The Indian Trust Act, 1882 makes provision for the extinction of trusts under Sections 77, 78 and 79. Section 77 lays down four situations when a trust is extinguished. Accordingly, a trust is extinguished-
(i) when its purpose is completely fulfilled; or
(ii) when its purpose become unlawful; or
(iii) when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise; or
(iv) when the trust, being revocable, is expressly revoked.
To be legal, a trust must have a lawful object or purpose. A purpose lawful at the initial stage may become unlawful afterwards due to some new legislation coming into force.
The purpose, therefore, cannot be accomplished, being unlawful . In such cases a trust is extinguished from a trust came into existence, a supervening unlawfulness turns a lawful purpose into an unlawful one whereby a trust is extinguished under Section 77(b).
Similarly, under Section 77(c) when the fulfilment of the purpose becomes impossible by destruction of the trust property or otherwise, a trust is extinguished.
Section 78 enumerates the circumstances when a trust may be revoked. A trust created by a will may be revoked at any time at the pleasure of the testator, for a will is inherently ambulatory. But a trust which is created otherwise than by will may be revoked-
(i) by consent of all the beneficiaries where all of them are competent to contract;
(ii) by expressly providing in the instrument of trust for a power of revocation: by exercising such a power a trust may be revoked;
(iii) when its purpose is the payment of author’s debts, it can be revoked at any time prior to communication of the arrangement to the creditors.
(a) Power of revocation – A settlor cannot revoke a completely constituted trust unless a power to do so is reserved in the instrument. One should note that a mere absence of power of revocation from a voluntary trust or the presence of it by unusual provisions is not any ground for setting it aside, provided that those provisions were brought to the settlor’s notice and were understood by him.
Other grounds for revocation may be (i) fraud or undue influence in obtaining the settlement, or (ii) the execution of the settlement under a fundamental mistake or misapprehension as it to its effect, or (iii) illusory trusts may also be revoked by the settlor.
One who seeks to set it aside on the above grounds must discharge the onus of proving it. If the settlor is proved to be a free agent, it cannot be set aside, but a settlement for value can very rarely be set aside, for marriage is a valuable consideration.
(b) Trust created by a will – A trust created by a will can be revoked at any time by the author, during his lifetime but thereafter it cannot be.
A trust for the payment of its author’s debts can be revoked at any time before it is communicated to the creditors.
(c) Trust created otherwise – A trust created by a non-testamentary instrument may be revoked by means of a power of revocation expressly reserved by the author in that instrument or it may be revoked when all the beneficiaries are competent to contract and they so consent.
When a trust is revoked, the revocation will not affect the acts of the trustees duly done in execution of the trust so as to defeat or prejudice those acts [S. 79]
Obligations in the Nature of Trust
Section 81 to 85 explain the circumstances wherein a resulting trust is created and Sections 86 to 94 forward the instances wherein a constructive trust comes into existence.
The instances of such trusts collected by the Indian Trusts Act under Sections 83 to 85 may be reproduced as follows:
(i) Where a trust is incapable of execution or where it is completely executed and some property remains still, the trustee must hold such property in a trust called a resulting trust [S. 83]
(ii) Where property is transferred to another for an illegal purpose and the same is not carried out and the transferor is not as guilty as the transferee, there results a trust [S. 84].
(iii) Where a bequest is made for an illegal purpose, the same must be held in trust by the legatee without any action to carry out the purpose, and also where a bequeath made is prevented by coercion from being revoked [S. 85].
(i) Constructive trust: A remedy or a trust?- A constructive trust (obligation in the nature of a trust) arises even in the absence of a position of confidence as required by Section 3 of the Trust Act.
(ii) Instances – The Indian Trusts Act has collected those instances in Sections 86 to 93 wherein such trusts arises and they can be briefly laid down as under:
1. Where property is obtained by one under a contract which is liable to rescission, or induced by fraud or mistake, he must hold the same for the transferor’s benefit [S. 86].
2. Where a debtor becomes the creditor’s representative there arises a constructive trust [ S. 87]
3. Where a person standing in a fiduciary position with another, instead of protecting the interest of that other, gains as such for himself or enters into dealings whereby he gains for himself and where therefore his duties and interest conflict, he must hold that pecuniary advantage in trust for that other person [S. 88].