pg. 86: V. TRUST AND BAILMENT Bailment is a relationship at COMMON LAW, originating usually in contract, between two PEOPLE; it arises out of the fact that the BAILOR, who RETAINS ownership, passes posession of HIS chattel to the BAILEE. Trust is a two-party relationship OR three-party relationship, according to which aspect of the trust is being considered. The settlor TRANSFERS TITLE (popularly called ownership) to the trustee who HOLDS that title for the benefit of the BENEFICIARY. A beneficiary suing for breach-of-trust sues the trustee; a trustee, who has a binding contract with the settlor that the latter will CONVEY PROPERTY TO THE TRUSTEE, sues the SETTLOR upon breach. Once the trust has been set-up, the settlors part in the trust is OVER. Thereafter there is a relationship between trustee and beneficiary. To be compared with it is the relationship between BAILOR and BAILEE. While property of ANY kind may be the subject-matter of a trust, ONLY personal property can be BAILED, which in this context means CHATTELS capable of POSSESSION. Bailment is a comprehensive term used by common lawyers to mean TRANSFER OF POSSESSION, and it covers the Roman law transmissions of possession OR detention contained in the contracts of depositum (DEPOSIT), commodatum (LOAN FOR USE), locatio et conductio (HIRE), and pignus (PLEDGE). It therefore includes the transfer of POSSESSION for the purposes of CARRIAGE of the property in question or work upon it, whether the CARRIAGE or work is to be carried out for VALUE or GRATUITOUSLY. (footnote: the service station operator is a BAILEE of my car which is undergoing repairs, and my neighbour is a BAILEE when he borrows my snow-blower after a winter-storm) Mediaeval lawyers had a limited legal vocabulary, and bailment was consequently pressed into service whenever possession of CHATTELS passed between parties, whatever the terms, contractual or otherwise, which gave rise to the transfer. FEOFFMENT with LIVERY OF SEISIN (the conveyance of TITLE to LAND, which originated in mediaeval times and only ceased to have significance during the 19th-century), and REMEDIES provided by the real actions and the possessory ASSIZES, adequately provided for the various relationships that could arise in relation to the possession of LAND. Another distinction we have already met- in common law courts, the doctrine of estates was NEVER applied to PERSONAL PROPERTY, so at law the bailee NEVER has an estate OR interest in the CHATTEL in question. VESTED and CONTINGENT interests could exist in land ALONE. As for the trust however, this was built on the doctrine of ESTATES. If A held Blackacre to the USE of, or in trust for B, Bs right of ENJOYMENT was an EQUITABLE INTEREST engrafted upon As TITLE or ownership, his estate at law OR legal estate. Having thus got the framework of EQUITABLE OWNERSHIP, Chancery had no difficulty in saying that whatever the nature of As title at law, whether an interest in land OR ownership of a CHATTEL, that interest or chattel might be held subject to a TRUST. Behind the USE or trust EQUITABLE INTERESTS therefore came to exist in all types of property, REAL or PERSONAL, CORPOREAL or INCORPOREAL. LIFE interests and REMAINDER interests are consequently a peculiarity of trusts when they exist in PERSONAL property. The origin of trust in Equity and BAILMENT in law leads to a further distinction. Vis-a-vis the beneficiary, the trustee is a FIDUCIARY both of the trust property AND in his CONDUCT on behalf of the trust. The BAILEE, who takes POSSESSION of the bailors property, is NOT a fiduciary. If he is unable to RESTORE the property, he may be LIABLE IN DETINUE or TROVER which turn on a wrongful handling of the property, but these actions are RARELY likely to give rise to more than damages. (footnote: :FOLLOWING may take place until the bailors ASSET is mixed in a FUND of which the bailee or another owns only PART) The trust beneficiary can TRACE his funds into assets which represent a mixing of the trustees AND the beneficiarys money. It is not only that the SETTLORS PROPERTY was originally earmarked as the trust property, which allows such TRACING, but the trustee is also a FIDUCIARY. Personal creditors of the trustee are therefore postponed to the CLAIMING BENEFICIARY. The NON-fiduciary position of the bailee also means that the bailor and bailee can FREELY do BUSINESS with each other concerning the bailed property. If I hand my watch to a watch-mender for repair, and after he has repaired it i ACCEPT his offer to buy it at a given price, that contract can ONLY be set aside for such offences as FRAUD or DURESS, like all other contracts. A trustee on the other hand CANNOT, without the CAPACITATED and FULLY INFORMED CONSENT of the beneficiary, PURCHASE the trust property or any part of it, and by satisfying only a slightly less heavy burden of proof can he purchase the beneficiarys INTEREST. Of course, much of the reason for, and importance of, the fiduciary OBLIGATIONS of the trustee stems from the fact that he has TITLE to the trust property, and is therefore in a peculiarly favourable position should he CHOOSE to ABUSE his trust. The bailee has ONLY possession and therefore, subject to the exceptions to the rule of NEMO DAT QUOD NON HABET (No one gives what he does not have; no one transfers (a RIGHT) that he does not possess. According to this maxim, no one gives a BETTER title to property than he himself possesses. A variation of this maxim is Nemo dat qui non habet (no one gives who does not have), CANNOT PASS TITLE to a third person or SECRETLY ACQUIRE TITLE for HIMSELF. Nor is he likely in the great majority of cases to discover information concerning the VALUE of the bailed property which is NOT also known to the bailor. The kind of interest in the property, which bailee and trustee EACH has, does allow a CLEAR line to be drawn. We have said that a bailee has possession, while a trustee holds the TITLE to the property, whether the title be legal OR equitable. But in certain circumstances the common law has had to CONFER something more than a mere possessory right upon the bailee. Suppose, relying upon his ownership, the bailor DEMANDS return of the property before the purposes of the bailment have been carried out. Can the bailee RESIST that demand? Or suppose the property is stolen from the bailee, can the bailee SUE the thief? To deal with these situations, the law confers a SPECIAL PROPERTY upon the bailee. That is, he is given a TITLE for the purposes of the bailment. This permits him to assert his CLAIM to OBTAIN possession so that the purposes of the bailment can be carried out, but it does NOT in any way take GENERAL TITLE away from the bailor. The comparison between a bailee with SPECIAL PROPERTY and the trustee is extremely interesting. Both are concerned with assets which they are ADMINISTERING or working upon in favour of another, yet the common law, WITHOUT a doctrine of estates for CHATTELS, is able to go NO further than to give a SPECIAL PROPERTY to the bailee. Equity merely realizes the trustees legal title, and adds another LAYER of title as it were, to represent the beneficiarys INTEREST. ...though the distinction is conceptually clear, it is sometimes arguable whether a man holds personal property as bailee OR as trustee. I ask whether you an old friend, will take $500 of mine and buy certain goods for me. You aree, and i hand over the $500. You find yourself thereafter otherwise occupied and you therefore hand the money to your clerk and ask him to buy the goods. The clerk hitherto always a loyal servant, absconds with the $500. As a bailee you are liable ONLY for gross negligence, but are you a trustee of that $500, charged to exchange the trust property for enumerated goods, and to hand over those goods to me as your beneficiary? If so, by delegating a trust of such a personal kind, you may be in BREACH and therefore RESPONSIBLE for your clerk (the standard of care demanded of you is also much higher). In Willis v. Brown...the court agreed with the findings of the trial judge that the friend was LIABLE as a trustee in BREACH of trust. A personal trust was contemplated here...the personal element differentiates this case from ORDINARY bailment. In other words, whether there is a trust is a matter of the INTENTION of the parties, and trusts may be IMPLIED merely from the INTIMACY of the parties. When TITLE to the property is taken by the alleged bailee, the problem of distinguishing trust and bailment is MORE difficult. The working RULE is that, IF possession passes, the TRANSFEREE of the asset is a BAILEE, but that if PROPERTY passes, a TRUST is set-up. By PASSING TITLE, in fact, the parties demonstrate their INTENTION to create a trust. But what is the position if title is transferred by the OWNER in order to facilitate the carrying out of the agreement, of which the handing over of the CHATTEL is an ancillary feature? In Elgin Loan&Savings Co. v. National Trust Co....the plaintiffs accepted certain SHARES from A Co. as COLLATERAL SECURITY for a LOAN and deposited the SHARES with the defendants, into whose name the shares were TRANSFERRED. Part of the arrangement, was that the defendants would RECEIVE DIVIDEND PAYMENTS and HOLD THEM for the plaintiffs. The transfer was the result of a CONTRACT, and the defendants were PAID for their services. Subsequently, the defendants were appointed as liquidator of the A Co., and REFUSED on DEMAND to DELIVER the shares to the plaintiffs on the basis that the A Co. had an INTEREST in the shares. Were the defendants merely CONTRACTUAL bailees in BREACH of contract? Or were they trustees who could claim they had acted reasonably, and therefore ought to be excused from any TECHNICAL breach of trust? Boyd C. said there was NO trust. The plaintiffs were NOT a trust beneficiary in the ORDINARY sense, but mere BAILORS. The defendants had limited duties, and all the obligations were spelled out in the contract; NOTHING was derived from the notion of fiduciary relationship. He went on: Regard must be had to the nature of the transaction and the terms of the INSTRUMENT relating thereto in order to determine whether the grantor, donor, settlor, or bailor INTENDS to create a trust for the benefit of another (CESTUI QUE TRUST) or merely to arrange for the DISPOSAL of property to suit his own convenience by giving some revocable direction to the TRANSFEREE of the property. In the one case, the instrument is one of trust properly speaking, one in which we find the three parties, the owner- the MAKER of the instrument - transferring property to a trustee for the advantage of the beneficiaries; in the other case the owner gives directions to an agent for his own convenience, with expressed or implied POWER at any time to countermand the INSTRUCTIONS and recall the property. Of course, there is NO reason why a trust should not be set-up in favour of the SETTLOR, there is nothing out of the ordinary in this. And in the case of a revocable trust, the settlor, THOUGH a beneficiary, is as free to REVOKE the trust as contractual parties are free to VARY their agreement. However the point is again made that it is a question of INTENTION as to whether trust OR bailment arises. This case also suggests that a man may be BOTH baille AND trustee within the definition of statute; LIABLE in contract and for BREACH of trust. I have a strong impression that this bailment for the sole advantage of the bailor is NOT such a trust as is contemplated by the statute of 1899. Could the bailment have been a trust? A bailee, as an agent for example, may be a CONSTRUCTIVE trusteeof his PRINCIPALS property to which, for the purposes of his agency, he is GIVEN title. But can a bailee ALSO be a trustee in the sense that the parties INTEND to make him a trustee? If so, then bailment and express trust are NOT mutually exclusive. The Court of Appeal in this case said: I think the defendants were trustees of all the SHARES. The property in the shares was in them by EXPRESS arrangement IN TRUST for safe-keeping and the COLLECTION of dividends. As the Chief Justice put it.....if the INTENTION is merely to give another custody, and that other is given the INDICIA of property in order to assist his custodianship, then bailment is created. But, if TITLE PASSES in order to allow a range of duties to be discharged by the other, THEN a trust is created. Difficulties have ALWAYS stemmed from the LOOSE employment of the word TRUST. It was Blackstone who defined a bailment using the language of trust: the DELIVERY of GOODS in trust upon a contract express OR implied that the trust SHALL be duly EXECUTED, and the goods RESTORED by the bailee as soon as the purpose of the bailment shall be answered. And this inspired later texts to adopt trust language. Nor have the authorities been free of a consequent legacy of confusion. But since the beginning of the century it has been clear that the word trust means in itself LITTLE, EVEN when used in FORMAL documents. Language MUST be construed in its context. As Riddell J. said in one context: The word trust has NO technical meaning. Goods held in trust is a WELL-KNOWN expression in insurance matters, and means goods held by the insured for which he is RESPONSIBLE to others - and insurance in this form has always been considered to insure, first, the bailee insuring to the extent of his LIENS or advances, etc. (if any); and, second, the owner of the goods. Bailment is essentially the CUSTODY and CONTROL over a THING; TRUST is loosely used as when Blackstone says, But there are other trusts which are COGNIZABLE in a court of law; as deposits and all manner of bailments.
Posted on: Sat, 10 Jan 2015 20:07:10 +0000
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