Resulting Trusts: Undisposed Beneficial Interest, Failed Trusts and Illegal Purposes (Sections 81 and 83 to 85)

A resulting trust is one in which the beneficial interest "results", that is, jumps back, to the person who provided the property, because he never effectively parted with it. It rests on presumed intention: a person who transfers property for a purpose that fails, or without meaning to give away the benefit, is presumed to want it back. This note covers the resulting obligations in Chapter IX: the repealed Section 81, Section 83 on failed and surplus trusts, and Sections 84 and 85 on illegal purposes. Section 82, on purchase in another's name, is treated with benami transactions in Topic 34.

1. Transfer Without Intent to Part with the Benefit (Section 81, Repealed)

Section 81 provided that where an owner transferred or bequeathed property and it could not reasonably be inferred, consistently with the attendant circumstances, that he intended to dispose of the beneficial interest, the transferee held it for the owner or his legal representative. It covered, for example, a transfer made to a relative merely for convenience of management. Section 81 was repealed by the Benami Transactions (Prohibition) Act, 1988, together with Sections 82 and 94, because it could be used to enforce benami holdings. Arrangements of this kind are now assessed under the benami law and the general law of transfers.

2. Failed and Surplus Trusts (Section 83)

Section 83, Indian Trusts Act, 1882 (trust incapable of execution or executed without exhausting trust property)

Where a trust is incapable of being executed, or where the trust is completely executed without exhausting the trust property, the trustee, in the absence of a direction to the contrary, must hold the trust property, or so much thereof as is unexhausted, for the benefit of the author of the trust or his legal representative.

Section 83 is the principal resulting trust in the Act. It covers two situations:

Situation	Examples	Result
Trust incapable of execution	The beneficiaries or purpose are uncertain; the purpose is unlawful; the sole beneficiary has died before the interest vested; the beneficiary disclaims	The whole property is held for the author or his legal representative
Trust executed without exhausting the property	A fund to educate a child leaves a balance after the child's education is complete; a trust to pay debts leaves a surplus after all debts are paid	The surplus is held for the author or his legal representative

The illustrations to the section give examples of this kind: an unexecuted trust reverting to the author; a fund for a beneficiary during his life returning to the author's representative after his death where no further gift was made; and a partly failed purpose leaving unused proceeds that revert.

"In the absence of a direction to the contrary"

The instrument may say where a surplus goes, for example a gift over to a named person or a charity, or a clause giving the surplus to the last beneficiary absolutely. Where it does, Section 83 does not apply. Careful drafting therefore always provides for what happens to any balance.

Public charitable trusts

Section 83 is part of the law of private trusts. Where a public charitable purpose fails, the court may instead apply the property cy-près to a similar charitable purpose if the author had a general charitable intention, rather than returning it to him (Topic 43).

3. Transfer for an Illegal Purpose (Section 84)

Section 84 (transfer for illegal purpose)

Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor.

The general rule is that a court will not help a party to an illegal transaction: where both are equally at fault, the loss lies where it falls (in pari delicto potior est conditio possidentis). Section 84 makes three exceptions, in which the transferor can recover:

Purpose not carried out: the illegal purpose was never executed. The law encourages withdrawal from an illegal scheme before it is performed.
Transferor less guilty: the transferor is not as guilty as the transferee, for example because he acted under pressure or deception.
Retention would defeat a law: letting the transferee keep the property would itself defeat the provisions of a law, for example a law designed to protect people in the transferor's position.

Section 84 is subject to Section 96, which forbids Chapter IX being used to create an obligation in evasion of the law, and must now be read with the benami law, which bars recovery of property held benami except in the cases that law permits (Topic 34).

4. Bequest for an Illegal Purpose (Section 85)

Section 85 (bequest for illegal purpose; bequest of which revocation is prevented by coercion)

Where a testator bequeaths certain property upon trust, and the purpose of the trust appears on the face of the will to be unlawful, or during the testator's lifetime the legatee agrees with him to apply the property for an unlawful purpose, the legatee must hold the property for the benefit of the testator's legal representative.

Where property is bequeathed and the revocation of the bequest is prevented by coercion, the legatee must hold the property for the benefit of the testator's legal representative.

Unlawful purpose on the face of the will, or secretly agreed in the testator's lifetime: the legatee holds for the testator's legal representative, so the property passes as on intestacy or under the rest of the will.
Revocation prevented by coercion: where the testator wanted to revoke a bequest but was prevented by coercion, the legatee cannot keep the benefit of his wrong; he holds for the testator's legal representative.

⚠ Key point

A resulting obligation returns the beneficial interest to the person who provided the property. Where a trust is incapable of execution, or is completely executed without exhausting the property, the trustee holds the property or surplus for the author or his legal representative, unless the instrument directs otherwise (Section 83). A transferee for an illegal purpose holds for the transferor where the purpose was not carried out, the transferor is less guilty, or retention would defeat a law (Section 84). A legatee under a bequest for an unlawful purpose, or whose bequest survived because revocation was prevented by coercion, holds for the testator's legal representative (Section 85). Section 81 (transfer without intent to part with the benefit) was repealed in 1988.

5. Related Topics and Provisions

Lawful purpose and void trusts (Topic 7): Section 4
Obligations in the nature of trusts (Topic 32): Sections 80, 95 and 96
Benami transactions (Topic 34): Section 82
The cy-près doctrine (Topic 43)