Creation of trusts (express trusts) (Chapter II)

Trusts arising under sections 83 to 96 of the Trust Ordinance (Chapter IX)

Resulting trusts
Constructive trusts

Elements in the creation of a trust

1. Capacity of the parties
2. Certainty
3. Rule against perpetuities
4. Lawful purpose
5. Formalities

Capacity

Capacity of the S. 7(a): competent to contract

settlor Salahudeen v. Commissioner of Stamps (1954) / Wijewardhana v
Nainapulle
A company/ State can create a trust

S. 7(b): on behalf of or by a minor, with court’s permission

Thambiraja v. Maheswari– The contractual capacity of a married

woman subject to the customary laws may be determined by that
law.

Capacity of the S. 10(1): anyone capable of holding property (not defined)

trustee Anyone competent to contract- if the trust involves
exercise of discretion

Baptist Missionary Society Corporation v. Jayawardene – in SL no

restrictions on the property which a corporation can hold.

Vajirawansa v. Abraham – the rights of management and control

of a charitable trust were vested in the society.

S. 10(2): noone is bound to accept a trust

S. 10(3): words/ acts with reasonable certainty—> acceptance of
trust
S. 10(4): disclaiming the trust within a reasonable period of time
Capacity of the S. 9(1): anyone capable of holding property
beneficiary S. 9(2): beneficiary can renounce his interest (then the trust is
in favor of the settlor) → enabling provision
● Directly- expressed
● Indirectly- act inconsistent with the trust

S.110 implication: an unborn person may be a beneficiary → his

interest vests within the perpetuity period stated therein.

Salahudeen v. Commissioner of Stamps: a trust for the benefit of

a company to be found in the future is valid

Certainties

3 certainties Knight v Knight

1. Certainty of words
2. Certainty of subject matter
3. Certainty of objects

S. 6: subjected to s. 5 and s.107, indication with certainty by

words or acts;
(a) Intention to create a trust
(b) Purpose → not wide, as 6(3) read with 3(e) → only for the
benefit of persons, not for a purpose
(c) Beneficiary (not mentioned in Knight)
(d) Trust property
*acts: s.5(1)- acts are not adequate, writing required for a trust
of immovable property, s.5(2), s.5(3) → acts are adequate
(transfer of the ownership by delivery)

Intention to create ● Intention gathered from a written document —>

a trust paramount
S. 6(a) ● Intention must be stated in the operative part of the
notarial document
Precatory words
● Lambe v Eames (1871) Not so easily being construed as
imposing trusts—> new trend
● Illustration (a) of s. 6: ‘fullest confidence’—> represent
older trends
Cooray: courts are not bound to follow this illustration
● Visaladchypillai v. Sivapakkiammal:
○ ‘absolutely forever’ + s..3 ‘obligation annexed to the
 ownership of property’ —> created a trust
● Arumugam Pillai v. Velupillai, Murugesu v. Chellaiah —>
stricter rule

Beneficiary/ (i) who may be the beneficiary

purpose ● S. 6(c) read with s. 3(e) —> only a person
S. 6(b) ● A purpose trust, if charitable —> valid
Anthony Gasper v The Bishop of Jaffna
Trust could arise for the benefit of a community
(ii) certainty to identify beneficiary
(iii) whether the interests taken by each of several
beneficiaries are indicated with certainty

Trust property illustartion (d) of s. 6: ‘bulk of his property’ —> based on Palmer
v. Simmonds (1854)
K v. Godamune: trust of a mortgage
Maraliya v Gunasekara: trust of a chose in action

S. 8: must be a property transferable to the beneficiary

Absence of Fernando v Sivasubramaniyam

certainties Property is certain, no clear intention —> transferee keeps the
property beneficially

Charitable trust —> beneficiary/ beneficial interests are

uncertain —> Resulting trust under s. 85

Rule against perpetuities

English law rules 1. The rule against remoteness of vesting

2. The rule against indefinite duration
3. The rule against accumulations

s. 110 (1) The trust must benefit individuals who are alive and possibly
underage at the time the trust is created, but the benefits
cannot be delayed beyond their lifetimes and the specified period
of minority.

Charitable trust s. 110 (5): Charitable trusts are exempted

Wijewardhana Charitable Trust v. Commissioner of Income Tax
Commissioner of Income Tax v. the trustees of the Abdul Gafoor
Trust
 EL: Charitable trusts are subjected to RaP with one exception

Resulting trust both in EL and SL

S. 85: where there is the Rule Against Perpetuities, there is a
trust

Trusts for unlawful purpose

Unlawful purpose S. 4(1): a trust is lawful unless it;

(a) forbidden by law
(b) Defeats provision of any law
(c) Fraudulent
(d) Involve/ impose injury to another person/ property
(e) Court regards to be immoral

S. 4(2): trust made for an unlawful purpose is void. Trust made

for a lawful and unlawful purpose which cannot be separated —>
whole trust is void

Mohamadu v. Ibrahim
● A has conveyed property to B with no consideration, so it
cannot be seized by A’ creditors
● Court enforced resulting trust for creditors as no defraud
has not yet happened
● ‘Noone should be enriched at the expense of another’
Suramma v. Lebbe
● Same facts, except A settled her debts later
● A was less blameworthy
● Distinguished from Mohamdu case

Formalities in Execution of the Trust

Trust of movable S. 5(1): apart from s.107 charitable trusts, trust of an

and immovable immovable property should be notarially executed
property
S. 5(2): last will/ non-testamentary instrument/ delivery to the
trustee

exceptions s. 5(3): where they operate to effectuate a fraud and creation

of Charitable trust under s. 107,
5. Implied trusts

Trusts arising under sections 83 to 96 of the Trust Ordinance

(Chapter IX)
5.1 Resulting trusts
5.2 Constructive trusts

Implied trust ● not expressly created by a settor

● Created by the parties quite informally and flexibly
● Arises by operation of law
● Two types
a. Resulting trust
b. Constructive trust

Resulting trust

equitable interest jumps back to the settlor

[Settlor = beneficiary]
1. Automatic resulting trusts
2. Presumed resulting trusts

Automatic ● Failure to identify the beneficiary of the express trust-

resulting trust Vandervell v IRC (1974)
● Failure to dispose the entire beneficial interest
● Trust fails [uncertainty of subject matter]- Boyce v. Boyce
(1849)
● Failure of a specific purpose- Re Ames’s Settlement (1946)

Presumed ● Property purchased by A in the name of B —> A is the beneficial

resulting owner
trusts ● Subjected to —> presumption of advancement, rebutting the
presumed resulting trust by proving it was a gift/ transfer

Abrahams v Trustee in Bankruptcy of Abrahams (1999)

Lottery ticket purchased in the name of another —> trust for
purchaser

Chettiar v Chettiar (1962)

Transferor unable to rebut the presumption of advancement —> trust
 on the other

Hodgson v Marks (1971), Vinogradoff Re (1935)

Voluntary transaction of property —> presumed resulting trust

Constructive trust
Westdeutsche Landesbank (1996)
“Constructive trust is a trust which the law imposes on trustee by reason of his
unconscionable conduct”
1. Remedial constructive trusts
2. Institutional constructive trusts

Remedial as an equitable remedy awarded in the discretion of the court

constructive ● To prevent defendant’s unjust enrichment
trusts ● Exists from the date of court order
● Doesn’t affect 3rd party rights acquired before the order

Institutional arises from the operation of established legal rules when specific
constructive events occur
trusts ● Recognizes claimant's pre-existing property rights
● Doesn’t affect 3rd party rights acquired even after the events
that give rise to claimant's property right

Key Attorney General for Hong Kong v Reid [1994]

judgements -Bribe accepted by a fiduciary
-The receipt of a bribe leads to a constructive trust (i.e., a proprietary
remedy).

FHR European Ventures LLP v Cedar Capital Partners LLC [2014]

- Bribe by a fiduciary
- Agent acquires the benefit of a secret commission/bribe for the
principal.

Lister & Co v Stubbs [1890]

- Bribe accepted by a fiduciary
- A fiduciary who accepts a bribe is liable to account for the amount of
the bribe

Barlow Clowes International Ltd v Euro trust International [2006]

Twinsectra Ltd v Yardley [2002]
- Dishonest assistance in a breach of trust
- D is liable if by ordinary standards his actions were dishonest.
 Boardman v Phipps [1967]
- Unauthorized profit made by a fiduciary
- Fiduciary who uses confidential information belonging to the trust is
liable for any profit he makes.

IDC v Cooley [1972]

- Unauthorized profit made by a fiduciary
- Party must not take advantage of an opportunity/information which
he receives in his fiduciary position.

Keech v Sandford [1726]

- Unauthorized profit made by a fiduciary
- Trustee who renews a lease in his favor holds it on constructive trust
for the beneficiary

BCCI v Akindele [2008]

- Recipient liability
- Recipient’s state of knowledge is such as to make it unconscionable
for him to retain the benefit of the receipt.

Chapter 9 of S. 82: an obligation in the nature of a trust arises;

the Trusts S. 83: where it does not appear the transferor intended to
Ordinance dispose off beneficial interest
S. 84: Transfer to the one person for consideration paid by
[Obligations in another person
the nature of S. 85: Trust incapable of execution without exhausting Trust
trusts] property
S. 86: transfer for illegal purpose, such purpose is not carried
out, and transferor is not as guilty as transferee
S. 87: Bequest for illegal purpose
S. 88: transfer in accordance to revocable contract
S. 89: debtor becoming creditor’s legal representative
S. 90: advantage gained by fiduciary
S. 91: advantage gained by exercise of undue influence
S. 92: advantage gained by qualified owner
S. 93: property acquired with notice of existing contract
S. 94: purchase by person contracting to buy property to be
held on trust
S. 95: advantage secretly gained by one of several
compounding creditors
 S. 96: in cases not expressly provided for
S. 97: obligator’s duties, liabilities and disabilities
S. 98: saving right of bona fide purchasers

S. 83 where it does not appear the transferor intended to dispose off

Cooray beneficial interest —> property for the benefit of the owner/ legal
suggests —> representative
amending s.83
by adding ‘...or
other person Thevanapillai v Sinnapillai
intend to be - Father (A) wished to convey land to son (C) but conveyed it to
benefitted’ mother (B) as C was in debt.
- Oral agreement to convey the property to C when he settled
debts
- Not a constructive trust in the form of s. 83, but express trust
under s. 5(3)

Sinna Lebbe v Pathumma [1921]

- A convey property to for joint names of A and B
- Does not suggest A intended to dispose his beneficial interest
during the lifetime
- B must hold property for the benefit of A during A’s lifetime
- A trust under s.83 being created

Goonawardena v Goonawardena
- father intended to convey a land with mills to one of his sons (C)
after he quit his job
- C did so, but father died before conveyance
- Property was bequeathed to mother
- Other brother (B) suggested mother, on behalf of both
brothers, to transfer the property for joint names of B and C
- B promised he would make no claim to the mills, and reconvay
them to C
- C argued that B holds that particular property on trust for him
- Bertram CJ: C had an equitable right based on a trust.
- S.83 was not referred to

Premawathi v Gnanawathi [1904]

- P has notarially conveyed land to D for an emergency
- Stated purchase price —> lower than the value
- D has promised to reconvey once P repays the sum within 6
 months
- P was unable to pay within 6 months
- Court found that P didn’t intend to dispose off beneficial
interest of the property
- A trust under s.83 being created
Property agreements subjected to reconveyance —> how to decide
whether the transferor did/not intended to dispose of beneficial
interest?
a. Whether the consideration paid was adequate
b. Whether the transferor remained in possession
c. Purpose for the transfer

Parol agreement to reconvey amounts to trust

Carthelis v. Perera
- Land was transferred as security for debt —> subjected to
reconveyance on the repayment
- Created a trust
Muttammah v. Thiyagaraja
- father conveyed land to son
- Son transferred it back to father for him to get a loan, father
was unable to retransfer
- Father’s legal representative refused to reconvey it to son
- S. 83 constructive trust being formed

Exception
Fernando v Fernando
- notarial conveyance of land (value —> Rs 2000) by a man
‘seriously ill’
- Parole agreement to reconvey if the transferor recovered
- Purchase price —> Rs 600 (not paid back by transferor)
- Transferor remained in possession
- Not a trust —> transferee absolutely entitled
Perera v. Scholastica
- See s. 84

s. 84 Transfer to the one person for consideration paid by another person

—> for the benefit of the person providing consideration
Marikkar v Lebbe [1950]
- A was B’s trustee
- A purchased property from B’s money and B’s consent
 - B has provided consideration
- A is holding a constructed trust for the benefit of B
Bastian v Benedict
- B purchases property for his own name, using A’s money he had
in his possession
- No consent from A
- A becomes the person who paid or provided the consideration
and such a situation is subject to section 84.
- B hold property for the benefit of A
Mendis v Parameswari
Swaminathan v Vander Poorten
- B intended to purahes property for Rs 275,000
- B —> own money —> Rs 65,000
- A —> lended B —> 210,000
- Conveyance was taken in A’s name as a security for repayment
of loan
- There was a trust for the benefit of B
- Trust ordinance was not referred to

S. 83, 84 —> intention of the parties at the times of the transfer/

purchase is the most important

Presumption of advancement
if a person transfers money or property to their spouse or child,
this is considered to be a gift in the absence of any evidence to
the contrary
Fernando v Fernando [1918] pre Ordinance case
- The doctrine of advancement has been part of the law of Ceylon
Muttalibu v Hameed [1950]
- presumption of advancement was followed as it is an EL
principle, without referring to s.83/84
Rebutted
Fernando v Fernando
- Father brought a sweep ticket in the name of his son
- Won the 1st prize
- Presumption of advancement was rebutted as the court thought
the poor father has not intended of making a gift of that
nature
Perera v. Scholastica —> presumption of advancement (rebutted)
- Two brothers were held in the position of loco parentis of their
sister
 - They have deposited money in the name of sister
- Its beneficial inerest was given to the sister under the codition
she marrys according to brothers’ wishes
- but she did not
- Court held that the beneficial interest has not been intened to
transfer unconditionally —> held by brothers
- Was not a gift of nature of s.84
- constructive trust for the benefit of brothers under s. 83
-
Bernedette Valangenberg v Hapuarachchige Anthony [1990]
- Trusts under presumption of advancement for mistresses are
not recognized in SL.
- Constructive trust under s.83
Lawson v Coombes [1999] EL
- Property transfer on the name of the mistress was considered
to come under presumption of advancement

s. 85 Trust incapable of execution without exhausting Trust property —> for

the benefit of the author/ his legal representatives

s. 86 transfer for illegal purpose, such purpose is not carried out, and
transferor is not as guilty as transferee —> transferee must hold the
property for the benefit of transferor

s. 87 Bequest for illegal purpose —> legatee must hold the property for the
benefit of testator’s legal representative

s. 88 transfer in accordance to revocable contract —> transferee hold the

property for the benefit of the transferor —> subjected to
compensation/ other relief the transferee may be entitled to

Jonga v Nanduwa (1944)

- Property transferred with notarial execution, but not duly
signed
- Because of this sort coming, the vendee under the agreement
was unable to sell the property for 8 years
- This case was considered under s. 88 and s. 96
Punchi hamine v Ukku Menike [1926]
- P gifted the same property to her son X, one revocable (1883)
and one irrevocable (1884)
- The irrevocable party was then only known to P and X
 - After X’s death, in 1913 P revoked the gift and donated it to A
- A & P sued to evict X’s family, Y (daughter-in-law) and Z
(grandson)
- Y and Z entered into a compromise in the court
- in 1924 Z discovers the irrevocable gift done in 1884
- Sues A to set aside the deed of 1913
- A has not been aware of the irrevocable deed and argued that
he was been not a party to fraud
- Z’s claim succeeded under s.88 of Trust ordinance
Jayawardhana AJ; the language of this section is wide
- court decree in 1913 can be regarded as the ‘rescindable
contract’
- A was not responsible for the fraud but the deed in 1913 must
fail in view of fraud of P
- P and A (as a volunteer) must hold the property for the persons
defrauded

s. 89 debtor becoming creditor’s legal representative —> must hold the debt
for the benefit of the persons interested therein
● Purpose. —> to avoid imperfect release of the debt by the
debtor

s. 90 exploiting the position —> advantage gained by fiduciary —> must hold
their advantages for the benefit of the persons they are supposed to
safeguard
Fiduciary relationships;
Trustee - beneficiary / Guardian - ward / Executor - heir /
Directors - shareholders / Attorneys - clients / Business
partners
Abeysundara v Ceylon Exports
- EL —> Father was a fiduciary position
- But s. 90 was not cited
- Pecuniary advantage: an advantage which can be valued in
terms of money
- Conversion of village title to crown title —> peniculary
advantage
Amunugama v Herath
- Administrator was in a fiduciary position
- But not has gained a peniculary advantage
Perera v Tissera
- The contract was entered into by a family arrangement
- Argument was that the law presenting the fiduciary gaining
 advantage should not apply —> rejected
Kandiah v Kandasamy
- A partner is not in a fiduciary relationship —> ignorance of the
section itself
See 139 pg in saviya

s. 91 advantage gained by exercise of undue influence —> must hold for the
advantage for the benefit of the persons whose interests has been
prejudiced
● S. 91 is an extension of s.90
● Purchases at undervalue/ excessive prices
● Gifts/ bequests
● Existence of a fiduciary relationship —> presumption —> undue
influence
● Other situations —> person who alleging undue influence must
prove it
Peiris v Peiris [1906]
Ford v Weerasuriya
Without resorting to To, Using EL principles —> Briget v Weerasekara
[1953], Abdul Cadar v Sittinisa [1951]

s. 92 advantage gained by qualified owner —> must hold for the benefit of
all involved parties —> those parties are subjected to pay a fair share
of costs/ protect others from any expenses or risks incurred gaining
that advantage
‘Qualified owners’
Co owner / mortgagee / other person with qualified interest
● This section is not resorted to so often

s. 93 property acquired by X with notice of Y’s existing contract affecting

the property (where specific performance could be enforced) —> X
must hold the property for the benefit of Y —> long as to give effect
to the contract
If the property is immovable —> contract should be duly registered
● ‘Existing contract’ —> determined according to RDL
● ‘Notice’ is defined in s.3(j)

Abdeen v Thaheer
- RDL governs actions for specific performance
Thideris v Eliza [1948]
Silva v Salo [1930]
- Argument —> registration does not amount to notice —>
 rejected
- Registration is necessary only where immovable property is
involved
Hall v the Palmadulla Valley Tea ad Rubber Company [1927]
- Immovable property —> Contract should be registered in order
to give rise to a trust under s. 93
Sumangala Thero v the Caledonian Tea Estate Co
- Lease was entered into by A and B with 2 options (both options
wren’t registered)
(i) to renew the lease (no need of registration)
(ii) to purchase the property (need of registration)
- property owner sold the property C —> C having notice of
previous option contract —> bound by the (i) only

s. 94 If someone contracts to buy a property and hold it for the benefit of

certain people —> must manage the property for the benefit of
beneficiaries, as long as it follows the contract

● Purpose fof the section is not clear

● May be based on the EL maxim —> what ought to be done shall
be done
Fernando v Rosamaria [1926]

s. 95 one of joint creditors gaining an unfair advantage by a secret

arrangement (with a debtor) —> he must hold the advantage for the
benefit of other co-creditors
● This section is hardly been resorted to
● Better substitution —> insolvents ordinance

s. 96 no a trust coming under previous sections —> person having the

possession of a property and not having full beneficial interest —>
Residuary must hold it for the benefit of other beneficial owners —> to extent
section that meet their reasonable needs
De Silva v Margeret Nona
Seelachchy v Visuvanatham
- S. 96 is a residuary provision without any limitation
Jonga v Nanduwa (1944)

s. 97 section 9 —> Anyone holding property for a beneficiary —> must

perform his duties as a Trustee for the benefit of the beneficiary
Subjected to;
Fair compensation for any cultivation, trade, business and loss
 of time with regards to the trust property
Specific contractual agreements (if any)

s. 98 nothing in Chapter 9 will impair rights of purchasers of property —>

bona fide ~ good faith & valuable consideration