Trusts and agency: formula sheet

Key formulas

Definition of a trust

Trust = settlor transfers property → trustee holds legal title → beneficiaries receive the benefit

Use this chain to define a trust in any answer. Name all three parties.

Classification by creation

Express (intended) vs Implied (arises by law): implied = resulting + constructive

Resulting trusts return benefit to the provider. Constructive trusts prevent unjust gain.

Classification by entitlement

Fixed: shares set in advance. Discretionary: trustees choose among a class.

The test is who decides the shares: the trust terms or the trustees.

Three certainties

Valid trust = certainty of intention + certainty of subject matter + certainty of objects

All three must be present. If one is missing, no valid trust arises.

Capacity of the author

Author must be competent to contract and, for a trust of immovable property, also competent to transfer it

Minors and persons of unsound mind cannot create a trust in the usual way. A minor's capacity is restricted, so do not assume a minor can create a trust. Check the exact rule in your study material.

Lawful purpose

Purpose must not be unlawful, fraudulent, or against the law or public policy

An unlawful purpose makes the trust void.

Formalities by property

Immovable property: a signed instrument (signed by the author or the trustee) and registered, or transfer of ownership of the property to the trustee. Movable property: a signed instrument (signed by the author or the trustee), or transfer of ownership of the property to the trustee.

A trust of immovable property cannot be created orally. Transfer of ownership of immovable property is not an informal alternative. It must itself follow the transfer rules, which usually need a registered instrument. For movable property, delivery of the property to the trustee is a way of transferring ownership. A trust created by will follows the rules for wills. Check the exact requirements for the question.

Certainty of intention test

No particular words are needed, but the author's intent to create an obligation must be clear

Words of mere hope or wish are weak evidence of a trust.

Acceptance

Trustee may accept or disclaim the trust

A disclaimer releases only that trustee. The trust continues, and a trust does not fail for want of a trustee. The court can appoint a replacement.

Duty versus power

Duty = must do (breach if not done). Power = may do (breach if misused).

Use this one line to answer any 'difference' question.

Standard of care

Trustee must act as a prudent person would with their own affairs.

A professional or paid trustee may be held to a higher standard.

No-profit and no-conflict rule

Trustee must not profit from the office or put personal interest against the beneficiaries.

Applies even if the trust suffers no loss, unless authorised by the deed or the court.

Delegation rule

Delegate suitable tasks only; select with care; supervise; keep responsibility.

Trustees cannot delegate the core decision-making role.

Liability for breach

Personal liability = restore loss caused + account for any profit made.

Liability is generally joint among trustees who took part in or allowed the breach.

Beneficiary's core rights

Information + Benefit + Enforcement

Group your answer under these three heads. Add the remedies for breach after them.

Remedies for breach of trust

Compensate loss + Account for profit + Tracing + Court orders

Court orders include injunction, removal of trustee and appointment of a new trustee.

Limit on tracing

Tracing fails against a bona fide purchaser for value without notice

This is the main exam exception. State all three conditions: value, good faith, no notice.

Ways a trust ends

Purpose fulfilled or impossible; property gone; revocation allowed; beneficiaries' consent

Say that the trust terms and the Act govern which route applies.

Definition of agent and principal

Agent = person employed to do an act for another or to represent another in dealings with third persons; Principal = the person for whom the act is done or who is represented

This is the Indian Contract Act, 1872 definition in plain words. Learn the idea, not the section wording.

Consideration for agency

Agency creation requires no consideration

Do not confuse this with the agent's right to remuneration, which depends on the contract.

Who may appoint and act

Principal must be of the age of majority and of sound mind; a person who is not may become an agent, but is not responsible to the principal (s.184)

Such an agent cannot be made answerable to the principal for their acts as agent. The Act is silent on whether such an agent can bind the principal to third parties.

Ways of creating agency

Express | Implied | Necessity | Ratification

Use this four-part list as your answer skeleton.

Conditions for agency of necessity

Actual necessity to prevent loss + impossible to communicate with principal in time + acted as a person of ordinary prudence would in own case, for principal's benefit (s.189)

All three must be present. Notice to the principal is not a condition in s.189. If you mention it, attribute it to the common law.

Conditions for valid ratification

Act done on behalf of the principal + principal existed and was competent at the time (usual rule) + knowledge of facts not materially defective (s.198) + whole transaction ratified (s.199) + no injury to third party

Ratification relates back to the date of the act. Ratifying any part of a transaction is ratifying the whole of it.

Types by scope of authority (common-law classification)

Special (one act) → General (all acts in a business) → Universal (all lawful acts)

This is a textbook classification, not defined in the Act. The order shows widening scope.

Core fiduciary duties

Loyalty + good faith + no secret profit + no conflict between duty and interest

Use as a checklist. A breach of any one can make the fiduciary liable to account for profit or compensate loss.

Trustee vs agent contrast

Trustee: holds property for beneficiaries, wide discretion, impartiality. Agent: acts for principal on instructions, can bind principal.

Both owe loyalty and must not make secret profits. The source of the duty differs.

Conflict response ladder

Identify → avoid → disclose → consent → manage → decline

Work down it. If the conflict cannot be managed, decline or withdraw.

Actuary as advisor

Duty = contract terms + duty of care + professional code

Say that fiduciary-type duties may apply depending on the role and facts.

Quick revision

• A trust separates control of property (trustee) from benefit (beneficiary).
• The main parties are the settlor, the trustee and the beneficiary.
• A valid trust needs a clear intention, identifiable property and identifiable beneficiaries, along with a lawful purpose.
• Trustees must act in the interests of beneficiaries and not in their own.
• Trustees must not profit from the trust unless it is properly permitted.
• Beneficiaries can seek remedies if a trustee breaches a duty, including compensation for loss.
• An agent acts for a principal and can bind the principal within authority.
• Agent authority may be express, implied or apparent.
• A principal can be bound by acts the agent was not actually authorised to do if the principal led others to believe the agent had authority.
• An agent must act in good faith, avoid conflicts and not make secret profits.
• Both trustees and agents are fiduciaries.
• An actuary facing a conflict of interest should disclose it and manage it or decline the work.

Common mistakes

• Confusing the settlor with the trustee. Fix: Settlor creates and funds the trust. Trustee holds and manages it. Judge by function, not by person.
• Treating resulting and constructive trusts as the same. Fix: Resulting: benefit goes back to the provider. Constructive: imposed to stop someone keeping an unfair gain.
• Treating a wish or hope as a trust Fix: Look for a clear intention to bind the property. Words of mere hope are not enough.
• Saying a trust fails because no trustee is named Fix: Remember that a trust does not fail for want of a trustee. The court can appoint one.
• Treating powers as duties, or the reverse. Fix: Ask whether the trustee has a choice. If yes, it is a power. Even then the power must be used properly.
• Saying a trustee is not liable because there was no loss. Fix: A breach of the no-profit or no-conflict rule can make the trustee account for the profit even when the trust lost nothing.
• Saying a beneficiary owns the trust property legally. Fix: Write that the trustee holds legal title and the beneficiary holds the benefit. The beneficiary's rights are enforced against the trustee.
• Saying tracing always works. Fix: Always add that tracing fails against a bona fide purchaser for value without notice of the trust.
• Saying consideration is needed to create an agency. Fix: Remember that agency is an exception. No consideration is needed to create it.
• Treating necessity as available whenever it is convenient. Fix: Check all three s.189 conditions: actual necessity to prevent loss, impossibility of communicating with the principal in time, and action a person of ordinary prudence would take in their own case, for the principal's benefit. Missing any one defeats it.

Exam tips

• Always name all three parties and their roles before classifying. It earns easy marks.
• In scenarios, quote the fact that points to the type, such as secret profit for constructive or deliberate declaration for express.
• Keep resulting and constructive apart in one line each. Examiners test this pair often.
• For written answers, link to the trustee's fiduciary position. It connects this topic to the duties of trustees and actuaries.
• Write the three certainties by name every time. Examiners award marks for naming each test and applying it.
• In a scenario, find the one test that fails. The facts are usually built to break exactly one.
• State the movable or immovable classification before discussing formalities. It earns an easy mark.
• Do not quote a section number unless you are sure of it. Describe the rule in plain words instead.