Distinguishing Between the Trust Concept and Other Legal Concepts
Introduction
Human interaction is inevitable in every sane society that quests prosperity and peace. As such, certain relationships occur among people based on their formation and the purposes they intend to achieve with the relationship. The concept of trust under equitable doctrine is one out of the pool of ocean in these relationships.
Therefore, its relevance and nature cannot be exempted from humans. This is why it is mandatory that the concept is well understood in the legal parlance. Not only that, but also its importance as well as its distinction from other legal relationships. This article, following the introduction, shall discuss the meaning of trust according to reliable authorities. Its subsequent sections shall dwell on distinguishing between the concept of trust from other legal relationships.
Trust and other Legal Concepts
Trust and Contract
In simpler terms, a contract is an agreement between two parties which the law recognises as binding and enforceable on the parties. The trust concept also represents an agreement between the settlor and trustee, to keep the trust property for the use of the beneficiaries. The subsequent sections discuss their differences.
The maxim “pacta sunt servanda” is sacrosanct to the principle of contract which means that agreement of both parties must be observed. In contractual agreement, these parties are two and a third party is not expected to benefit or take responsibility for the contractual terms. Only parties to a contract can sue on it and this is known as the privity of contract1.
However, the concept of trust may constitute an exception to this principle of privity of contract. The concept of trust involves three parties namely, the settlor, the trustee and the beneficiary. Although the beneficiary was not part of the parties to the agreement, the trust could be created for his benefits by the trustee. This implies that the third party; beneficiary is now privy to the contract. It also connotes that if the trustee refuses to enforce the contract, the beneficiary may sue him.
While the concept of trust stemmed from the doctrine of Equity, that of contract has its source from the Principle of Common Law. Therefore, trust deduced most of its rules and applications from equitable maxims and doctrines. This is not to jettison the principle of Common Law, but to reiterate the fact that equity came to right the wrongs of common law, and equity will not intervene until common law fails to grant justice to deserving parties. This is exemplified in the equitable maxim; Equity follows the law.
In contract, consideration is an integral element that must be fulfilled. A contract without consideration is not enforceable except it is w contract under seal. In the case of Currie v Misa, the court held that “A valuable consideration, in the sense of the law, may consist either of some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss or responsibility, given, suffered or undertaken by the other.” 2
The case basically asserted the “benefit gained and detriment suffered” principle in consideration and this case precedent remains extremely important in the law of contract to this day.
However, consideration is not an essential element of the trust concept. The three requirements that must be met in trust especially for express private trust are certainty of intention, certainty of subject matter and certainty of objects. This implies that the trust concept comprises formalities and other essential elements that govern its validity, however, consideration is not part of the elements that must be furnished among the parties. The founder has the right to nominate the trustees. Although it is essential that the trustees so appointed be an absolutely dependable person of honesty and integrity.
Trust and Agency
Another legal concept that shares a relationship with the trust concept is agency. An agency is a relationship which occurs between one person called the principal and another called the agent by which the latter is by law invested with legal authority to alter the relationship of the former with third parties. The case of Mikano International Ltd v Ehumadu also contributed to the meaning of agency. 3
The two concepts resemble each other in the sense that both the trustee and the agent are subject to the fiduciary obligation towards the beneficiary and the principal respectively. They must act in good faith and not exploit the principal or beneficiary as the case may be. The principle of duty of care is also inherent in both concepts as they are accountable to the principal or the beneficiary.
The general rule of delegatus non potest delegare which means that delegated power must not be delegated is also instrumental in both concepts. This implies that neither the agent nor the trustee is expected to delegate his roles that have been bestowed upon him by the settlor or the principal.
Regardless of the attributes they share in common, there are also some differences-
In an agency relationship, the principal retains both legal and beneficial ownership of property. A trustee must have legal title to property. Here, the trustee has the legal title in the property in question while the beneficiary has the equitable interest. This is not the case in agency relationships.
An agent is subject to the direction of the principal while the trustee is not subject to the direction of neither the principal nor the beneficiary. Although there are certain formalities and rules that govern trust relationships, however, the trustee is not bound stricto senso to follow the directions of the settlor.
In addition, agency is governed by common law principles while trust originated from the court of chancery, that is, its principles are based on equitable doctrines.
An agency relationship normally ends upon the death of either party. A trust is not terminated by death as there are different classifications of trust such as trusts mortis causa which means a trust that is created through a will.
Trust and Power
A power is an authority vested in a person to deal with or dispose of property which is not his own.
It is pertinent to note that there are marginal cases where the distinction between trust and Power is tiny. There are certain types of trust which closely resemble that of power and are difficult to distinguish. This includes Trust powers and Discretionary Trusts.
Discretionary Trust is one in which the trustees hold the property on trust for a group of beneficiaries and are required by the terms of the trust to pay or apply the income or capital in favour of such of the beneficiaries as the trustees shall in their discretion think fit. This is inherent under Public Trust which is also known as Charitable Trust. The trustee will be left to exercise the trust in line with his discretion. This is also related to power as power is also discretionary.
However, notwithstanding the above similarities, there are a number of attributes that differentiate trust from power.
The object of a trust must be certain for it to be validly recognised and executed. Where the object is not certain, the trust will fail. However in power, certainty of object is not an essential requirement for the validity of a power.
A trust imposes an imperative obligation on the trustee. This means that the trustee must carry out the wishes of the settlor. The trustee has no choice whether or not to act. If the trustee cannot act or refuses to act, the court can replace the trustee or step in and carry out the wishes of the trustee itself. Meanwhile, a power of appointment is fundamentally different because the donee of a power has a discretion whether to act or not. No action can be brought if the power of appointment is not exercised, whereas the beneficiaries of a trust can bring an action whenever a trustee fails to act.
While the concept of power may be legal, the concept of trust is necessarily an equitable doctrine.
Trust and Bailment
LexisNexis simply defines bailment as the legal relationship whereby one person, the bailee, is voluntarily and knowingly in possession of goods belonging to another person, the bailor. In terms of similarities, trust and bailment are both legal arrangements that involve the division of property and ownership.
Duty of care arises in both concepts as it is important for the bailee to exercise a certain degree of care to protect the property of the bailor, so it is maximally required that the trustee exercises a duty of care on the property entrusted in his care.
Both parties; the bailee and the trustees control properties that are not essentially their own.
There are other features that distinguish them from another. Bailment is recognized at common law while trust is recognized under the court of chancery (doctrine of Equity).
The bailee has a special form of property in the thing bailed and may be able to use and
exploit the property. He retains the ultimate property right against the world and the general property remains in the bailor. The trustees, on the other hand, retain the general property for the benefit of the beneficiary.
Trust and Administration of Estate
It is necessary to mention that a person can be both Personal Representative and Trustee where a will establishes a trust and appoints the same persons to be both executors and trustees. As a general rule, the provisions of the Trustees Act 1893 and Trustee Law apply to both Trust and Administration of Estate. However, certain differences are present.
In terms of objectives, the primary function of the personal representative is to distribute estate while that of the trustees is to hold it. The personal representatives wind up the estate of the deceased, pay all debts and distribute the assets to those entitled to them. The trustees, however, are usually intended to hold the trust property and administer it in accordance with the trusts which are binding on them.
Section 11 of the trustee Act that relates to appointment and retirement of trustees cannot apply to personal representatives. Personal Representatives can be appointed only by will or by the court. This was illustrated in the landmark case of Adeniji V Probate Registrar Western Nigeria.
The limitation period to institute an action by a beneficiary to recover trust is barred by six years while the period in respect of claims to the personal estate of s deceased person is twelve years. It is important to note that where there is fraud however, there is no limitation.
Conclusion
The fact that the trust concept shares close relationships with other legal concepts cannot be overemphasized. These legal concepts include but are not restricted to contract, agency, bailment, power, administration of estate among others. The essence of the distinction is not only for academic purposes. It is also crucial in order to identify their areas of convergence and also the areas of divergence for the purpose of the right application of law in practice.
References
A Taiwo, O Akintola, “Introduction to Equity and Trusts in Nigeria” Princeton & Associates Publishing Co. Ltd, First Published: July 2016
The Legal Secretary Journal, “The Importance of Currie v Misa in Contract Law” Accessed November 18, 2024, Retrieved here
Weilers LLP, “TRUST VS AGENCY” Written by Brian Babcock, Published October 16, 2020 4:39 pm, Accessed November 18, 2024, Retrieved here
Cambridge University Press, “The Classification of Trusts and Powers” Written by Judith Bray, Accessed November 19, 2024, Retrieved here
LexisNexis, Bailment definition, Published by LexisNexis Commercial expert, Accessed November 19, 2024, Retrieved here
Isochukwu Ltd, EQUITY AND TRUSTS 2.1 GENERAL INTRODUCTION, Accessed November 18 and 19, 2024, Retrieved from here
1 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd. [1915] AC 847
2 Currie v. Misa (1875) LR 10 Ex 153
3 … Mikano International Limited V. Ehumadu (2013) ALL FWLR (Pt 667) Pg. 658 at 699 paragraphs G-H
About Author
Waleeyah Olalekan is a young resilient lady who perpetually craves to pursue beneficial knowledge purely for personal growth and community development. She is a 400-level student at the University of Ibadan where she studies law. Her areas of interest cut across ADR, Energy and Environmental Law, IPL, Business Law, and Islamic Law.
