Professional Documents
Culture Documents
with property (called trust property), for the benefit of persons (called
beneficiaries or, in old cases, cestuis que trust), of whom he may himself be
one and any one of whom may enforce the obligation. The main
characteristic of a trust is that the trust property is vested in the trustees not
for their own benefit, but for the benefit of the beneficiaries. Instead of giving
the property directly to the beneficiaries, the donors purpose may be more
effectively carried out by appointing trustees, who will not only safeguard the
property and apply it in the manner directed by the trust instrument, but will
also make it productive. Trusts have features that resemble many other legal
concepts, such as bailment, agency, contract debt power and the
administration of estates. The characteristics of trusts are perhaps best
understood by comparing them with those other legal relationships.
Personal rights can only be enforced by the parties to the agreement or
contract A personal right is not binding on someone else (a third party) who
is not a party to the contract. Proprietary rights however are personal to the
parties of the agreement or contract and also capable of binding and
affecting third parties, and not only the parties to the contract. That is, they
are capable of attaching to the land itself so that anybody who comes into
ownership or occupation of the land may be entitled to enjoy the rights the
interest gives or be subject to the obligations that it imposes. While it is said
that the main distinction between a trust and the other legal relationships is
that the former creates proprietary rights whilst the latter creates a personal
one that is not totally through as there are other major distinctions existing
between them.
The contract was developed by the common law courts and trust was
developed in the courts of equity. A contract arises from agreement or
consensus ad idem between the parties. A trust may arise by agreement, for
example, where a settlor covenants with trustees to settle property in the
future, or where a company establishes a pension scheme for the benefit of
its employees. However, usually, a trust will not arise by agreement, and
does not so arise, where a testator creates a trust by his or her will or where
a donor declares himself or herself a trustee of his or her property for the
benefit of volunteer beneficiaries. Furthermore the right to enforce a
contract is a right in personam since, as a general rule, action can be
brought only against the other contracting party or parties. The right to
enforce a trust, on the other hand, is almost like a right in rem, since, in the
event of a breach of trust, the trust property can be recovered by means of
the tracing remedy not only from the trustee but also from any other person
bound to keep the money separate, but is entitled to mix it with his own
money and deal with it as he pleases, and when called upon to hand over an
equivalent sum of money, then, in my opinion, he is not a trustee of the
money, but merely a debtor. In Foley v. Hill the deposit of money in a bank
does not of itself create a trust in favor of the depositor, whether or not any
interest is paid, and indeed creates no fiduciary relation at all between bank
and customer.
Trusts can arise in connection with loans as in Barclays Bank Ltd. v.
Quistclose Investments Ltd. A loan to be held by the borrower on trust is
repayable in debt if the purpose for which the money was lent is carried out,
and may be held on trust for the lender if performance is impossible or is for
some other reason not carried out. The court in Barclays Bank Ltd. v.
Quistclose Investments Ltd stated that when the money was advanced, the
lender acquired an equitable right to see that it was applied for the primary
designated purpose. When the purpose had been carried out, the lender had
a remedy against the borrower in debt; if the primary purpose could not be
carried out, the question arose if a secondary purpose (that is, repayment to
the lender) had been agreed, expressly or by implication; if it had, the
remedies of equity might be invoked to give effect to it, if it had not (and the
money was intended to fall within the general fund of the debtor's assets)
then there was the appropriate remedy of a loan. Here, there was a clear
intention to create a secondary trust for the benefit of the lender, to arise if
the primary trust, to pay the dividend, could not be carried out.
In Twinsectra v Yardley Lord Hoffmann and Lord Millet stated a Quistclose
trust is one whereby A pays or transfers money or property to B so that B
holds the money or property in trust for A subject to a power for B to apply
the money or property for a stated purpose. As beneficial interest in the
money or property will remain unless and until the money or property is
applied in accordance with that power. The power will be valid (such that if
exercised in accordance with its terms, it will be effective to determine As
beneficial interest) if the court can say that a given application of the money
or property does or does not fall within the terms of the power. The question
to be asked in terms of validity is whether or not the power is void for
uncertainty, and it must, accordingly, have certainty of objects. The only
trust is the resulting trust for the payer and the power to apply the money for
a stated purpose is a mere power and so not a purpose trust. Finally if the
purpose fails then the money or property is held in resulting trust for A freed
from any power, and so can be recovered by A by a proprietary claim
whether or not B is solvent.
In Re Kayford Ltd it was stated that that case shows that it is possible for
proprietary rights to be created by a unilateral act on the part of a potential
debtor; and that circumstances which prima facie create a debt may in fact
create a trust having the effect of excluding the debt.