Trust in United Kingdom

Concept of Trust

The following is an old definition of Trust [1], a term which has several meanings:1. Technically, an obligation arising out of a confidence reposed in a person, to whom the legal title to property is conveyed, that he will faithfully apply the property according to the wishes of the creator of the trust. Where there are rights, titles, and interests in property distinct from the legal ownership. The legal title carries the absolute dominion. Behind it lie beneficial rights belonging to another. These are a charge xipon the property, and constitute an equity which the courts will protect. No technical language is necessary to the creation of a trust. It it appears to be the intention of the parties to an instrument conveying property that it is to be held or dealt with for the benefit of another, a court of equity will affix to it the character of a trust, and Impose corresponding duties upon the party receiving the title, if it be capable of lawful enforcement. In each case the intention is to be gathered from the general purpose and scope of the instrument. Trustee. A person holding the legal title to property, under an express or implied agreement to apply it, and the income arising from it, to the use and for the benefit of another person, who is called the cestui que trust. whence (the word(s) which follow it are derivatives from the same root word) co-trustee. He who creates the trust is sometimes called the trustor. The person who establishes the trust is called the ” donor,” ” creator,” or ” founder.” The word ” trustee ” of itself means trustee for some one whose name is not disclosed. In one sense a mere bailee or agent is a trustee, because he has property delivered to him in the confidence that he will do with it according as he is directed by the bailor. It may even be required, by statute, that the title to the property be conveyed to the trustee. . . Conveying property to another in confidence that he will sell it and apply the avails in a particular way, not for his own use, undoubtedly creates a trust. A. trustee is not an agent. An agent represents and acts for his principal. “A trustee is a pereon in whom some estate, interest, or power in or affecting property is vested for the benefit of another.” When an agent contracts in the name of his principal, the principal contracts and is bound. As a trustee holds the estate, although only with the power and for the purpose of managing it, he is personally bound by the contracts he makes as trustee, even when designating himself as such. When he acts in good faith for the benefit of the trust he is entitled to indemnify himself for his engagements out of the estate in his hands. If he wants to protect himself from individual liability on a contract he must stipulate that he is not to be personally responsible. Trustee ex maleflcio. One who by wrongful or illegal conduct becomes or is held to be a trustee. Such is a transferee under a fraudulent conveyance, and a bailee who misapplies moneys intrusted to him. See Constructive Trust; Tort, 1. Trustee process. In New England, a proceeding in attachment similar to garnishment, see, in this resource, the term Cestui que trust. He for whom a trust is created or exists: the owner of the equitable estate where a legal estate is vested in a trustee. One who has a right to a beneficial interest in and out of an estate, the legal title to which is vested in another as trustee. “A barbarous Norman-law French phrase, ungainly and ill-adapted to the English idiom. ‘ Beneficiary’ is a more appropriate term.” He is an equitable owner, and, if his right of possession is not postponed, he is entitled to the usufruct or rents and profits of the trust estate. He may charge the interest vested in him in any manner not inconsistent with the purposes of the trust. The word “trust ” is frequently italicized, as if part of the Norman French expression. Another spelling of cestui is cestuy; and cestitigue is met with. The plurals are cestuis que trust, cestuis que trustent and trustents, cestuis que trusts and trustents. The first form has the weight of usage and authority. See Cestui; also Annenda, p. 1129. Active trust. When the trustee is not merely a passive depositary of the estate, but is required to take active measures to carry into effect the general intention of the creator of the trust; as, a trust by which an executor is to sell property and apply the proceeds as directed. Also called a special trust. Passive trust. Requires nothing to be done by the trustee beyond transferring property to the beneficiary; in this respect corresponding to the ancient ” use.” Also called a barren, dry, naked, or simple trust A Where an active duty is imposed upon the trustee, the trust is not executed under the Statute of Uses until the duty is performed. If, however, the trust be purely passive, it will be executed at once under the statute. Passive trusts have been abolished in some of the States. Construetive trust. (1) Such trust as is imposed by construction of law, from reasons of equity and justice, and independently of the intentions of the parties: as, a vendor’s or vendee’s lien (see, in this resource, the term) for purchase- money unpaid or prematurely paid; the renewal of a lease by a trustee in his own name; and, perhaps, a permanent improvement unavoidably made to an estate by the legal possessor. (2) A trust which arises from actual or legal fraud; as, where a person occupying a fiduciary relation gains an advantage to himself personally. Also called a trust ex malefleio. Sometimes interchanged with “implied trust,” see, in this resource, the term Directory trust. When the trust fund is directed to be invested in a particular manner till the period arrives at which it is to be appropriated. Executory trust. Requires something to be done toward complete creation. . . A trust which is to be perfected at a future time – as, by a conveyance ” to B in trust to convey to C.” Executed trust. Requires nothing to be done toward complete creation. . . It is when the legal estate passes, as, in a conveyance to B in trust, or for the use of C; or when only the equitable estate passes, as, in a conveyance to B to the use of C in trust for D: in which the trust is executed in D, Ahough he has not the legal estate. All trusts are in a sense executory, because a trust cannot be executed except by conveyance, and, therefore, there is always something to be done. But in equity an ” executory” trust occurs where the author of the trust has left it to be made out from general expressions what his intention is; and an ” executed” trust is where there is nothing to be done but to take the limitations given and convert them into a legal estate. A trust is “executed” when the limitations of the eqtiitable interest are complete and final; in an ” executory ” trust, the limitations of the equitable estate are not intended to be complete and final, but merely to serve as instructions for perfecting the settlement at some future time. Executory trusts are modifiable in equity. Express trust. A trust created in express terms in the deed, will, or other writing. Implied trust. A trust raised or created by presumption or construction of law, – and either rests upon the presumed intention of the parties, or is independent of any express intention, and enforced upon the conscience by operation of law. “Express” trusts are raised and created by the act of the parties; ” implied ” trusts by act or construction of the law. Resulting trust. Arises by operation of law whenever a beneficial interest is not to go along with the legal title, as where a conveyance is taken in the name of one person and the consideration is advanced by another. Is raised by law from the presumed intention of the parties and from the natural equity that he who furnishes the means for the acquisition of property shall enjoy its benefits. It does not obtain where an obligation, legal or moral, exists to provide for the grantee, as husband for wife, or parent for child; for in such cases arises the contrary presumption of an advancement for the grantee’s benefit. There must be an actual payment of the purchase- money or a liability incurred for it, on the part of the cestui que trust; made or incurred as part of the original transaction of purchase, and not pursuant to a subsequent arrangement. Parol evidence, which may be offered to overcome the presumption in favor of the legal owner, must be clear, full, and satisfactory. If au agent purchases land with his principal’s money and takes a deed in his own name, a resulting trust exists in favor of the principal. No such trust is raised by a subsequent payment of purchase money. To establish this trust in favor of a wife as against her husband’s creditors, the proof that she advanced the purchase-money must be clear. Parol evidence adduced to raise a resulting trust may be rebutted by parol.” Secret trust. The retention of possession of personalty as if still his own by the vendor affords an example of a secret trust. May render the sale fraudulent and void as to cred- itors, whether the trust be express or implied. Voluntary trust. A trust in favor of a volunteer: one as to whom the trust is a pure gift. Trust for value. A trust in favor of a vendee or other claimant who has parted with an equivalent in value. The founder of a trust may secure the benefit of it to the object of his bounty by providing that the income shall not be alienable by anticipation nor subject to be taken for his debts; but otherwise, in England. A ” voluntary ” trust is an obligation arising out of a personal confidence reposed in and voluntarily accepted by one for the benefit of another; an “involuntary ” trust is created by operation of law.^8 Trust deed. An instrument creating an active trust. In a few States, the equivalent of a mortgage. Deed of trust. An assignment of property to a trustee for the purpose therein declared. Usually made by a debtor in failing ch’cumstances to secure all his creditors equally or to give some a preference over others when it is not prudent to make immediate sale of his property. The debtor nearly always remains in possession until the trustee is bound to make sale for the purposes of administering the trusts. Registration of the deed is equivalent to the delivery of possession to the trustee. The deed is in the nature of a mortgage, see, in this resource, the term Prior to the Statute of Uses, uses existed as confidences which a court of chancery would enforce, and were thus the earliest form of trusts. That statute transferred the use into possession, and made the cestui que use owner of the legal and equitable estate. Thereupon, equitable jurisdiction over these early uses (now legal estates) ceased, or became unnecessary. But the decision rendered in Tyrrells Case, in 1567, by which a use upon a use was refused recognition, revived and even increased the former jurisdiction over trusts. See further Use, 3, Statute of. The Statute of Frauds require declarations or creation of trusts in lands to be proven by some writing signed by the creator; and so as to grants or assignments. It is sufficient if the terms can be ascertained from the writing; a letter in acknowledgment is ample. See Frauds, Statute of. The trusts intended by courts of equity as not being affected by the Statute of Limitations are those technical trusts which are not cognizable at law, but fall within the exclusive jurisdiction of equity courts. A voluntary or express trust cannot be imposed on any one unless he agrees to accept, or by clear implication assumes the duties and liabilities; but acceptance in the case of an implied, resulting, or constructive trust is not necessary. The nature and duration of a trust estate are governed by the requirements of the trust itself. If that requires a fee-simple in the trustee, it will be created, though the language be not apt. If the language conveys to the trustee and his heirs forever, while the trust requires a more limited estate, in quantity or duration, the latter only will vest. A trust will not be allowed to fail for want of a trustee; a court of equity will supply a trustee. Where a conveyance is made to a trustee, and the object of the conveyance fails, the trust cannot be executed, and the trustee must re-cohvey. Where a conveyance would not involve a breacli of duty or a wrong, a presumption arises that the trustee conveyed, this being hig duty. Co-trustees are responsible only for their individual acts, unless they have agreed to be bound for each other, or, by co-operation or connivance, have enabled one or more to do an act in violation of the trust. This, too, although they have equal power, and cannot act separately, as executors may, but must join, both in conveyance and receipt. But the rule has been varied where one trustee has assisted another to do a thing, as, to receive money. The rule seems to regard the ability of one to interpose and hinder the other from pursuing the course which resulted in loss. But trustees of a public trust may act by the majority. See Joint. Where trustees are in existence and capable of acting, the court will not interfere to control them in tlie exercise of a discretion vested in them, by the instituting instrument. A trustee may be invested with such powers that his beneficiaries are bound by what is done against or by him. Then, he is in court in their behalf, and they are not necessary parties. But fraud between him and the adverse party may impeach the decree; as, in the case of the trustee of a railway mortgage hold- ing for the benefit of bondholders. In a suit’ brought against a trustee by a stranger, for the purpose of defeating the trust altogether, the beneficiaries are not necessary parties, if the trustee has such powers, or is under such obligations, with respect to the execution of the trust, that “those for whom he holds will be bound by what is done against him, as well as by what is done by him.” In such cases the beneficiaries will be bound by the judgment, ” unless it is impeached for fraud or collusion between him and the adverse party.” The property of a corporation is held in trust for fhes payment of the debts of the corporation, until it has passed into the hands of a bona fide purchaser. Distributed among the stockholders, they hold subject to the trust in favor of creditors. Hence, application to an illegal purpose will be restrained, and restitution compelled. It is for the beneficiary alone to complain of the non-execution of a trust. Ordinary prudence is required of one dealing with trust property. A trustee must prevent the property under his care from being wasted or injured. His first duty is to place the property in a state of security. Since the characters of vendor and purchaser impose different obligations, they cannot be held by the same person. Their union in the Same person would raise a confiict between interest and duty, and, constituted as humanity is, in the majority of cases, duty would be overborne. While there may be cases where an unratified sale, or other contract by a person occupying a fiduciary relation, would be void ab initio, the general doctrine is, not that such contracts are absolutely void, but that they are voidable at the election of the party whose interest has been so represented, he exercising his option to avoid within a reasonable time. What is such time is to be decided upon the circumstances of each case. The acts of trustees when personally interested should be open and fair. Slight circumstances will sometimes be considered sufficient proof of wrong to justify setting aside what has been done; but when everything is honestly done, and the courts are satisfied that the rights of others have not been prejudiced to the advantage of the trustee, the simple fact of Interest is not sufficient to justify withholding confirmation of his acts. The rule is everywhere recognized that a trustee, when investing property in his hands, is bound to act , honestly and faithfully, and to exercise sound discretion, such as men of ordinary prudence and intelligence use in their own affairs. In some jurisdictions, no attempt has been made to establish a more definite rule; in others, the discretion as been confined, by the legislature or the courts, within strict limits. Property once charged with a valid trust will be followed in equity into whosesoever hands it comes, and the holder charged with the execution of the trust, unless he is a purchaser for value without notice. The law exacts the utmost good faith from all parties dealing with a trustee respecting the trust property.Property acquired from him with knowledge of his trust and of his disregard of its obligations, can be followed and recovered. As long as trust property can be traced, the property into which it has been converted remains subject to the trust; and if a man mixes trust funds with his own, the whole will be treated as trust property, except so far as he may be able to distinguish what is his. See Identity, 2. The estate of a trustee is commensurate with the purposes of the trust, and ceases when there are no further duties to be performed. Where the acts or omissions of a trustee show a want of reasonable fidelity, a court will remove him. Thus, where he neglects to invest money, he may be removed as for a breach of trust. See Breach; Charity, 2; Credit; Declaration, 1; Delegatus, Potestas; Desciuptio, Persona; Devise, Executory; Director; Discretion, 2; Equity; Fides; Fiduciary; Government; Lien, Equitable; Ministerial; Power, 2; Rescission; Settle, 3; Shelley’s Case; Stock, 3; Title, 1, Equitable. 2. In its modern, non-technical sense: a combination of interests in property, usually of a personal nature, with the power of directing the use, or of controlling tlie disposal, intrusted to a few men for the benefit of all persons concerned. Or, more at length, the word describes an arrangement between the holders of the majority of the stock of associations incorporated for similar business purposes, by which those holders transfer the power to vote their stock to a selected committee whose policy will be not only to elect but to so animate each board of directors that the action of all the boards will be identical without a contract therefor. The boards may even be chosen from the members of the committee, each member for this purpose being made the owner of one or more shares of stock in all of the corporations. Among the objects sought are: lessening competition; regulating supply or production; lowering the cost of material; reducing expenses; advancing prices or rendering them steady; increasing dividends; and enhancing the value of the shares of stock. The effects may be: monopolization, by centralizing power in a few persons; evasion of laws regulating corporations; and, perhaps, even criminal interference with the law of supply and demand. While, in their organization, “trusts” may vary with the nature of the property involved, the objects in view, and the readiness to confide the use or control of capital, products, or good-will, or their representatives, to agents, the general kinds, as already intimated, are: (1) That in which the use of the stock of similar corporations is given to a few men or to one dominant corporation. (2) That in which the possession of tangible property of any species is committed to others for management or disposal. The first species has been called a ” corporate trust; “‘. the second, which is the simplest in form, as well as the most common, may be called a “commercial trust;” and either may be termed a ” proxy trust.” In order to participate in these schemes, private concerns have been re-organized as associations whose capital was represented by issues of stock; some establishments (manufacturing) have been closed, and others consolidated; or all have been leased or conveyed to the committee for the purposes of a common control; or, perhaps, one establishment, centrally located, has been delegated to receive and to sell the products of the confederated establishments. In other cases the plan has been for the owners of the establishments to convey them to the committee, and each receive, for protection, a mortgage upon his property, and certificates for the value of the good-will. The right to use (by voting or otherwise) another’s shares of stock represents the “legal” interest in them. This right may be parted with by an absolute transfer, a ” declaration of trust ” bemg executed at the same time, or by means of a simple power of attorney or proxy. The “beneficial” or ” equitable ” interest in the shares is retained by their original owner, who receives, in place thereof, one or more ” trust certificates ” for his share in the combined interests,- the trustees having received from the respective corporations new stock-certificates in their own names, and appearing upon the corporate books as the absolute owners of the stock. The committee are not supposed to represent any one corporate body; in eitect, all they need do is to determine the personnel of the boards of directors and to infuse into the minds of the members a common purpose. By securing control of the voting power of one share more than one-half of all of the shares of stock in each corporation, these ends may be accomplished, it is claimed, without any corporation, as such, knowing anything about the object in view, much less withoutits participating in any scheme on foot to shape or to control its action. The stockholders of a corporation do not constitute the legal entity known as the corporation. The principle upon which modern ” trusts ” are organized would seem to have been applied in England nearly lialf a century ago in “cost-book companies,” formed for carrying on mining operations. More recently, a plan, very similar, has been employed in that country for receiving and investing subscribed funds in the securities of different incorporated companies, upon the principle of “average gain and loss ” – a loss of funds upon oi^e investment being made up by profits derived from other investments. What is called a ” car trust,” which is of American extension, if not of American origin, consists in an agreement between the owners of freight cars, chiefly, but perhaps of other rolling stock for railroads, by which such property is placed in the hands of a trustee, possibly a corporation, for the purpose of effecting leases or sales upon the installment plan, the trustee, in cases, issuing certificates for interests in the deferred payments or rentals. The word ” trust,” in the sense under consideration, is said to be applicable to the plan upon which the Standard Oil Company was originally organized, and is at present conducted; that, in point of fact, all modem “trust” combinations find in it their prototype. The following general propositions are deducible, it is believed, from the decisions hereto cited: 1. Mutuality of agreement to become a party to a ” trust ” arrangement may not of itself serve as a sufficient consideration to make the agreement binding. 2. One who has executed a power of attorney for voting his stock may revoke it at any time, and he may have an injunction to prevent voting it. 3. The combination to transfer the voting power, that is to execute proxies, is not necessarily illegal. 4. A dissenting party can have relief against the combination when its object is illegal. 5. Wiiere the engagement has been to do an illegal act; a withdrawing party cannot be made to pay damages as for breach of a contract. 6. Any agreement in general restraint of alienation is not enforcible. In the absence of decisions determining more directly the nature and powers of these organizations, the following more general observations are submitted: A “trust” seems to be like an ordinary partnership-persons endeavoring, through managers, to acconpplish a common purpose. Any species of property which can be assigned at law, may be transferred to another person to be held in trust. A share of stock, which is a chose in action, is personalty. The New York law defining express trusts is limited to realty; this is also probably true of the statutes of California, Connecticut, Dakota, Georgia, Kentucky, Michigan, Minnesota, North Carolina, Pennsylvania, Vermont, Wisconsin, and other States, specifying the objects for which legal trusts may be created. The creation of monopolies is not only not encouraged in any State, but expressly forbidden in Arkansas, Maryland, New Mexico, North Carolina, Tennessee, and Texas. Perpetuities also are forbidden in all the States; and restraints upon the alienation of property are held to be against public policy, as are also agreenients tending toward restraint upon trade, especiallyin the necessaries of life. The minority stockholders in a corporation are bound by the action of the majority as to all matters of legitimate business. If its charter, or general law, does not permit a corporation to enter into a ” trust ” combination, becoming a party to one would doubtless result in the forfeiture of its franchises, and perhaps incur other penalties. The power to manage a corporation by its stock- holders cannot be transferred to a body otheV than its own board of directors; nor can it be bound by an executory contract providing for an exetcise of any of its powers against the interests of its stockholders. Any secret arrangement by which it is practically merged into bther corporations would be illegal. An eminent authority, in discussing the ” legality of trusts,” writes substantially as follows: The word ” trust ” is not descriptive of the subject, but it is difficult to find a substitute. Strictly, the trust itself is a mere instrument – the means to an end. The determinative inquiry is whether the end sought is law- ful at common law, whether the agreement be by individuals acting, or not acting, as stockholders. The object of each stockholder in making the committee the apparent stockholders and in conferring upon them the power of control, is his own ultimate benefit – which is not unlawful. No law prevents each stockholder from selecting the same trustee or trustees. The ” trust deed ” declares the trust- a legal contrivance in daily use between individuals. It is the purpose, if anything, that gives the combination the stamp of illegality. The stockholders of a corporation do not own its property; they have but an ” equitable ” title to it; on the other hand, the rights of the corporation are ” legal ” rights. Owning stock confers a right to vote for managers or directors, to receive dividends, and to hold the directors, that is the corporation, to an account for their management. The unincorporated association through the instrumentality of which the objects of a “trust ” are sought to be attained constitutes a partnership – something is undertaken by several persons for gain; the consideration is the mutual promises. Its validity depends whoUy upon the lawfulness of the ends in view. Parties may agree to prevent competition between themselves, unless the agreement is unlawful in its own nature. At common law it is not wrong to raise prices so as to pay the costs of production and a reasonable profit, nor to regulate them in order to keep them steady; nor is such an agreement a conspiracy “to commit an act injurious to trade or commerce ” (N. Y. Penal Code, sec. 168), since it is not ” injurious ” to keep production on an even line with consumption. The same writer’s conclusions are: (1) At common law forestalling, regrating, and engrossing were not criminal unless they concerned the necessaries of life. The sounder opinion seems to be that they were made crimes by statute 5 and 6 Edw. VI (1552), c. 14, which was repealed by 12 Geo. III (1772), c. 71, and by 7 and 8 Vict. (1844), c. 24. (2) If forestalling was criminal it was only where there was proven a criminal intent to injure trade. Where the purpose was laudable, as, when to keep prices steady, no such intent could be inferred. (3) It is not a nuisance by that law for persons to form an association, issue transferable certificates, and appoint a committee to make rules for governing the association. (4) The old rule that a contract in general restraint of trade is void as between the parties was originally based upon erroneous views of political economy. It has practically disappeared in England and New York, and is likely to be modified elsewhere. (5) If a “trust” is lawful as a reasonable element in production it cannot be made unlawful by legislation of a stigmatizing character. To produce freely as individuals, to act in concert with others, to stimulate production when there is a scarcity of commodities, to regulate and restrain it when there is a ” glut ” – are all prime elements in liberty of trade; and they are also constitutional rights. See Alienatio; Combination, 2; Happiness; Legal, Illegal; Liberty, 1; Monopoly; Perpetuity; Stock, p. 977, c. 2; Trade, p. 1043.

Resources

Notes and References

1. Meaning of Trust provided by the Anderson Dictionary of Law (1889)