Trusts - Sheet1

Question 1

Trusts Classification (Surface)

Answer 1

A) According to nature of duties of trustees
B) According to Object
C) According to mode of creation

Question 2

Trusts according to nature of duties of trustees

Answer 2

Simple, Special

Question 3

Trusts according to objects

Answer 3

Private
Public or Charitable

Question 4

Trusts according to mode of creation

Answer 4

Every Important Cat Really Purrs Softly.
Express (Executed & Executory)
Implied
Constructive
Resulting
Precatory
Secret

Question 5

Express Trusts

Answer 5

One that is created not by facts and circumstances but my express words. A trust created by an express declaration of the person in whom the property is vested is an express trust.

Question 6

Example of express trust

Answer 6

A declares himself a trustee of X property for B.

Question 7

Implied Trusts

Answer 7

Created by act or construction of law.
2. Declared either by word or in writing.
3. Important rule is that the law never implies, the court never presumes a trust but in case of absolute necessity

Question 8

Example of Implied Trust

Answer 8

Where A purchases land and conveys it to X, there is prima facie an implied trust and X holds it as trustee for A

Question 9

Constructive Trusts

Answer 9

1. Arise by operation of law
2. When it would be an abuse of confidence for the owner of the property to hold the same for his own benefit, a trust is imposed upon him.

Question 10

Difference between Implied and Constructive Trust

Answer 10

In implied trust, it is declared by a party not directly but by implication, such as when a testator devises an estate to A and his heirs, not doubting that A will pay an annuity to B of 20 Pounds. In which case A is the Trustee for B to the extent of the annuity.
In trusts made by operation of law, they are not declared by a party at all even indirectly, but result from a rule of equity.

Question 11

Example of trusts by operation of law

Answer 11

Resulting Trust: Estate is devised to A and his heirs upon a trust to sell and pay the testator’s debts. In which case the surplus of the beneficial interest will be a resulting trust in favor of the testator’s heirs.
Constructive Trust: When the court elicits a trust by a construction. Tenant for life of leaseholds renews the lease on his own account, in which case the law gives the benefit of the renewed lease to those who were interested in the old lease.

Question 12

Constructive trust and profit

Answer 12

There is an obligation on a trustee who has made a profit however innocently through his office, to hold such profit for the benefit of the beneficiaries.

Question 13

Who can enforce a charitable trust?

Answer 13

Attorney General

Question 14

Simple v. Special trust

Answer 14

Simple Trust
1. A rests his property in B for C.
2. No duties to perform for B

Special Trust
1. Imposes duties on trustees for execution.
2. Trustee is not a mere depository but has to take pains and perform duties

Question 15

Ministerial vs. Discretionary Trust

Answer 15

Where the duties are mechanical and of routine intelligence it’s ministerial
Where special intelligence involved its discretionary

Question 16

Precatory Trust

Answer 16

Obtained from the Latin word precarious meaning entreaty.

Question 17

Secret Trust

Answer 17

A “secret” trust is not a testamentary trust. It looks like a testamentary gift, but it is created in reliance on the named beneficiary’s promise to hold and administer the property for another. The intended beneficiary is permitted to present extrinsic evidence to prove the promise. If the promise is proven by clear and convincing evidence, then a constructive trust is imposed on the property for the intended beneficiary, so as to prevent the unjust enrichment of the “secret” trustee.

Question 18

Types of secret trust

Answer 18

Fully Secret - neither the existence of the trust nor its terms are disclosed by the will
Half Secret - The existence of the trust is disclosed by the will but the terms are not

Question 19

Duty vs Power

Answer 19

Duty - obligation
Power - discretion

Question 20

Deoki Nandan v. Muralidhar

Answer 20

Public v. Private Trust
A trust was created to set up a temple. The Court here had to decide whether the trust laid down in the will of the settlor was private (legal heirs and family) or public (general people of the village) in nature. The SC stated that when one determines whether it is a public or private trust, the guiding factor must be the intention of the author of the trust, and the intention must be gathered by reading the documents relating to the creation of the trust. From the will, it could be gathered that the settlor intended to create trust not exclusively for the benefit of his family members. In that village, there was no other temple for the Hindu religion- hence, the author wanted to create trust not only for family members but also for persons of the village, and hence, it is a public trust.

Question 21

Allahabad Bank vs. CIT

Answer 21

What is a valid trust?
A banking company created a trust to provide pensions for its retiring staff. The company transferred funds to three trustees and could contribute more later. However, the company was not obligated to pay any pensions. Payments and amounts were at the company’s discretion, and it could withdraw, modify, or change the pension rules at any time.
Held, that, as the deed did not impose any obligation on the bank or the trustees to grant any pension to any employee, and the pension, even if granted, could be withdrawn and even the rules could be completely altered at will by the company, no valid trust was created even though moneys had been transferred to the trustees, and the sum in question could not be said to have been spent for the purposes of the business and allowed as a deduction under s. 10 (2) (xv) of the Income Tax Act.
The SC stated that for a valid trust there needs to be certainty of beneficiaries and presence of obligations.

Question 22

Howe v. Earl of Dartmouth

Answer 22

To convert perishable property
The rule that originates from this case is reflected statutorily in India in §16 of the Trusts Act. The case established that assets of a trust created by will should be converted, despite the absence of an express direction to do so, as long as the trust property is comprised of residuary personal estate, the property is of a wasting or reversionary character, and there is expressed an intention that the legatees should enjoy the same thing in succession.

Question 23

Vasudevan vs. Bhavadasan

Answer 23

Duties of Trustees and Liabilities of Co-Trustees
1. Loss of profits due to lack of due diligence can cause breach of trust
2. If some trustees were negligent and therefore loss had occurred, then all of them would not be liable for the loss. Only the negligent ones would be liable.

Question 24

Townley v. Sherborne

Answer 24

Liability of Co-Trustees
Trustees are individually liable unless there is evidence of dolus malus that permitted a breach by another trustee. In this case, the trustee who had signed receipts alongside other trustees was held liable though he received none of the embezzled money because he had done evil dealing by leaving the received money in the hands of his co-trustees.

Question 25

Ramabai Govind Gadhve v. Raghunath Vasudev Joshi (Ramabai Case)

Answer 25

If trust funds are mixed when buying personal property for the trustee, the trustee must prove personal funds were used.

(Rama-Bye) to his trust funds

Question 26

Ms. Shanti Vijay and Co. v. Princess Fatima Fouzia (Nizam Jewelry Trust Case)

Answer 26

Co-Trustees and their lack of capacity to act individually
4 trustees had agreed to sell 37 items of jewelry but one was absent due to a preoccupation.
In a private trust, where there are more trustees than one, all must join in the execution of the trust. In order to bind the trust, the act must be the act of all.

Question 27

Satya Kinkar v. Kiron Chandra

Answer 27

Insolvency of a trustee does not automatically discharge him
Section 70 indicates two circumstances when the office of a trustee is vacated. One is the death of the trustee and the other is his discharge from his office as a trustee. Also not there in Section 71.