A. THE CONCEPT OF TRUST The trust is a unique way of owning property under which assets are held by a trustee for the benefit of another person, or for certain purposes, in accordance with special equitable obligations. A trust is an equitable obligation which imposes upon a person (called a trustee) a duty of dealing with property over which he has control (called the trust property) for the benefit of persons called beneficiaries or cestuis que trust of whom he himself may be one, and any of whom may enforce the obligation. Generally speaking, all kinds of property, whether real or personal, may be held on trust, but property most frequently held includes land, stocks and shares. The interests of the beneficiaries are normally described in the instrument creating the trust. However they may be implied or enforced by law. Further the interest of the beneficiary is proprietary in the sense that it can be bought or sold, given and or disposed of by will. It ceases to exist where the legal estate on the property passes to a bonafide purchaser for value of a legal estate without notice of the trust. B. NATURE OF A TRUST A trust must be distinguished from other legal concepts such as bailment, Agency, Contract, Debts, Conditions and Charges, Powers; 1. BAILMENT A bailment is the relationship by common law and is a transaction whereby goods are delivered by one person, the bailor to another, the bailee on terms that usually require the bailee to hold the goods and ultimately restore them to the bailor. Bailment differs from the trust concept in the following ways; 1 A Bailor retains property rights over the property bailed; a settler does not retain any such rights over the trust property. Only chattels can be bailed, where as trusts can be made over any property. A Bailee exercises rights in his own name; a trustee exercises them in favour of the beneficiaries. 2. AGENCY Agency is a contractual arrangement either express or implied, written or verbal whereby one person may act on behalf of another and bind that other as if he or she acted personally. The function of an agent is to represent the principle in dealing with third parties while a trustee does not bring beneficiaries into relationships with third parties. There are some similarities between trustees and agents; i. The relationship of trustee and beneficiary is fiduciary in nature while that of principle and agent is normally fiduciary but not inevitably so. ii. Both trustees and Agents must act personally and should not delegate their duties. iii. Neither of them may make un-authorised profits from their office. The distinctions are as follows; i. An agent has no property rights as such in the subject matter of the agency; A trustee has property rights over the subject matter of the trust. ii. An agent is entirely controlled by his principal; trustees are only partially controlled by the beneficiaries, and not at all by the settler or creator of the trust. iii. An agent can involve his principal in liability; a trustee can not involve either the settlor or the beneficiaries in his personal liability. iv. Because the beneficiary’s right is proprietary, if the trustee disposes of trust property, the beneficiary can claim and recover it if it is identifiable under the remedy of tracing. 2 Re Hallets’s Estate (1880) 13 CH.696 In the case of agency the property for which an agent is liable to account to his principle is only subject to a personal claim against the agent and tracing is not available to the principle. 3. CONTRACT A contract is a common law personal obligation resulting from agreement between the parties. A trust is an equitable relation which can arise independently of an agreement. There are two primary distinctions; Consideration is not necessary to a trust unless incompletely constituted. A Contract can be terminated by the parties; a Trust can only be terminated by the coming to their natural conclusion in any of the following scenarios; By agreement of all possible beneficiaries, by the Settlor or the trustees if specifically empowered, by court order. Contracts can only be enforced by the parties; trusts can be enforced by the beneficiary, whether a party or not to the creation of a trust. However, there are situations where the distinction is not easy to draw; i. Settlement and covenants to settle Where property is vested in the trustee for settlement, it is held upon the trust of settlement and the beneficiaries are owners in equity of their interests under the settlement. However, if the property has not yet been transferred to the trustees but it is simply subject to the covenant to settle, the beneficiary will only be able to enforce the covenant if they have given consideration. This is based on the principal that equity will not assist a volunteer. ii. Third Party rights under contract It has been debated regarding questions whether the inability of a third party to sue upon the contract can be overcome by finding that one of the parties to a contract contracted as a trustee for him. This is not a question of distinguishing a trust from a 3 contract. The answer depends on whether there is an intention to create a trust for benefit of a contract which is governed by rules regarding creation of express interest. iii. An incorporated Association These are not legal entities; where there is a gift to an unincorporated association, there has been doubt whether the property held on trust is the property of the association or whether it belongs absolutely to the members to be dealt with in accordance with their contract or constitution. The matter is treated as one of contract, in other-words, what does the contract or constitution provide for? 4. DEBTS A debt may or may not be contractual and the duty of the debtor is to repay money to the creditor. In contrast, the trust does not need to be contractual and the duty of a trustee is to hold trust property for the beneficiary. The obligation of a debtor is personal but a trust is proprietary. A trustee should where possible use trust property in income bearing investment and account to the beneficiary for income. In the case of a debtor, such an obligation is unnecessary except in so far as provided for in an agreement express or implied. Potters V Loppert (1973) CH.399 Further if money borrowed is stolen from the borrower, he is still under obligation to repay it. However within trusts, a trustee is not liable for loss which is not attributed to his negligence. Morley V Morley 22 ER 817/ (1678) 2 CH.D. 2 Further the words of an instrument may be employed in such a manner as to create both personal and trust obliagtion thereby creating a situation where a debt and trust exist. Barclays Bank Ltd V Quitsclose Investment Ltd. 1970 AC 567 4 In the above case Rolls Royce Razor Ltd was highly indebted to Barclays Bank and was in need of 209,000 pounds to pay dividends which had been declared on its shares. The sum was borrowed from QuitsClose under an arrangement where by the loan was to be used for that purpose. The money was paid into a separate account at Barclays Bank which had notice of the nature of the arrangement. Before dividends were paid, Rolls Razor went into liquidation. The issue was whether the money on the account was owned by the beneficiary Rolls Razor, in which case Barclays Bank claimed to set it off against the over draft or whether Rolls Razor had received the money as trustee and still held it in trust for Quitsclose. The House of Lords unanimously held that the money had been received in trust to be applied for payment of dividends that purpose having failed, the money was held in trust for Quitsclose. The fact that the transaction was a loan, recoverable by an action at law did not exclude the implication of a trust. The legal and equitable rights of remedy could coexist, the bank having notice of the trust could not retain the money against Quitsclose. 5. CONDITIONS AND CHARGES It is at times complicated to determine whether the gift of property is subject to a trust or whether it is conditional upon or charged with the duty of making certain payment e.g there may be a bequest to A but A is also to pay 1000 to B . This situation could give rise to atleast four different scenarios. i. The bequest could be condisered as a gift to A upon trust to pay B. in this situation B would immediately beome entitled in equity to 1000 provided the property bequeathed was of sufficient value. ii. The second consruction is that the gift to a is conditional upon him performing an obligation. In such a case, B obtains no interest in the 1000. A has a choice of keeping the property and paying the 1000 or declining both. 5 iii. The bequest may be condisered as imposing a charge in property. In such a situation, A will only be under duty to B if he receives the property. However, his obligation will be limited to the value of the property. iv. The bequest may be taken to impose a personal duty on A if he accepts the gift. This means that A is in position of a debtor. 6. PERSONAL REPRESENTATIVES UNDER A TRUSTEE The relationship between an executor/administrator to beneficiaries, is not necessarily the same as that of the trustees and beneficiaries. However, the trustees Act cap 142 applies to both personal representatives and trustees. Under s. 2 of the Trustees Act, A trust is defined as including the duties incident to the office of personal representatives. However, there are few distinctions. The basic duty of a personal representative is to distribute the estate where as that of the trustee is to hold trust property. Provisions of the trustees Act relating to the appointment and retirement of trustees do not apply to personal representatives. These are governed by the Succession Act Cap 162. 7. POWER OF APPOINTMENT A power is the authority to given to a person to dispose of property which is not his. The person who confors the power is known as the donor and the recipient is known as the donee. The distincton between trust and power is fundamental. Trusts are imperative but powers are discretionary. The beneficiaries under trust are the owners in equity of the trust properties. However the object of the power ownership is nothing less and until the donee of the power makes an appointment in their favour. The donee of a power has no title over the interests he can appoint, whereas a trustee has a title over the trust property. 6 Vestey V IRC (1980) AC 1148 Under a power, persons entitled do not have a right of action against an appointer who does not appoint in the absence of fraud. However, if property is left on trust for the division among certain people, the court will compel its division. Re Weekes Settlement (1897) ch. 289 A woman gave property by will to her husband for life. The power to dispose of it by will among their children. It was held that there was no gift to such a class as the husband might appoint but a mere power to appoint with no general intention to benefit the class in any event. C. CLASSIFICATION OF TRUSTS 1. EXPRESS TRUSTS An express trust is one intentionally declared by the creator of the trust who is known as a settler or if the trust is created by will of the testator. An express trust is one that has been intentionally created by the setttlor himself through manifestation of an intention to create one. The most common methods of creation are by deed or by will or by unsealed writing. Express trusts are sometimes ubdivided into executed and executory trusts. An executed trust is one in which the testator or settler has marked in appropriate technical expression as to what interests are to be taken by all the beneficiaries. On the other hand, in executory trust, the execution of some further instrument is required in order to set out the beneficial interest with precision. The property is immediately subject to a valid trust but it remains executory until the further instrument is duly executed. The language of executed trusts is governed by strict rules of construction while the language of executory trusts is construed more liberally. In the case of Re Bostocks 7 Settlement (1921) 2 CH 469; An executed trust where the settler has made use of technical expression for which the law has laid down rules for expression, equity will follow the law and give effect to such interpretation. In the case of an executory trust, equity will attach less importance to the use or omission of technical terms but will seek to discover the settlers true intention and order the preparation of a final deed which gives effect to such intentions. 2. IMPLIED TRUSTS An implied trust is one in which the courts induces from the conduct of the parties or the circumstances of the transaction, for example, where a person in return for valuable consideration agrees to settle property for the benefit of another, he immediately becomes a trustee of that property. Barnister V Barnister (1948) 2 A.E.R. 133 3. RESULTING TRUSTS A resulting trust exists where property has been conveyed to another but the beneficial interest returns or results to the transferer. An example is where the property is conveyed to a trustee upon certain trust which fail or which do not exhaust the whole beneficial interest, the undisposed part results to the settler. An illustration is where if is a gift on trust for A for life and then on trust for B, if A attains the age of 18 but B dies under the age of 18 in A’s life time, the property will result to the settler upon the death of A. 4. CONSTRUCTIVE TRUSTS In contrast with the express trust, which arises from the acts of the parties, constructive trusts arise by operation of the law and thereby result from the effect of a rule of equity. According to s.1(5) of the Trustees Act, the expression on trusts and trustees Act, the expression on Trust and trustees extend to implied and constructive trusts. Constructive trusts have been established in the following circumstances. 8 i. In the case of a trustee who has made profit out of his office such a trustee can be held to be a constructive trustee of the profit for the benefit of his beneficiary ii. The position of a stranger to a trust who medals with trust property in such a way that equity will regard him as a trustee (Selanger United Rubber Estte and complets V Craddock (1968) 1 WLR 1555. iii. The relationship of Vendor and Purchaser between execution of a contract and completion of the conveyance. The vendor is considered a constructive trustee of the Purchaser. (Hausey V Palmer (1972) 1 WLR 1286 5. STATUTORY TRUSTS These refer to trusts created by statutes e.g Under the Succession Act where a person dies intestate, the personal representatives hold the estate on statutory trust for the children and other relatives of the deceased. 6.PUBLIC AND PRIVATE TRUSTS Trusts can be generally divided into public and private trusts. A public trust is one which benefits the public at large or some considerable portion of the public e.g a charitable trust. A private trust on the other hand is one which benefits specific individuals irrespective of whether they are immediately ascertainable and the interests therein defined will fail if they do not vest within the perpetuity period. 9