solely upon the acts or conduct of the Plff.

Section 24 is a general Section. While Section 25 is a Section which is a particular one and is limited in its application to two kinds of contracts only:—

(i) Contract to sale and (ii) Contract to let property whether movable and immovable,

Sec. 25 says that such a contract cannot be specifically enforced in favour a Vendor or Lessor, i. e. in the following cases:—

(i) Knowing not to have any title to the property, has contracted to sell or let the same.

(ii) Who cannot give a title free from reasonable doubt at the date fixed by parties or Court.

(iii) Who, previous to entering into the Contract has made a settlement of the subject-matter of the contract.

Settlement is defined in Section 3 and means any instrument— where by the destination or devolution . Successive interests in movable and immovable property is disposed of or is agreed to be disposed of.

 

III. Persons against whom contract may be enforced Section 27.

(i) Either party.

(ii) Any other person claiming under a party by a title arising subsequently to the Contract, [except a transferee for value without notice].

(iii) Any person claiming under a title which prior to the contract voidable and known to the plantiff, and might have been displaced by the defendant.

(iv) New company after amalgamation.

(v) Company in respect of the contract made by promoters.

IV. Against whom contract cannot be enforced Section 28.

(i) Where consideration is grossly inadequate as to be evidence of fraud.

(ii) Where assent is obtained through misrepresentation; unfair practice or other promise not fulfilled.

(iii) Where assent is given under the influence of mistake of fact, misapprehension or surprise.

Specific Performance and Discretion of the Court

In granting Specific Relief, the important point is—When is the Court bound to grant Specific Performance Relief ? Obviously the Court cannot grant Specific Performance Relief in cases where the law provides that no Specific Performance Relief shall be granted. Such cases fall under three classes:

(i) Where the nature of the contract is such that law does not allow it to be specifically enforced.

(ii) Where the Plff. is a person in whose favour a contract cannot be specifically enforced.

(iii) Where the Deft . is a person against whom a contract cannot be specifically enforced.

There remain the following three cases in which a contract can be specifically enforced:—

(i) Where the contract is of such a (further pages not found— ed.)

 


 

Liabilities of the parties

 

Of the seller

Of the buyer

 

Before Conveyance

After Conveyance

Before Conveyance

After Conveyance

1

Section 55(I) (a)

To disclose material defects

Section 55(I) (b)

To give possession

Section 55(5) (a)

To disclose facts materially increasing value.

Section 55(5) (c)

To bear loss or injury to property.

2

Section 55(I) (b)

To produce title deeds

Section 55 (2)

Implied convenant for title.

Section 55(5) (b)

To pay price.

Section 55(5) (d)

To pay outgoings.

3

Section 55(I) (c)

To answer questions as to title

Section 55 (3)

To deliver title deed on receipt of price.

 

 

4

Section 55(I) (d)

To execute conveyance

 

 

 

5

Section 55(I) (e)

To take care of property.

 

 

 

6

Section 55(I) (f)

To pay outgoings.

 

 

 

 

 

Rights of the parties

 

Of the seller

Of the buyer

 

Before Conveyance

After Conveyance

Before Conveyance

After Conveyance

1

Section 55(4) (a)

To take rents and profits.

Section 55(4) (b)

To claim charge for price not paid.

Section 55(6) (b)

To claim charge for price prepaid.

Section 55(6) (a)

To claim benefit of increment to property.

 

 

Uberrima fides= (most abundant faith)

Contracts said to require uberrima fides are those between persons in a particular relationship, as

(i) Guardian and ward. (ii) Attorney and client. (iii) Physician and patient. (iv) Confessor and penitent.

Complete disclosure necessary.

 

Liabilities of the Parties

A.               Liabilities of the Seller

1. before conveyance

1. section 55 (1) (A)—to DISCLOSE MATERIAL DEFECTS.

(1)A contract for the sale of land is not a contract uberrimal fidei : The duty of disclosure is not absolute. The duty to disclose is an obligation to disclose latent defects.

(2) A latent defect is a defect which the buyer could not with ordinary care discover for himself. There is no duty to disclose defects of which the buyer has actual or constructive notice.

(3) As to patent defects of which the seller is unaware, the maxim caevat emptor applies. But a mutual mistake as to a matter of fact essential to the agreement will render the agreement void.

(4) A latent defect whether of property or of title must be

material. A defect to be material must be of such a nature that it might be reasonably supposed that if the buyer had been aware of it, he might not have entered into the contract at all, for he would be getting something different from what he contracted to buy.

(5) Whether a defect is material or not must depend upon the circumstances of each case. When land was sold for building purposes, an underground drain was held to be a material defect, but not when a house or land were sold mainly for residence.

(6) Defects may be Defects in property or Defects in title. 2. section 55(1) (B)—PRODUCTION OF TITLE DEEDS   

(1) The obligation is to produce title-deeds for inspection and not for delivery.

(2) The documents of title required to be produced for inspection are not only documents which are in the possession of the seller, but also includes documents which are in his power to produce.

(3) There is no obligation to produce title deeds unless the buyer makes a requisition.

 (4) The Buyer however must not omit to take inspection, otherwise he will be held to have constructive notice of matters which he would have discovered if he had investigated the title.

3. section 55(1)(C)—SELLERS DUTY TO ANSWER QUESTIONS

(1) When the documents of title are produced, the buyer examines them and if he is not satisfied makes requisitions. These requisitions are.—

(i) Requisitions relating to title. (ii) Requisitions relating to Conveyance. (iii) Other enquiries.

(2) Requisitions on title are objections that the documents do not show the agreed title or that the documents are not efficacious i. e. not duly attested.

(3) Requisitions on matters relating to conveyance refer to such matters as the joinder or concurrence of parties to the conveyance.

(4) Inquiries are for the protection of the buyer, and call attention to possible omissions of disclosure by the seller, and seek information on such points as easements, party walls and insurance.

(5) The Seller is bound to answer all requisitions which are relevant to the title and which are specific.

(6) The duty to answer requisitions is altogether distinct from the duty of disclosure under Section 55 (1) (a) of a defect, for, the omission of the buyer to make a requisition will not absolve the seller if he has not made a full disclosure.

(7) A buyer may waive requisitions. Waiver may be express or may be implied.

(8) Waiver is implied from conduct.

(i)              When a buyer does not press a requisition that has been made.

(ii)             When a buyer asks for time to pay the price.

(iii)            When a buyer enters into possession.

(iv)           When a buyer pays the whole or part of the price. 

 

4. section 55(1) (D)—EXECUTION OF CONVEYANCE

(1) The execution may be to the purchaser or to such person as the purchaser shall direct. Consequently, on a resale by the buyer before conveyance, the conveyance may be direct to the subpurchaser. The seller may require the original buyer to be a party to the Conveyance if there is a difference of price but not otherwise.

(2) It is the duty of the buyer to tender to the seller a proper draft—31 Cal.L.J. 87.

(3) This duty of the buyer is subject to a contract to the contrary.

(4) The execution of the conveyance and the payment of price are reciprocal duties to be performed simultaneously. They are concurrent promises. If either party sues for specific performance, he must show that he was ready and willing to perform his part.

(5) Proper time for execution:—

(i)    The section is silent as to what is proper time.

(ii)   The time is usually settled by the contract of sale.

(iii) If time is fixed, and an unreasonable delay occurs, the proper course is to give notice making time the essence of the contract

(iv) If time is not settled, the proper time is the date when the seller makes out his title.

(6) Proper place for execution:—

(i) The Section is silent.

(ii) Since it is the buyer who has to tender the draft conveyance to the seller, the proper place for execution would be the Seller's residence or his Solicitor's office.

(7) Cost of Conveyance:—

(i) The Section is silent.

(ii) This is usually settled by the terms of the contract.

(iii) In the absence of any express term, the buyer has to pay the cost of the Stamp—Section 29 (c) Indian Stamp Act.

5. section 55 (1) (e)—care of property

(1) The contract of sale does not give to the buyer any interest in property. But it imposes upon the seller a personal obligation to take care of the property.

 (2) The seller must also take care of the title deeds. The loss of title deeds depreciates the value of the property and damage done to the estate.

(3) To take care means to do what a prudent owner ought to and keep the property in reasonable repair and protect it from injury by trespassers.

(4) The obligation to take care is one collateral to the contract and does not merge in the conveyance. The duty to take care continues even after completion of the sale and the buyer is not responsible for any loss caused by the seller. If the seller neglects his duty, the buyer is entitled to compensation to be deducted from the purchase money; after the completion the buyer may recover damages.

6. section 55(1) (G)MEET OUTGOINGS

( 1 ) It is the duty of the seller to pay what are called under England Law outgoings. In India they include—

(i)              Public Charges

(ii)             Rent

(iii)            Interest

(iv)           Encumbrances.

(i) Public charges over

(i) Government Revenue.

(ii)        Municipal Taxes.

(iii)       Payment charged upon land by Statute either expressly or implied  by reason of their being recoverable by distress or other process against the land.

(ii) Rent—The payment of rent is a question which arises when the property sold is leasehold property. The seller of the leasehold property is bound to pay rents accruing due up to the date of the sale.

(iii) Interest.

 (i) Encumbrance means—a claim, lien, or liability attached to the property.

(ii) The seller's duty is to discharge all Encumbrances. It is immaterial that the buyer was aware of the Encumbrances when he contracted to buy.

(iii) The sale is not subject to Encumbrances, unless there is an express provision to that effect.

(iv) If the Encumbrance is a common charge on the property sold and other properties of the seller, the buyer may insist on its being discharged out of the other property.

(6) This liability imposed upon the seller is collateral to the contract and may be enforced even after conveyance.

 

Seller's Liabilities

AFTER CONVEYANCE

1. Section 55(1)(b)—To give possession

1. It is the duty of the seller to give possession after conveyance and not to leave the buyer to get possession for himself.

2. This liability may be enforced by a suit for Specific Performance.

3.     Time for giving possession—

(i) The Section does not say when the seller should give possession.

(ii) Reference to Section 55 (4) (a) shows that possession be given when ownership passes to the buyer. This would be at the time of the execution of the sale-deed—6 Lah. 308.

(iii) The seller cannot refuse possession because price has not been paid unless there was intention to the contrary.

(iv) The buyer's right to possession and the seller's right to unpaid price may be enforced in the same suit.

4. Nature of Possession—

(i) Possession does not mean actual occupation.

(ii) Physical possession in the case of tangible and symbolical possession in the case of intangible properly is enough.

(iii) Symbolical possession is enough in the case of property which is in the possession of tenants or mortgagees.

2. Section 5 5 (2)—To assure that the interest subsists.

1. There are two views as to whether this liability of the seller is one which arises before conveyance or after conveyance.

(i) Calcutta view. This clause contemplates a completed contract and corresponds to covenant for title in an English conveyance. 57 Cal. 1189.

(ii) Madras view. This clause contemplates cases, where the transaction has  not progressed beyond the stage of contract. 40 Mad. 338 (350):

38 Mad. 1171.

(iii) Lahore view. Follows Madras.

6 Lah. 308.

(iv)        Bombay view. It pertains to liability after conveyance

18 Bom. S. R. 292: 52 Bom. 883: 31 Bom. LR. 658.

(a) The provisions of Section 55(1) enable the buyer before completion, to ascertain if the title offered is free from reasonable doubt. Once he has accepted the conveyance and the sale is completed, he has no remedy on the contract except for fraud.

(b) The covenant for title implied by Section 55 (2) gives the buyer a further remedy in case of defects discovered after conveyance.

     (v) Another view which probably is the correct view. (a) In the matter of Title, the liability of the seller is twofold. (i) He must pass to the buyer a title free from reasonable doubt. (ii) He must pass to the buyer a title which he professes to pass and nothing less. He must make good his representation.

Under (i) he must prove that he has acquired his title in any one of the recognised ways: such as prescription, possession, inheritance, purchase, etc.

Under (ii) if he professes to transfer a full proprietary interest, then interest transferred must be full proprietary interest and not merely occupancy interest: Sale of free from Encumbrances land which is subject to Encumbrance: Sale of non-transferable land as transferable.

(b) Section 55(1) relates to liability for a title free from reasonable doubt: Section 55 (2) relates to liability for passing title which he professed to pass.

2. Section 55 (2) relates to misrepresentation or misdescription as to title. A distinction must be made between misdescription of title and misdescription of property.

(i) Misdescriplion of title is a breach of the covenant for title under Section 55 (2) and gives right to damages.

 (ii) Covenant for title docs not extend to misdescription of property i. e. as to the extent of the land sold.

(iii) A covenant for title is not a covenant that the land purported to be conveyed is of the extent stated in the sale-deed. It is merely a contract with the purchaser of the validity of the sellers' title. Consequently if the purchaser finds a deficiency in area his, suit must be based not on the covenant for title, but for part failure of consideration.

3. Express covenant for title. Every conveyancer has an implied covenant for title. But parties may enter into an express covenant relating to title. The points to be noted in regard to an express covenant are:

(a) If overrides and does away with the effect of all implied covenants.

(b) Although an express covenant alone can govern the rights of the parties, yet an implied covenant cannot be got rid of except by clear and unambiguous expression.

4. Who can claim the benefit of the covenant : The benefit of a covenant for title can be enjoyed not only by the purchaser and his representatives, but also subsequent alienees, who claim under the purchaser, can enforce it as against the seller.

5. Under this clause the vendor is presumed to guarantee his title absolutely to the property. If he wishes to contact himself out of the covenant he must do so expressly or by necessary implication.

6. The implied covenant for title has nothing to do with the question, whether the buyer has or has not notice of the defect of title and the buyer's knowledge of the defect does not deprive him of the right to sue for damages and can claim a return of the purchase-money if he is dispossessed by reason of a defect in title.

7. Covenant for title—what does it include. The covenants for title implied in an English conveyance, include.—

(i)              Right to convey,

(ii)             Right to quiet enjoyment,

(iii)            Right to hold free from Encumbrances,

(iv)           Right to further assurance.

Under the covenant for further assurance, the seller is bound to do such further acts for perfecting the buyer's title as the latter may reasonably require. Thus, if a seller has, after the sale perfected an imperfect title by the purchase of an outstanding interest, he can under this covenant, be compelled to convey it to the buyer.

(2) The English covenants are more extensive as they include the covenant for quiet enjoyment, for freedom from Encumbrances and for further assurance. Under Indian Law they are not included.

8. Covenant for title is a covenant for a title free from reasonable doubt. It has been held by the Privy Council that an absolute warranty of title cannot be insisted upon by the purchaser. 9 I .A. 700 (713).

9. The implied covenant for title does not apply in the case of a trustee:

(i) A trustee is only deemed to covenant that he has done no act whereby the property is encumbered, or that whereby he is hindered from transferring.

(ii) If a trustee conveys without disclosing his fiduciary character, he could no doubt be required to convey "as beneficial owner" so as to become subject to the usual covenants for title.

10. The implied covenant for title does not apply in the case of a guardian selling on behalf of the minor.

 
CHAPTER 4
THE LAW OF TRUSTS

OUTLINE

PART 1. What is a Trust and to what the Act applies ?

PART II. Express or Declared Trusts— (i) Creation. (ii) Extinction.

PART III. The Administration of a Trust.

PART IV. Constructive Trusts.

PART V.   The Administration of a Constructive Trust.

 

PART I

What is a Trust and to what the Act applies ?

II. To what KINDS OF trusts the act applies ?

I. Section I says in what cases the Act shall not apply. They are:

(i) Wakfs created by a Mohammedan.

(ii) Mutual relations of the members of an undivided family as determined by any customary or personal law. (iii) Trusts to distribute prises taken in war among the captors. (iv) Public or Private religious or Charitable Endowments.

1. Explanations.

1. Wakf.—Permanent dedication by a person professing the Mussalman faith of any property for any purpose recognised by the Mussalman Law as religious, pious or charitable.

Two classes of Wakfs—

(i) Where benefit is reserved to the settlor and his family— Act VI of 1913 applies.

(II) Where no benefit is reserved—Act 42 of 1923 applies.

II.          MUTUAL RELATIONS OF MEMBERS OF AN UNDIVIDED FAMILY.

 Illus—

1. The manager of a joint Hindu family and other members of the family.

2. A Hindu widow and a reversioner.

Their relations are not governed by the Trust Act. They are governed by customary law or personal law.

III. DISTRIBUTION OF PRISES TAKEN IN WAR.

1. Prise,—A term applied to a ship or goods captured jure belli by the maritime force of a belligerent at sea or seized in port.

2. All prises taken in war vest in the sovereign, and are commonly by the royal warrant granted to trustees upon trust to distribute in a prescribed manner amongst the captors.

3. To such a trust created for the purpose of distributing prises the Trust Act does not apply.

 

IV. PUBLIC TRUSTS AND PRIVATE, RELIGIOUS OR CHARITABLE ENDOWMENTS.

Trusts are either Public or Private Trusts.

1. Public Trusts.—A trust is a Public Trust when it is constituted for the benefit either of the public at large or some considerable portion of it answering a particular description. A Public Trust is for an unascertained body of people though capable of ascertainment.

II. Private Trust.—A Private Trust is a trust created only for the benefit of certain individuals who must be ascertained or ascertainable within a limited time.

III. The Purposes of a Public Trust.—They fall under three heads:— (i) Public purposes. (ii) Charitable purposes. (iii) Religious purposes.

(1) The phrase public purposes is used in two senses :

(a) In its ordinary sense—it includes purposes. Such as mending or repairing of roads, a parish supplying water for the inhabitants of a parish, making or repairing of bridges over any stream or culvert that may be required in a parish.

(2) The Phrase Charitable Purposes—includes almsgiving, building alms-houses, founding hospitals and the like.

(3) The Phrase Religious Purpose—includes relating to religious teaching or worship—purchase or distribution of religious books, upkeep of Churches, Temples, etc.

If a Trust is a Public Trust—The Trust Act does not apply. If a Trust is a Private Trust—Does the Trust Act apply ?

The Act applies only if the Private Trust is a trust which is not a Charitable or Religious Trust.

What is the Law that applies to a Public Trust or a Private Trust which is Charitable and Religious ? There are various enactments which apply.

1. Section 92, C. P. C.

2.The Religious Endowments Act,1863.

3. The Religious Society's Act I of 1880.

4. The Official Trustee Act II of 1913.

5. The Charitable Endowments Act VI of 1890.

6. The Charitable and Religious Trusts Act XIV of 1920.

Different kinds of Trusts

1. Trusts fall into different classes. The class into which a trust falls depends upon the point of view a trust is looked at—

2.  A trust can be looked at from three points of view— (i) From the point of view of the mode in which a trust is created. (ii) From the point of view of the constitution of the trust. (iii) From the point of view of the nature of the duty imposed on the

trustee.

3. From the point of view of the mode in which a trust is created trusts fall into two divisions (i) Express and (ii) Constructive.

4. From the point of the constitution of a trust, trusts fall into two divisions (i) completely constituted trusts and (ii) incompletely constituted trust.

5. From the point of view of the nature of the duty imposed on the trustee trusts fall into two divisions (i) Simple Trusts and (ii) Special Trusts.

1. express and constructive trust

1. A trust can arise in two ways—

(i) It is the result of a voluntary declaration made by an individual. (ii) It may be the result of a rule of law.

2. When a trust is the result of a voluntary declaration it is called an Express Trust or Declared Trust. When a trust is the result of a rule of law it is called a Constructive Trust.

3. The term Constructive Trust is used in another sense. In this sense it is used to signify a trust which is the result of a construction put upon the deed. A trust is a matter of intention. Intention may be declared in specific terms or it may be found by the Court to have been indicated by the party on a proper construction of the deed. In the latter case the trust is sometime called a Constructive Trust.

4. Two things have to be remembered in connection with a constructive trust used in this sense.

(i) Such a Constructive Trust is some times contrasted with an Express Trust. This is quite wrong. Such a Constructive Trust is really an Express Trust and is not to be contrasted with it. A trust is none the less an Express Trust because the language used by the settlor is ambiguous or clumsy, if, on the true construction of that language the Court comes to the conclusion that a trust must have been intended.

(ii) A trust which is constructive in the sense that the intention is deduced by constructing the document must not be confused with a Constructive Trust which is the result of the operation of the law. In the former there is an intention to create a trust and in that sense it is the result of the voluntary act of the party. In the latter there is no intention to create a trust. It is the creation of law and not of an act of the party.

Constructive Trusts fall into two sub-divisions :—

(i) Resulting Trusts. (ii) Non-Resulting Trusts.

The difference between the two will be considered later when dealing with Constructive Trusts. They have one thing in common— they are both the result of the operation of law and not the result of an act of party.

 

II. completely   constituted  trusts   and  incompletely constituted trusts.

1. A trust is said to be completely constituted when the trust property is vested  in the Trustees for the benefit of the beneficiaries. When there is a mere declaration of a trust but the property is not vested in the Trustee the trust is incompletely constituted.

2. The question whether a trust is completely constituted or not is of the utmost importance where no valuable consideration is given for its creation.

3. If value is given it is immaterial whether the trust is perfect or not, for as equity looks on that as done which has been agreed to be done an imperfect conveyance for value will be treated a contract to convey and the Court will see that it is perfected.

4. If no value is given there is no equity and the Court will not grant any assistance to a person seeking to enforce.

5. If there is a complete transfer of property although it is voluntary yet the legal conveyance being effectually made the trust will be enforced by the Court.

6. There are two ways in which a trust may be completely constituted:

(i)            The settlor may convey the property to the trustees.

(ii)          The settlor may declare himself to be a trustee of it.

7. Distinction between complete and incomplete trust—

(i) A completely constituted trust is one in which the trust property has been finally and completely vested in the trustees.

(ii) A trust is incompletely constituted when the trust property has not been finally and completely vested in the trustees.

note.—all trusts arising underwills are completely constituted, though may be either executed or executory—

(iii) A seller must take all due steps to do all that it is his duty to vest the property in the trustee, and the instrument of conveyance must also contain a declaration of trust, if the settlor's intention is to escape defeat.

8. Consequences arising from this difference—

(i) An incomplete trust will be enforced if it is for valuable consideration. It will not be enforced if it is voluntary, i.e., without valuable consideration.

(ii) Valuable consideration in the law of trust, as in the law of contract, is some valuable thing assessable in terms of money, with the proviso that marriage, and also forbearance to sue is so considered.

(iii) A distinction exists between valuable consideration and good consideration. The phrase good consideration is applied to natural love and affection. Such a consideration though good is not valuable.

(iv) A good consideration does not make an incompletely constituted trust enforceable at the instance of a volunteer. It serves to rebut a resulting trust

(V) How far marriage is a consideration :

(i) If the settlement is made before and in consideration of marriage, it is made for valuable consideration. So it is also, if made after marriage, but in fulfilment of an ante-nuptial agreement to settle.

(ii) But if the settlement is made after marriage, and not in pursuance of an ante-nuptial agreement, it is voluntary.

 (VI) Who are within the marriage consideration:

(i) The only persons within the marriage consideration are the actual parties, the husband and the wife, and the issue of that marriage.

(ii) All other persons are volunteers and cannot enforce the provisions of a settlement as against the settlor so far as the transfer of property is still incomplete, e.g., an agreement to settle after—acquired property.

9. Does the Indian Trust Act recognise this distinction between complete trust and incomplete trust—

Simple and Special Trusts

1. A Simple Trust is a trust in which a trustee is a mere passive custodian of the trust property, with no active duties to perform..

2. A Special Trust is a trust in which a trustee is appointed to carry out some scheme particularly pointed out by the settlor and is called upon to exert himself actively in the execution of the settlor's intention.

3. A Simple Trust is spoken of as a passive trust and Special Trust is spoken of as an active trust.

4. Where a Simple Trust exists, the beneficiary, provided that he is sue juris and absolutely entitled, has a right to be put into actual possession of the property and he enjoys the further right of compelling the trustees to dispose of the legal estate in accordance with the beneficiary's instruction.

5. Special Trusts are divided into—(i) Ministerial and (ii) Discretionary.

6. In both, the trustees have positive duties to perform.

7. The point of distinction is that in a Ministerial Trust the duties are such that the trustee is not called upon to exercise prudence while in a discretionary trust a trustee is required to exercise prudence.

 

PART II

EXPRESS OR DECLARED TRUST

chapter 1. Two kinds of Declared Trusts—

(i)              Executed.

(ii)             Executory.

chapter II. The Creation of an Express Trust.

chapter III The Revocation of an Express Trust. Declared

chapter IV. The Extinction of an Express Trust.

 

CHAPTER I

Two kinds of Declared Trusts

Executed and Executory

An Express Trust is either an Executed Trust or is an Executory Trust.

1. executed aND executory trusts

1. The expressions Executed and Executory as used in relation to contract have not the same meaning which they have when used in relation to trust.

2. When used in relation to a contract they refer to the carrying out of the contract. When used in relation to a trust they refer to the creation of a trust as distinguished from its carrying out.

3. In the sense in which the term is used in contract every trust is executory until it is over. But that is not the meaning in which the word is used in relation to trust.

4. When the words Executed and Executory are used in connection with a trust they have different meaning.

(1) A trust is an Executed Trust when the author of the trust has not only designated the persons who are to benefit by the trust but has also indicated the interests which they are to take in the trust property.

(2) A trust is said to be an Executory Trust when the author of the trust has only designated the persons who are to benefit by the trust but has not indicated the interests which they are to take in the trust property but has left it to be defined by another person by another instrument.

Illus.—On the marriage of A and B it is agreed between them that certain property shall be settled on trust for them and for their children.

note.—Here the parties who are to benefit by the trust are defined—They are A and B and their children—

(1) But what benefits A and B their children are to take is not defined.

(2) Therefore, it is an Executory Trust.

(3) The line of cleavage between an Executed Trust and an Executory Trust is different from the line of cleavage between a completely constituted trust and an incompletely constituted trust.

 (4) The line of cleavage between a completely constituted trust and an incompletely constituted trust is:- in the former the property is vested in the Trustees upon trust; in the latter the property is not so vested.

(5) The line of cleavage between an Executed Trust and an Executory  Trust is that in the former the interests of the beneficiaries are defined when in the latter they are not so defined.

(6) That being so an Executory Trust may be a completely constituted Trust.

II. parties to a trust.

1. Apparently there are three parties to the transaction of a trust—

(i)              The party who makes the trust.

(ii)             The party who accepts the trust.

(iii)            The party for whose benefit the trust is made.

2. The party who makes the trust is called "the author of the trust ". The party who accepts the trust is called the trustee. The party for whose benefit the trust is made by the author and accepted by the trustee is called the beneficiary.

3. Is it necessary that the three parties should be distinct and separate and that one of three cannot occupy the role of any two of them ? The answer to this question is some of them can play the role of two.

(i) The author of the trust and the beneficiary of the trust must be distinct and separate.

          (ii) The trustee and the beneficiary must be distinct and separate.

(iii) The author of the trust need not be distinct and separate from the Trustee.

4. The reasons why some parties can occupy the role of two in one and some cannot are important.

(i) The making of a trust results in the creation of two different estates in the property which is the subject-matter of the trust— the legal and the equitable. A trust lasts as long as these two interests remain separate,   (ii) If the legal and equitable estates happen to meet in the same person, the equitable is forever extinguished by being absorbed in the legal. In other words, where the legal and the equitable interests are co-extensive and vested in the same person the equitable merges in the legal interests which means that the trust comes to an end.

There are two principles to be borne in mind

(i) There is no trust if it does not create a separate equitable interest.

(ii) There is no trust if the separate legal and equitable interest become merged.

5. Applying these two principles we reach the following conclusion—

(i) There is no merger when the author of the Trust and the trustee are the same. Therefore, they need not be distinct.

(ii) There is no creation of a separate equitable estate when the author of the Trust and the beneficiary are the same. Therefore, they must be distinct.

(iii) There is merger when the trustee and the beneficiary are the same. Therefore, they must be distinct.

To sum up. The author of the trust and the trustee may be one and the same person. But the beneficiary must always be a distinct person separate from the author of the trust as well as from the trustee.

6. So far we have taken simple cases where the parties are single individuals. What happens when the parties are multiple parties, and where some of them play double role.

Illus.

(i) A and B are the beneficiaries of a trust Of them A is also a trustee. Is such a trust valid ?

(ii) A and B are beneficiaries of a trust Of them A is the author of the trust Is such trust valid ?

7. The answer to the first question is in the affirmative. It is found in Section 6 which defines a trust. The definition does not give an answer to the Second question. Yet such a trust is invalid.

CHAPTER II

(i) The Creation of an Express Trust

1. CONDITIONS FOR THE CREATION OF A VALID TRUST.

For the validity of a declared Trust the following four conditions prescribed by law must be satisfied.

(i) Section 6.

(1) There must be necessary parties to the trust.

(1)     The language of the settlor must be such that the Court can find from it, as a fact,

a)    An intention to create a trust;

b)    of ascertainable property ;

c)     in favour of ascertainable beneficiaries and

d)    for an ascertainable purpose.

(ii) Sections 7-8.

The trust property must be of such a nature as to be capable of being transferred and settled in trust.

(iii) Section 4. The object of the trust must be lawful.

2. The English Law of Trust differs from the Indian Law in regard to the creation of a trust. According to Snell the creation of a trust requires three certainties,

(i) Certainty as to intention. (ii) Certainty as to trust property.

(iii) Certainty as to beneficiary. According to Underhill the creation of a trust requires four certainties, those mentioned by Snell and one more namely.

(iv) The purpose of the trust.

The English Law does not require the transfer of the trust property to the trustee. But the Indian Law does.

(ii) Certainty as to intention

(i) The intendor to create a trust may be by words or acts.

ii) These are illustrations which show how a trust could be created by the acts of the author of the trust.

Illus.

(i) A father opening an account in his book in the name of his son in which money is credited in the name of his son.

9 Bom. 125 (ii) A buying shares in 5 Bom. 268 17 Col. 620 (628)

3. Examples of trust created by words are unnecessary. The question is what kind of language is necessary to show there is a certainty to show that there was intention to create a trust—

(i) No technical expressions are needed for the creation of a trust. The matter is one of construction. The question, therefore, which has to be determined is whether upon construction of the will or deed as a whole, the testator intended that the person to whom property was given should take as a mere trustee or should take beneficially, subject to a mere superadded expression of a wish or desire, which the testator may have thought would be sufficient to influence the donee, but which was not intended to and does not impose upon him any obligation. Question is did the author of the trust merely express a wish that the trustee should do a particular thing or did he impose an obligation upon him to do a certain thing. If an obligation was in fact intended then obviously he had the intention to create a trust.

(iii) The language used may be either precatory or imperative.

(i) The words request, recommend, desire, hope, etc., are precatory words.

(ii) Such words cannot be said to indicate an intention to create a trust, because they do not show an intention to impose an obligation upon the trustee.

(iii) Under the English Law such precatory words were held to constitute a, trust and the trusts were called precatory trust. But the modem tendency is against.

(iii) Certainty as to beneficiary

1. The beneficiary must be specified or described sufficiently as to be capable of identification.

2. Illustrations of uncertainty.

(i) Estate given to A with the direction that he would continue it in the family—family uncertain.

(ii) To the settlor's relations—relations uncertain.

3. Illustrations of sufficient description

(i) Descendants-held to be sufficient description and therefore not uncertain

3. Certainty of Purpose

1. How the property is to be applied must be specified.

2. Illustrations of uncertainty of purpose.

(i) To consider certain persons. (ii) To be kind to them. (iii) To make ample provision for them. (iv) To remember them. (v) To do justice to them. (vi) To take care of his nephew as might seem best in future.

(vii) To use property for herself and her children and to remember the Church of God and the poor.

3. The purpose of the trust means the way in which the beneficiaries are to be benefited the way in which the property is to be applied.

4. Certainty as to trust property

1. The property which is to be the subject-matter of the trust must be indicated with reasonable certainty. It must be specified or sufficiently described so as to be capable of identification.

Illus.

(i) A bequeathes certain property to B—directing him to divide the bulk of it among the children of C. There is no creation of a trust because the property is not indicated with reasonable certainty.

(ii) A gives property in trust for his wife and directs that such part of it as may not be required by her shall, after her death, be held in trust for his children.

(iii) A gives property in trust for his servants with a direction to

reward them according to their deserts out of such parts of my estate as may not have been sold or disposed of by her.

 

Conclusion

1. Thus, it must be clear that the settlor intended to create a definite trust over definite property for definite persons. No trust can arise in the absence of an intent to create a definite equitable obligation giving definite equitable rights to definite beneficiaries.

2. It will, however, be noticed that the failure to nominate a definite person as a trustee does not invalidate the trust. Where a trust is clearly intended, then (subject to the rules as to voluntary trust), the mere omission to appoint a trustee will not invalidate the trust : for equity never allows a trust to fail for want of a trustee. So, if no trustee is appointed or if the trustee appointed fails, either by death, or disclaimed or incapacity or otherwise the mist does not fail, but fastens upon the conscience of any person (other than a purchaser for value without notice) into whose hands the property comes and such person holds it as a passive trustee, whose only duty is to convey it to new trustees when properly appointed.

3. The effect of uncertainty as to property or as to beneficiary or purpose of the trust is different :

(i) Where the trust is affected by uncertainty as to property the trust is void. As there is no property capable of identification there is nothing to litigate about.

(ii) Where the trust is affected by uncertainty as to the beneficiary or the purpose the trust is void. As there is no person named as a beneficiary no one can come forward to enforce it

(iii) Where the property is described with sufficient certainty, and the words actually used, or the surrounding circumstances make it clear that although the donor has not sufficiently specified. The objects of his bounty or the way in which the property was intended to be dealt with yet he never meant the trustee to take the entire beneficial interest, the Law implies a resulting trust in favour of the donor or his representative.

II. TRUST PROPERTY MUST BE CAPABLE OF TRANSFER.

1. What property is capable of transfer ?

2. The answer to this question is to be found in section 6 of the Transfer of Property Act.

3. Property which can be transferred may be subject-matter of a trust.

4. But there can be no trust of a beneficial interest under a subsisting trust. A Beneficiary cannot create a trust of his interest in trust. His interest is transferable but he cannot create a trust of it.

5. This marks an important distinction between the English Law and Indian Law of Trust.

6. Under the English Law a beneficiary can create a trust of his equitable estate.

7. The reason is that the Indian Law does not recognise the distinction between legal and equitable estates in a trust.

Sec. II.—A Trust may be properly created and yet enforceable.

1. A trust may have been properly created but may not be enforceable. To be enforceable a trust must satisfy two other conditions:

1. The object of the Trust must not be unlawful. II. The formalities prescribed for the creation of a trust must be satisfied.

Object of the trust Sec. 4.

1. The object of a trust must be lawful.

2. What are lawful objects ?

(1) The purpose must not have been forbidden by Law.

(2) Purpose must not be such which if permitted would defeat the provisions of any law.

What are unlawful objects ?

(1) Purpose which is fraudulent

(2) Purpose which involves or implies injury to the person or property of another.

(3) Purpose which is immoral or opposed to public policy.

Illus.

(1) Trust for the care of female founding to be trained as prostitutes.

(2) Trust to carry on smuggling business and to maintain it out of the profits.

(3) Trust by a person in insolvent circumstances—defeating creditors.

    (4) Trusts for illegitimate children.

    (5) Trust for the creation of a perpetuity.

    (6) Trust to take effect upon future separation of husband and wife.

3. Whether the trust is lawful or unlawful is to be determined in the case of immovable property by the law where the property is situated.

4. A trust which is unlawful is void.

5. Where a trust has two purposes of which one is lawful and the other unlawful, the validity of the trust depends upon the severability of the two. If they can be severed, the one with a lawful purpose is valid and the one with an unlawful purpose will be void. If they cannot be separated the whole will be void.

6. Consequences of settlor creating an unlawful trust—

(i) Court will not enforce it in favour of the person intended to be benefited thereby. (ii) Court will not help the settler to recover the estate.

Formalities for a valid trust

Sec. 5.

1. A trust may be a trust of immovable property or it may be a trust of movable property. The formalities prescribed by law for the validity of a trust differ according as the property is immovable property or movable property.

2. Formalities in case the property is immovable. Such a trust may be made in two ways—

(i) Either by a non-testamentary instrument signed by the author of the trust or by the trustee, or

(ii) By the will of the author of the Trust,

3. Formalities in the case of a trust of movable property. There are three ways by which it could be done.

(1) By a non-testamentary instrument signed by the author of the trust or the trustee.

(2) By a testamentary instrument signed by the author or the trustee.

(3) By transfer of the ownership of property to the trustee.

4. Difference between declaration and creation of Trust. (Not explained in ms.)

5. Transfer of Trust Property

1. No trust is created until the author of the trust has divested him of the trust property. That means he must have transferred the property to the Trustee.

2. This does not apply where the author of the trust is himself the trustee. All that is necessary to show is that he has changed the character in which he holds it.

3. This does not apply when the trust is created by a will. The will operates after his death and the trustees then take possession.

Section II.—A trust may be valid and yet impeachable.

1. A valid trust may be impeached on the following grounds by the following persons :

(a) By the settlor or his successors in title on the ground: (i) of the incapacity of Parties.

(ii) of some mistake made by, or fraud practised on, the settlor at its creation.

(b) By the settlor's creditors, by reason of its having been made with a fraudulent intention to defeat or delay them or because it infringes the provisions of the Insolvency Act.

(c) By future purchasers of the property from the settlor without notice of the trust, where the trust property is land, and though was intended by the settlor to defeat the claims of future purchasers.

1. Incapacity of Parties to a Trust Capacity of the author of the Trust.

1. The author of a trust must be a person who is competent to contract, i.e., (i) He must be major and (ii) He must be of sound mind.

2. Although this prevents a minor from making a trust yet the law provides for a minor making a trust, if the conditions prescribed are observed under the Law, a trust may be made by or on behalf of the minor, provided it is done with the permission of the Principal   Court of original jurisdiction.

The Principal Civil Court of original jurisdiction is according to the Civil Procedure Code the District Court.

3. This competency of the Author of the Trust to make a trust is limited in two ways—

(i) The property which is to be the subject-matter of the trust must be transferable.

(ii) He can transfer it only to the extent permitted by Law for the time being in force. A trust is not valid if the author had no power to dispose of property.

4. What property is transferable and what is not is defined in section 6 of the T. P. Act.

5. The authority to dispose of property and the extent of such power depends upon law.

Illus.

(i) A Hindu father cannot dispose of the ancestral property and therefore, he cannot create a trust thereof.

(ii) A Hindu widow cannot dispose of the estate inherited by her from her husband. She having only a life-estate in it— therefore, she cannot dispose of it by way of Trust.

(iii) A Mohammedan cannot dispose of more than 1/3 of his property after the payment of debts and funeral expenses— therefore, cannot dispose of more than 1/3 by way of a Trust.

Capacity to be a Trustee— Sec. 10.

1. Every person capable of holding property is competent to be a trustee.

   2. Who is capable of holding property ?

Every living person   is capable of holding and taking property. Therefore, every living person whether a minor or a lunatic is capable of being a trustee.

3. There is a difference between capacity to contract and capacity to hold and take property. Every living person does not have the capacity to contract; but every living person has the capacity to hold and take property.

4. This distinction is necessary to make and important to bear in mind because a person may not have capacity to contract yet he may be competent to be a trustee provided he has capacity to hold and take property ;be not dead physically he must not be dead civilly: (1) A person who is sentenced to transportation is not civilly dead.

7. There is one further distinction which is to be noted. Ordinarily a person who is competent to be a trustee is also competent to execute a trust. But in the case where a trust involves the use of discretion the person who is competent to be a trustee is not necessarily competent to execute a trust.

8. Where the trust is such that it does not involve the use of discretion the requirement for competency to execute a trust is the same for being a trustee, namely, capacity to hold and take property.

9. Where the trust is such that its execution does involve the use of discretion, then the trustee must have capacity to contract.

Capacity to be a Beneficiary— Sec. 9.

1. Every person capable of holding property may be a beneficiary.

- 2. The requirement for being a beneficiary is the same as for being a trustee.

3. That is every living person can be a beneficiary. That is a trust can be created in the interest of every living person. It is not necessary that a beneficiary should have contractual capacity. In this respect his position is regulated by the same provisions as that of the trustee.

 

CHAPTER III

The Revocation of an Express Trust Declared

Sec. 78.

1. Whether a trust can be revoked depends upon how the trust is created.

(i) If the trust is created by a will then it can be revoked by the testator at his pleasure. This is because will does not take effect till death. There is can be revoked before it takes effect

2. If the trust is created otherwise than be a will—i.e., by a non-testamentary instrument or by word of mouth then it can be revoked in the following circumstances only—

(i) If the power of revocation is expressly reserved to the author of the trust.

(ii) If the beneficiaries consent, provided all of them are competent to contract

CHAPTER IV

 

The Extinction of an Express Trust

Sec. 77.

1.  A trust comes to end in the following cases— (i) When the purpose is completely carried out. (ii) When its purpose becomes unlawful. (iii) When the fulfilment becomes impossible. (iv) When the trust being revocable is expressly revoked. (v) If there is only one beneficiary or if there are several (whether entitled concurrently or successively) and they are or they are not under any disability (such as infant, lunatic) the trust may be extinguished by them without reference to the wishes of the setter or the trustees.

2. The terms for the extinction of a trust are the same as those for the extinction of a contract.

1. Two questions remain to be considered. (i) When does a trust becomes administrable ? (ii) What estate does the Trustee and Beneficiary have in the trust ?

2. These questions are preliminary to the question of the administration of the trust.

1. When does a trust begin to function ?

A trust becomes administrable when it has been accepted by the Trustee and the beneficiary—

I.         DISCLAIMER AND ACCEPTANCE OF A TRUST

Acceptance Art. 34=Sect. 10.

1. Although the author of the trust may appoint a person as a trustee, the person so appointed is not bound to accept such appointment.

2. A person appointed to the office of a trustee may accept the office or he may disclaim it.

3. The acceptance of the office may be indicated expressly or by conduct. If it is by conduct it must indicate with reasonable certainty such acceptance.

Illus.—A by his will bequeaths certain properties to B and C as  Trustees for D.  B and C prove A's will. On a question being raised whether B and C had accepted the office of Trustee, held that their conduct in proving the will was tantamount to acceptance of office.

4. Other illustrations of acceptance by conduct are :

(i) Acceptance by acquiescence—Permitting an action regarding trust property being brought in his name.

(ii) Acceptance by exercising dominion over the trust property—such as advertising for sell—giving notice to tenants.

(iii) Acceptance by dealing with property—unless the dealing is plainly referable to some other ground.

(iv) Acceptance by long silence with notice of the trust and in the absence of any satisfactory explanation of the silence.

(v) Acceptance of a part of the trust is acceptance of the whole, notwithstanding any attempted disclaimer of part.

5. The law does not say how a disclaimer is to be made by a trustee who does not wish to accept the office. It only says that a trustee must do so within reasonable time.

6. Although the law is silent on the point, the following points with respect to disclaimer have been settled by judicial decisions—

(i) The disclaimer should be before acceptance. Once a trustee has accepted the office he can renounce it only under circumstances mentioned in section 46.

(ii) A person can disclaim a trust although he may have consented to act as a trustee during the lifetime of the settlor.

(iii) A person cannot disclaim the office as to a part of the trust and accept as to the rest.

(iv)           A disclaimer may be by words or by conduct.

7. Effect of disclaimer.

(i) If there is only one trustee a disclaimer prevents the trust property from vesting in him.

(ii) If there are two more trustees and if one of them disclaims, such a disclaimer vests the trust property in the other or others or makes him or them the sole trustee or trustees from the date of the creation of the trust.

8. What happens when there is only one trustee and he disclaims,

Two things can happen :

(i) A new trustee may be appointed under section 73— (a) By one mentioned in the trust

(b) If there be none such, by the settlor if alive and competent to contract

(ii) If no trustee is appointed in place of the one who has disclaimed the property reverts to the settlor or his representatives if he is dead.

9. What happens to the property ? Is it freed from the trust ? Does it remain subject to the trust ?

The answer is that the trust is not extinguished. The settlor or his representatives, if the settlor is dead, holds it on trust for the beneficiary. In other words the setter or his representative becomes the trustee in place of the trustee who has disclaimed.

The rule is that a trust will never fail for want of a trustee. Wherever a trust exists, and there is no trustee to execute it, the person in whom the legal estate vests holds the property as trustee. This rule is intended to protect the beneficiary.

Mallott vs. Wilson (1903) 2 Ch. 494.

II. disclaimer aND ACCEPTANCE BY beneficiary—

Section 9

1. A beneficiary is not bound to accept the trust. He may accept it or he may disclaim it.

2. His disclaimer amounts to a renunciation of his interest under the trust.

3.  If he wishes to disclaim he can do so in two ways : (i) By a disclaimer addressed to the trustee or (ii) By setting up a claim inconsistent with the trust with the knowledge of the trust.

4. A claim inconsistent with the trust would be a claim such as ownership of the trust property.

4. What happens to the trust when the beneficiary disclaims ?

III. the estate of a trustee under a trust. (Page left blank)

IV. the estate of a beneficiary under a trust. (Page left blank)

 

PART III

THE ADMINISTRATION OF A TRUST

 

The Administration of a Trust

In connection with the Administration of a Trust, the Trustee has certain—

(i) Duties—Sections 12—20.

(ii) Liabilities—-Sections 23—30.

(iii) Rights—Sections 31—36.

(iv) Powers—Sections 37—45.

(v) Disabilities—Sections 46—54.

 

Similarly the beneficiary has certain—

(i)              Rights—Sections 55—67.

(ii)             Liabilities—Section 68.

1. Duties of a Trustee Sections 12—20

V (2) Duty to obey directions contained in the Trust.

IV (3) Duty to act impartially between the beneficiaries.

IV (4) Duty to sell Wasting and Reversionary property.

IV (5) Duty in relation to payment of outgoing of Crops and income.

IV (6) Duty to exercise reasonable care.

IV (7) Duty in relation to the Investment of Trust Funds.

IV (8) Duty to pay Trust moneys to the Right Persons.

IV (9) Duty in relation to delegation of Duties and Powers.

IV (10) Duty to act jointly when there are more than one Trustees.

[f1]  IV (II) Duty not to set up Jus Tertii

*[f2] IV (12) Duty to act gratuitously.

*[f3] IV (13) Duty not to traffic in Trust Property.

*[f4] IV (14) Duty to be ready with Accounts.

 

V. Powers of a Trustee Sections 37—45.

V. The powers of a Trustee * V (1) General Powers of a Trustee.

*[f5]  V (2) Power of Trustees to sell or mortgage the Trust Property.

  *[f6] V (3) Power in relation to conduct of sales.

  *[f7]  V (4) Power to give receipts. * V (5) Power to compound and settle disputes.

*[f8]  V (6) Power to allow Maintenance to Infants.

*[f9]  V (7) Power of Trustees to pay Cost of Beneficiary.

*[f10]  V (8) Suspension of the Trustee' s Powers by Administrative Action.

 

 

VI. Powers of the Beneficiaries

[f11]  VI (1) Power of a sole beneficiary.

*[f12]  VI (2) Power of one of several beneficiaries.

25. Is a trustee liable for breach of trust by his predecessor ? He is not.

26. Is a trustee liable for the breach of trust committed by a Co-trustee ?

He is not except in the following cases :

(i) Where he has delivered trust-property to his Co-trustee without seeing to its proper application.

(ii) Where he allows his Co-trustee to receive trust property and fails to make due inquiry as to the Co-trustee's dealings therewith or allows him to retain it longer than the circumstances of the case reasonably require.

(iii) Where he becomes aware of a breach by a Co-trustee and conceals it or does not take proper steps to protect the property.

27. Breach of Trust jointly committed by Co-trustees.

What is the liability for each ? Is it for the whole ? Each is liable for the whole to the beneficiary. There will be a right of contribution from the rest.

28. Liability for Payment by a Trustee to a person who is not the person in whom the beneficiary's interest is not vested.

Trustee is not liable, provided:

(i) He had no notice that the interest had vested in another person.

(ii) That the person to whom payment is made was a person who was entitled to payment.

 

XIII. Protection to Trustees

 

*[f13]  (1) General Protection.

*[f14] XIII (2) Statute of Limitation.

   *[f15]  Each page contains only the heading and not the details—ed.

*[f16]  XIII (3) Concurrence of or waiver or Release by the Beneficiary.

* [f17] XIII (4) Protection against acts of Co-Trustees.

* [f18] XIII (5) Right of contribution and indemnity as between Co-trustees.

* [f19] XIV.    Liability of Third Parties and Beneficiaries.

* [f20] XIV (1) Liability of Third Parties and Beneficiaries who are parties to a Breach of Trust.

* [f21] XIV (2) Following Trust Property into the hands of Third Parties.

 

PART IV

Constructive Trusts

1.     There are fourteen cases of constructive trusts which are enumerated in the Trust Act.

2.     They fall under five heads :

(1) constructive trusts ARISING OUT OF transfers—sections 81, 82,84,85.

(2) CONSTRUCTIVE TRUSTS ARISING OUT OF UNFAIR ADVANTAGE GAINED BY ONE PERSON AS AGAINST ANOTHER PERSON—SECS. 85, 88, 89, 90, 93. (3) CONSTRUCTIVE TRUSTS ARISING OUT OF CONTRACTS MADE-SECS. 86,

91,92.

(4) CONSTRUCTIVE TRUSTS ARISING OUT OF A MERGER OF TWO PERSONALITIES IN ONE INDIVIDUAL—SECTION 87. (5) CONSTRUCTIVE TRUSTS ARISING OUT OF A PAST TRUST—SECTION 83.

(1) transfer oR bequest oF property

(i) Section 81.

1. In certain cases the transfer or bequest of property imposes an obligation upon the transferee or legatee in the nature of a trust in favour of the owner or his legal representative.

Ordinarily the transferee or legatee would take the property absolutely without any such obligation.

2. When can it be held that the transferee or legatee takes it subject to an obligation ? He takes it subject to an obligation when there is no intention on the part of the owner to dispose of the beneficial interest in the property to the transferee or legatee.

3. How is intention to be determined ?—In the light of the circumstances of the case. It is the circumstances which must be referred to in order to find out the intention of the owner. (ii) Section 82.

1. The second case where the transfer of property imposes an obligation upon the transferee in the nature of a trust is the case where the transferee is made to one and the consideration is paid by another—in such a case the transferee holds it on trust for the person who paid the consideration.

Ordinarily the transferee would be the owner in the eye of the law, the property being conveyed to him by the transferor.

2. This rule that a transferee who has not paid consideration holds it on trust for a person who has paid consideration applies generally except in one case—

3. Exception:

This rule does not apply where there is an intention on the part of the person who paid the consideration to benefit the transferee.

4. Proof of intention.

(iii) transfer for an illegal purpose. Section 84.

1. Ordinarily when a transfer is for an unlawful purpose the Court will neither enforce the transaction in favour of the transferee nor will it assist the transferor to recover the estate if he has parted with it.

2. But the rule does not apply under all circumstances. The rule does apply under certain circumstances.

3. What are the circumstances in which the rule does not apply ?

The circumstances in which the rule does not apply are—

(i)              If the propose is not carried into execution.

(ii)             If the transferor is not as guilty as the transferee.

(iii)            If the effect of permitting the transferee to retain the property might be to defeat the provisions of any law.

4. In these cases the Court will help the transferor and impose upon the transferee an obligation to hold the property for the benefit of the transferor.

(iv) BEQUEST UPON TRUST FOR AN ILLEGAL PURPOSE. Section 85.

1. The position in law with regard to transfers for an illegal purpose is on a par with trust for an illegal purpose.

2. That is, a Court will neither enforce the trust in favour of the parties intended to be benefited nor will it assist the settlor to recover the estate if he has parted with it. 9 Bom. S. R. 542.

3. Section 85 recognises a trust although the purpose is unlawful. This is in contrast with the general principle enunciated in section 4 of the Trust Act and therefore requires some explanation.

4. The general principles governing the rights of the parties to an unlawful trust and the exceptions to those principles may formulate as follows :

1. Where a trust is created for an unlawful and fraudulent purpose, the Court will neither enforce the trust in favour of the parties intended to be benefited nor will it assist the settlor to recover the estate (except in one case).

Q.—Why is a beneficiary not allowed to enforce it ?

A.—Because it would be giving effect to an unlawful purpose.

Q.—Why is the author not allowed to recover the estate if he has parted with it ?

A.—Because it would be helping him to take advantage of his own fraud.

II. The one case in which the settlor allowed to recover the property although the trust is for an illegal purpose is the case where the illegal purpose has failed to take effect.

Q.—Why is this exception made ?

A.—There are two reasons :

(i) The purpose being unlawful no trust arose—it being void ab initio.

(ii) The trustee having paid no consideration has no right to retain the beneficial interest in the property which must, therefore, return to the settlor.

III. The disabilities attaching to the author of an unlawful trust do not apply to his legal representatives—

Q_why ?

A.—Because they are not parties to the transactions.

5. The reason why section 85 recognises a trust in favour of legal representatives is because they are innocent parties having nothing to do with the creation of an unlawful trust.

(2)  Constructive Trusts arising out of unfair advantage—

1. Section 85.

1. The first case under this head arises where property is bequeathed under a will and the testator during his life-time wanted to revoke the bequest and he is prevented from revoking it by coercion.

2. Under such circumstances the legatee takes the property not as a beneficial owner thereof but holds it as a trustee for the legal representatives of the testator.

3. The reason is that the legatee has taken unfair advantage by using unfair means. He cannot, therefore, be allowed to retain such an advantage.

II. Section 88

1. The second case arises when any person who is bound to protect the interest of another person by reason of his fiduciary relationship with the latter.

2. Persons who fall in this category are—

(i)              Agent and Principal.

(ii)             Partners in a firm.

(iii)            Guardian and ward.

(iv)           Trustee and beneficiary.

(v)             Executor and Legatee.

3. The section says—

(i) That any such person who gains any pecuniary advantage by availing himself of his fiduciary.

(ii) Enters into any dealings under circumstances in which his own interests are adverse to those of the person whom he is bound to protect and thereby gains for himself a pecuniary advantage

Then

He must hold the advantage so gained for the benefit of the person whose interest he was bound to protect.

4.   Illus.

(i) A partner buys land in his own name with funds belonging to his firm. He must hold it for the benefit of the partners.

(ii) A trustee, retires from his trust in consideration of a bribe paid to him by his Co-trustee. The trustee must hold the sum for the benefit of the trustee.

(iii) An agent is employed by A to secure a lease from B of a certain property. The agent obtained a lease for himself. The agent must hold it for the benefit of B.

(iv) A guardian buys up the Encumbrances on his ward's property at an           undervalue. He can charge the ward only for the value he has actually paid for the Encumbrances.

III. Section 89

1. The third case arises where advantage is gained at the cost of another person by the exercise of undue influence.

2. This is dealt with in section 89. Section 89 says that such a person must hold the advantage for the benefit of the person who is the victim of such undue influence.

3.     This is subject to two limitations—

(i) The advantage must have been gained without consideration or

(ii) The person must have had notice of the advantage having been gained by undue influence.

IV. Section 90

1. The fourth case arises where advantage is gained by a qualified owner availing himself of his position as such in derogation of the rights of other persons interested in the property.

2. This is dealt with in section 90. Section 90 says that such an advantage shall be held for the benefit of all and not merely for the benefit of the one who secured it.

3. Subject to two conditions—

(i) The others must repay their due share of expenses properly incurred for securing such advantage.

(ii) The others must bear proportionate part of their liabilities properly contracted for gaining such an advantage.

4. Cases covered are those of co-tenants, members of joint family, mortgagee, etc.

V. Section 93

1. The fifth case arises where the advantage is gained by a creditor secretly.

2. Such a case generally arises when the creditors accept a composition from a debtor who is unable to pay his debts in full.

3. If it is found that one of the creditors who is a party to the composition has by arrangement with the debtor unknown to the other creditors gains better terms for himself he shall not be entitled to retain the advantage gained by him by reason of such better terms which have caused prejudice to other creditors.

4.     The law will regard him as a trustee for the other creditors in so far as the advantage gained by him is concerned.

 

(3)  Constructive Trusts arising out of Contracts

 

I: Section 86

1. The first case dealt with by the Trust Act under this head relates to a contract for the transfer of property.

2. It falls under section 86. Section 86 refers to a contract in pursuance of which property is transferred and where the contract is of such a character that—

(i)              It is liable to recession or

(ii)             It is induced by fraud or mistake.

3. The transferee of the property under such a contract shall hold the property for the benefit of the transferor.

4. This obligation arises only under certain circumstances and is not absolute:

(i) The obligation arises only on receiving notice from the transferor that the contract is liable to recession or that it has been induced by fraud or mistake.

(ii) The obligation will be enforced only on repayment by the transferor of the consideration actually paid by the transferee.   

 

II.  Section 91

1. Acquiring property with notice that is subject to a contract with another person.

2. In such a case the person who acquires the property must hold it for the person who had contractual rights in it.

3. This obligation is limited in its extent. It is enforced only to the extent necessary to give effect to the contract.

4. This obligation does not arise in the case of every acquisition of property which is subject to a contract. It applies only in the case of a contract which could be specifically enforced.

1. Property bought for being held on trust for certain persons.

2. A contracts to buy property from B and represents to B that the purpose of buying it is to hold the property on trust for C. B believing in the representation of A sells the property to A.

3. A must hold the property for the benefit of C.

4. This obligation is also limited in its extent—It is enforced only to the extent necessary to give effect to the contract.

5. The contract may be to hold part of the property in trust for C. In that case the obligation will be enforced only to the extent of the property.

(4) Constructive Trust arising out of merger of two personalities in one individual.

1. Section 87

1. This provides for the case of double personality —one man but two persons.

2. Every contract, debt, obligation or assignment requires two persons.

3. But these two persons may be the same human being.

4. In all such cases, were it not for the recognition of double personality, the obligation or Encumbrance would be destroyed by merger.

5. Because no man can in his own right be under any obligation to himself; or own any Encumbrance over his property.

6. But with the recognition of the double personality this is possible.

7. In fact this is necessary.

8.  Illustration— Debtor becoming executor.

Executor is the owner in the eye of the law. Merger. Extinction of debt.

9. Section says no.

 

PART V

The Administration of a Constructive Trust

THE INDIAN TRUST ACT

1. The Law relating to Trust is contained in Act II of 1882.

2. It is an Act which defines and amends—that means that it does not introduce any new principle.

3. The Act does not consolidate the Law—That means that it is not an Exhaustive Code.

4. The object of the Act was to group in one to enact the legal provisions relating to trusts. Before the Act of 1882 the statutory law relating to trust was contained in 29 Car II. C. 31 sections 7— II.

Act XXVII of 1866 ActXXVIIIofl866

There were also few isolated provisions scattered through the Penal Code, Specific Relief, C. P. Code Stamp Act, Limitation, Government Securities Act, Companies Act, Presidency Banks Act.

5. As originally passed, the Act did not apply to the whole of British India. For instance, it did not apply to Bombay. But provision was made to extend it by notification by local Government.

6. It is unnecessary to discuss here whether the Hindu Law and Mohammedan Law recognised trust as defined in the Trust Act. That may be dealt with by others.

The nature of a Trust

1. Trust is defined in section 3. A trust involves three things:

(1)A person who is the owner of some property.

(2) Ownership burden with an obligation.

(3) Obligation to use the property for. the benefit of another or of another and himself.

2. It is ownership without beneficial enjoyment. It involves separation of ownership and beneficial enjoyment.

3. A trust arises out of a confidence reposed in and accepted by the owner.

4. The owner in the eye of the law is the trustee. After the trust is created the author of the trust ceases to be the owner of the property.

1. what IS a trust.

1. The terms Trust and Trustee are defined in various enactments of the Indian Legislature.

(i) Definition in Specific Relief Act I of 1877. Section 3

(1) Obligation includes every duty enforceable by law.

(2) Trust includes every species of express, implied or constructive fiduciary ownership.

(3) Trustee includes every person holding expressly, by implication, or constructively a fiduciary ownership.

(ii) Definition in the Indian Trustees Act XXVII of 1866. Section 2—

" Trust shall not mean the duties incident to an estate conveyed by way of mortgage; but with this exception, the words trust and trustee shall extend to and include implied and constructive trusts, and shall extend to and include cases where the trustee has some beneficial estate or interest in the subject of the trust, and shall extend to and include the duties incident to the office of executor or administrator of a deceased person.

(iii) Definition in Limitation Act IX of 1908. Section 2 (ii)—

Trustee does not include a benamidar, a mortgagee remaining in possession after the mortgage has been satisfied or a wrong-doer in possession without title.

(iv) Indian Trusts Act II of 1872.

(1) Section 3—"A trust is an obligation annexed to the ownership of property . . .

(2) Ingredients of a Trust (i) A Trust in an obligation.

(ii) The obligation must be annexed to the ownership of property.

(iii) The ownership must arise out of confidence reposed in and accepted by the owner.

 (iv) The ownership must be for the benefit of another (i.e., a person other than the owner) or of another and the owner.

 

Explanation of Terms

I. THERE MUST BE OBLIGATION.

II. OBLIGATION MUST BE ANNEXED TO OWNERSHIP PROPERTY.

1. There may be an obligation to which a person is subject although there is no property to which it is annexed.

E.g. Torts assault—

2. There may be property without there being any obligation attached to it. E.g. Full and complete ownership—sale of property.

III. THE OWNERSHIP OF PROPERTY MAY BEFOUNDED IN CONFIDENCE OR IT MAY NOT.

Illus.

A person may transfer ownership to another with the intention of conferring upon him the right to enjoy the property.

A person may transfer ownership to another without the intention of conferring upon him the right to enjoy the property.

The difference between ownership founded in confidence and ownership not founded in confidence consists in this—

(i) In the latter there is a jus in re (a complete and full right to a thing) or jus ad rem (an inchoate and imperfect right).

(ii) In the former there is not. E.g. Bailment.

3. The nature of a trust can be better understood by contracting it with other transactions resembling a trust.

Trust distinguished from agency

1. Where there is a trust, the ownership of the trust property is in the trustee. The trustee is personally liable on all contracts entered into by him in reference to the trust, although he may have a right of recourse against the trust funds or against the beneficiary.

2. An agent has no ownership in law in the goods entrusted to him. If an agent enters into a contract as agent, he is not personally liable. The contract is with the principal.

Trust distinguished from Condition

1. Cases of condition differ from cases of trust in two respects—

First. A trust of property cannot be created by any one except the owner. But A may dispose of his property to B upon condition express or implied that B shall dispose of his own property in a particular way indicated by A.

Second. The obligation of the person on whom the condition is imposed is not limited by the value of the property he receives, e.g., if A makes a bequest to B, on condition of B paying A's debts, and B accepts the gift, he will be compelled in equity to discharge the debts although the exceed the value of the property.

2. But the words "upon condition" may create a real trust. Thus a gift of an estate to A on condition of paying the rents and profits to B constitutes a trust because it is clear that no beneficial interest was intended to remain in A.

A may dispose of his property to B upon condition express or implied that B shall dispose of his property to C. There is a condition in favour of C.

Is this a trust ? Trust distinguished from Bailment

1. Bailment is a deposit of chattel and may in a sense be described as a species of trust. But there is this great difference between a bailment and a trust, that the general property in the case of a trust, is in the trustee, whereas a bailee has only a special property, the general property remaining in the bailor.

2. The result of this difference is that an unauthorised sale by a trustee will confer a good title upon a bonafide purchaser who acquires the legal interest without notice of the trust, whereas such a sale by a bailee confers as a rule no title as against the bailor.

3. Bailee does not become the owner of the property as a result of the bailment. But a trustee does in law become the owner

of the property as a result of the trust notwithstanding he is under an obligation to deal with the property in a certain specified manner.

 

Trust distinguished from Gift

Ordinary contract differs from a trust. Contract which confers a benefit on a third party closely resembles a trust.

1. There is a similarity between a Trust and a Gift inasmuch as in both the transfer results in ownership. The Trustee and the Donee both become owners of the property.

2. But there is a difference between the two. In a gift the donee is free to deal with the property in any way he likes. In a Trust the trustee is under an obligation to use the property in a particular manner and for a particular purpose.

Trust distinguished from Contract

1. That there is a distinction between trust and contract is evident from the existence of differing legal consequences attached to a trust and to a contract:

(i) A trust, if executed, may be enforced by a beneficiary who is not a party to it whilst only the actual parties to a contract can, as a rule, sue upon it

(ii) An executed voluntary trust is fully enforceable while a contract lacking consideration is not.

2. However, the determination of the question whether a given set of facts gives rise to a trust or a contract is not easy. What is the test ?

Keetan—-pp. 5-6 (1919) A. C. 801    |38 Bom. S. R. 610.

(1926) A. C. 108      |

 

It is a question of intention.

Trust distinguished from Power

1. The term "power" in its widest sense includes every authority given to a person (called the donee of the power) to act on behalf of or exercise rights belonging to the person giving him the authority (called the donor of the power).

2. Powers are of many kinds e. g.

(i) The common law power of an agent to act for his principal, given sometimes by a formal "power of attorney".

(ii) Statutory power such as the power of sale given to a mortgagee.

(iii) The various express and implied equitable powers possessed by trustees and executors.

(iv) Powers to appoint trusts so as to create equitable interests.

3. The power of appointment is a transaction which resembles a trust and it is this which must be distinguished from a trust.

The word appointment means -pointing out, indicating-the act of declaring the destination of specific property, in exercise of an authority conferred for that purpose-the act of nominating to an office.

The last class termed, powers of appointment are made use of where it is desired to make provision for the creation of future interests, but to postpone their complete declaration.

Thus in a marriage settlement, property may be given to trustees upon trust for the husband and wife for their lives and, after the death of the survivor upon trust for (i) Such of the children of the marriage as the survivor shall appoint, or (ii) All the children of the marriage in such shares as the survivors shall appoint. In such a case, upon appointment being made, the child to whom it is made takes exactly as if a limitation to the same effect had been made in the original instrument.

A power of this kind, where there is a restriction as to its objects (i.e., persons in whose favour it may be exercised) is termed a special power of appointment. But there may be a general power of appointment when there is no such restriction, so that the donee may appoint to himself. In such a case the donee having the same powers of disposition as an owner, is for most purposes treated as the owner of the property :

(i)              A power may give a mere discretion and therefore is distinct from a trust, which creates an obligation or

(ii)             A power may impose an obligation to exercise the discretion.

In the former case there is no trust. In the latter case there is. The former is called mere power. The latter is called power in the nature of a trust or power coupled with trust.

 (iii) There is also a third category of cases which arc cases of a trust coupled with a power.

These are cases where a trustee of a property though under an obligation to apply it for the benefit of certain individuals or purposes, may have a discretion as to whether he will or will not do certain specified acts, or as to the amount to be applied for any one individual or purpose or as to the time and manner of its application. In such cases, the Court will prevent the trustee from exercising the power unreasonably, it will not compel him to do such acts or attempt to control the proper exercise of his discretion.

1. Power resembles a trust and also differs from it.

(i) It resembles a trust inasmuch as a power is an authority to dispose of some interest in land, but confers no right to enjoyment of land.

(ii) It differs from a trust inasmuch as a power is discretionary, whereas a trust is imperative; the trustee if he accepts must necessarily do as the settlor directs.

 

  [f22]  VII. new trustees.

( 1 ) Survivorship of the office and estate or trustee on death.

*[f23]  (2) Devolution of the office and estate on Death of the survivor.

*[f24] (3) Retirement or Removal of a Trustee.

* [f25] (4) Appointment of New Trustees.

 

    * [f26] VIII. appointment of a judicial trustee.

     *[f27] IX. the public trustee.

( 1 ) Nature and Function.

*[f28]  (2) Appointment of a Public Trustee as an ordinary Trustee.

 

    *[f29] Appointment and Removal of the Public Trustee.

    [f30]  (4) Duties, Rights and Liability of the Custodian Trustee and Managing Trustee.

    *[f31] (5) Special Rules relating to the Public Trustee.

    *[f32]  X. the rights of the trustee.

(1)    Right to Reimbursement and Indemnity.

 * [f33] (2) Right to discharge on completion of Trusteeship.

 * [f34] (3) Right to pay Trust Funds into Court.

 

    * [f35] XI. RIGHT OF TRUSTEES AND BENEFICIARIES TO SEEK THE ASSISTANCE OF PUBLIC TRUSTEE OR COURT.

    *[f36] (l) Right of Official audit.

    * [f37] (2) Right to take direction of Court.

    * [f38] (3) Right to have Trust administered by Court.

    * [f39] (4) Right to take direction of Court.

    * [f40] (5) Right to have Trust administered by Court.

 

XII. CONSEQUENCES OF A BREACH OF TRUST.

1. Definition of Breach of Trusts.—Breach of trust is defined in section 3, a breach of any duty imposed on a trustee, as such, by any law for the time being in force, is called a breach of trust.

2. Under the English Law.—Any act or neglect on the part of a trustee which is not authorised or excused by the terms of the trust instrument, or by law, is called a breach of trust.

3. Breach of Duty.—A trustee has Duties, Right, Powers and disabilities. Only breach of duty is breach of trust.

1. The measure of liability is the loss caused to the trust property.

2. Is he liable to pay interest ? Only in the following cases—

(a) Where he has actually received interest.

(b) Where the breach consists 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.

(e) Where the breach consists in failure to invest trust-money and to accumulate the interest or dividends.

(f) Where the breach consists in the employment of trust property or the proceeds thereof in trade or business.

3. Is he entitled to set off a gain from breach of trust against a loss from breach of trust.

He cannot.

 

 

 

Contents                                                                             PART III

 

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