Unit V — Law of Trusts with Fiduciary Relations

“A trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner for the benefit of another.” — Section 3, Indian Trusts Act, 1882

Trust, Parties & Creation

A trust (s.3, Indian Trusts Act 1882) is an obligation annexed to the ownership of property, arising out of a confidence reposed in and accepted by the owner for the benefit of another (the beneficiary). The trustee holds the legal title, while the beneficiary takes the beneficial enjoyment — the hallmark of a trust is this split between legal title and beneficial interest.

flowchart TD
    A["Valid TRUST requires…"]:::root
    A --> B["Certainty of INTENTION"]:::leaf
    A --> C["Certainty of OBJECT (beneficiary)"]:::leaf
    A --> D["Certainty of SUBJECT-MATTER"]:::leaf
    A --> E["Lawful purpose + capable parties +<br/>transfer to trustee (s.6)"]:::leaf
    A --> F["Immovables: registered writing<br/>or will (s.5)"]:::leaf

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    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
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A valid trust needs the three certainties — of intention, of object and of subject-matter — together with a lawful purpose, capable parties, and transfer of the property to the trustee (s.6); for immovable property the declaration must be by a registered, signed writing or by will (s.5). Kinds of trusts include private vs public, express vs implied, simple vs special, and constructive/resulting trusts arising by operation of law.

Duties of a Trustee & Fiduciary Relations

A trustee holds property he may not enjoy; the Act (ss.11–30) imposes exacting duties: to execute the trust and obey its terms (s.11), to protect the trust property (s.13), to act impartially between beneficiaries (s.19), to keep accounts and give information (s.19), to invest prudently, and — above all — the duty of loyalty: not to profit from the trust and not to set up an adverse title. A trustee may not delegate (s.47) and may not buy the trust property himself (the self-dealing rule). Where a trustee, in breach, gains an advantage, the law fastens a constructive trust on that gain for the beneficiary, and the transaction is voidable at the beneficiary’s instance.

✏️ Sample Solved Problem (IRAC Method)

Problem: T, a trustee holding land for B, purchases the trust land himself at a fair price through a third-party agent, without B’s informed consent. B later discovers this and seeks to set the sale aside. Can he?

I — Issue

Whether a trustee’s purchase of the trust property for himself is valid, or voidable at the instance of the beneficiary, even where a fair price was paid.

R — Rule

A trustee owes a fiduciary duty of undivided loyalty: he must not place himself in a position where his interest conflicts with his duty, and must not profit from the trust. The self-dealing rule makes a trustee’s purchase of the trust property voidable at the beneficiary’s option irrespective of the fairness of the price or the trustee’s good faith; any advantage gained is held on constructive trust for the beneficiary.

A — Analysis

The decoy is the fair price — T paid full value, used a third-party agent and acted honestly, so the sale looks unimpeachable on its commercial merits. But the self-dealing rule is prophylactic, not compensatory: it does not ask whether this transaction was fair; it forbids the conflict itself, because a trustee charged with selling for the beneficiary cannot simultaneously be the buyer seeking the lowest price. Routing the purchase through an agent does not cleanse it — the trustee remains the real purchaser. The price being fair is therefore irrelevant; what matters is that duty and interest collided without B’s informed consent.

C — Conclusion

B can set the sale aside. The trustee’s self-dealing purchase is voidable at the beneficiary’s option regardless of the fair price; T holds any benefit on constructive trust for B.

📄 The full bundle (₹199) has the complete Unit V — the definition and parties to a trust, the three certainties and modes of creation, every kind of trust, and the full catalogue of a trustee’s duties, powers, liabilities and disabilities — plus the Question Bank’s model answers to all the trust essays (definition, creation, duties of trustees, fiduciary relations). Get Notes + Question Bank — ₹199