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Report No. 66

8.15. Question of trust considered.-

If the assignment is in the form of a trust, it would be necessary to comply also with sections 5 and 6 of the Indian Trusts Act, 1882. It is not necessary to set out in detail the formalities required by these provisions. The question of creation of a trust, however, requires some discussion. In its essence, an insurance policy represents the benefit of a contract.1 Now, a trust can certainly be created in respect of the benefit of a contract. The position in this respect is briefly as under:-

First of all, it may be useful to see what is the principle which is involved in a claim by a wife that her husband is a trustee foe her, and this has been well expressed by Sir George Jossel, M.R. in Richards v. Delbridge, LR 18 Eq 11. as follows:-

"The principle is a very simple one. A man may transfer his property without valuable consideration, in one of two ways: he may either do such acts as amount in law to a conveyance or assignment of the property, and thus completely divest himself of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on trust, as the case may be; or the legal owner of the property may by one or other of the modes recognised as amounting to a valid declaration of trust, constitute himself a trustee, and, without an actual transfer of the legal title, may so deal with the property as to deprive himself of its beneficial ownership, and declare that he will, hold it from that time forward on trust for the other person. It is true he need not use the words, "I declare myself a trustee," but he must do something which is equivalent to it, and use expressions which have that meaning: for, however anxious the court may be to carry out a man's intention. It is not at liberty to construe words otherwise than according to their proper meanings."

The position may be thus elaborated:

(a) A person entitled to the benefit of a contract may create a trust of that benefit for third parties2, either by declaring himself a trustee of it or by assigning it to trustees for them.

(b) In addition, a person may initially contract as trustee for a third party, so that in equity the third party is entitled to the benefit of the contract ab initio.

If the contract is not preferred, the trustee can take proceedings in his own name3 to enforce it for the benefit of the third party, and if the trustee refuses to do so, the third party can sue, joining the trustee as a defendant4.

1. See para. 8.12, supra.

2. Corbin Contracts for the benefit of third persons, (1930) 46 LQR 12 and J.G. Starke, (1948) 21 Aust LJ 382, 422, 455: 22 Aust p 67; and Samuel Williston Contracts for the benefit etc., (1901) 15 Harvard Law Review 767.

3. (a) Gregery and Parker v. Williams, (1817) 3 Mor 582; (b)Lloyd's v. Harper, (1880) 16 Ch D 290; (c) Les Affreteurs Reunis Societe Anonyme v. Leepold Watford (London) Ltd., 1919 AC 801.

4. (a) Vandepitte v. Preferred Accident Insurance Corporation of New York, 1933 AC 70 (79). (b) Harmer v. Armstrong, 1934 Ch 65.



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