AWHO SOS

Save Our Society (SOS)

August 2012

Contents
Executive Summary ...................................................................................................................... 5 Introduction ................................................................................................................................... 6 AWHO Veteran Housing History ............................................................................................. 8 History of a Request for Statutory Documents .............................................................. 10 The test whether the fiduciary duties are violated is a clear cut criterion: ............... 13 Criminal Breaches of the duty of loyalty include .......................................................... 14 A fiduciary may NOT.......................................................................................................... 15 A fiduciary has a duty to..................................................................................................... 15 Criminal Breach of Trust .................................................................................................... 15 Democratic Rights of Members of the Society ............................................................... 17 Power to Impose Tax ........................................................................................................... 17 Undivided Loyalty ............................................................................................................... 18 Opportunity for improvement of "Our Society" ............................................................ 18 AWHO Bangalore Cost Escalation .......................................................................................... 19 Reply to Option Letter ............................................................................................................... 21 The Appeal to Adjutant General ............................................................................................. 31 Going to the Courts As a Last Resort ...................................................................................... 33 Compliance with the Laws ....................................................................................................... 34 Meeting with AWHO Officials at their request on 30 Sep 2012 ....................................... 35
Figure 1: Hohfeld's Table of Entitlements and Burdens: [7] .....................................................36 1. THEORIES OF RIGHTS: HOHFELD AND THE INTEREST/WILL .(http://www.law.cam.ac.uk/faculty-resources/10004529.pdf..) .................................................. 36 2. Hohfeld's Analysis of Rights: An Essential Approach to a Conceptual (http://www.austlii.edu.au/au/journals/MurUEJL/2005/9.html) ................................................ 36

Questions Raised by AWHO Officials ............................................................................ 36 Appeal to COAS & AG.............................................................................................................. 48 Conclusions: Actionable Points ............................................................................................... 51 Prayer (To be edited & integrated) .......................................................................................... 53 Additional Prayer (Input from Col_Diaz).............................................................................. 53 Additional Prayer (Input from AG) ........................................................................................ 54 References .................................................................................................................................... 55 Appendix B : Master Brochure Revision ......................................................................... 56 Index ....................................................................................................................................... 56 Appendix C Trust Laws ...................................................................................................... 72 Appendix D : Divided Loyalty & Conflict of Interest .................................................. 74
Trustee Duties and Liabilities .......................................................................................................... 74 Fiduciary Duties of Trustees ............................................................................................................ 74

Appendix E : The trustees duties ..................................................................................... 74

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The core trustees duties ................................................................................................................... 74 What it means to be a fiduciary ....................................................................................................... 75 The Duties of a Trustee ..................................................................................................................... 76 Duty of Care ....................................................................................................................................... 76 Duty of Loyalty .................................................................................................................................. 78 Notable Other Duties ........................................................................................................................ 79 Prudent Man Rule for Investments ................................................................................................. 79 Breach of Duties ................................................................................................................................. 81 A trustees duties are to both the beneficiaries of a trust and the trust. ..................................... 82 A trustee has a duty to act in the best interests of the beneficiaries and a duty of full disclosure. ........................................................................................................................................... 82 A trustee and a trust beneficiary can also have a confidential relationship, outside of the relationship created by a trust. ........................................................................................................ 84

Appendix F : Fiduciary Duties........................................................................................... 89

Excerpt from: The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties" by Tamar Frankel Vol.2, p.127-128 ...............................................................89 Excerpt from: Fiduciary Law by Tamar Frankel California Law Review, May, 1983, 71 Ca. L. Rev. 795 p.797-802 ........................................................................................................................ 91 Excerpt from: Fiduciary Duties as Default Rules by Tamar Frankel Oregon Law Review, Winter, 1995, 74 Or. L. Rev. 1209 p.1210-1215 ...........................................................................95 Excerpt from: Contract and Fiduciary Duty by Frank H. Easterbrook and Daniel R. Fischel The Journal of Law and Economics, 1993, 36 J.L. & Econ. 425 p.426-29 .................................96 Excerpt from: The Contractarian Basis of the Law of Trusts by John H. Langbein Yale Law Journal, December, 1995, 105 Yale L.J. 625 p. 625-631 ..............................................................97 Excerpt from: The Functions of Trust Law: A Comparative Legal and Economic Analysis by Henry Hansmann, Ugo Mattei New York University Law Review, May, 1998, 73 N.Y.U.L. Rev. 434 p.438-445 .........................................................................................................99 What Are a Trustee's Fiduciary Duties? - For Dummies............................................................ 103 Fundamental Duties of a Trustee .................................................................................................. 103 Trustee Duties and Liabilities ........................................................................................................ 103 Fiduciary Duties of Trustees .......................................................................................................... 103

No table of figures entries found. No table of figures entries found.

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There are a number of instances where it is the unformed bureaucrat who has messed up things and Babus have corrected. Let us not put all the blame on Babus. Our leadership has failed in letting such persons reach higher ranks. .Majority is ignorant and refuses to listen or carry out an independent analysis of the issues in question. I have my own experiences. -Lt Gen K S Rao <kantamnenirao@yahoo.com>

Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. [...] The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions. Jerry Pournelle, Chaos Manor View 408 (3 April 2006)

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Section

1
AWHO is a Society run by Army Hq officials (ex-officio) and registered under The Societies Registration Act, 1860. Status of Registration has not been maintained by failure to file required documentation every year. Hence it may not even hold the status of a Registered Society but AWHO currently runs a business of Rs 10000 Crores and has many Housing sites all over India. If it is NOT run democratically as a Society, then it is being run as a Sole Proprietorship with unlimited liability. Can a public servant run a Sole Proprietorship business while being a full time public servant? Answer obviously is NO. Can a Society violate all the laws of the Country and yet create its own Rules illegally and impose these ruthlessly on their members without their consent? Answer obviously is NO. But, yet, WHO has been doing it. And the Rules the Chairperson and MD AWHO have come up with are not only autocratic and cannot stand scrutiny of law, they are in many cases against the Constitution of India and different Statutes passed by the Parliament from time to time. Why did AWHO do this? Because there was no meaningful debate and discussion of these rules in the General body. Should we forgo the wisdom of many stakeholders of the AWHO and settle for MD AWHO and Chair person? Yet, that is what has happened for the last more than 30 years! This Report exposes many such issues so that these can be corrected with out the members going to the courts. Not to correct the illegalities would be tantamount to foolhardiness of the AWHO authorities.

Executive Summary

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Section

2
The case pertains to Bangalore Part A Housing site of AWHO. The relevant details of the Project are available here: http://awhosena.in/project.php?locid=44&flag=other_details The project is planned in the vicinity of village Billamarnahalli Bangalore North. There is considerable development by private builders in the general area. The site is about 5kms from Yelahanka Air Force Station and 17 kms from Mekri Circle, approx 1 km off NH-7. The International Airport is about 7 km from the site. Independent Duplex Single Units in Single/Double Storey configuration and Apartments in Stilt +7 storeys configuration. Central Amenities consists of Community Centre, Swimming Pool and Tennis Court will be constructed. The configuration and current estimated costs are given here: http://awhosena.in/project.php?locid=44&flag=facilities The probable date of completion is DEC 2012 The payment schedule is given here: http://awhosena.in/project.php?locid=44&flag=payment_schedule The latest update is Progress of work is approx 97%. OPTION LETTER FOR SPECIFIC DWELLING UNIT (DU) DUs are likely to be handed over wef Oct 2012. Contact Details are as under: Project Director C/O HQ K&K Sub Area PIN - 900493 C/O 56 APO Office Number : Mil 6227 Dy Director ( Loan & Liaison) AWHO Kashmir House Rajaji Marg, New Delhi 110011 Telephone Number: Direct :- 011-23014039 EPBAX :- 011-23012619 Extn.228, 243 Fax :- 23010599 Email :- awho@vsnl.com

Introduction

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Other details are as given below: Site Plan Location Plan Layout Plan Layout Plan Technical Brochure

Project Progress

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Section

AWHO Veteran Housing History

Briefly stated it reduces to the following: 1. Original Intent: AWHO was started with the noble intention that the veteran interest will be nurtured by 2. and economies of scale will be achieved in house building for veteran. Booming House Building Industry: The boom experienced in the industry made the management of AWHO forget about the interest of the society that is being served and assumed the position of an economic giant and brushed aside the the "poor veteran" and his concerns. AWHO Management: One thing led to another and the true color of the management became visible to the veteran community. Adjutant General who is at the Apex of this ( considering the COAS is only interested in the "propaganda" purpose of the initiative and do not want to dirty his hand in AWHO) redefined in a series of steps not all together but one after another in sequential manner the following: 1. Registration: AG as a "public servant" cannot get into building business , so decided to start a Army Welfare org called AWHO and registers it with Registrar of Societies Delhi. Veteran community is required for forming a society. 2. Society Constraint: Society meant membership and admission of members and general body meeting and democratic decision making. That is too much for the AG. 3. Prostitution of Laws: So AG decided to prostitute the laws of the land at gross injustice to the members of the Society: 1. Governing Body: AG decided that Governing body will be by ex-officio appointment. AG will permanently chair and few more apathetic Board members including MoD members will be involved as ex-officio members of the Board. Governing body is totally non-responsive to veteran! 2. Change in Governing Board: To overcome the requirement of change in Governing body, AG decided that as ex-officio incumbent is changed due to new posting, the change in Governing Board will be achieved. 3. Annual General Body Meeting: AG decided that we will NEVER have any General Body meeting and will never have any resolutions and agendas ( because these may be irksome to tyrannical powers) 4. MD AWHO: An MD is selected from amongst Engineers officers of rank Major General deputed from Army ( serving is ideal because he will be under Army Act!)

3.

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4. 5. 6.

Loyalty: MD AWHO loyalty is assured because AG selects MD, he supervises his work and he approves his work and he rewards MD and also he is empowered to fire MD AWHO! 6. Hiring Down the Chain: AG decided to post serving Colonels/ Majors etc on deputation so that AA is the best leverage for control. Lower level appointments were hired from the market but management is in strong grasp of the AG through deputed officers. 7. Loyalty to Members: MD AWHO and officers of AWHO have least loyalty to members of the society because they are not their hiring managers and performance appraisers and are in way accountable to them. 8. Rules: Rules were drafted by the MD AWHO with help from Legal Counsel keeping the management interest upper most and the member interest least in mind. Since it does not have to be passed by the General Body, they could include any thing totally out of alignment with the member interest. Every Rule in the Rule book were an assault on the member rights and the consumer rights laws of the country. AG, MD AWHO, and Legal counsel thus committed "Criminal Breach of Trust" having totally one sided loyalty and no loyalty to the beneficiaries. 9. Filing with Registrar of Societies: Since the Rules have to be passed by the General Body, it was decided not to comply with the Annual filing with Registrar because it will have to be certified that the Rules are passed by the General Body. Member Complaints: These were brushed aside by MD and his staff. Member Request for Info: This was also brushed aside wantonly. Even request for House Drawings were refused. RTI Request: Many frustrated members approached Government through RTI for information. That was thwarted saying AWHO is a Society registered under Societies Act and Army has NOTHING to do with it. RTI from Govt bodies: Members approached as member of the public and obtained specification drawing from Haryana Urban Development Authority (HUDA) Disillusioned Members: They started crying hoarse and some even took AWHO to court for variations from specification and court order for compensation and even fine. Forgery: AWHO committed forgery in date of court order while filing appeal ( March was changed to August i.e. a 3 was changed to 8 in an appeal to frustrate the member

5.

7. 8. 9.

who is none other than Maj Gen VK Singh (Retd): http://pragmatic.nationalinterest.in/2009/01/24/where-is-welfare-in-awwa-awho/ 10. Rules Prostitution: Now, the whole process of housing development is governed by a totally one sided "Rules of the Society" which is not even passed by the members but imposed by the MD AWHO and AG. 11. Forfeit of all legal Rights: Legal Counsel lays down the total process where the veteran is made to give up the rights for any redress for getting possession of his house. See the documents which binds him: 1. APPENDIX - B (Affidavit) 2. APPENDIX - C (Undertaking) . 12. Veteran is the victim of the misdeeds of AG, MD and legal Counsel and at each step the laws are flouted.

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History of a Request for Statutory Documents

CPC cpcnath@gmail.com to dymd@awhosena.in Dear Brigadier,

Sep 2 (9 days ago)

Continuing with the topic of discussion we had on 30 August 2012. Will you be kind enough to make available copies of the following original statutory documents by email or better still, put these documents at appropriate place on your website and send me pointers to the same: 1. Memorandum of Association of AWHO Society as originally filed by the Founders with Registrar of Companies, Delhi 2. Rules of the AWHO Society as originally filed by the Founders with Registrar of Companies, Delhi 3. AWHO "Conflict of Interest Policies and their Management" if you have any such or similar Policies. Item 3 should be there considering that you have to fulfill your important Fiduciary obligations/responsibilities towards the Trust Beneficiaries. Just in case you have no such policies, how do you ensure that the "servants of the Society" report all possible conflicts of interest and the process of how do you typically manage the same? Has any one ever in the past stated their Conflicts of Interests and how they were managed. In case you determine that these documents are confidential and you can not share these with me, please state the same explicitly. Or, if you have any other reason why you cannot share these documents with me, you may also state the same explicitly against each document. Do let me know if you have any questions or queries in this connection. I should be able to clear these instantly. Hoping to hear from you soon. With sincere regards. CPC Nath Member, AWHO Society 26948083

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CPC cpcnath@gmail.com to dymd

Sep 6 (5 days ago)

Dear Brigadier, I am still awaiting your reply to this request. CPC Nath
Sep 10 (1 day ago)

CPC cpcnath@gmail.com to Secretary, AWHO, md, dymd

For awho@awhosena.in only: Please retransmit to Adjutant General (Chair Person of AWHO) at Army Hq as his email id is not held by me.

Dear Brigadier, My request for relevant documents have been stone walled with deathly silence:
1.

2.

Our (AWHO and Members of Society) rights/duties/obligations are delineated in these original documents. The "AWHO Master Brochure" only tells how our rights are constrained and bound under the powers of MD AWHO. There is not even one word of the duties owed by MD AWHO to wards the members of the Society. For an analysis of the Brochure in ways it violates the Statutes, please go to: http://awhoconsumer.tripod.com/awhoblog/index.blog?topic_id= 44908 You will have to to go to the entry dated Monday, 21 February 2005 at the bottom.( It is dated and AWHO has added more rules to the 2005 Brochure that are yet to be validated.)

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3.

4.

Every change in Rules ( Master Brochure) needs to meet the following criteria: 1. The change should have been approved with majority in the General Body. 2. Approved changes should have been filed with Registrar of Societies in the yearly filing. Societies registered under Societies Registration Act are required by law to operate as Democratic bodies in letter and spirit. 3. The Approved changes should NOT be in conflict with any of the following: 1. AWHO Memorandum of Association or the original Rules submitted to statutory authority. 2. In compliance with the requirements of the Society Registration Act 1860. 3. Any other statutes as amended from time to time currently in force in the laws of the land. 4. Constitution of India as amended from time to time. AWHO Brochure Clause No:82 violate the Constitution of India with respect to right to property: 1. Clause 82 AWHO Brochure states: In case of unauthorized sale/transfer/assigning of dwelling unit by an allottee to a third party comes to the notice of the AWHO, the AWHO reserves the right in its absolute discretion to cancel the allotment of such dwelling unit to the original allottee and to take over the possession of such a dwelling unit. 2. Article 13 (2) Constitution of India: The State shall not make any law which takes away or abridges the rights conferred by this Part and any law made in contravention of this clause shall, to the extent of the contravention, be void 3. 14. Equality before law The State shall not deny to any person equality before the law ( as against the current state that we the Members have to follow the law faithfully where as YOU are totally exempt from it!) or the equal protection of the laws within the territory of India.

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4.

Article 300. A Persons not to be deprived of property save by authority of law No person shall be deprived of his property save by authority of law.

If Parliament has NO authority to make laws which will deprive a person of the property save authority of law, how can MD AWHO deprive the property of a Member of AWHO? How can AWHO reserve the right "in its absolute discretion" to cancel the allotment of such dwelling unit to the original allottee and take over possession long after taking possession and registering the property as a free hold under the laws of the land. We live in a country where Rule of Law should apply as against Rule of Men! This clearly is violation of the Constitution of India. Just because no one questioned it so far, does NOT make it legal! For more violation of statutes, go to the pointer above. So, the Rule Book passed unilaterally by AG may be NOT even be valid/legal and perhaps even be a criminal Breach of Trust against the members of the Society and Beneficiaries. AWHO (including all the "servants of the Society") owes a fiduciary responsibility for the Beneficiaries ( Members of AWHO) and
The test whether the fiduciary duties are violated is a clear cut criterion:
1.

2.

3.

The trustee must display throughout the administration of the trust complete loyalty to the interests of the beneficiary, and must exclude all selfish interest: One of the most fundamental duties of and over all consideration of the interests of third persons. The duty of fidelity required of a trustee forbids the trustee from placing itself in a situation where there is or could be a conflict between its self interest and its duty to the beneficiaries. Trustees cannot make a profit from the trust funds committed to them, by using the money in any kind of trade or speculation, nor in their own business.
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4.

5.

6.

7.

8.

9.

10.

11.

The trustees must account for every rupee received from the use of the trust-money and they will be absolutely responsible for it if it is lost in any such transactions. Many forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions. * * * Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court. The duty of loyalty requires the fiduciary to act solely for the benefit of the person to whom the duty is owed with respect to all matters within the scope of the fiduciary relationship. The duty requires the fiduciary to subordinate his own interests to those of the beneficiary. A trustee is under a duty to keep accurate books and records regarding what constitutes the trust receipts and disbursements to and from the trust estate, all receipts and disbursements to and from the trust estate and, where applicable, records of all allocations of receipts and disbursements between the principal account and the income account..

Criminal Breaches of the duty of loyalty include

1.

receiving a secret profit on a transaction within the scope of the fiduciary relationship;

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2.

3.

4.

5.

secretly acting for the account of the fiduciary as to a matter within the scope secretly acting for an adverse party in a matter within the scope of the fiduciary relationship. competing as to a matter within the scope of the fiduciary relationship; acting on behalf of a party whose interests conflict with those of the person to whom the fiduciary duties are owed. ( This is extremely important as it was revealed in the meeting that the officials work of AWHO with loyalty towards and compliance with Army Hq as opposed to its own beneficiaries, there surely is a conflicts of interest. Conflict of interest rules are exceptionally precise!) Where the fiduciary enters into a transaction with a party to whom a fiduciary duty is owed, he or she must disclose all relevant facts to the party and, even then, may enter into a deal only on fair terms. In addition, the burden is on the accountant-fiduciary to prove both the fairness of the transaction and the disclosure of all material facts.

A fiduciary may NOT

1.

2.

deal with the assets of the plan in his own interest or for his own account, in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries.

A fiduciary has a duty to

1.

disclose all relevant facts as to matters within the scope of the fiduciary relationship

Criminal Breach of Trust

Under all the above, you may yourself be committing a criminal breach of trust by ignoring the requests:

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1. 2.

An act or omission violating any of the above duty owed Especially: 1. Not responding to request for documents/information which is even available to the public through the Registrar of Societies.( http://www.delhi.gov.in/wps/wcm/connect/98f825004 6a2ddbd902e915d9d3d91ee/Registration+of+Societies. pdf?MOD=AJPERES&lmod=1899298285) 2. With holding documents/information at the instance/directions of any third party. 3. Acting on behalf of a party whose interests conflict with those of the person to whom the fiduciary duties are owed.

Needless to remind you that Criminal Breach of Trust is a crime committed under IPC (and attributable to individual as a person and not the office of the person as the same is a crime committed against the Society): 405. 406. Criminal breach of trust Punishment for criminal breach of trust Criminal breach of trust by clerk or servant Criminal breach of trust by public servant, or by banker, merchant or agent

408. 409.

Considering that you are a Public Servant ( Serving Officer of the Army) it is all the more important that these things are taken extremely seriously to protect your person. ( PunishmentImprisonment for life, or imprisonment for 10 years and fineCognizableNon-bailableTriable by Magistrate of the first classNon-compoundable.) Needless to remind you that you have followed orders from others will not be an excuse because the orders are contrary to law and hence illegal and are NOT to be complied with. Not only that, this taking of orders establishes that you do NOT have undivided loyalty to the "beneficiaries" and that itself is a Criminal Breach of Trust!

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Democratic Rights of Members of the Society

The decision to deny the democratic rights of Members of the Society granted by the English Parliament passed in Registration of Societies Act 1860 can not be taken away by diktat of any authority much less an authority outside the Society that is not accountable to the Members of the Society. In view of this, it is relevant to find out which power exactly decided when, where, what and why these democratic rights of the members were taken away and under what authority? And if this is illegal, then the Act of ordering the same against the interests of the members is illegal and perhaps the first Criminal Breach of Trust. The fundamental democratic principles laid down by the British Parliament back in 1860 through Registration of Societies Act 1860 for the people of the dominion forming Society require
1.

2.

3.

Change of Rules of Society requires passing in the General Body by simple majority. Change of purpose of Society requires passing by three fifth of members. Closure or merger with another society requires passing by three fifth of the members

When General Body itself is made non functioning, the above powers of the Society remain suspended for ever. So change to MoA or Rules are not possible neither is suspension or closure.
Power to Impose Tax

The power to impose tax is undoubtedly a legislative power. That power can be exercised by the legislature directly or subject to certain conditions the legislature may delegate that power to some other authority. But the exercise of that power, whether by the legislature or by its delegate is an exercise of a legislative power. The fact that the power was delegated to the executive does not convert that power into an executive or administrative power."(Supreme Court in Narinder Chand Hem Raj v. Lt. Governor, Union Territory, Himachal Pradesh [(1971) 2 SCC 747] while interpreting the Constitution of India) To charge a "tax" ( Refer Master Brochure Rule Section 83) in addition to registration charges paid to State Governments while transferring a freehold property is patently illegal. A tax without representation had caused a whole revolution against the Britain and America was born, how can those who do not

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even represent the interests of the members of the Society charge a Transfer tax which is totally illegal under the laws of the land? If the State Executive can not do it, surely Adjutant General as Chairman of AWHO can not do it (impose a tax). Supposing some one refuses to pay such a tax, under what article of the Constitution or Statute can it be enforced? A tax that can not be enforced under Rule of Law in the courts is patently illegal.
Undivided Loyalty

Deputy MD does not/should not wait for instructions from AG (Chair Person AWHO) for sharing information/documents which is asked for from him. Waiting for such instruction is a failure in undivided loyalty and also of fiduciary duties owed by Dy MD. Even if AG expressly denied permission to share information/Documents, still Dy MD cannot take shelter under the fact that he is "just following orders" because he is failing in his fiduciary duties towards the beneficiaries and hence personally liable for Criminal Breach of Trust in addition to the Chair Person AWHO failing in his fiduciary duties and thus liable for Criminal Breach of Trust in his personal capacity. (As a former research subject wrote to Yale psychologist Stanley Milgram in 1970, Few people ever realize when they are acting according to their own beliefs and when they are meekly submitting to authority. Refer http://www.salon.com/2012/08/19/i_was_just_following_orders/)
Opportunity for improvement of "Our Society"

The ultimate guarantee against abuse of power, legislative, judicial and executive, lies in the political and legal safeguards against such abuse, is a vigilant public opinion, and in a sense of justice in the people generally. I am attempting my best to warn you of the bad consequences of thoughtless actions and hence to bring modicum of responsible legal behavior expected of a fiduciary. That in NO way means that I have any adversarial relationship with you. If we partner together to take corrective action, our Society will be a true "Welfare Society" which we can all be proud of. This may thus be taken as an opportunity for improvement of "Our Society". CPC Nath

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Section

4
.

AWHO Bangalore Cost Escalation

Oct-04 Apr-05 Apr-10 Jul-10 Oct-10 Apr-11 Oct-11 Apr-12

Budget Balance As per table(Indexed Cost) 1550000 1550000 1550000 1550000 1025000 1025000 1025000 4850000 4325000 1308890 1379284 3461000 1047112 1103427 2597000 785334 827570.4 1733000 523556 551713.6 869000 205000 275856.8 221000 153750 68964.2

AWHO Escalation 321.95%

Escalation using Data from Indexed Escalation ( See hci.pdf) http://www.meanscostworks.com/References/UNIT/REFPDF/hci.pdf 2004 143.7 2010 183.5

400

3600

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300

2700

Escalation using Consumwer Price index from http://www.indexmundi.com/g/g.aspx?c=in&v=71 Inflation adjusted cost using above data 2005 2006 2007 2008 2009 100 105.3 112.0392 121.3385 134.5643

2010

6000000

5000000

4000000

3000000

Series1 Series3 Series4

2000000

Series5

1000000

Apr-07

May-09

Mar-05

Dec-08

Mar-10

Aug-05

Aug-10

Nov-06

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Nov-11

Sep-07

Feb-08

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Apr-12

Oct-04

Oct-09

Jun-06

Jun-11

Jan-06

Jan-11

Jul-08

Reply to Option Letter

Reference OPTION LETTER FOR SPECIFIC DWELLING UNIT (DU)

OPTION LETTER FOR SPECIFIC DWELLING UNIT (DU) BANGALORE YELAHANKA PART A (VASANTH VIHAR) PROJECT (EOF/DS4/98722/AR/Bangalore/2004)
1. It is brought to your notice that the AWHO vide their undertaking to the lender had promised on 6/12/2004: It is certified that the AWHO is controlled by a Board of Management headed by Adjutant General as ex-officio Chairman. All other members of the Board are serving senior officers of the Army, the MD of AWHO, the civilian officers of Ministry of Defense(Finance). It is certified that the land is totally unencumbered at present and in future no action will be taken by AWHO which will make it encumbered These assurances and the trust reposed on the builder ( AWHO) as the Trustee that I and my lender bank relied heavily in our consideration without personally inspecting the local body clearances and permits etc. and the transfer deed documents of the land held in trust on behalf of the veteran (the beneficiary ) that I and my lenders relied heavily and entrusted 95% of the enhanced cost of Rs 48.5 Lakhs without visiting the site even once or examining any papers/documents for its authenticity. 2. Part of the land was acquired for the highway passing through the colony and thus the allottees common area stands reduced to the extent. The compensation received was not distributed to the allottees though the builder ( AWHO) was only holding it in trust on behalf of the beneficiary ( the allottees). 3. With the builder ( AWHO) as trustee, I was fully confident that my interest as beneficiary would be safeguarded with full fiduciary responsibilities. 4. With the above as background, the latest option letter came as a bombshell exploding my confidence in the exercise of the fiduciary responsibilities of the trustee. 5. Please read my comments on each aspect suitably numbered for easy reference. Information is sought to enable to decide commitment to invest up to Rs 38 Lakh in addition (almost 100% additional investment) is given in the

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form of questions for you to respond well on time so that I can give options as desired by you. 6. Your Reference Para: The project is nearing completion and the Dwelling Units (DUs) are likely to be ready for handing over with effect from 15 Oct 2012.

1. Comments/Observation: We are excited at the fact that the project is nearing completion albeit after a delay of 5 years.(2007) 2. Information Sought: 2.1. How much %age of investment on common area and facilities/ infrastructure has been completed? 2.2. What items of common facilities and infrastructure have been completed and what items are left? 2.3. What are the target dates for completion?
7. Your Reference Para The sizes of the plots, in general, for DSUs in approx 400 Sq yds plots have been considered as 3572 sq ft and in case of DSUs in 300 Sq yds plots the same have been considered as 2652 sq ft to accommodate Maximum number of plots on the ground.

1. Comments/Observation 1.1. Where the options are 400Sq yrd ( 3600 sq ft) and 300 sq yrd ( 2700 sq ft), then rounding it off to 3572 sq ft instead of 3600 Sq ft and 2652 sq ft instead of 2700 sq ft sound totally irrational especially when the reason assigned is to accommodate maximum number of plots. If that was the rationale, how come you have recklessly assigned more excess land going up to 3328 sq ft to plots of size both 400Sq yrd and 300 sq yrd.? 1.2. By bringing in 3572 Sq ft and 2652 sq ft, you have made it possible for pricing the excess area allocated higher than had it been 400sq yrd and 300 sq yrd. This resulted in a conflict of interest and thus failing in your fiduciary duties as a trustee. 1.3. These notional figures are important because you are charging for land in excess of these figures!
1.4. Trustee is bound by a duty of loyalty and thus avoid self dealing by fully aligned and being in any position in which the Trustee has interest to serve other than that of the trust is violation of fiduciary duty.

2. Information Sought:

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2.1. What exactly is your logic for this notional figure 3572/2652 sq ft which is neither related to 400 Sq Yrds/300 Sq Yrds nor to rounding off of 3600/2700 sq ft as these figures are already rounded and more importantly, nor to the actual size of the lots as it emerged after division into lots of much bigger sizes by wantonly allocating from the common areas held by you in trust for the benefit of the beneficiary?

8. Your Reference Para However, it is seen on the ground that there are some plots in which the areas are less by up to 45 sq ft. 1. Comments/Observation 1.1. If you add up the number of larger size lots, there are none left for smaller than normal. Is there something we are not getting? 2. Information Sought: 2.1. Will pricing be adjusted for short fall of 45 sq ft? 2.2. If so, at what rates per sq ft? 2005 rates or 2012 rates? 2.3. Rates as on 2004/5 when the land was purchased (both individual allotted share 400 sq yrd and share of common area) by the builder (AWHO) on behalf of the allottees and held in trust on behalf of the beneficiaries or rates as on 2012?
9. Your Reference Para: There are also a number of plots whose areas are

more than the standard sizes given above and the maximum additional area of plot is 3328 sq ft..
1. Comments/Observation:

1.1. Variation from Minus 45 sq ft to excess by 3328 sq ft is too large for a totally incompetent division of lots which has bearing on the additional amounts going to Rs 33.28 Lakhs which itself is nearly 100% of the cost of DSU thus defeating the whole welfare idea of cost being realized in tranches of four 20% + one 15% + closing tranche of 5% and escalation (Auth:Para 6 of booking letter dated 20 April 2010!) 1.2. This fails the test of legal, equity, ethical and moral grounds in dealing with the interest of the beneficiary (veteran). 1.3. The trustee investments are adjudged by the prudent person standard. Under the traditional formulation of this rule, a trustee must exercise the degree of care and level of skill that a person of ordinary prudence would exercise in dealing with that persons own property. Under this, wanton and

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incompetent division into lots have increased the monetary burden on the customer (almost 100% of the cost i.e. almost Rs 38 lakhs payment when the customers ability to raise loans have already been exhausted fully) but also the common area is substantially reduced due to this incompetent division of lots and also the highway. 1.4. Trustees are generally under an absolute and unqualified duty to make trust distribution to the correct person. A trust makes an improper distribution (in terms of land or in cash because of a gross error in size of the lots is essentially this) is liable even though the trustee exercised reasonable care and made the mistake in good faith. 1.5. This duty is stricter than the standards applicable to other aspects of trust management because the beneficiary is the owner of the equitable title and is entitled to the reasonable and just distribution of plot size, share of common area and cash surplus in distribution. 2. Information Sought: 2.1. What is your legal, equity, ethical and moral justification which can stand scrutiny in a court of law for Criminal Breach of trust, conflict of interest, self-dealing and conflict of interest of combined beneficiary (common area) vs individual beneficiary.

10. Your Reference Para: With a view to improve the level of satisfaction

and to give a chance to the allottees to opt for the size of the plot of their choice, it has been decided to seek options for the same from the allottees of Duplex Single Units (DSUs) mentioned at Para 2 (a) to (d) above so as to facilitate the allotment of specific DSUs to the above allottees.

1. Comments/Observation: 1.1. As a trustee, your fiduciary responsibilities are clouded by self dealing. (You are acting as seller for the excess land and maximizing the price by pegging it at 2012 prices and as a buyer for the common area held in trust from which these pieces originally come from and pegging the price as the price as of 2004, the price at which the land was originally purchased not as a purchaser but as trustee on behalf of the beneficiary (allottees)! 1.2. A trustee may not purchase trust assets for the trustees personal use. Likewise a trustee cannot sell the trustees personal assets to the trust. A trustee cant be expected to act fairly in these situations
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because as a purchaser the trustee wants to pay as little as possible and as a seller the trustee wants to receive a favorable price. 1.3. You have totally played havoc with your role as a trustee and the fiduciary duties by creating conflict of interest and self dealing! 1.4. This is gross criminal breach of trust and may attract criminal liability not as MD AWHO but in your individual capacity as a person Major General xyz! 1.5. The seriousness of this was not realized by you and the current decision to make money by sale of the excess land to the allottees by selling their own land held by you as trustee. After knowing the complexity of the issue, if you still go ahead with this criminal breach of trust, the mens rea for the criminal action will be established. If the matter goes to court, which we all want to avoid, we will be washing the dirty linen in the public at a time least conducive for our institution, you would establish a landmark case (not just for India but for the whole world) of failure of fiduciary responsibilities and committing criminal breach of trust! 1.6. And it is adding insult to injury to sell this idea saying that it is to With a view to improve the level of satisfaction. This fails the test of legal, equity, ethical and moral grounds in dealing with the interest of the beneficiary (veteran). 1.7. The trustee investments are adjudged by the prudent person standard. Under the traditional formulation of this rule, a trustee must exercise the degree of care and level of skill that a person of ordinary prudence would exercise in dealing with that persons own property. Under this, wanton and incompetent division into lots have increased the monetary burden on the customer (almost 100% of the cost i.e.almost Rs 38 lakhs payment when the customers ability to raise loans have already been exhausted fully) but also the common area is substantially reduced due to this incompetent division of lots. 1.8. Trustees are generally under an absolute and unqualified duty to make trust distribution to the correct person. A trust makes an improper distribution ( in terms of land or in cash because of a gross error in size of the lots is essentially this) is liable even though the trustee exercised reasonable care and made the mistake in good faith. 1.9. This duty is stricter than the standards applicable to other aspects of trust management because the beneficiary is the owner of the equitable title and is entitled to the reasonable and just distribution of plot size, share of common area and cash surplus in distribution.

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2. Information Sought: 2.1. What is your legal, equity, ethical and moral justification which can stand scrutiny in a court of law?

11. Your Reference Para: Medium, Bigger and Large Size Plots. Rs 1.35

Lakhs for 135 sq ft to Rs 33.30 Lakhs for 3330 sq ft.

1. Comments/Observation: 1.1. Pricing as seller at 2012 prices and realizing the moola from the beneficiary ( allottee) as a trustee ( builder) while pricing as buyer from the beneficiary common property purchased in 2005 and held in trust with you. 1.2. Moreover, this shifting the burden of your incompetent division of plots into financial ruin of the beneficiary as the poor veteran is burdened heavily due to cost escalation from 15.5 Lakhs to 48.5 Lakhs all due to your failure in starting the project without appropriate clearances in the first place. ( See court ruling: DHL Case here: http://goo.gl/gmEqF 1.3. AWHO being a WELFARE organization for the veteran and claim to work on a NPNL (No Profit No Loss), you are allowed only to charge the beneficiary for money actually spent for purchase of land and actual cost of construction. As trustee builder, no money is spent for corner plot and park vicinity, this decision to charge will be failing your duty as a welfare org for the veteran (NPNL), self dealing, conflict of interest and attract criminal breach of trust charges! If you still want to go ahead, you are further establishing mens rea for the criminal prosecution authority! 2. Information Sought: 2.1. Your legal justification?
12. Your Reference Para Park(s) in the Vicinity. There are a number of

DSUs which are either facing a park or have park on the side or rear. Additional amount of Rs 2.50 Lakhs will be charged for such DSUs.. 1. Comments/Observation:

1.1. Same as above . 2. Information Sought:

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2.1. What is AWHOs legal, equity, ethical and moral justification to depart from the time tested practices of AWHO of last 20+ years?
13. Your Reference Para Some DSUs are located at the corners and are

having two sides open and offer considerable advantage to the allottees. An additional amount of Rs 2.50 Lakhs will be charged to allottees of such DSUs. Corner Plots with Park(s) in the Vicinity. DUs which are located at the Corner and have Park(s) in the vicinity will be charged Rs 5.00 Lakhs extra. 1. Comments/Observation:

1.1. AWHO being a WELFARE organization for the veteran and claim to work on a NPNL (No Profit No Loss), it is only rational that you charge the beneficiary for money actually spent for purchase of land and actual cost of construction. As trustee builder, no money is spent for corner plot and park vicinity, this decision to charge will be failing your duty as a welfare org for the veteran (NPNL), self dealing, and conflict of interest and attract criminal breach of trust charges! If you still want to go ahead, you are further establishing mens rea for the criminal prosecution authority. 1.2. You are in violation of your own Master Brochure ( Clause 61) existing in 2005, Clause 61 of current Master Brochure as amended upto 1 Sep 2010 and further reinforced by Booking letter Para 15 of 13 Oct 2004 and Para 6 of Appendix C (which refers to Para 12 of AWHO Booking letter dated 20 April 2010) which specifically say no corner plot, park vicinity or combined Park vicinity and Corner plot charges but purely computer draw as a process of fairness! This is authoritarian single handed action of the dominant party against the vulnerable weak allottee. 2. Information Sought: 2.1. What is AWHOs legal, equity, ethical and moral justification to depart from Master Brochure committed and the time tested practices of AWHO of last 20+ years?

14. Your Reference Para Allottees are requested to forward their 4

choices, in the order of preference, based on the size of plots they would like to possess as per the format given at Appendix A 1. Comments/Observation:

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1.1. Though it is called options, it is actually forced choices at the point of a gun because essentially the beneficiary (veteran) have no choices! 1.2. Further you are making us to commit us by forcing to give a certificate that we will commit to pay the additional payment along with the choices. This is devious and against all fair trade practices. Commitment to pay additional amount has been cleverly concealed within the choices! 2. Information Sought: 2.1. What is AWHOs legal, equity, ethical and moral justification to depart from Master Brochure committed the time tested practices of AWHO of last 20+ years?

15. Your Reference Para . The allotment of specific DU, will be based on

the choices given by the allottees, taking first choice first. This will be followed by the second, third and fourth choice draws, where there is availability of DUs after the first and subsequent choice draws of various size of plots have been conducted... In view of the foregoing, you are requested to exercise your option 1. Comments/Observation:

1.1. Though it is called options, it is actually forced choices at the point of a gun because essentially the beneficiary (veteran) have no choices! 1.2. Further you are making us to commit us by forcing to give a certificate that we will commit to pay the additional payment along with the choices. This is devious and against all fair trade practices. Commitment to pay additional amount has been cleverly concealed within the choices! 2. Information Sought: 2.1. What is AWHOs legal, equity, ethical and moral justification to depart from Master Brochure committed the time tested practices of AWHO of last 20+ years?

16. The part of the property held in trust with the builder has been taken over by the public authority for highway and possibly compensation was provided.

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1. Comments/Observation: This compensation belongs to the trust beneficiary( allottees) whose property is held in trust by the builder (AWHO) and hence the money is to be distributed as on date and not delayed till accounts are settled many years hence in view the time value of the money. See DHL Case court order: http://goo.gl/gmEqF)

2. Information Sought: 2.1. What is AWHOs legal, equity, ethical and moral justification to depart from Master Brochure committed the time tested practices of AWHO of last 20+ years?
17. Although inter related, loyalty duties and investment duties are different. Loyalty duties deal with self dealing, and conflict of interest that could affect any aspect of trust administration. Loyalty duties are breached if the prohibited conduct occurred, the trustee breached the duty. No evaluation need be done.

18. I am awaiting your answer to the questions before I can provide the options.

19. If AWHO tries to answer the questions I raised, it may become obvious that their position becomes untenable legally, morally, ethically and from equity point of view.

20. In view of the above, it would only be prudent not only from the point of legal and moral point of view but also from the point of view of welfare to withdraw the Option letter. No one in the right senses would expect AWHO to provide free bonanza to the allottees. Any decision taken should make business sense also without harming the allottees because that is what should be uppermost in the mind of a welfare organization. An amicable solution would be to follow the Brochure and the booking letter strictly and follow the procedure of allotment by lottery.

21. If at all some have to be charged for the marginal errors committed by AWHO in making lots, it will have to be at rates that existed in 2004 when the property in trust was obtained. That raises a moral/ ethical question how those who did not benefit from the lottery have to be compensated for the reduced common area compared to what AWHO had promised them. That is a question that will have to be resolved in consultation with the allottes in general because everyone is affected by the gross errors committed by AWHO in dividing the lots. To pass on the negative consequences of faulty division to the beneficiary is breach of trust as it is divided loyalty and comingling of funds. The fundamental rule of equity here is: Trustees are generally under an absolute and unqualified duty to make trust distribution (in terms of land, building and surplus cash) to the correct beneficiary in the correct proportion. A trustee makes an improper

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distribution is liable even though the trustee exercised reasonable care and made the mistake in good faith.

21. In view of the above, in order to ensure no one questions AWHO, I would sincerely recommend that where ever the excess land is substantial, one could take away these and make it common area even in between houses and landscape it and provide some landscaping structure like a gazebo for common use. A good example would be some of the following at this link: http://goo.gl/cYZWn. Thus major legal tangle can be avoided and yet it will merge beautifully with the landscape even if it is in between the houses and will be available for use by the whole community!

I am awaiting your answer to the questions before I can provide the options.

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Section

The Appeal to Adjutant General

This is an open letter to the Adjutant General who happens to be ex-officio Chair person the Management Board of AWHO. 1. Undivided Loyalty: As ex-officio Chairperson of the Management Board of AWHO, law demands that you have undivided loyalty towards the interest of the members of the Society. In the decisions taken by the Board, you and the other Board members also seem to have NOT exercised undivided loyalty towards the members of the Society: 1. Decision that all members of the Board will be ex-officio 2. Decision that there will be no members of the Board who will be elected by the members of the Society. 3. Decision that there will be no Annual General Body meeting at all. 4. Decision that there will be no passing of the accounts in the General Body. 5. Decision that the Rules (Master Brochure) will be some thing that you will formulate with MD AWHO and impose it on the Society. 6. Decision that you will not seek the majority approval of the General Body for changes you make repeatedly to the Rules. 7. Decision that you will not submit the rules changed along with the certificate that the changes have been passed with majority in the General Body meeting of the Society as mandatorily required by the statutes.(Society Registration Act 1860) 8. Decision that you will NOT file the compliance requirements as per the Registration of Societies Act and thus jeopardize the status of AWHO as a Society. If the status is compromised, the House Building business will be reduced to "Sole Proprietorship" under the Adjutant General and AG, a Public Servant can not carry on a private business. 9. Decision that you will take the risk to jeopardize the loss of status may instantly make the lucrative and non-competitive House Building business to the captive market of veterans to be seized forthwith. 10. Decision taken at 8 above is too severe in impact to those invested their life savings for the House through AWHO and this clearly is a Criminal Breach of Trust. 11. Decision that Army and Welfare in the name will influence the decision of the members in falsely believing that the trust value of the organization is

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much more than they would have believed had these words were missing from the names. ( The confusion has caused so many litigations in the courts already.) 12. Decision that you will not get the approval of the Government for use of the confusing words Army and Welfare in the name of the "private Society" you claim AWHO is in front of so many cases against awho. 2. All or most of the above decisions taken by you or the Government appointed Management Board) leave no doubt in any one ones mind that you have divided loyalties and the member interest is not uppermost in your mind. 3. The servants of the Society you have hired (including MD AWHO, and the officers hired by MD AWHO and the legal Counsel) have not been directed to have undivided loyalty towards the members of the Society. This has many times caused problems for the members who are actually the beneficiaries and it is a legal right of the beneficiaries that the "servants of the Society" fully understand their fiduciary responsibilities mandated that they have "undivided loyalty" towards them and failure of this is tantamount to "Criminal Breach of Trust" chargeable under the laws of the land ( IPC). 4. Failure at serial 3 above caused many times for the MD AWHO take the stand when the society members represent against AWHO: "Take it if you want or else get out, there are many others wanting to get the Houses" and forgo what they have waited for after paying nearly 95% in advance of construction purely on the basis of trust. 5. MD AWHO and staff and legal counsel NOT having undivided loyalty towards the "beneficiaries" is clear case of "criminal Breach of Trust" in fulfilling their fiduciary duties. 6. Deny transparency to members even by denying them engineering drawings and specifications of their own houses 7. .Request for Action: 1. Complete the compliance requirements to meet the maintenance status of the Society. 2. Call a General Body meeting and incorporate elected management representative into the Board to meet the interest of the major stakeholders: i.e members of the Society. 3. Get the accounts and Rules (amended to reflect the Consumer protection statutes and case laws) passed by the General Body. 4. Bring in total transparency regarding all the accounts and specification and management of the Projects as far as the beneficiaries are concerned. Needless to mention that all the above are the minimum required by law and compliance to law is the minimum expected of a "welfare Organization"

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Section

Going to the Courts As a Last Resort

I can't agree with you more on the statement that going to court should be our last and final resort knowing how things drag etc and also of unpredictability. But that does not mean that we do NOT assert ourselves and bring them to within reasonable compliance with the laws. 1. As far as the Brochure is concerned,, any totally one sided agreement with a dominant party, the agreement is not enforceable. This has repeatedly happened in many cases where the dominant party make you sign on a dotted line. So, the presumed acceptance of the Master brochure is no problem at all because it is not even valid. Secondly, it is not a contract but Self Financing Scheme for which they use our money and we give our money on trust. Arbitration is only in case of breach of contract. Here it will be breach of trust because we have given our money 95% of it on the basis of of trust and we are the beneficiaries and they are the trusties. So the arbitration clause itself may be legally untenable! The difficulty of dividing exactly is recognized and the margin of acceptable error is in the range of 5 to 10% and not NOT 100%. That is totally untenable because of the trust assets (property) is being distributed among the beneficiaries. The sale of trust property belonging to us to ourselves is legally untenable whether it is charged at 2004 rates or at 2012 rates. Both will be legally untenable because of self dealing, commingling accounts etc which we have dealt with in detail elsewhere. Read them carefully and come to your own conclusions. Use reason and logic and NOT subjectivity and emotion.

2.

3.

In these columns, we can only appeal to the logic and reason by cogent arguments to all members. That is why I write extensively giving reason and logic rather than just the final inference. What position you take is purely up to you and to each individual. Considering that that the AWHO has screwed up legal compliance totally from A to Z, we should be able to ( and in fact we should be able to force it on them) to comply with the law. The trust is for the benefit of the beneficiaries and going against the interest of the beneficiaries would attract not just civil action but even criminal penalty. Once they realize their weak position, we are on stronger wicket to negotiate from a position of strength. That is why understanding the legal and equity angles of the issue are important. Even if we can not arrive at a consensus, please do understand that any one aggrieved can drag

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them to court for protection of his rights. Our best bet to convince every one by cogent and well reasoned argument.

Compliance with the Laws

See here: https://docs.google.com/open?id=0B5gmTyGHnWOjTzQ0ZW9xY2hhQnM

See enclosed analysis of Compliance with Laws.

AWHO_CompliancewithLaws.pptx Every law they could break, they have broken and each one against the interests of the members. "If the rules and regulations of the society are inconsistent with provision of the Societies Registration Act, 1860 they are invalid and mere filing with registering authority for the purpose of registration of society cannot make them valid." Reads the Directions of The Registrar of Societies.: http://www.delhi.gov.in/wps/wcm/connect/98f8250046a2ddbd902e915d9d3d91ee/Registration+of +Societies.pdf?MOD=AJPERES&lmod=1899298285

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Section

Meeting with AWHO Officials at their request on 30 Sep 2012

CPC cpcnath@gmail.com to dymd, AWHO, md

Aug 31

For Attention. "AWHO" <awho@awhosena.org>, Please retransmit this email to the following as their email ids are not with me:
1. Director ( Design)

2. Exec Offr (Marketing) ________________________________________________________________________ _____________________ Dear Brigadier, This is to thank you for the time you and your officers have given me in the meeting at 11.00 AM on 30 August 2012..You have persuasively explained the bind you are in and the solution as you see to the same. I have requested that :
1. 2. AWHO meet the fiduciary duties to the beneficiary in full measure. AWHO should meet the compliance with requirements of law ( Societies Registration Act ) in terms of the annual filing which will automatically comply with the process for validation of the Rlues as required by law. etc. because these protect the rights of the members and where there is a right, there is duty owed to protect these rights and where there is duty owed, there is remedy..

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Here, it will be pertinent to bring to your notice that the rights of the Members of the Society are a Claim-Right ( where there is a right, there is duty owed: RightDuty. The holder of a right is normatively protected (with the backing of the state, if necessary) against the interference or un-cooperativeness of one or more other people.) where as the "welfare work of AWHO is a Liberty-Right". Liberties do not entail rights.

Figure 1: Hohfeld's Table of Entitlements and Burdens: [7]

Right( ClaimRight)[ 8] Lib erty [9] Po we r Im mun ity

Duty

NoRig ht

Lia bil ity

Disa bilit y

Please see for explanation:

1. THEORIES OF RIGHTS: HOHFELD AND THE INTEREST/WILL .(http://www.law.cam.ac.uk/faculty-resources/10004529.pdf..) 2. Hohfeld's Analysis of Rights: An Essential Approach to a Conceptual (http://www.austlii.edu.au/au/journals/MurUEJL/2005/9.html)

Further, I am addressing two important questions raised during the meeting:

Questions Raised by AWHO Officials

AWHO officials raised some very interesting questions yesterday ( Thursday 30 August 2012) :
1. You knew the conditions of the AWHO and Rules before joining and if you did not agree with it, why did you agree to it and join AWHO? This question was raised by AWHO official during a discussion about AWHO complying with the laws that protect the rights of a member of the Society registered under Society Registration Act. Here below is the answer to the question:

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2.

Contracts of adhesion: http://awhosocietymember.blogspot.in/2012/08/standard-forms-contractdrafted-by.html (Click to go to the web page where the issue is addressed.) When discussing the Duties of the Trustee ( AWHO Society, Servants of the Society, Chairman, Governing Board etc.) towards its members ( the beneficiaries), I had mentioned "Fiduciary Duties of the Trustee", and his innocent surprised reaction was: Woh kya cheez hai?(or words to that effect) Needless to mention that if an important official of AWHO did not know what his fiduciary duties as a Trustee are towards the beneficiary (Members of the Society), AWHO's work, behaviors towards and transactions with the members are NOT guided by these fiduciary duties. In view of the above, I am addressing it in the following:...

1.

For balance details, GO TO : http://awhosocietymember.blogspot.in/2012/08/questions-raised-by-awhoofficials.html

I appreciate the good work AWHO is doing and if it could be combined with full compliance with the laws of the land and full understanding and compliance with the Fiduciary Duties owed to the beneficiary, AWHO will in true measure be a WELFARE SOCIETY. Hope my research output comes in full measure for the benefit of OUR Society. With sincere regards CPC Nath 2694 8083 _______________________________________________

At a Glance View of Trust, Fiduciary Duties and Duty of Undivided Loyalty Etc.

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Count 1.

Rule Duties of the Trustees: (a) ascertaining the duties and powers of the trusteeship, and the beneficiaries and purposes of the trust; (b) collecting and protecting trust property; (c) managing the trust estate to provide returns or other benefits from trust property; and (d) applying or distributing trust income and principal during the administration of the trust and upon its termination.12 Other duties encompassed within the scope of these broader duties are: (1) creating an inventory of the settlors estate; (2) filing and providing the beneficiaries with annual and final inventories; (3) keeping accurate records; (4) filing estate and final

Breach Although a trustee can be held liable for failure to comply with any one of these duties, the overriding duties with which a trustee must comport are managing and administering the trust with care and skill and ensuring that he or she remains loyal to the trust beneficiaries in acting for their benefit.

The measure of damages for a breach of trust by a fiduciary is the greater of: (1) the amount required to restore the value of the trust property and trust distributions to what they

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income taxes; and (5) distributing trust assets to beneficiaries and creditors of the settlors estate Liabilities: Where the trustee has or threatens to commit a breach of trust, the beneficiaries or cotrustees may initiate an action against the trustee seeking any number of remedies. (1) compelling the trustee to perform his or her duties; (2) enjoining the trustee from committing the breach; (3) compelling the trustee to redress the breach through the payment of money;58 (4) appointing a receiver or temporary trustee over the trust; (5) removing the trustee; (6) setting aside the trustees objectionable actions; (7) reducing the

would have been had the breach not occurred; or (2) the profit the trustee made by reason of the breach

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trustees compensation, or denying it all together; (8) imposing equitable liens or constructive trusts upon the trust property; or (9) tracing and recovering trust property for which there have been wrongful dispositions. One final area of potential liability for a trustee is claiming ignorance of trust provisions or duties. The Restatement (Third) of Trusts is very clear that ignorance will not absolve a trustee from liability.67 The trustee has the duty to become familiar with the terms and purposes of the trust and to act so as to preserve the settlors intent. a fiduciary has a duty of prudence : duty to act as a prudent person, in light of the circumstances, purposes, and terms

2.

an attorney retained by the trustee to assist him or her in the

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of the trust.14 Prudence means that the trustee must exercise reasonable care, skill, and caution in administering the affairs of the trust.15 However, where the trustee has advanced skills as compared to an ordinary trustee, the trustee must utilize those skills in the exercise of his or her fiduciary role.

administration of a trust is the attorney for the entire trust, including the beneficiaries. Courts have increasingly been inclined to erode the attorney-client privilege, thereby extending the designation of client to the beneficiaries of trusts.

3.

4.

5.

Duties of fiduciary extend beyond the obligations expressly assumed A suit may be brought as an action for breach of contract, as an action in tort, as an action in equity, or as an action for declaratory judgment. Virtually every such action will seek to impose liability against the trustee for a breach of fiduciary duty The burden of proving that he or she disclosed all material facts and that the transaction was fair lies with fiduciary. He bears the burden of proof on these issues, Fiduciary is at risk where the evidence

Not disclosed. Transaction unfair.

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6.

7.

on the questions is inadequate to reach a conclusion In many breach of fiduciary duty cases the plaintiff is not limited to compensatory damages. The client may recover any profit of the accountant from fiduciary regardless of whether the breach of fiduciary duty caused the client any injury or whether the contractual expectations of the client were met. Since a fiduciary has a duty to disclose all relevant facts relating to matters within the scope of the fiduciary relationship, a failure to disclose may toll the statute of limitations. The plaintiffs trusted the accountant and relied upon his investment advice. Therefore, their failure to discover his wrongdoing was not the result of a lack of diligence on their part. A fiduciary relationship exists where there has been a special confidence reposed

8.

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9.

10.

11.

12.

in one who, in equity and good conscience, is bound to act in good faith and with due regard for the interests of the one reposing the confidence. One party is accustomed to being guided by the judgment and advice of another or is otherwise justified in believing that another person will act in his or her interest, a fiduciary relationship exists A lawyer who represents a society may be held to owe fiduciary duties to members of the society. a party is accustomed to being guided by the judgment or advice of another and there exists a long association, the party is justified in placing confidence in the belief that the other party will act in his best interest. A party is a fiduciary where money or property belonging to a client is entrusted to the trust.

AG, MD AWHO, Project Director and the Lawyer are all in fiduciary relationship with the member.

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13.

14.

15.

All fiduciaries owed a fiduciary duty to the beneficiary and was required to account for his/her funds A person who is a fiduciary with respect to land fund, building and management fund all owes fiduciary duties. Fiduciary duties include: 1. 2. 3. a duty of loyalty, a duty to disclose relevant facts and to render accounts a duty of due care, and confidences.

AG, MD AWHO, Project Director and the Lawyer

4. a duty to maintain client

16.

1.

2.

3.

4.

The trustee must display throughout the administration of the trust complete loyalty to the interests of the beneficiary, and must exclude all selfish interest: One of the most fundamental duties of and over all consideration of the interests of third persons. The duty of fidelity required of a trustee forbids the trustee from placing itself in a situation where there is or could be a conflict between its self interest and its duty to the beneficiaries. Trustees cannot make a profit from the trust funds committed to them, by using the money in any kind of trade or speculation, nor in their own business. The trustees must account for

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5.

6.

7.

8.

9.

every dollar received from the use of the trust-money and they will be absolutely responsible for it if it is lost in any such transactions. Many forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions. * * * Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court. The duty of loyalty requires the fiduciary to act solely for the benefit of the person to whom the duty is owed with respect to all matters within the scope of the fiduciary relationship. fiduciary to subordinate his own interests to those of the beneficiary.

10. The duty requires the

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17.

Criminal Breaches of the duty of loyalty include 1. receiving a secret profit on a transaction within the scope of the fiduciary relationship; secretly acting for the account of the fiduciary as to a matter within the scope secretly acting for an adverse party in a matter within the scope of the fiduciary relationship competing as to a matter within the scope of the fiduciary relationship; whose interests conflict with those of the person to whom the fiduciary duties are owed. ( This is extremely important as it was revealed in the meeting that the officials work with loyalty and compliance with Army Hq as opposed to its own beneficiaries, there surely is conflicts of interest. Conflict of interest rules are exceptionally precise!)

2.

3.

4. acting on behalf of a party

18.

Where the fiduciary enters into a transaction with a party to whom a fiduciary duty is owed, he or she must disclose all relevant facts to the party and, even then, may enter into a deal only on fair terms. In addition, the burden is on the accountant-fiduciary to prove both the

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19.

fairness of the transaction and the disclosure of all material facts. A fiduciary may NOT 1. deal with the assets of the plan in his own interest or for his own account, in his individual or in any other capacity act in any transaction involving the plan on behalf of a party interests are adverse to the interests o f the plan or the interests of its participants or beneficiaries.

2. (or represent a party) whose

20.

21.

A fiduciary has a duty to disclose all relevant facts as to matters within the scope of the fiduciary relationship A trustee is under a duty to keep accurate books and records regarding what constitutes the trust receipts and disbursements to and from the trust estate, all receipts and disbursements to and from the trust estate and, where applicable, records of all allocations of receipts and disbursements between the principal account and the income account.

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Appeal to COAS & AG

The latest action by AWHO asking amounts up to Rs 38 Lakhs over and above for unit that is priced at Rs 41 Lakhs and Rs 48 Lakhs (which again is actually escalation from Rs 15.50 Lakhs) came as a bolt from the blue! I think this might trigger a chain reaction which might cause an implosion in the whole working of AWHO. I want you to take a serious look at the implications of criminal breach of trust as explained and act immediately: http://awhoconsumer.tripod.com/awhoblog/index.blog?topic_id=44908 Compliance with the laws is the minimum that is expected of a "welfare organization" towards its members. Where the minimum compliance with the laws is also not observed, to call it a "welfare" organization would only be irrational. Even with full compliance, it is like saying "I have not killed you, so I am friends with you!" "Welfare" would involve much more than just compliance, which is the minimum. And when there is not even compliance, there is animosity and adversarial feelings. If courts are the only place we meet to sort out our differences, there can be nothing other than adversarial positioning! That is bad! Good Governance even as per Aristotle requires: 1. 2. 3. 4. Higher level governance. Executive (or magistracies as he calls it) who is responsible to the higher governance for performance. Assembly (General body including the beneficiary recipients) for deliberation Judiciary or Dispute resolution.

To manage a business running to Rs. 10,000 crores, the structure of a "Sole proprietorship" is totally inadequate if you want to avoid conflict of interest, divided loyalty, tyranny and finally scams and implosion. "Tyranny is the arbitrary power of an individual which is responsible to no one, and governs all alike, whether equal or better, with a view to its own advantage, not to that of its subjects and therefore against their will. No free man, if he can escape from it, will endure such a government.... ... indeed in some states the entire aim both of laws and constitution is to give despotic powers over their neighbors. ... the laws , if they aim at anything, they aim at maintenance of power" Aristotle. http://www.constitution.org/ari/polit_04.htm ... "How can that which is not even lawful be the business of the statesmen or the legislator? Unlawful it certainly is to rule without regard to justice, for there may be might where there is no right. The other arts and sciences offer no parallel; a physician is not expected to persuade or coerce his patients, nor a pilot the passengers in his ship. Yet most men appear to think that the art of despotic government is statesmanship, and what men affirm to be unjust and inexpedient

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in their own case they are not ashamed of practicing towards others; they demand just rules for themselves, but where other men are concerned they care nothing about it. Such behavior is irrational ; unless the one party is, and the other party is not , born to serve, in which case men have a right to command, not indeed all their fellows, but only those who are intended to be subjects." Aristotle http://www.constitution.org/ari/polit_06.htm." How do you explain the "welfare recipients" revolt against the "welfare measures and welfare provider"? There are things definitely wrong. Correct it ASAP or else we would come to grief and the institution would suffer as if what beating we received was not sufficient. In order to comply with the laws, please review: 1. 2. 3. 4. Analysis: http://awhoconsumer.tripod.com/awhoblog/index.blog?topic_id=44908 Consumer case laws from Consumer courts http://consumerlaw.in/complaints-againstrealtors-rising/ http://www.commonfloor.com/stories/heavy-penalty-by-cci-likely-to-have-seriousramifications-on-the-real-estate-industry-6840 See DHL Case court order: http://goo.gl/gmEqF

I would sincerely like you to order the following 1. Make the AWHO Society work democratically in the interest of the most important stakeholder (the members) by creating organizational structures responsive to the members and not tyrannically as a "sole proprietorship" while conducting a business of greater than Rs 10,000 Crore! (this is speculation because everything is a secret here!) This is a serious indictment but need to be inquired into, in the interest of openness, probity and doing business in sunshine (because sunshine is the best disinfectant.) Revise the Master Brochure completely to comply with the consumer protection laws and important court rulings. Currently, every sentence is tilted heavily against the members and in undue favor of the AWHO. This is untenable, illegal and may cost the "welfare Organization" reputation in addition to fines. In a recent court ruling the fine was to the tune of Rs 636 Crores. Make AWHO with draw the arbitrary, high handed and illegal (and even criminal breach of trust) option letter raising the cost by almost 100% because of their own failures.

2.

3.

I am writing this in the hope that the some of the problems in the working of AWHO will be sorted out before it hits the headlines in the press and the TV channels. Army needs this least at this time and we are as much proud of the Army and want to do everything to protect the image of the Army which has taken a terrible beating, of late.

A suit may be brought as an action for breach of contract, as an action in tort, as an action in equity, or as an action for declaratory judgment. Virtually every such action will seek to impose liability against the trustee for a breach of fiduciary

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duty. The principal thrust of this is directed toward actions against a trustee for breach of fiduciary duty.

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Section

Conclusions: Actionable Points AWHO Compliance with all the existing laws of the land and we want nothing more and we will settle for nothing less.
Can any judicial body in the country have any complaints with our first item in the Memorandum of Association? Can the AWHO legal counsel contest our MoA in any court of Law in the country? The noose of IPC 409 will be waiting impatiently around his neck for denying the basic rights of the home owners for last so many years! Freedom is not free, you have to fight for it every day. The actionable points I can think of should run some thing like this ( subject to moderation/ correction by others) 1. Form a Home owners Association and register it in Karnataka.( Our common points can be projected by this Association on the individual's behalf. They can't prosecute us for that. They can't even object to it. There are no laws of land by which they can challenge that. If they challenge it through the Rules ( Master Brochure) , it is not even passed by the members of AWHO!) When they do not provide a democratic platform within AWHO, this is the next best we can do.) Write as the Bangalore (Vasant Vihar) Home Owners Association demanding our minimum position.: 1. AWHO Compliance with law as far as filing with Registrar of Societies. ( With out this, the status as a Society is lost and AG will become a Sole Proprietor! He can not conduct businesss as a Sole Proprietor and do business worth Rs10000 Crores while being a Govt Servant!) 2. Revision of Rules to comply with laws and passing in General body before filing with Registrar.(This is required by law) 3. Inclusion of representatives through election to the Governing body from the General body. (This is required by law) 4. Full disclosure and transparency of accounts to the beneficiaries. 5. All the above are minimum required under law of the land and are not negotiable.

2.

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3. 4.

5.

6.

If they fail to come half way, Bangalore Association gives a legal notice based on facts we have already discussed. If we assert and make it clear that 1. we are part of the members of the Society (AWHO) and as beneficiaries we have a right to expect our trustees ( AG) to fulfill the fiduciary responsibilities. 2. Also, MD AWHO as "servant " of the Society better have undivided loyalty to us, the beneficiaries "S408. Criminal breach of trust by clerk or servant with 7 years imprisonment) 3. Also, the Legal counsel better provide advise to AWHO keeping utmost loyalty to the Members of the Society and not the "servants" of the society above ours. If the professional advise is faulty or lead to illegal conditions imposed on us, then the legal counsel themselves are chargeable with "breach of trust" with much stronger punishment. ( IPC Breach of Trust for faulty professional advise: IPC 409. Criminal breach of trust by public servant, or by banker, merchant or agent PunishmentImprisonment for life, or imprisonment for 10 years and fine CognizableNon-bailableTriable by Magistrate of the first classNoncompoundable. ) AWHO will have to convey property to the Owners Association of the particular place as a "builder" can not keep "local self- governmental control" over the property after the construction of the property. ( Any local self government that is established will have to be democratic and representative of the owners at the particular location.) When AWHO thinking changes, we will have amicable results arrived at democratically and not decisions imposed on us tyrannically. We will agree with any thing that is not breaking the laws.( We have already discussed this ad nausea) PS: If they ( AG and MD AWHO) are stupid enough and tyrannically challenge us, the country will have a landmark case: AWHO v Bangalore AWHO Vasant Viahar Home Owners Association!

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Section

Prayer (To be edited & integrated)

My prayer to the HC would be: 1. Order AWHO to desist from committing Criminal Breach of Trust in that 1. . 2. . 3. 2. Full management and accounting audit by an independent auditor like PWC etc. for possible Criminal Breach of Trust already committed. 3. Comply with the laws of the land with the regards 1. Filing of papers with the Regulator to maintain the status of Society 2. Clearance of Accounts in General Body 3. Majority approval of Rules by the General body as required by law and filing with Registrar of Societies. 4. Align the Master Brochure with the Consumer Protection and other laws of the land. 4. Full disclosure including management and accounts to the beneficiaries as required by laws. 5. Management and trust audit to fix possible conflict of interest, co-mingling of accounts & split loyalties and for strict compliance of Fiduciary Responsibilities That would cover every thing. Which court can deny these prayers? AWHO can't break all laws of the land and enforce an "illegal and unvalidated" rule book (master Brochure) on the members of the Society.

Additional Prayer (Input from Col_Diaz)

1. All should be allotted houses by lottery. 2. All excess areas to be carved out and made into parks etc treated as common area. 3. Payment etc subject to full disclosure of accounts and ensuring one account does not subsidize another account for the cost burden. 4. Unrealistic escalation in cost to be audited to ascertain source of escalation after full disclosure before assigning to the beneficiaries.

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5. DU allocation based purely on the original choice of 400 sq yd and 300 sq yrd (with variation limited to 5% as mandated & approved by the Bangaluru Municipality Bye laws.)

Additional Prayer (Input from AG)

1. The project be completed in totality including the community centre, club house,swimming pool etc as per the brochure and then only handed over. 2. The extra land be used for green spaces, like parks etc to be utilized by all and not to be sold to allottees(some people with extra money are already approaching AWHO for allotment of extra land). 3. The allottment of dwelling units be done based on computer random draw to be represented by the allottees who can be present. 4. No extra cost for park vicinity and corner plots. 5. AWHO Owners Society be formed and the complete project be conveyed to the society. 6. OC and Khata be transferred to the owners. 7. As the costing has been for the complete project including the common facilities, the complete project be completed without any additional burden on the allottees. 8. All books of accounts pertaining to the project be shared with the allottees. 9. Cost of land surrendered to the state government for the ring road should be apprised to all and should go to the land account. 10. AWHO should ensure the builder's liability of 18 months after the completion of the project is not compromised due to the delay because of litigation. 11. In case of dwelling units where the size of plot is smaller than the one subscribed to, then the cost differential be refunded to the allottee(this is due to negligence of the builders-AWHO) 12. Cost of complete litigation be refunded to the petitioners along with an interest of 18% on the total cost remitted to AWHO for the delay from PDC.

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Section

10
1. Master Brochure Revision http://awhosocietymember.blogspot.in/2012/07/to-note-if-awhogoverning-body-does-not.html AWHO Consumer Experiences http://awhoconsumer.tripod.com/awhoblog/ AWHO Virtual Participation in Society http://awhosocietymember.blogspot.in/ Criminal Breach Of Trust - Author - Divi Jain Criminal Breach of trust Under IPC: A Critical Analysis : Legal India ...

References

2. 3. 4. 5. 6. 7.

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Appendices Appendix B: Master Brochure Revision

Important to Note: If AWHO Governing body does NOT revise the Master Brochure to bring it upto the compliance to laws of the land. it becomes obvious that the Governing body does not represent the interests of the Society members of AWHO are the greatest stakeholders ( they and only they contribute to the monitory health of the organization)

Comments on AWHO Master-Brochure July87 (amended upto 20 Feb 2004) Clauses and Analysis of Violation of Statute(s)/ Unfair Trade Practices

Index

Interest burden inequity 2. No complaints on quality/specification adherence 3. Future Management of Colonies 4. No sale/transfer with out permission 5. Absolute power to refuse sale 6. Absolute power to cancel allotment 7. Power to charge seller and buyer Rs 10,000 or such amount decided by the MD 8. Arbitrationin Delhi only 9. Absolute power to decide the arbitrator even if he is NOT independant and no power to challenge the same 10. Legal proceedings in Delhi only. 11. Organisations liability at any stage : only to refund money with interest 5% less processing charges 12. MD has final authority to accept/reject the application and his decision shall be conclusive and final. 13. MD has the final word on interpretation of the Rules and his decision is binding and not open to appeal/representation. 14. The board of management/ executive Committee has the right to alter, add or delete any rules and it shall be
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binding 15. The general liabilities of a Promoter-Builder are conveniently or perhaps deliberately avoided inthe brochure. 16. Rights of a purchaser/ Allottee What must a purchaser ascertain and/or fix before purchasing a flat from the builder? 17. Allottees right to inspect 18. Challenge for AWHO to be truly "welfare" oriented

Clause 43(a)Registration fee from the annual registration scheme will

carry simple interest @5%p.a The interest will be admissible from FIRST of the month following the receipt for application upto END of the month preceding the issue of 'Booking Letter' Comments: Not paying interest as is available from the banks on a daily basis is an unfair trade practise and liable to be manipulated to the advantage of the organisation by setting dates of calling for applications and booking letter dates to suitably escape the interest liability. Banks and financial institutions give interest on a daily rests basis and the rule is exploitative of the consumer. Ref Para 41, Interest on Delayed Payments on instalments when due is chargeable from the consumer at 15.5%/10% for every day of delay. Unfairly tilted in favor of the organisation.The right to seek redressal against unfair trade practices or unscrupulous exploitation of consumer undermines the the principles ensrined in the Consumer Protection Act 1986. Worse still, it undercuts the claim that AWHO is a "welfare" orgaisation concerned withthe wefare of the consumers..

Clause 70.The dwelling uits will be offered on "as is where is' basis,
subject to certification by the PM and Consultant Architect. The organisation will not entertain any request for addition/alteration or any complaint what so ever regarding the design and structural work, quality of materialused , workmanship or any other defects. Comments: This is violative of the existing statutes (Consumer Protection Act) Products and services by builder are covered under the Consumer Protection

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Act. A consumer can file a complaint in case the builder has given you deficient services regarding the following: * Delivered a poor quality construction. * Delivered a house that does not comply with the specifications agreed upon. Not entertaining any complaint is tantamount to not being heard. The consumer Protection Act 1986 ensrines the right to be heard and to be assured that the Consumers' interest will get due consideration. Any violation of this is violation of existing law. - Compensation for ineffective supervision The Tamil Nadu State Consumer Disputes Redressal Commission has awarded a compensation of Rs 7,86,853 to 28 allottees in a case involving the Tamil Nadu Housing Board. The allottees complained that there were several deficiencies in the construction that need to be rectified. The commission directed the board to initially pay the compensation and then recover from those involved in the project.

Chapter VIII Future Management and Maintenance of Project/Colonies

Rights and duties of the organisation after 1 year of the completion of dwelling units are not spelt out and left to the guessing of the consumer. Duties and liabilities of Welfare Maintenance Society and the allottees are clealy spelt out. Comments: AWHO seems to have an identity crisis- whether they are a builder/promoter or some thing more than this. If they are some thing more than this, what are their rights, duties and liabilities viz a viz that of the co-op society and the individual allottee and under what statutes are these governed are not clearly stated. This is against the spirit of Consumer Protection Act and the other relevent statutes. In the absence such definition, assuming certain powers seems to be arbitrary and not maintainable under law. The MD is made out to be a benevolent dictator and no one can appeal against the dictator.The "benevolent dictator" will generally not invoke his power to be a dictator since you are assured that he is more benevolent than a dictator and have nothing to fear. To be under the dictatorshipof the organisation for life (because even after the allottment of the property and and take over, one has to live life under the authority of a "builder" is repugnant to the concept of the rights of the people to participate in the creation of all local governments -- whether labeled, classified or defined as "public" or "private" -- and reserve certain rights to themselves as

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inalienable, shall not be abridged. No governments may be created by private businesses, or individuals, prior to the arrival of THE PEOPLE that will be governed by these governments. The legislature shall make no law that permits a corporation to govern a community of citizens so as to restrict their fundamental liberties. This issue of conveyance of the land by the builder to the society is quite a gray area. The reason for this deliberate failure is that the builder still remains the owner of the property. To add to this, whenever any additional Floor Space Index (FSI) is granted the builder gets right to use it and make money. As a result of which these societies have only possessory rights and not the ownership over the land. A promoter under section 11 of the Maharashtra Ownership of Flats Act, 1963 is under a statutory duty to convey all the interest in the land and buildings to the society within four months from the date of formation of society." Under section 13(1) of the said Act if the builder or the promoter fails to do the same on conviction he shall be liable on conviction for imprisonment for a term which may extend to three years or with fine, or with both. But flat holders or a society hardly take this step. The reason could be ignorance or the time consuming court procedures or the influential status of the builder. An amendment to the statute is badly needed as unscrupulous builders took advantage of this loophole in many ways. Such a move of amendment has been under consideration for more than 6 years. The amendment bill proposes to insert the provisions related to the automatic conveyance in case the builder fails to do so and imposes more grave sanctions on the builder who fails to do so without any reasonable excuse. The promoter is imposed with a liability to state the date by which the conveyance deed is to be executed. If it is brought to the notice of the Authority appointed by the Government that the Promoter has failed to execute the conveyance deed by the stipulated time, the Authority shall give show-cause notice to the promoter and after giving hearing to him, if satisfied may extend such date to such period as deemed fit. If the promoter fails to execute the conveyance deed of property in favour of the Society or Association of the flat owners as the case may be within such period as sanctioned by the competent authority, the Authority shall record that fact in writing and after completing all the requirements legally necessary for executing conveyance deed shall issue certificate of title, free of all encumbrance to the Society or Association. Such certificate shall be deemed and treated as conveyance deed executed in favour of the Society or Association irrespective of any provision of any law for time being in force. The Authority is vested with the power to Black list the name of the promoter who fails or avoids executing the conveyance deed in favour of the Society or

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Association within the stipulated period. The name so black listed shall be communicated to the Government and he will be barred from undertaking construction of blocks or flats henceforth. The bill also proposes to increase the term of imprisonment from three years to ten years and extend the fine to five lakh rupees if the builder is convicted for failure to give conveyance to the Society or Association under section 13(1) of the Act. There are many advantages to conveyance. Some of these are mentioned below: " " " " " Acquiring marketable title; Retaining additional F.S.I.;, Loan can be raised by creating mortgage; Permission for reconstruction can be taken by the society; Construct additional floors by TDR.

These advantages are possible only if the conveyance is done in favour of the society. The proposed amendment to the Act is absolutely necessary as it endow the society with a stronger weapon against the malpractices of the builders.

Clause 80 No sale/transfer/assigning of a dwelling unit to a third party

shall be effected by an allottee.. with out prior permission in writing of the Organisation

Clause 81: .. The Organisation reserve the right in its absolute discretion
to refuse permission to sell the dwelling unit.

Clause 82: .. the Organisation reserves the right in absolute discretion to

cancel the allotment of such dwelling unit to the original allottee and to take over posession of the dwelling unit.

Clause 83.. Power to charge Rs 10000/= from the seller and the buyer as
transfer fee.

Clause 84: No allotteeshall mortgage/ pawn the dwelling unit for the
purpose of securing any loan at any stage, except with the permission of the organisation.

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Comments: Refer to comments above. These are powers which are absolute, arbitrary and not sanctioned by any law of the land. These are sweeping powers which are questionable under the existing statutes dealing with right to property and consumer protection and the fact that no one has questioned it so far does not make it any more legal. This violates the ownership rights of property enshrined in the statutes. Using a contract, form or any other document related to a consumer transaction which contains a confessed judgment clause that waives the consumer's right to assert a legal defense to an action is defective under law. Even when adequate notice of the terms and conditions in a document have been given, the party imposing the cnditions may not be able to rely on them if he has committed a breach of contract which can be desribed as "fundamental." Exemption clauses are construed strictly, particularly where they are so widely drawn as to be unreasonable and doubtful if any, are not resolved in favour of the stronger party. Another mode of protection is to exclude the unreasonable terms from the contract. A term is unreasonable, if it defeat the very purpose of the contract or if it were repugnant to the public policy. Again, services rendered under a contract which exempt the supplier from liability and a third party is injured by the use of them, the supplier is liable to him, not withstanding that he has purchased his exemption from the other party to the contract. "standard form contract" or the "contracted adhesion" is employed to denote the type of contract of which the conditions are fixed by one of the parties in advance and open to acceptance by any one. The most unfortunate socio-economic aspect of the of this development is that this contract has been forged by the mighty dealers, suppliers and even public or government undertakings and so called " welfare organisations" as an instrument of exploitation and oppression of the weak and the poor consumer. These contracts are attended by so many evils, that legislative and judicial intervention has become sine qua non to do justice in the cause of the servient party, which in most cases is the consumer. The terms and conditions always lean favourably towards the imposing party. The servient party-- the consumer is generally hustled and compelled by circumstancess to get into such standard form contracts as other wise he will be deprived of all necessary amenities. He has to submit to imposition of standard form contracts, which even control the place of suing, penalty if a condition is violated . His voliton, or desire or intention is of no account. Such standard form of contract some time contain an "exemption clause" which often provides that the imposing party will not be liable in virtually any circumstances whatsoever. The rights enjoyed by Consumer Protection Act in addition to other Acts that protect the citizens or general public for the protection of the consumer ( like IPC 1980, CPC 1908, MRTP Act 1969, Code of Criminal Procedure 1973BIS Act 1986, consumer Protection under the law of torts etc.) can not be wished away by an exemption clause in the aggreement. Fundamental principle is that the producers liability is partly contractual in origin, it can not be

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excluded by agreement. This prohibits any exclusion or limitation of, liability by contractor notice, emphasising that wherever the warranty, theories used to justify its development is essentially tort based.

Clause 89 Place of arbitration Delhi only irrespective of the location of the

property.

Clause 90 Arbitrator will not be objected even if his independance is

doubtful Comments: CPC 1908 elaborately defines where ( first and foremost, where the property is located) the suit is to be insituted. Clause 89 violates and abridges this right ensrined in the statutes. Claus 90 Violates the existing Statutes Arbitration and Concilliation Act 1986 Civil Procedure Code, Grounds for challenge.(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

Clause 95. Legal proceedings shall be instituted in delhi only regardless

of the location of the property.

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Comments:

Clause 95 violates the letter and spirit of the Consumer Protection Act and CPC 1908 NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION, NEW DELHI order dated 11th April, 2002. JUSTICE D.P. WADHWA, J.(PRESIDENT) "To help and assist a consumer and to achieve the objects of the Act, Section 11 of the Act was amended. This Section relates to the jurisdiction of the District Forum. Now a complaint could be filed against the opposite party not only at the place where he actually or voluntarily reside or personally works for gain but also where he carries on business or has branch office. The words "carries on business or has a branch office" were added by the amending Act of 1993.... Jurisdiction of a District Forum is exclusively covered by Section 11 of the Act. For this we do not have to refer any provisions of the Code of Civil Procedure. Any provision of the agreement which oust the jurisdiction of a District Forum even from a place where the opposite party has a branch office cannot be held to be valid or binding."

Clause 99. Organisation's only liability at any stage is to refund the

deposit with interest as per rules (ie. 5% as per clause 43) less 2% handling charges of Registration Amount. As no mention of stage is stated, these powers are available to the MD at any stage before actual taking posession of the property. Comments: The MD is made out to be a benevolent dictator and no one can appeal against the dictator.The "benevolent dictator" will generally not invoke his power to be a dictator, but you are assured that he is more benevolent than a dictator and have nothing to fear. As per existing case laws of NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI, order dated the 31st August, 2001 PER JUSTICE D.P. WADHWA, PRESIDENT, the interest payable for delay in allottment is given below along with their comment : "We are of view that award of interest @ 18% per annum is quite equitable as it will take into consideration the escalation of cost of construction as well. If the stories of woes of the common man are to be scripted by the one who shouts from the house top of his love for the common man, then in the instant case the only factor begging question is the truth. Contradiction is perhaps inherent in the system like this. This may be a window of opportunity to introduce an element of propriety on the part of Urban Development Authorities while dealing with common man." They do not talk of total rejection of allottment as it is not practiced by any Development authority.

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How much interest can be claimed for delay in delivery? If there is delay in delivery of apartments on time, how much compensation can be sought? In most cases, the defaulters are government-run organizations. In a situation where different state commissions had awarded varying rates of interest for customers who desired refunds, the National Consumer Disputes Redressal Commission has now settled the issue once and for all. The commission held that interest at 18 per cent per annum "is quite reasonable and equitable as it will take into consideration the escalation of cost of construction as well." This ruling will be binding on all the consumer courts throughout the country.

Clause 100. MD has finalauthority to accept/reject the application and

his decision shall be conclusive and final.

Clause 101. MD has thefinal word on interpretation of the Rules and

his decision is binding and not open to appeal/representation.

Clause 102 The board ofmanagement/ executive Committee has the

right to alter, add or delete any rules and it shall be binding Comments: The MD is made out to be a benevolent dictator and no one can appeal against the dictator.The "benevolent dictator" will generally not invoke his power to be a dictator, but you are assured that he is more benevolent than a dictator and have nothing to fear. One of the foundations and finest achievements of our country's form of governance is a system of rights of persons that are enforced dispassionately and equally for all persons. These rights cannot be signed away by individuals or denied to them arbitrarily by those in power. The most basic are those codified in the Constitution and in law. These broadly accepted rights are extended and formalized within organizations of all types. There is no place in our society where certain fundamental rights do not apply - in a corporation, a prison, a street corner, the rashtrapathi Bhavan , or a residential community association. Each unit may be dealt with by the owner in the same manner as is permitted by law for any other parcel of real property. Specific rights to use your unit include these: Maximum privacy within your unit. The association may enter your home only to maintain or replace a common element or to make emergency repairs necessary to prevent damage to common elements or to other units;

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To live in your home free of conditions that materially interfere with your peace, comfort or health; To bring action for relief against others for a violation that affects your occupancy; To decorate your unit; To alter or improve your unit (subject to restrictions); To mortgage your unit; To sell or transfer your unit; To sublet or rent your unit (subject to anti-discrimination laws and the established rules of the association); To use the limited common elements assigned to your unit (subject to restrictions). The State shall guarantee, to THE PEOPLE, local governments of the democratic republic form, and that they shall be confined to the rule of law. These regimes shall be based on rights. The State shall guarantee the protection of individual rights that no majority of even the co-operatives shall be able to take away. The legislative, executive, and judiciary powers shall be segregated into different departments and a system of checks and balances shall be infused into the structure, that are sufficient to ensure that no branch can become stronger than the others. The State shall guarantee the supremacy of the interests of THE PEOPLE that live or will live in housing developments, over the interests of those that plan, develop, build or sell services to them.(If as a home owner, I can not elect the the board of management/ executive Committee of the organisation (AWHO), then that organisation has no right to make laws that govern my life and enjoyment of the property. It should vanish from the scene once the property is made and home owners take charge the governance in a democratic way. Any thing more that this is defective in law and hence not enforceable. A basic principle is to attempt to solve problems rather than punish alleged offenders or win a dispute. This would begin with reasonable informal processes before any formal procedures are invoked. The formal procedures include: A separation of powers so there is justice free from political interference; Mediation/ADR must be used to resolve complaints and disputes before resort to litigation; Resolution of alleged rule violations and disputes may not be delegated to a Managing Director. The association will not undertake to resolve alleged criminal actions. Due Process: The rule enforcement and dispute resolution process must be based on due process. With the sole exception of regular assessment collections, an association must afford each of its members due process before any disciplinary action is taken. Due process requires: The procedures for enforcing rules and settling disputes must be approved and made known; the rules and penalties must be approved and published prior to any enforcement; equal enforcement of rules; written notice of the specific complaint; presumption of innocence; a

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hearing in a fair tribunal before an impartial and qualified referee, with the opportunity to see evidence and confront accusers; opportunity to appeal to an impartial forum; no unreasonable penalties. There must be approved and published Election Policies and Procedures detailing all aspects of elections, including nominating or election committee, nominating procedure, campaigning, notice of election, rules for absentee and proxy ballots, conduct of the election, and vote counting. The election procedures must have commonly accepted means to prevent irregularities and the perception that irregularities could occur, such as a level playing field for all candidates and a neutral party to conduct the elections.

Fundamental Governing Rights/Principles

The State shall guarantee, to THE PEOPLE, local governments of the democratic republic form, and that they shall be confined to the rule of law. These regimes shall be based on rights. The State shall guarantee the protection of individual rights that no majority shall be able to take away. The legislative, executive, and judiciary powers shall be segregated into different departments and a system of checks and balances shall be infused into the structure, that are sufficient to ensure that no branch can become stronger than the others The right of the people to participate in the creation of all local governments -whether labeled, classified or defined as "public" or "private" -- and reserve certain rights to themselves as inalienable, shall not be abridged. No governments may be created by private businesses, or individuals, prior to the arrival of THE PEOPLE that will be governed by these governments. The legislature shall make no law that permits a corporation or Organisation albeit named "welfare" to govern a community of citizens so as to restrict their fundamental liberties. The legislature shall make no law that permits a person to be a judge in his or her own cause, nor a body of people to be both judges and parties at the same time The powers not delegated to homeowner associations by law, nor prohibited by it to the people, are reserved to the people. The right of the people to be secure in their homes, properties, reasonable lifestyles, privacy, and protective insulation, against unreasonable intrusion; to freedom from a private government's telling them how to live their lives; to enjoy their properties; and to the assurance of a peaceful retreat from the demands of the outer world; shall not be violated. Neither the State, nor any local government, shall make or enforce any law which shall abridge the privileges or immunities of citizens, including, but not limited to, the privileges or immunities enumerated herein; nor shall any local government deprive any person of life, liberty, property, or the pursuit of happiness, without due process of law; nor deny to any person within its

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jurisdiction the equal protection of the laws. In community associations, it falls ultimately to homeowners themselves to define and affirm the rights, protect them, and see that they are enforced. Other groups with interests that may diverge from those of unit owners, such as managing agents and professionals in the housing industry, are actively pursuing their particular interests in the operation of RWAs through their professional associations, through lobbying legislators, and through the courts. We believe deeply in these individual rights, in the Constitution and laws that protect their rights, and in the importance of these rights to their welfare. Rights need to be tended to and asserted or they will be violated, eroded, or cease to exist. They must be constantly reaffirmed in ceremonies, in daily practice, and when necessary, in the courts.

The general liabilities of a Promoter-Builder

are conveniently or perhaps deliberately avoided inthe brochure. Comments: THE LIABILITIES OF A PROMOTER-BUILDER The general liabilities of a Promoter are stated in Section 3 of the Maharashtra Ownership of Flats Act, 1963. According to this section, a Promoter who intends to construct or constructs a block of building of flats, all or some of which are to be taken or are taken on ownership basis, shall in all transactions with persons intending to take or taking one or more of such flats, be liable to do the following: * Make full and true disclosure of the nature of his title to the land on which the flats are constructed, or are to be constructed. Such title to the land should be duly certified by an Attorney-at-Law, or by an Advocate of not less than 3 years standing. It should be duly entered in the property card or extract of Village Forms or any other relevant revenue record. * Make full and true disclosure of all encumbrances on such land, including any right, title, interest or claim of any party in or over such land * Allow for inspection of the plans and specifications of the building, built or to be built on the land on seven day's notice or demand. Such plans and specifications should have been approved by the local authority as is required to be done under any law for the time being in force. * Disclose the nature of fixtures, fittings and amenities, including the provisions for one or more lifts, provided or to be provided.

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* If the promoter himself is the builder, disclose on reasonable notice or demand, the prescribed particulars as respects the design and the materials to be used in the construction of the building. If the promoter himself is not the builder, disclose, on such notice of demand, all agreements (and where there is no written agreement, details of all agreements) entered into by him with the architects and contractors, regarding the design, materials and construction of the building * Specify in writing, the date by which the possession of the flat is to be handed over. It shall be his duty to hand over such possession accordingly. * Prepare and maintain a list of flats with their numbers already taken or agreed to be taken, and the names and addresses of the parties, and the price charged or agreed to be charged, and the terms and conditions, if any, on which the flats are taken or agreed to be taken. * State in writing, the precise nature of the organization of persons to be constituted and to which title is to be passed, and the terms and conditions, governing such organizations of persons, who have taken or are to take the flats. * Not to allow persons to enter into possession until a completion certificate is duly given by the local authority, in case such certificate is required to be given under any law. No person shall take possession of a flat until such completion certificate has been duly given by the local authority. * Make a full and true disclosure of all outgoings, including ground rent, if any, municipal or other local taxes, income taxes, water charges and electricity charges, revenue, assessment, interest on any mortgage or other encumbrances, if any. * Make a full and true disclosure of such other information and documents in such manner, as may be prescribed and give on demand true copies of such of the documents referred here as may be prescribed at a reasonable charge. * Display or keep all the documents, plans or specifications or copies, referred above at the site and permit inspection of these documents to persons intending to take or taking one or more flats. * When the flats are advertised for sale, disclose, inter alia, in the advertisement, the following particulars, namely: 1. The extent of the carpet area of the flat including the area of the balconies which should be shown separatel 2. The price of the flat, including the proportionate price of the common areas and facilities, which should be shown to be paid by the purchaser of the flat and the intervals at which the installments may be paid 3. The nature, extent and description of the common areas and facilities 4. The nature, extend and description of limited common areas and facilities if any.

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* To maintain a separate account in any bank of sums, taken by him as advance or deposit from persons intending to take or, who have taken flats, including any sums, taken towards the share capital for the formation of a co-operative society or a company, or towards the outgoings (including ground rent, if any, municipal or other local taxes, taxes on income, interest on any mortgage or other encumbrances if any). He shall hold the said money for the purposes for which it was given and, shall disburse the money for those purposes and shall, on demand in writing by an officer, appointed by general or special order by the State Government for the purpose, make full and true disclosure of all transactions in respect of that account. * A promoter shall, while he is in possession, and where he collects from persons, who have taken over flats or, are to take over flats, sums for the payment of outgoings even thereafter, pay all outgoings (including ground rent, municipal or other local taxes, taxes on income, water charges, electricity charges, revenue assessment, interest on any mortgage or other encumbrances, if any), until he transfers the property to the persons, taking over the flats, or to the organization of any such persons. If he fails to pay before transfer to the purchase, all or any of the outgoings collected by him from purchasers or intending purchased, the promoter continues to be liable for the outgoings to pay these outgoings to the authority even after the property in the flat is transferred. These are the mandatory minimums a Promoter/builder is obligated under the law. A welfare organisation like AWHO should go far beyond these to serve the community they are supposed to be serving. If they do not even meet the minimum obligations of law, how are they different from the land sharks who have come up in the building industry? Oneof the many ways they could do this ( for illustration only) is to guarentee outright purchase of the flat in case of foreclosure and use this guarentee to collectively bargain to reduce the the interest burden by a few hundread basis points from the lenders. One could think of many such innovative ways of reducing the financial burden of the community in a truly welfare nature. A brain storming of all possible stake holders of what is possible in this nature of welfare measures might be challenge to the welfare insticts of AWHO.

Rights of a purchaser/ Allottee

What must a purchaser ascertain and/or fix before purchasing a flat from the builder? This is not mentioned any where in the brochure. Comments: Before purchasing a flat the purchaser must have rights to ascertain and / or fix the following:-

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* The Land under construction is free hold, lease hold or is not affected by the provisions of Urban Land Ceiling and Regulations Act, 1976 (ULC Act) i.e. such permission required for the ULC Act have been obtained. * If the owner and the builder of the land under construction are different persons, i.e. the builder may have obtained development rights from the owner. In such a case, the purchaser should make the owner a confirming party to the agreement for sale so as to bind the owner with all the terms and conditions of the builder. * Total price consideration which should include the proportionate price for the common areas and facilities. * Schedule of payment, i.e. when and how much to pay in installments against the total consideration. * Date of possession * Carpet area of the flat * Detailed plan * Detailed specification of construction, materials and fixtures. * The precise nature of the organisation to be constituted of the persons who have taken or are to take the flats, i.e. cooperative society, condominium or a company. * The nature, extent and description of the common areas and facilities and of limited common areas, if any. * Perusal of the following documents: 1. Title certificate by an advocate of the land under construction stating that the builder owner has a clear title free from encumbrances and is marketable. 2. Property card or 7 x 12 extracts or any other relevant revenue record showing the nature of the title of the promoter to the subject land. 3. Approved plans and commencement certificate issued by the concerned local authority. 4. All relevant orders necessary for the development and construction of the land e.g. if the land is affected by the U L C Act, permission is required to be obtained to develop it under section 20, 21 or 22 of the said Act.

Allottees right to inspect

Comments: It is necessary to have clearly stated rights to inspect/check the following documents pertaining to the project where one intends purchasing the flat:

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*Development agreement with the land-owner if the developer is not the owner of the property, and the Power of Attorney executed by the land-owner in favour of their developer. *Approved building plans. *Commencement certificate *Completion/Occupation certificate. *The builder enters into the Development Agreement with the land-owner. It contains details regarding the terms and conditions on which the landowner has permitted development of his property. This is where the land-owner engages a third party (that is, the developer) to develop and build on their plot of land. This agreement is generally accompanied by a Power of Attorney in favour of the developer. *Approved building plans need to be checked necessarily. The plans must be approved by the Municipal Corporation/Town Planning authority or other concerned authorities such as CIDCO, MHADA, HUDCO, Gram Panchayat, and so on, as applicable depending on the project's location. *Commencement certificate is given by the Municipal Corporation permitting the developer to begin construction. This is done once the plans have beenapproved. *Completion/occupation certificate is given by the concerned authorities to the developer once the said building is complete and fit for occupation. IN case of a building yet to be constructed, the agreement has to contain particulars on the liability of the promoter to construct it according to the plans and specifications approved by the local authority. Other particulars the agreement should contain are possession date, price to be paid by the purchaser and the intervals at which the instalments for the full payment are to be made, specifying the stage of construction, the precise nature of the body of the occupants/buyers, details of the common areas and facilities specifying the percentage of undivided interest in the common areas, and facilities pertaining to the apartment agreed to be sold, a statement of the use for which the apartment is intended. Copies of the title certificate issued (as specified earlier) and a copy of the approved plans and specification, a list of fixtures and amenities, including provisions for lifts to be provided for the flat, should be attached to the agreement. A promoter, while he is in possession, and where he collects from persons who have taken over flats or are to take over flats, sums for payment of outgoings even thereafter, has to pay all outgoings until he transfers the property.

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The out goings would include ground rent, municipal and other local taxes, taxes on income, water charges, electricity charges, revenue assessment and interest on any mortgage or other encumbrances, if any. One should also ensure that the apartment's area has been mentioned in the agreement. It is also mandatory for the developer/promoter to convey the land in favour of the society/association of flat owners/condominium/company within four months of the project's completion. In the sale agreement, there should be a declaration/representation by the promoter/seller that he has not encumbered the property in any manner whatsoever and entered into any other agreement to sell/lease/license with any other party. It needs to be specified whether the property is vacant or in possession of any other party other than the seller.

Appendix C Trust Laws

When trustees fail in their main duties, the law imposes sets out different remedies according to the nature of the breach. In general, breaches of rules surrounding performance of the trust's terms can be remedied through an award of specific performance, or compensation. Breaches of the duty of care will trigger a right to compensation. Breaches of the duty to avoid conflicts of interest, and misapplications of property will give rise to a restitutionary claim, to restore the property taken away. In these last two situations, the courts of equity developed further principles of liability that could be applied even when a trustee had gone bankrupt, as well as to some recipients of property that came from a breach of trust, and some people who had assisted in a breach of trust. Equity recognised not merely a personal, but also a proprietary claim over assets taken in breach of trust, and perhaps also profits made in breach of the duty of loyalty. The courts would follow an asset, or trace its value if the trust property was exchanged for some other asset. If trust property had been given to a third party, the trust fund could claim back the property as of right, unless the recipient was a bona fide purchaser. Generally, anyone recipient of trust property who knew about the breach of trust could be made to give back the value, even if they had themselves exchanged the thing for other assets. Lastly, against people who may never have received trust property but had assisted in a breach of trust, and had done so dishonestly, a claim arose to return the property's value. If a trustee has broken a duty owed to the trust, the remedies available to the beneficiaries fall into similar categories as those for breach of any obligation. First, specific performance may generally be awarded in cases where the beneficiary merely wishes to compel a trustee to follow the trust's terms, or to prevent an anticipated breach.[32] Second, for losses, beneficiaries may claim compensation. The relevant applicable principles have been subject to some dispute, given the historical language of requiring a trustee to "account" for things which go wrong. On one view, it was suggested that at the very moment a

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trustee breaches a duty, for instance by making an erroneous investment without considering relevant matters, beneficiaries have a right to see the trust accounts are surcharged, to erase the transpiring loss (and "falsified" to restore to the trust fund unauthorised gains).[33] In Target Holdings Ltd v Redferns[34] the argument was taken to a new level, where a solicitor (a fiduciary, like a trustee) was given 1.5m by Target Holdings Ltd to hold for a loan for some property developers, but released the money before it was meant to (when purchase of the development property was completed). The money did reach the developers, but the venture was a flop, and money lost. Target Holdings Ltd attempted to sue Redferns for the whole sum, but the House of Lords held that the loss was caused by the venture flop, not the solicitor's action outside instructions. It was, however, observed that the common law rules of remoteness would not apply.[35] Similarly in Swindle v Harrison[36] a solicitor, Mr Swindle, could not be sued for the loss of Ms Harrison's second home's value after he gave her negligent and dishonest advice about loans, because she would have taken the loan and made the purchase anyway, and the house value drop was unrelated to his breach of duty. The third kind of remedy, for unauthorised gains, is restitution. In Murad v Al Saraj[37] the Murad sisters entered a joint venture (creating a fiduciary relation, like for trustees) with Mr Al Saraj to buy a hotel. He deceitfully told him he was investing all his own money, when in fact he set off a debt from the seller and took an undisclosed commission. When sued to give up the profits he made, he submitted that the sisters would have entered the transaction even if they had known what he had done. Arden LJ rejected this argument, affirming that upon such a wrong, it was not open for the fiduciary to argue what might, hypothetically, have happened. A reduction in liability could only come from a determination of the value of skill and effort contributed. This is less generously quantified for dishonest fiduciaries, but generous allowances are typically given, as in Boardman v Phipps for fiduciaries who all along act honestly.[38] Trustees who are found to commit wrongs may also have a defence under the Trustee Act 1925 sections 61-62. This gives courts discretion to relieve liability for people who acted "honestly and reasonably, and ought fairly to be excused". There may also be exclusion clauses in the trust deed, up to the point of removing liability for fraud and open conflicts of interest.[39] Chiefly exclusion clauses will erase liability for breaches of the duty of care, although for professional trustees the ability to do this is constrained by the Unfair Contract Terms Act 1977. If agreements for money management take place through contracts, a professional trustee probably cannot exclude liability for breach of contract under section 3, because given that he would be better placed to take out insurance liability exclusion will probably not be reasonable under section 11. Lastly, the Limitation Act 1980 sections 21-22 prevents claims for innocent or negligent trust breach being pursued six years after the right of action accrues, again with the exception for fraud or property converted by trustees for their own use, where there is no limit.

More

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http://en.m.wikipedia.org/wiki/English_trusts_law#section_5

http://www.bailii.org/openlaw/trusts.html

http://en.m.wikipedia.org/wiki/Law_of_India Trust law in India is mainly codified in the Indian Trusts Act of 1882, which came into force on March 1, 1882. It extends to the whole of India except for the state of Jammu and Kashmir and Andaman and Nicobar Islands. Indian law follows principles of English law in most areas of law, but the law of trusts is a notable exception. Indian law does not recognise "double ownership", and a beneficiary of trust property is not the equitable owner of the property in Indian law.

Criminal Breach of trust

http://goo.gl/vGRK3

Appendix D: Divided Loyalty & Conflict of Interest

Trustee Duties and Liabilities
www.willmslaw.com/Concepts/article34.htm There are five general fundamental duties which must be carried out by any individual acting as a trustee. These duties consist of: (i) A duty to be generally .

Fiduciary Duties of Trustees

www.mitchell-attorneys.com/.../fiduciary-duties-of-trustees-in-... Learn about the fiduciary duties of trustees. Including duties of a trustee to a trust and its beneficiaries, particularly regarding investment and financial matters.

Appendix E: The trustees duties

The core trustees duties
This considers a selection of the key duties of trustees. Hudson, 2005, chapter 8 considers 13 general duties [as set out in the textbook], as well as the procedures for the appointment and removal of trustees:

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1. 2.

3.

4. 5. 6.

The duty to act even-handedly between beneficiaries, which means that the trusteesare required to act impartially between beneficiaries and to avoid conflicts of interest. The duty to act with reasonable care, meaning generally a duty to act as though a prudent person of business acting on behalf of someone for whom one feels morally bound to provide. The duty to avoid conflicts of interest, not to earn unauthorised profits from the fiduciary office, not to deal on ones own behalf with trust property on pain of such transactions being voidable, and the obligation to deal fairly with the trust property. The duty to preserve the confidence of the beneficiaries, especially in relation to Chinese wall arrangements. The duty to account and to provide information. The duty to take into account relevant considerations and to overlook irrelevant considerations, failure to do so may lead to the court setting aside an exercise of the trustees powers.

There are other duties considered in Hudson, section 8.1 and in chapter 9 (relating specifically to investment of the trust property); and there are also general powers for trustees considered in Hudson, chapter 10. We will be focusing only on those duties with emboldened numbers.

What it means to be a fiduciary

*Bristol and West Building Society v Mathew [1998] Ch 1 at 18, per Millett LJ: A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. The core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. **Armitage v. Nurse [1998] Ch 241, per Millett LJ: *T+here is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that there core obligations include the duties of skill and care, prudence and diligence. The duty of trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient ... a trustee who relied on the presence of a trustee exemption clause to justify what he proposed to do would thereby lose its protection: he would be acting recklessly in the proper sense of the term.

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More: Refer: http://cw.routledge.com/textbooks/9780415497718/podcasts/podcast25.pdf

The Duties of a Trustee

A trustee has a fiduciary relationship with the beneficiaries of a trust. Restatement (Second) of Trusts Section 171 cmt. a (a trustee stands in a fiduciary relationship to the beneficiaries of the trust and therefore is under a duty personally to perform the responsibilities of the trusteeship except as it would be prudent, under the circumstances, to delegate to agents the making of decisions or the performance of acts of administration.). The duties of a trustee arising out of this fiduciary relationship flow from the special nature of the relation between trustee and beneficiary and not from contract law. In re Naarden Trust, 195 Ariz. 526, 530, 990 P.2d 1085, 1089 (Ct. App. 1999); see also Ariz. Tile, L.L.C. v. Berger, 224 P.3d 988, 996 (Ariz. Ct. App. 2010); Schoneberger v. Oelze, 208 Ariz. 591, 592, 96 P.3d 1078, 1079 (App. 2004) (holding a trust beneficiary not required to arbitrate as a trust is not a written contract requiring arbitration); Restatement (Second) of Trusts Section 169 cmt. c (Although the trustee by accepting the office of trustee subjects himself to the duties of administration, his duties are not contractual in nature.). The Arizona Trust Code (the Code), modeled on the Uniform Trust Code (2005), governs the duties of a trustee. See A.R.S. Section 14-10101, et seq. (2010). The terms of a specific trust, however, prevail over the Code with certain exceptions. A.R.S. Section 14-10105(B). Most notably, the Code exclusively governs the duty of a trustee to act in good faith and the requirement that a trust must be for the benefit of the beneficiaries. Id.

Duty of Care
In administering a trust, a trustee can exercise all powers given by the terms of the trust and any powers necessary to accomplish the purposes of the trust that are not prohibited by the trusts terms. See A.R.S. Section 14-10815(A); see also Restatement (Second) of Trusts Section 186 (trustee can properly exercise such powers and only such powers as (a) are conferred upon him in specific words by the terms of the trust, or (b) are necessary or appropriate to carry out the purposes of the trust and are not forbidden by the terms of the trust.); Restatement (Third) of Trusts Section 85 (2003). A.R.S. Section 14-10816 gives a non-exclusive list of specific powers of a trustee, including the power to acquire property, borrow money, mortgage trust property, loan trust property, enter into contracts and prosecute and/or defend actions on behalf of the trust. A trustee selected because of specialized skills has a duty to utilize such skills. A.R.S. Section 14-10806 (a trustee who has special skills or expertise, or who is named trustee in reliance on the trustees representation that the trustee has special skills or expertise, shall use those special skills or expertise.); Restatement (Third) of Trusts Section 77(3) (if a trustee possesses, or procured appointment by purporting to possess, special facilities or greater skill than that of a person of ordinary prudence, the trustee has a duty to use such facilities or skill.). Additionally, if a trustee wishes to delegate responsibilities to others who have

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specialized skills, the trustee must monitor the person delegated with such responsibilities. A.R.S. Section 14-10807(A). The duty of care requires a trustee administer a trust in good faith, exercising its powers as a prudent person would with reasonable care, skill and caution. A.R.S. Section 14-10801 (acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries and in accordance with this chapter); see also Lane Title & Trust Co. v. Brannon, 103 Ariz. 272, 278, 440 P.2d 105, 111 (1968) (holding trustee breached fiduciary duties and noting a trustee must in good faith protect the interests of all beneficiaries, and exercise the care and diligence which an ordinary prudent person under the circumstances would exercise in the management of his own affairs.); A.R.S. Section 14-10804 (a trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.); see also Restatement (Second) of Trusts Section 174 (same); Restatement (Third) of Trusts Section 77 (same). For example, a trustee breaches the prudent man standard when it delegates responsibilities that it should have performed. Shriners Hosp. for Crippled Children v. Gardiner, 152 Ariz. 527, 528, 733 P.2d 1110, 1111 (1987) (trustee breached duty when she allowed a first alternate trustee to have all investment control). Factors a trustee needs to take into account when prudently exercising its powers are: the terms and purposes of the trust, the value and nature of the trust estate, the likely duration of the trust, and the amount and timing of its distribution requirements, along with potentially associated needs for liquidity, stability of income flow, and preservation of (or growth in) the purchasing power of capital. Inevitably related to some of the foregoing, insofar as relevant to the trust purposes, are the needs, independent resources, and other personal and financial circumstances and concerns or goals of the various beneficiaries. Restatement (Third) of Trusts Section 77 cmt. b (1). When evaluating whether an act was prudent, a trustee is judged based on the circumstances at the time of the decision, and not with the benefit of hindsight. Restatement (Second) of Trusts Section 174 cmt. b (Whether the trustee is prudent in the doing of an act depends upon the circumstances as they reasonably appear to him at the time when he does the act and not at some subsequent time when his conduct is called in question.); Restatement (Third) of Trusts Section 77 cmt. a (The test of prudence is one of conduct not of performance. The trustees conduct, and compliance with other fiduciary standards, is to be judged as of the time of the decision or action in question.). A trustee who manages and invests trust assets must do so under the prudent investor rule. A.R.S. Section 14-10901(A); Restatement (Third) of Trusts SectionSection 90, 227 (discussing the general standard of a prudent investor). In acting as a prudent investor, a trustee must make decisions by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill

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and caution. A.R.S. Section 14-10902(A). A trustees investment decisions are not judged in isolation; investment decisions are judged with regard to a trust portfolio in its entirety. A.R.S. Section 14-10902(B) (A trustees investment and management decisions respecting individual assets shall not be evaluated in isolation but in the context of the trust portfolio as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the trust.). There is a presumption that the trustee should diversify investments. A.R.S. Section 14-10903 (A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.). Related to the prudent investor rule is the requirement that a trustee must take reasonable steps to protect trust property and make it productive. A.R.S. Section 14-10809 (A trustee shall take reasonable steps to take control of and protect the trust property.); see also Ross v. Bartz, 158 Ariz. 305, 307, 762 P.2d 592, 594 (Ct. App. 1988) (in affirming granting of a new trial, noting that a lawyer acting as trustee had duty to take and keep control of the trust property and to use reasonable care and skill to preserve the trust property); Restatement (Second) of Trusts SectionSection 175 (The trustee is under a duty to the beneficiary to take reasonable steps to take and keep control of the trust property.), 176 (The trustee is under a duty to the beneficiary to use reasonable care and skill to preserve the trust property.), 181 (The trustee is under a duty to the beneficiaries to use reasonable care and skill to make the trust property productive in a manner that is consistent with the fiduciary duties of caution and impartiality.). Trustees also have the duty to ensure that trust assets are not squandered. See In re Matthew W.T. Goodness Trust, 2009 R.I. Super. LEXIS 54, at *17-18 (May 14, 2009) (a trustee must not waste trust property); Weis-Buy Farms, Inc. v. Global Unlimited Mktg. Solutions, Inc., 2008 U.S. Dist. LEXIS 39538, at *6 (S.D. Fla. May 8, 2008) (held violation of a trustees duties to allow trust assets to dissipate).

Duty of Loyalty
A trustee also owes a duty of loyalty to a trusts beneficiaries. A.R.S. Section 1410802(A) (A trustee shall administer the trust solely in the interests of the beneficiaries.). This is considered the most fundamental duty owed by the trustee to the beneficiaries of the trust. . . . Austin Wakeman Scott & William Franklin Fratcher, The Law of Trusts Section 170 (4th ed. 1987). The duty of loyalty is defined as the duty of a trustee to administer the trust solely in the interest of the beneficiaries. . . [and] to deal fairly and to communicate to the beneficiary all material facts the trustee knows or should know in connection with the transaction. Restatement (Second) of Trusts Section 170; see also Restatement (Third) of Trusts Section 78. The duty of loyalty is stricter in the trustee-beneficiary relationship than in other fiduciary relationships. Restatement (Third) of Trusts Section 78 cmt. a. Except in discrete circumstances, the trustee is strictly prohibited from engaging in transactions that involve self-dealing or that otherwise involve or create a conflict between the trustees fiduciary duties and personal interests. Restatement (Third) of Trusts Section 78 (2); see also Davis v. Zlatos, 211 Ariz. 519, 527, 123 P.3d 1156,

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1164 (Ct. App. 2005) (trustee of an elderly woman violated fiduciary duty by taking money and property from her without encouraging her to get outside advice).

Notable Other Duties

A trustee must enforce a claim of the trust and defend the trust from claims brought against it. A.R.S. Section 14-10816(14); Restatement (Second) of Trusts SectionSection 177 (The trustee is under a duty to the beneficiary to take reasonable steps to realize on claims which he holds in trust.), 178 (The trustee is under a duty to the beneficiary to defend actions which may result in a loss to the trust estate, unless under all the circumstances it is reasonable not to make such defense.). A trustee also has a duty to account and render information to beneficiaries. A.R.S. SectionSection 14-10810 (A trustee shall keep adequate records of the administration of the trust.), 14-10813 (Unless the trust instrument provides otherwise, a trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.); see also In re Estate of Schuster, 35 Ariz. 457, 469, 281 P. 38, 43 (1929) (In rendering an account, the burden is on the trustee to make a proper and satisfactory accounting of the funds coming into his bands, and, if he does not, every intendment is against him.); Restatement (Second) of Trusts SectionSection 172 (The trustee is under a duty to the beneficiary to keep and render clear and accurate accounts with respect to the administration of the trust.), 173; Restatement (Third) of Trusts Section83 (A trustee has a duty to maintain clear, complete, and accurate books and records regarding the trust property and the administration of the trust, and, at reasonable intervals on request, to provide beneficiaries with reports or accountings.).

Prudent Man Rule for Investments

A.R.S. Section 14-10901 provides a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule<*t+he prudent investor rule is a default rule and may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust. A.R.S. Section 14-10902 sets forth the prudent investor rule: A. A trustee shall invest and manage trust assets as a prudent investor would by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill and caution. B. A trustees investment and management decisions respecting individual assets shall not be evaluated in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. C. Among circumstances that a trustee shall consider in investing and managing trust assets are any of the following that are relevant to the trust or its beneficiaries:

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1. General economic conditions. 2. The possible effect of inflation or deflation. 3. The expected tax consequences of investment decisions or strategies. 4. The role that each investment or course of action plays within the overall trust portfolio, which may include financial assets, interests in closely held enterprises, specialty assets, alternative investments, tangible and intangible personal property and real property. 5. The expected total return from income and the appreciation of capital. 6. Other resources of the beneficiaries. 7. Needs for liquidity, regularity of income and preservation or appreciation of capital. 8. An assets special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries. D. A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets. E. A trustee may invest in any kind of property or type of investment consistent with the standards of this article. See also Stevens v. Natl City Bank, 544 N.E.2d 612, 617 (Ohio 1989) (a trustee may not use its discretionary investment powers fraudulently, or in bad faith . . . [f]urthermore, the trustee has a duty to invest idle trust funds so that they will be productive of income.); In re Inter Vivos Trust of Mendenhall, 398 A.2d 951, 952 (Pa. 1979) (Generally, a trustee who is authorized to retain investments need only exercise the skill and judgment which a prudent person, under similar circumstances, would exercise in connection with the management of his or her own estate.). The Restatement (Third) of Trusts Section 90 cmt. f recognizes five principles of the prudent investor rule: (1) prudent investors prefer low amounts of risk and cost for a certain rate of return; (2) no individual investment is per se a violation of the prudent investor rule; (3) diversification is fundamental to the management of risk; (4) a passive, prudent investor can increase its expected rate of return by increasing risk if a trust is able to handle such a risk for a period of time; and (5) varying from diversified investments may be warranted under special circumstances or opportunities. See Stevens, 544 N.E.2d at 617-18 (it is well established that a trustee . . . is under a duty to the beneficiaries to distribute the risk of loss within the trust by prudent diversification . . . [a] breach of such duty may render the trustee liable for any loss sustained by the failure to diversify.); First Ala. Bank of Huntsville, N.A. v. Spragins, 515 So.2d 962, 964 (Ala. 1987) (affirming judgment of compensatory damages and interest when bank invested the majority of trust property in its own stock). A trustees duties under the prudent investor rule not only apply to the initial investment decision, but also require a trustee to continually observe and evaluate investments to ensure they are consistent with the purpose and needs of a trust. Restatement (Third) of Trusts Section 90 cmt. b; see also In re Estate of McCredy, 470 A.2d 585, 594 (Pa. 1983) (Not only the trustees acquisition but also his retention of investments is subject to duties imposed for the benefit of the trust.). In determining whether an investment is appropriate for a trust, a

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trustee should look at the investments expected return, risks, marketability, cost, and any unique characteristics. Restatement (Third) of Trusts Section 90 cmt. k. A trustee is expected to balance the goals of protecting a trusts principal and giving a trust a reasonable rate of return. Restatement (Third) of Trusts Section 90 cmt. e. A trustee is judged under the prudent investor rule based on the information available to the trustee at the time of the investment decision, and not with hindsight; *t+he trustee is not a guarantor of the trusts investment performance. Id. However, if a trustee, such as a corporate or professional fiduciary, procured appointment as trustee by expressly or impliedly representing that it possessed greater skill . . . the trustee is liable for a loss that results from failure to make reasonably diligent use of that skill or of those special facilities. Restatement (Third) of Trusts Section 90 cmt. d; see also Mendenhall, 398 A.2d at 952 (However, if the trustee possesses or procures its appointment by representing it has greater skill than that of a person of ordinary prudence, then it is required to exercise such greater skill.); In re Estate of Beach, 125 Cal. Rptr. 570, 574 (Cal. 1975) (same).

Breach of Duties
A breach of trust is a violation by the trustee of any duty which as trustee he owes to the beneficiary. Restatement (Second) of Trusts Section 201. In addition to the liability of a natural person for a breach of trust, [a]ny officer who causes the corporate trustee to commit a breach of trust causing loss to the trust administered by the corporation is personally liable for the loss to the beneficiaries of the trust. Seven G, 128 Ariz. at 593, 627 P.2d at 1091; see also Ariz. Tile, LLC, 224 P.3d at 994 (in finding a corporation breached its trust obligations, court concluded a corporations breach of its trust obligation, as imposed by an Arizona statute, can result in the personal liability of a corporate officer or director. . . .). The following remedies are available in the case of a breach of trust: (1) compel trustee to perform its duties; (2) enjoin trustee from breaching the trust; (3) compel trustee to redress a breach; (4) order an accounting; (5) appoint a special fiduciary to administer the trust; (6) suspend the trustee; (7) remove the trustee under A.R.S. Section 14-10706; (8) reduce or deny trustee compensation; (9) void trustees acts, impose a lien or constructive trust on trust property and recover same; or (10) any other appropriate relief. A.R.S. Section 14-11001; Restatement (Second) of Trusts Section 199. Damages are the greater of the amount necessary to restore a trust to its condition prior to the breach or the amount of the profit made by the trustee as a result of the breach. A.R.S. Section 14-11002(A); Restatement (Second) of Trusts Section 205. A trustee can be liable to the trust for any profit, even if no breach of trust occurred. A.R.S. Section 14-11003(A) (a trustee is accountable to an affected beneficiary for any profit made by the trustee arising from the

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administration of the trust, even absence a breach of trust. . . .); Restatement (Second) of Trusts Section 203 (The trustee is accountable for any profit made by him through or arising out of the administration of the trust, although the profit does not result from a breach of trust.). A trustee is not liable, however, for loss of trust property not caused by a breach of trust. A.R.S. Section 14-11003(B) (Absent a breach of trust, a trustee is not liable to a beneficiary for a loss or depreciation in the value of trust property or for not having made a profit.); Restatement (Second) of Trusts Section2 04 (The trustee is not liable to the beneficiary for a loss or depreciation in value of the trust property, or for a failure to make a profit, not resulting from a breach of trust.).

A trustees duties are to both the beneficiaries of a trust and the trust.

A trustee has duties to the beneficiaries of a trust. A trustee has a duty of care, discussed in Section I(A) supra, to in good faith protect the interests of all beneficiaries. Lane Title & Trust Co., 103 Ariz. at 278, 440 P.2d at 111; see also In re Trust Estate of Wills, 8 Ariz. App. 591, 595, 449 P.2d 435, 439 (1968) (in finding a trustee did not violate fiduciary duties by refusing to pay out claim by a guardian, stated *a+ trustee, in exercising discretion granted by the terms of the trust instrument, is under a duty to do so in good faith so as to protect the interests of all the beneficiaries of the trust.). A trustee also has a duty of loyalty, discussed in Section I(B) supra, to administer the trust solely in the interest of the beneficiaries. . . [and] to deal fairly and to communicate to the beneficiary all material facts the trustee knows or should know in connection with the transaction. Restatement (Second) of Trusts Section 170; Restatement (Third) of Trusts Section 78; A.R.S. Section 14-10802(A); see also Hunt Inv. Co. v. Eliot, 154 Ariz. 357, 363, 742 P.2d 858, 864 (App. 1987) (a trustee has a legally imposed fiduciary duty to manage the trust assets for the benefit of the primary beneficiaries.). A trustee also has duties to the assets of a trust. A trustee has a duty to preserve the trust property and make it productive. . . . Forest Guardians v. Wells, 201 Ariz. 255, 260, 34 P.3d 364, 369 (2001) (remanded based on finding the Commissioner of the Arizona State Land Department has fiduciary duty to consider bids and determine whether they are best for the trust corpus and trust beneficiaries); A.R.S. Section 14-10809; Ross, 158 Ariz. at 307, 762 P.2d at 594; Restatement (Second) of Trusts SectionSection 175, 176, 181; see also Cornman Tweedy 560, LLC, v. City of Casa Grande, 213 Ariz. 1, 6, 137 P.3d 309, 314 (Ct. App. 2006) (state land officials have fiduciary duty to protect value of state lands and maximize rate of return of same).

A trustee has a duty to act in the best interests of the beneficiaries and a duty of full disclosure.
A trustees duties include a duty to act in the best interests of the beneficiaries of the Trust. See State v. U.S. Dept of the Interior, 45 F. Supp. 2d 1279, 1283 (D.

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Utah 1999) (The legal attributes of such a relationship include a duty on the part of the trustee to act solely in the best interests of the trust beneficiary.); Yates v. Yates, 354 S.E.2d 800, 801 (S.C. Ct. App. 1987) (A trustee, as a fiduciary, is under a duty of loyalty to act solely in the best interest of the beneficiary.); Jarrett v. U.S. Natl Bank, 725 P.2d 384, 387 (Or. Ct. App. 1986) (In the absence of any specific directions, trustees must manage trust property in accordance with the statutory duty of prudent management and in the best interests of the beneficiaries.); Restatement (Third) of Trusts Section 229 cmt. d (Thus, the advantages of diversification [in investing] may be offset by other aspects of the fiduciary duty to preserve the trust estate and the general duty, so far as consistent with the purposes of the trust, to serve the best interests of the beneficiaries.). A trustee must avoid transactions where considerations other than a beneficiarys best interests are implicated. Restatement (Third) of Trusts Section78 cmt. b. (a trustee must refrain, whether in fiduciary or personal dealings with third parties, from transactions in which it is reasonably foreseeable that the trustees future fiduciary conduct might be influenced by considerations other than the best interests of the beneficiaries.) Courts use this best interest standard to evaluate trustee action. See In re CVR 1997 Irrevocable Trust, 202 Ariz. 174, 178, 42 P.3d 605, 609 (Ct. App. 2002) (Rather, the court should look at the actual administration of the trust, not just possible conflicts, to determine if the trustee and his agents have acted in the best interests of the trust beneficiaries.); Porter v. Porter, 726 P.2d 459, 467 (Wash. 1986) (trustee removed when she failed to act in the best interests of the beneficiary); Restatement (Second) of Trusts Section 170 cmt. f (The court will permit a trustee to purchase trust property only if in its opinion such purchase is for the best interest of the beneficiary.). A trustees duties also include a duty of full disclosure. *A+ trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. A.R.S. Section 14-10813; see also In re Thurston, 199 Ariz. 215, 219, 16 P.3d 776, 780 (Ct. App. 2000) (In a case involving a fiduciary relationship. . . the fiduciary has a duty to deal fairly, not fraudulently, and to disclose the true facts, not deceive.); Regnery v. Meyers, 679 N.E.2d 74, 79 (Ill. App. Ct. 1997) (. . . it is well settled that a trustee owes the highest duty to his beneficiary to fully and completely disclose all material facts relating to dealings with the trust.); Huie v. Deshazo, 922 S.W.2d 920, 923 (Tex. 1996) (The trustees duty of full disclosure extends to all material facts affecting the beneficiaries rights.); Testa v. Roberts, 542 N.E.2d 654, 659 (Ohio Ct. App. 1988) (His fiduciary status imposes upon an agent an affirmative duty to inform his principal of all of the facts relating to the subject matter of the agency that affect the principals interest.); Ball v. Posey, 222 Cal. Rptr. 746, 749 (Cal. Ct. App. 1986) ([The] duty of a fiduciary embraces the obligation to render a full and fair disclosure to the beneficiary of all facts which materially affect his rights and interests.); Restatement (Third) of Trusts Section 83 cmt. c (trustee has affirmative duty to disclose relevant information). This duty to disclose exists even if the trustee is acting in a personal capacity. Restatement (Third) of Trusts Section 78(3) (Whether acting in a fiduciary or personal capacity, a trustee has a duty in dealing with a beneficiary to deal fairly and to communicate to the

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beneficiary all material facts the trustee knows or should know in connection with the matter.). The California Court of Appeals explains this duty as follows: A fiduciary must disclose all material facts to his principal concerning the subject of the agency. It almost goes without saying that the general fiduciary duty owed by the agent to his principal includes the duty to make a full and complete disclosure to him of all material facts which the agent knows and which might influence the principal with respect to the transaction and his willingness to enter into it. Ziswasser v. Cole & Cowan, Inc., 210 Cal. Rptr. 428, 429-30 (Cal. Ct. App. 1985). Material facts are defined as facts which an agent should realize would be likely to affect the judgment of its principals. Travagliante v. J.W. Wood Realty Co., 425 S.W.2d 208, 212-13 (Mo. 1968) (corporate real estate broker, as trustee, had duty to disclose all material facts fully and completely). This duty is considered affirmative. Bright v. Addison, 171 S.W.3d 588, 597 (Tex. App. 2005) ([A] fiduciary has much more than the traditional obligation not to make any material misrepresentations; he has an affirmative duty to make a full and accurate confession of all his fiduciary activities, transactions, profits, and mistakes.) This duty exists regardless of whether the trustee was acting within or outside of the scope of the trust relationship. Restatement (Third) of Torts Section78 cmt. a.

A trustee and a trust beneficiary can also have a confidential relationship, outside of the relationship created by a trust.
A beneficiary can have a confidential relationship with a trustee, which gives rise to fiduciary duties somewhat separate from those created by a trust: Even though not within the fiduciary relation inherent in trust administration, the trustees personal dealings with beneficiaries of the trust may involve a confidential relationship that is sufficiently natural to the parties roles in the trust relationship to be recognized by the trust law as an incident or extension of the intense duty of loyalty applicable to trustees. Restatement (Third) of Trusts Section 78 cmt. g. The Supreme Court has held that parties have a duty of disclosure to one another when a fiduciary or agency relationship exists, or when circumstances exist such that one party has placed trust and confidence in the other. SEC v. Rauscher Pierce Refsnes, Inc., 17 F. Supp. 2d 985, 992 (D. Ariz. 1998) (holding plaintiffs claim that financial adviser to the Department of Administration owed a fiduciary duty is a question of fact that cannot be resolved through a motion to dismiss). Arizona courts similarly recognize that some relationships, while not considered traditional fiduciary relationships, warrant special consideration: [T]here are other cases where there is just as great intimacy, disclosure of secrets, intrusting of power, and superiority of position in the case of the representative, but where the law has no special designation for the position of the parties. It cannot be called trust or executorship, and yet it is so similar in its creation and operation that it should have like results. Condos v. Felder, 92 Ariz. 366, 371, 377 P.2d 305, 308 (1962) (constructive trust

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imposed on property for illiterate business partner who had been told by his late business partner that the pair held land in joint tenancy with right of survivorship). A confidential relationship is a relationship: arising by reason of kinship between the parties, or professional, business, or social relations that would reasonably lead an ordinarily prudent person in the management of his business affairs to repose that degree of confidence in another which largely results in the substitution of that others will for his in material matters involved in the transaction; or where the parties occupy relations, whether legal, natural, or conventional in their origin, in which confidence is naturally inspired, or, in fact, reasonably exists. Taeger v. Catholic Family & Cmty. Serv., 196 Ariz. 285, 290, 995 P.2d 721, 725 (Ct. App. 1999) (finding sufficient evidence of a confidential and fiduciary relationship between adoption agency and adoptive parents to survive directed verdict in favor of adoption agency); see also Stewart v. Phoenix Natl Bank, 49 Ariz. 34, 44, 64 P.2d 101, 106 (1937) (acknowledging there is no confidential relationship between an ordinary depositor and bank, but recognizing such a relationship where the customer relied on the financial advice of a bank for 23 years); but see Rhoads v. Harvey Publn, Inc., 145 Ariz. 142, 149-50, 700 P.2d 840, 847-48 (Ct. App. 1984) (no confidential relationship found between employee and independent contractor despite close and lengthy relationship, but finding such a relationship could certainly be found if other facts were present.). Neither mere confidence, implicit faith, or friendly relations, however, is sufficient to create a confidential relationship. Taeger, 196 Ariz. at 290, 995 P.2d at 726. The existence of a confidential relationship is generally a question of fact. Rhoads, 145 Ariz. at 148, 700 P.2d at 846. The duties that come with a confidential relationship are similar to that of a fiduciary relationship each party must act with the utmost loyalty and integrity, including making full disclosure of all material facts. Taeger, 196 Ariz. at 293-94, 995 P.2d at 729-30. Even if a party to a confidential relationship does not exercise all reasonable care in conducting business, it does not excuse the other partys non-disclosure. See Leigh v. Loyd, 74 Ariz. 84, 87, 244 P.2d 356, 358 (1952) (because of confidential relationship between real estate broker and client, clients failure to read paperwork held not consent to brokers fraud); Gonzales v. Gonzales, 181 Ariz. 32, 34, 887 P.2d 562, 564 (Ct. App. 1994) (reasonable care need only be exercised in the absence of a confidential relationship). If a party to a confidential relationship breaches these duties, it can be held liable for constructive fraud. The elements for constructive fraud in Arizona are as follows: (1) breach of a legal or equitable duty; (2) the law declares fraudulent without regard to guilt or intent of person liable; (3) because the breach tends to deceive others, violates public or private confidences, or injures public interests. Taeger, 196 Ariz. at 294, 995 P.2d at 730. Unlike with ordinary common law fraud, an injured party need not prove it relied on a misrepresentation, or that it had the right to rely. Hassenpflug v. Jones, 84 Ariz. 33, 38, 323 P.2d 296, 299 (1958). Once a confidential relationship is shown, a presumption of constructive fraud arises and a party can defend against an action for constructive fraud by showing with clear and convincing evidence that they acted with entire fairness and that the other party acted independently,

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with full knowledge and of his own volition free from undue influence. In re Guardianship of Chandos, 18 Ariz. App. 583, 585, 504 P.2d 524, 526 (1972) (confidential relationship found when couple took care of elderly man with limited functioning as his de facto guardian). Section 14-10105(B) provides: The terms of a trust prevail over any provision of this chapter except: 1. The requirements for creating a trust. 2. The duty of a trustee to act in good faith and in accordance with the purposes of the trust. 3. The requirement that a trust and its terms be for the benefit of its beneficiaries and that the trust have a purpose that is lawful, not contrary to public policy and possible to achieve. 4. The power of the court to modify or terminate a trust under sections 14-10410, 14-10411, 1410412, 14-10413, 14-10414, 14-10415 and 14-10416. 5. The effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in article 5 of this chapter. 6. The power of the court under section 1410702 to require, dispense with, modify or terminate a bond. 7. The power of the court under section 14-10708, subsection B to adjust a trustees compensation specified in the terms of the trust that is unreasonably low or high. 8. The duty to respond to the request of a qualified beneficiary of an irrevocable trust for trustees reports and other information reasonably related to the administration of a trust. 9. The effect of an exculpatory term under section 14-11008. 10. The rights under sections 14-11010, 14-11011, 14-11012 and 14-11013 of a person other than a trustee or beneficiary. 11. Periods of limitation for commencing a judicial proceeding. 12. The power of the court to take action consistent with the settlors intent and exercise jurisdiction as may be necessary in the interests of justice. 13. The subject matter jurisdiction of the court and venue for commencing a proceeding as provided in sections 14-10203 and 14-10204. 14. The notice provisions of section 14-10110, subsection B. Section14-10815(A) reads: A trustee, without authorization by the court, may exercise: 1. Powers conferred by the terms of the trust. 2. Except as limited by the terms of the trust: (a) All powers over the trust property that an unmarried competent owner has over individually owned property. (b) Any other powers appropriate to achieve the proper investment, management and distribution of the trust property. (c) Any other powers conferred by this chapter. Section 8, in part, provides: (1) In administering a trust, the trustee has, except as limited by statute or the terms of the trust, (a) all of the powers over trust property that a legally competent, unmarried individual has with respect to individually owned property, as well as (b) powers granted by statute or the terms of the trust and (c) powers specifically applicable to trust administration that are recognized in other Sections of this Restatement. Section 14-10816 enumerates 26 different powers of a trustee: (1) manage trust property; (2) buy or sell trust property; (3) exchange trust property; (4) open accounts with regulated financial service institutions; (5) *b+orrow money, with or without security, and mortgage or pledge trust property for a period within or extending beyond the duration of the trust; (6) continue the activities of a business trust; (7) exercise rights as the owner of stocks or other kinds of securities; (8) repair or improve real property; (9) enter into lease agreements;

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(10) grant options on trust property; (11) insure trust property; (12) abandon trust property; (13) take action with respect to trust propertys violation of environmental law; (14) settle claims; (15) pay taxes; (16) make tax decisions; (17) select method of trustee payment; (18) make loans of trust property; (19) pledge trust property; (20) appoint trustees in other jurisdictions; (21) pay out support to disabled beneficiaries; (22) distribute trust property; (23) engage in alternative dispute resolution relating to questions of trust interpretation or administration; (24) prosecute or defend an action on behalf of or against the trust; (25) execute contracts; (26) wind up the trust. Section 14-10807(A) provides: A trustee may delegate duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill and caution in: 1. Selecting an agent. 2. Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust. 3. Periodically reviewing the agents actions in order to monitor the agents performance and compliance with the terms of the delegation. Section 174 states: The trustee is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property; and if the trustee has or procures his appointment as trustee by representing that he has greater skill than that of a man of ordinary prudence, he is under a duty to exercise such skill. Section 77 defines a trustees duty of prudence as follows: (1) The trustee has a duty to administer the trust as a prudent person would, in light of the purposes, terms, and other circumstances of the trust. (2) The duty of prudence requires the exercise of reasonable care, skill, and caution. (3) If the trustee possesses, or procured appointment by purporting to possess, special facilities or greater skill than that of a person of ordinary prudence, the trustee has a duty to use such facilities or skill. Section14-10901 sets forth the prudent investor rule as follows: A. Except as provided in subsection B, a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule requirements of this article. B. The prudent investor rule is a default rule and may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust. C. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust. Section 90 provides a general statement of prudent investment: The trustee has a duty to the beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the trust. (a) This standard requires the exercise of reasonable care, skill, and caution, and is to be applied to investments not in isolation but in the context of the trust portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the trust. (b) In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so. (c) In addition, the trustee must: (1) conform to fundamental fiduciary duties of loyalty (Section 78) and impartiality (Section 79); (2) act with prudence in deciding whether and

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how to delegate authority and in the selection and supervision of agents (Section 80); and (3) incur only costs that are reasonable in amount and appropriate to the investment responsibilities of the trusteeship (Section 88). (d) The trustees duties under this Section are subject to the rule of Section 91, dealing primarily with contrary investment provisions of a trust or statute. Section 227 provides a somewhat different general standard of prudent investment: The trustee is under a duty to the beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the trust. (a) This standard requires the exercise of reasonable care, skill, and caution, and is to be applied to investments not in isolation but in the context of the trust portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the trust. (b) In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so. (c) In addition, the trustee must: (1) conform to fundamental fiduciary duties of loyalty (Section 170) and impartiality (Section 183); (2) act with prudence in deciding whether and how to delegate authority and in the selection and supervision of agents (Section 171); and (3) incur only costs that are reasonable in amount and appropriate to the investment responsibilities of the trusteeship (Section 188). (d) The trustees duties under this Section are subject to the rule of Section 228, dealing primarily with contrary investment provisions of a trust or statute. Section 78 sets out the duty of loyalty as follows: (1) Except as otherwise provided in the terms of the trust, a trustee has a duty to administer the trust solely in the interest of the beneficiaries, or solely in furtherance of its charitable purpose. (2) Except in discrete circumstances, the trustee is strictly prohibited from engaging in transactions that involve selfdealing or that otherwise involve or create a conflict between the trustees fiduciary duties and personal interests. (3) Whether acting in a fiduciary or personal capacity, a trustee has a duty in dealing with a beneficiary to deal fairly and to communicate to the beneficiary all material facts the trustee knows or should know in connection with the matter. Section 78 cmt. a reads, in part,: It follows from the nature of the trust relationship that the trustee stands in a fiduciary relationship with respect to the beneficiaries as to all matters within the scope of the trust relationship, that is, all matters involving the administration of the trust and its property. The duty of loyalty is, for trustees, particularly strict even by comparison to the standards of other fiduciary relationships. Section 173 provides: The trustee is under a duty to the beneficiary to give him upon his request at reasonable time complete and accurate information as to the nature and amount of the trust property, and to permit him or a person duly authorized by him to inspect the subject matter of the trust and the accounts and vouchers and other documents relating to the trust. These remedies are available with the exception that: A court shall not change a fiduciarys decision to exercise or not to exercise a discretionary power conferred by this article unless it determines that the

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decision was an abuse of the fiduciarys discretion. A court shall not determine that a fiduciary abused its discretion merely because the court would have exercised the discretion in a different manner or would not have exercised the discretion. A.R.S. Section 14-7404. Section 199 enumerates the following remedies: (a) to compel the trustee to perform his duties as trustee; (b) to enjoin the trustee from committing a breach of trust; (c) to compel the trustee to redress a breach of trust; (d) to appoint a receiver to take possession of the trust property and administer the trust; (e) to remove the trustee. Section 14-11002(A) provides: [A] trustee who commits a breach of trust is liable to the beneficiaries affected for the greater of either: 1. The amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred. 2. The profit the trustee made by reason of the breach. Section 78 cmt. a, in part, reads: It follows from the nature of the trust relationship that the trustee stands in a fiduciary relationship with respect to the beneficiaries as to all matters within the scope of the trust relationship, that is, all matters involving the administration of the trust and its property. The duty of loyalty is, for trustees, particularly strict even by comparison to the standards of other fiduciary relationships. [All articles and papers on this site are published for general informational purposes and do not constitute legal advice, nor create an attorney-client relationship between this firm and the reader. The articles may not be updated to incorporate changes in the law after the date of publication on the site, and therefore, any information contained therein should be checked to assure currency.] Refer: http://www.mitchell-attorneys.com/legal-articles/fiduciary-duties-oftrustees-in-investment-and-financial-matters/

Appendix F: Fiduciary Duties

Excerpt from: The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties" by Tamar Frankel Vol.2, p.127-128
fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties ('entrustors'). Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen. Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source equity. Thus, in addition to damages a remedy

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in common law fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized. Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other. (2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property ('power'). The extent of entrusted power varies with the parties' desires and terms of their arrangements. Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as 'trust', vest far more power in the fiduciaries than arrangements, categorized in law as 'agency', in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances. (3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes for their own use or the use of third parties. Entrustors' losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries' services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5). (4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceed entrustors' benefits from the relationship. For example, if the adviser's interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power. (5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed the benefits to entrustors from the relationship. In addition, the quality of some services cannot be determined by their results: a defendant may lose his case even if his lawyer has performed

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brilliantly. The quality of some services cannot be easily established at the time of performance: it may take years to discover that a will is faulty. (6) The fiduciaries' costs of reducing the entrustors' monitoring costs may exceed the benefits to fiduciaries from the relationship. Fiduciaries can reduce entrustors' monitoring costs by 'bonding', insurance and third-party guarantees, provided their costs do not exceed their benefits from the relationship. Because of these limits, their efforts may not e enough to fully cover the entrustors' risk of loss. (7) Alternative external controls that reduce entrustors' risks, such as market controls, either do not exist or are too weak. Courts recognize new fiduciary relations when, in their opinion, the historical protections of entrustors have eroded. For example, physicians recently joined the family of fiduciaries as they became involved in conflict of interest situations when physicians own pharmacies that supply their patients' medicines, or when the interests of the physicians' employers conflict with the patients' optimal medical treatment. The purpose and effect of fiduciary duties. Fiduciary duties are imposed when public policy encourages specialization in particular services, such as money management or lawyering, and when the entrustors' costs of specifying and monitoring the fiduciaries' functions threaten to undermine the utility of the relationship to entrustors. The ultimate effect of the law is to provide entrustors with incentives to enter into fiduciary relationships, by reducing entrustors' risks and costs of preventing abuse of entrusted power, and of ensuring quality fiduciary services. Judicial enforcement of fiduciary duties shifts entrustors' costs to taxpayers. The law imposes on fiduciaries duties that limit their freedoms but increases their marketability by endowing them with a reputation for honesty backed by reputation.

Excerpt from: Fiduciary Law by Tamar Frankel California Law Review, May, 1983, 71 Ca. L. Rev. 795 p.797-802
The purpose of this Article is to inquire into the nature of fiduciary relations and the policies, principles, and rules that govern them. Part I discusses status, contract, and fiduciary relations. It shows that fiduciary relations are sufficiently distinct and important in our society to warrant treating the law applicable to them as a separate area of the law. THE IMPORTANCE OF FIDUCIARY RELATIONS AND FIDUCIARY LAW

A. The Rise of the Fiduciary Society

Societies may be distinguished by the predominant social and legal relations through which their members interact. This is not to suggest that only one kind of relation exists in any given society, but merely that in each society one type of relation is paramount, and that, as social trends change, relations tend to shift

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and merge. Although it is probably incorrect to say that societies have evolved in a linear manner according to their predominant social relation, i.e., from status to contract to fiduciary relations, one can observe changes in a society's basic relations. Law should reflect the changes in societal structure. Thus, a major reason for recognizing and developing a separate body of fiduciary law is that our society is evolving into one based predominantly on fiduciary relations. The body of law governing fiduciary relations can affect and be affected by this social trend. Fiduciary relations and the rules that govern them can be better understood when compared to two other important relations: status and contract relations and the laws that govern them. The comparison involves three features. The first deals with the contribution of each type of relation to each party's needs and desires. The comparison deals, second, with the effect of the relation on the balance of power between the parties. The two are interrelated. While a relation with others is essential to each party's survival, n11 such a relation may also create a dependence of one party on another, that can in turn limit the freedom of choice of the person who is dependent. The third feature with which this comparison deals is the role of law in the relation, and its effect on the provision of each party's needs, on each party's freedom from coercion by the other, and on the structure and promotion of the relation. 1. Primary Social Relations a. Status The parties to a status relation must rely on each other to satisfy their needs and desires. In a status relation, such as that of parent and child, one party (the Power Bearer) usually has a partial or full monopoly over the means for satisfying the needs of the other party (the Dependent). The Power Bearer can coerce the Dependent into service and obedience by manipulating, increasing, or decreasing the satisfaction of the Dependent's needs. As a result of the Power Bearer's monopoly, the Dependent generally defers to the will of the Power Bearer in order to ensure the means for his n12 own survival. Although the Power Bearer may attempt to minimize the care he gives and maximize the service he extracts, the Power Bearer takes care of the Dependent in order to ensure the Dependent's services or other benefits from the relation for himself. In other words, the Power Bearer furthers his own interest by avoiding gross abuse of his power over the Dependent. n13 In sum, in status relations the Power Bearer dominates the Dependent and the Dependent's freedom is limited in order to ensure the means for his survival, but the Power Bearer must also limit abuse in the exercise of his power in order to meet his own needs. The law plays a crucial role in the establishment of a status relation. To a substantial extent, the law rather than the parties determines the entry and exit from the relation. n14 Moreover, the law vests power in the Power Bearer and even supports a monopoly on the power. The law rarely interferes in the exercise of the power, setting only broad outer limits and leaving the Dependent with few or no alternatives for satisfying his needs. n15 In most status relations, the law gives higher priority to the security of both parties than to freedom for the Dependent. n16 b. Contract The parties to a contract relation must also rely on each other to satisfy their

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needs or desires. Unlike the parties in a status relation, however, neither can use force or monopoly to achieve his purpose. Instead of asserting personal dominance over the other party, each party must persuade the other to exchange. Nevertheless, the parties are in conflict, as each party must protect himself from the other's self-interested behavior. Unlike the parties in status relations, contract parties have many options for satisfying their needs. They determine their own needs, they bargain to obtain them, and they can enforce their bargains. The law provides each party to a contract with equal legal freedom to make independent decisions as to what to bargain for, and what to give in exchange. Contract frees each party from domination by the other, making them more independent than in a status relation; but its price is [*800] the absence of security. No party to a contract has a general obligation to take care of the other, and neither has the right to be taken care of. The main role of the law in contract relations is to prohibit the use of force and monopoly, and to enforce the rules the parties freely set for themselves. The law does not make the rules or the contract, although it may facilitate the bargaining process. In addition, the law encourages markets to offer numerous options to each individual from which to satisfy his needs by exchange. c. The Fiduciary Relation As in a status relation, one party to a fiduciary relation (the entrustor) n17 is dependent on the other (the fiduciary). This dependence, however, is seldom as broad and pervasive as that in status relations. By definition, the entrustor becomes dependent because he must rely on the fiduciary for a particular service. n18 The fiduciary, however, does not provide every service that the entrustor may need or desire. Furthermore, the fiduciary himself is not independent, except perhaps in the area of his particular function. He must seek other fiduciaries for other services. For example, money managers generally rely on physicians for medical treatment, while physicians may look to managers for investment advice. Thus, in a society with many types of fiduciaries, each person may sometimes be a Power Bearer and at other times be a Dependent. Like a prospective party to a contract, an entrustor often can choose among alternative fiduciaries and negotiate the terms of the relation. A fiduciary rarely has a monopoly over the entrustor's needs. Moreover, unless the entrustor agrees, the fiduciary cannot manipulate the terms of his performance once the relation has been established. In contrast to contract and status relations, in which both parties seek to satisfy their own needs and desires through the relation, fiduciary relations are designed not to satisfy both parties' needs, but only those of the entrustor. Thus, a fiduciary may enter into a fiduciary relation without regard to his own needs. Moreover, an entrustor does not owe the fiduciary anything by virtue of the relation except in accordance with the agreed-upon terms or legally fixed status duties. Therefore, in a fiduciary relation, the entrustor is free from domination by the fiduciary, although he may still be coerced in parallel status relation. Thus, fiduciary relations combine the bargaining freedom inherent in contract relations with a limited form of the power and dependence of status relations. Accordingly, the law of fiduciary relations should, if possible, preserve the best

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aspects of status and contract relations. It is desirable for the entrustor to depend on the fiduciary to satisfy certain needs. But it would not be desirable for fiduciary law to impose the relation on either law should permit the parties to enter into the relation freely and to ensure that the fiduciary will not coerce the entrustor. The model of fiduciary law that is built in the remainder of this Article seeks to achieve these goals. 2. Status, Contract, and Fiduciary Societies One is tempted to follow in Sir Henry Maine's footsteps and state that there has been an evolution from status to contract to a fiduciary society. n19 Yet as a matter of history, Maine's thesis is subject to criticism. n20 Societies are too complex, diffuse, and many-faceted to sustain a theory of linear societal evolution. Nevertheless, a society's entire structure can be influenced by its predominant relation. I believe it is therefore safe to assert that certain societies are more suited to particular types of relations, and that an examination of these societies can demonstrate how these relations work. A feudal society, such as the one that existed in England during the Middle Ages, is based primarily on status. Such a society is static, because the status of Power Bearers and Dependents is predetermined [*802] by law. Furthermore, in a status society Dependents have few options for taking care of themselves, making their security precarious. Finally, personal dominance of one individual over another is common and accepted in such a society. In a contract society, individuals n21 can provide for their basic needs, and can gain by exchanging the surplus they produce. In addition, such a society offers many options for its members to satisfy their needs. A contract society values freedom and independence highly, but it provides little security for its members. An example of a society based primarily on contract is the market society of the United States during the Industrial Revolution. I submit that we are witnessing the emergence of a society predominantly based on fiduciary relations. This type of society best reflects our contemporary social values. In our society, affluence is largely produced by interdependence, n22 but personal freedom is cherished. Society's members turn to an arbitrator, the government, to obtain protection from personal coercion by those on whom they depend for specialized services. A fiduciary society attempts to maximize both the satisfaction of needs and the protection of freedom. Unlike status and contract societies, a fiduciary society emphasizes not personal conflict and domination among individuals, but cooperation and identity of interest pursuant to acceptable but imposed standards. It permits the government to moderate between altruistic goals and individualistic, selfish desires, as well as between the social goal of increasing the common welfare and the individual desire to appropriate more than a "fair share."

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Excerpt from: Fiduciary Duties as Default Rules by Tamar Frankel Oregon Law Review, Winter, 1995, 74 Or. L. Rev. 1209 p.1210-1215
This Article examines the status of fiduciary rules as default rules: whether, and how, entrustors can waive fiduciary duties owed to them. n6 Contractarians argue that fiduciary rules constitute default rules around which the parties can bargain. n7 Anti-contractarians argue that at least some rules are mandatory and cannot be waived. n8 In my opinion, most fiduciary rules consti- [*1212] tute default rules. However, entrustors may only waive fiduciary duties owed to them if they follow a two-step procedure. First, entrustors must be put on clear notice that, with respect to the particular duties that they waive, they can no longer rely on their fiduciaries; instead, the entrustors must fend for themselves. Second, the fiduciaries must provide entrustors with information acquired by virtue of their position as fiduciaries to enable entrustors to make an informed independent decision regarding the waiver. The reasons for this procedure stem from the unique nature of fiduciary relationships and the law governing them. In varying degrees the relationships expose entrustors to extraordinary risks. Entrustors must entrust power or property to the fiduciaries because the fiduciaries could not perform their services effectively otherwise, n9 yet this exposes entrustors to the risk that the fiduciaries will appropriate the entrusted property or interest, or misuse the power entrusted to them. The appropriation or abuse of power can result in a loss that far exceeds the potential gain from the fiduciaries' services. In addition, entrustors become dependent on their fiduciaries and may not be able to monitor the quality of their services because: (1) the skills involved are not easily acquired or understood; (2) the cost to entrustors of monitoring and evaluating such services would undermine the utility of the arrangement; and (3) there exists no other effective alternative monitoring mechanism. In sum, fiduciary rules reflect a consensual arrangement covering special situations in which fiduciaries promise to perform services for entrustors and receive substantial power to effectuate the performance of the services, while entrustors cannot efficiently monitor the fiduciaries' performance. n10 Fiduciary law addresses the unique aspects of this relationship. First, the law vests in entrustors the legal right to receive quality fiduciary services. It imposes on fiduciaries a duty to exercise care and skill, akin to the tort of negligence. Second, the rules vest in entrustors the legal right to rely on the honesty of their fiduciaries by imposing on fiduciaries a duty of loyalty, as well as other specific duties, in order to deter fiduciaries from misappropriating the entrusted property or interests. This part of fiduciary law is akin to the crime of embezzlement n11 and the tort of conversion. n12 The status of fiduciary rules as default rules conflicts with the fiduciaries' duties of loyalty and reliability. While bargaining with their fiduciaries on the issue of waiver, entrustors must fend for themselves as independent parties. Their right to rely on their fiduciaries must be eliminated. In fact, during the bargaining, the entire relationship must be terminated.

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Fiduciary law allows such termination of the relationship with respect to specified transactions only if the parties follow a specific procedure. This procedure is designed to ensure an effective transition from the fiduciary mode in which entrustors rely on their fiduciary, to a contract mode in which parties rely on themselves. That is why fiduciaries must put entrustors on notice that, in connection with the specified transaction, entrustors cannot [*1214] rely on their fiduciaries. n13 That is why entrustors must be capable of bargaining independently with their fiduciaries and have the capacity to enter into bargains. That is also why, to allow entrustors to make informed decisions, fiduciaries must provide them with information regarding the transaction, especially when the fiduciaries acquired this information in connection with the performance of their services to the entrustors. This procedure is, and should remain, mandatory. n14 In addition, circumstances exist where fiduciary duties are not waivable for reasons such as doubts about the quality of the entrustors' consent (especially when given by public entrustors such as shareholders), and the need to preserve institutions in society that are based on trust. Further, non-waivable duties can be viewed as arising from the parties' agreement ex ante to limit their ability to contract around the fiduciaries' duties. n15 Under these circumstances fiduciary rules should generally be mandatory and non-waivable. I then examine three possible solutions to public entrustors' protection. One is the proposed contractarian view which would eliminate fiduciary law and lead to the creation of property rights for corporate management in its office. The second solution is to impose all or most fiduciary rules as mandatory rules and ignore so-called consents by public entrustors. The third is to establish a government office as surrogate for consent by public entrustors, along the scheme established in the Investment Company Act of 1940. n16 There are, no doubt, other solutions as well. I conclude that private and public fiduciaries should be subject to a separate body of rules and reject the contractarian view.

Excerpt from: Contract and Fiduciary Duty by Frank H. Easterbrook and Daniel R. Fischel The Journal of Law and Economics, 1993, 36 J.L. & Econ. 425 p.426-29
Ever since Ronald Coase published "The Problem of Social Cost," it has been understood tha tlegal rules can promote the benefits of contractual endeavors in a world of scarce information and high transactions costs by prescribing the outcomes the parties themselves would have reached had information been plentiful and negotiations costless. [FN3] Legal rules cannot transfer wealth from agents to principals not so long as the price agents collect for their services is unregulated. Acting on moral belief that agents ought to be selfless will not make principals better off; it will instead lead to fewer agents, or higher costs of hiring agents. With powers hedged in by competition and the price system, judges must choose between promoting the parties' contracting (and thus increasing both private and social wealth) and frustrating it (injuring the parties and society).

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That is not a hard choice. Providing, as a public service, the rules the parties themselves would have chosen in a transaction-cost-free world fosters instrumental and ethical objectives at the same time. So, we concluded, a "fiduciary" relation is a contractual one characterized by unusually high costs of specification and monitoring. The duty of loyalty replaces detailed contractual terms, and courts flesh out the duty of loyalty by prescribing the actions the parties themselves would have preferred if bargaining were cheap and all promises fully enforced. The usual economic assessments of contractual terms and remedies the apply. Fiduciary duties are not special duties; they have no moral footing; they are the same sort of obligations, derived and enforced in the same way, as other contractual undertakings.[FN4] Actual contracts always prevail over implied ones. Obligations implied to maximize value in high-transactions-costs cases may have some things in common, but differences in the underlying transactions will call for different "fiduciary" obligations, just as actual contracts differ across markets. Objections to a contractual understanding of fiduciary duties take several forms. [FN7] One is that judges simply do not talk like Ronal Coase. No, they don't; but we seek knowledge of when fiduciary duties arise and what form they take, not theories of rhetoric a theory of what judges do, not of explanations they give. Another is that the contractual perspective cannot explain the structure of the legal rules. Such an objection is compelling, if true. Is it true?

Excerpt from: The Contractarian Basis of the Law of Trusts by John H. Langbein Yale Law Journal, December, 1995, 105 Yale L.J. 625 p. 625-631
I. INTRODUCTION
We are accustomed to think of the trust as a branch of property law. The Restatement(Second) of Trusts defines the trust as "a fiduciary relationship with respect to property," [FN1] and the codes [FN2] and treatises [FN3] say similar things. This way of speaking about the trust omits an important dimension. The contractarian claim. In truth, the trust is a deal, a bargain about how the trust assets are to be managed and distributed. To be sure, the trust originates exactly where convention says it does, with property. The Restatement says, "A trust cannot be created unless there is trust property." [FN4] The owner, called the settlor, transfers the trust property to an intermediary, the trustee, to hold it for the beneficiaries. We treat the trustee as the new owner for the purpose of managing the property, while the trust deal strips the trustee of the benefits of ownership. The distinguishing feature of the trust is not the background event, not the transfer of property to the trustee, but the trust deal that defines the powers and responsibilities of the trustee in managing the property. Sometimes the trust deal also confers significant discretion upon the trustee over dispositive provisions,

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that is, in allocating the beneficial interests among the beneficiaries. The settlor and the trustee may express their deal in detailed terms drafted for the particular trust, or they may be content to adopt the default rules of trust law. Either way, the deal between settlor and trustee is functionally indistinguishable from the modern third-party- beneficiary contract. Trusts are contracts. Trust without contract. The contractarian account, presupposing a separate trustee, does not embrace the declaration of trust, which is a mode of trust creation that allows the transferor of property simply to declare himself or herself trustee for the transferee. [FN5] This two-party trust lacks a separate trustee. The settlor cannot contract with himself or herself, and accordingly, we see that trust can arise without contract, without the characteristic deal between settlor and third-party trustee. Because the declaration of trust dispenses with what is normally the most desirable attribute of the trust, that is, the ability to *628 have a third party manage the trust property, the declaration of trust plays a relatively peripheral role in modern practice. In order not to interrupt the main theme of this Article, I discuss the declaration of trust in an appendix. I explain that the declaration sometimes serves as a way station to the creation of a true third-party trust, and that in other settings the declaration turns out to be a doctrinal ruse for validating transfers that are not in function trusts. The contractarian theme. This Article sets forth the grounds for understanding the conventional three-party trust as a prevailingly contractarian institution. More is at stake in this choice between contract and property formulations of the trust than mere labelling. In Part IV of this Article, I explain why the law of fiduciary administration, which is the centerpiece of the modern trust, is overwhelmingly contractarian. Especially in conflict-of-interest cases, greater attention to the contractarian character of the trust would improve outcomes. [FN6] Sensitivity to the contractarian character of the trust can be traced to Maitland's celebrated lectures on Equity, [FN7] published posthumously in 1909. Even in the late fourteenth century, observed Maitland, when the English Chancellor first began to enforce the trust, the trust "generally ha[d] its origin in something that we can not but call an agreement." [FN8] "[The] trust was originally regarded as an obligation, in point of fact a contract though not usually so called." [FN9] F.H. Lawson, writing in 1953 in one of the central works of modern comparative law, pointed out that "the three- cornered relation of settlor, trustee, and [beneficiary] ... is easily explained in the modern law in terms of a contract for the benefit of a third party." [FN10] Our black letter law has resisted the insight that trusts are contracts. The second Restatement of 1959, carrying forward the language of the first Restatement of 1935, [FN11] declares: "The creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract." [FN12] ... History. There was always a component of contract in the trust relationship, but profound changes in the character and function of the trust from the second half of the nineteenth century onward have intensified the *629 contractarian basis of the trust. The trust originated as a conveyancing device for holding real property, often ancestral land. The modern trust has become a management regime for a portfolio of financial assets. ... Function. Part IV of the Article develops the intrinsic functional

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correspondence between contract and trust. The bedrock elements of contract are consensual formation and consensual terms. Trust displays both. I follow for trust the insights of the law-and-economics literature, which has emphasized the contractarian basis of fiduciary duties in modern corporation law. I concentrate on the two central duties of trust fiduciary law, loyalty and prudence. My theme is that, despite decades of pulpit-thumping rhetoric about the sanctity of fiduciary obligations, fiduciary duties in trust law are unambiguously contractarian. The rules of trust fiduciary law mean to capture the likely understanding of the parties to the trust deal, which is why both the duty of loyalty and the duty of prudence yield to the more particularized intentions that the parties may choose to express or imply in their trust deal. I depict the default regime of trust law as a type of standardized contract, and I point to some instances in which the contractarian perspective should improve outcomes in trust law. ... It is not my purpose to fold the law of trusts into the law of contract. Like other legal institutions that have been deeply influenced by modern contractarian analysis, such as the corporation or the marriage, the trust has an institutional integrity and convenience that fully justifies its independence. My purpose is simply to show that contractarian analysis illumines, and at times helps us improve upon, what we do with the trust.

Excerpt from: The Functions of Trust Law: A Comparative Legal and Economic Analysis by Henry Hansmann, Ugo Mattei New York University Law Review, May, 1998, 73 N.Y.U.L. Rev. 434 p.438-445
Contrasting Approaches to Trust-Like Relationships In a prototypical Anglo-American trust, three parties are involved: the "settlor" transfers property to the "trustee," who is charged with the duty to administer the property for the benefit of the "beneficiary." Any of these three roles may be played by more than one person. Also, the same person may play more than one of the three roles. In particular, the settlor and the beneficiary may be the same person, in which case the trust involves a simple delegation of responsibility for managing property from the settlor/beneficiary to the trustee. Since, in what follows, we shall often be concerned with efforts to construct trustlike relationships in the absence of trust law, it will be helpful to have generic labels for the three characteristic parties to such relationships - labels that do not carry with them the legal implications of the terms "settlor," "trustee," and "beneficiary." Consequently, unless we are clearly talking about a situation in which the law of trusts applies, we shall refer to the three parties to a trust-like relationship as the "Transferor" (who performs the settlor-like role), the "Manager" (who performs the trustee-like role), and the "Recipient" (who occupies the beneficiary-like role). Likewise, we shall refer to the property that the Transferor transfers to the Manager, to be managed on behalf of the Recipient, as the "Managed Property."

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A. The Common Law Approach

The Anglo-American concept of the trust, together with the equity jurisprudence of which it forms a part, is the fortuitous product of the peculiar historical path followed by English law. The writ system, around which the jurisdiction of the common law courts was organized during the reign of Henry II, became rigid toward the end of the thirteenth century, largely precluding the creation of new writs. All common law remedies had to be worked out within the structure of the existing writs. At the time, covenants were not enforceable unless made under seal, and remedies like injunctions and specific performance were unavailable. With the exception of the obsolete legal procedures of the writ of right, the pecuniary award was the only remedy available in a court of law, and it was available for only a very limited number of causes of action. n12 According to the conventional account, the writ system led to frequent acts of injustice, and when the situation became intolerable, the Chancellor began to grant relief in the form of in personam orders to the wrongfully sanctioned defendant. By the fifteenth century, the Court of Chancery had formed and developed its own remedial devices. The dual common law/equity system, typical of Anglo-American law, was born. Prior to the intervention of equity, an effort to create an enforceable trust-like relationship under the common law would have failed. The Manager would have become the full owner of the Managed Property and her obligation to administer that property for the advantage of the Recipient would have been purely moral: Because she was the full owner, neither the Transferor nor the Recipient could have claimed anything against the Manager in a common law court. In contrast, equity ultimately recognized that, while the Manager was the owner at law, her right was restricted by another property interest, that of the Recipient. Recipients therefore were provided with equitable remedies against an unfaithful Manager. This system of rights and remedies was described by saying that the Manager (trustee) had legal ownership, while the Recipient (beneficiary) had equitable ownership. This subdivision of property rights caused little conceptual difficulty in the common law system, which, from an early stage, recognized that property rights need not be concentrated in the hands of a single owner, but rather could be divided among more than one individual, either in time (estates) or in content (incidents of tenure). Since the beneficiaries were considered property owners, and not holders of mere contractual rights, it naturally followed that they could claim their interests against everybody (except against a purchaser for value without notice of the trust) and obtain proprietary remedies. On the other hand, since the trustee held legal title to the trust property, his transfers of property were not impaired by the existence of the trust. Rather, when the trustee exchanged the trust property for other property, the beneficiary's interest and the trustee's duties attached to the new property received in the exchange. Moreover, if the trustee wrongfully transferred trust property to somebody other than a purchaser in good faith without notice of the trust, then, through the remedy called "tracing," the beneficiary's property

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interest continued to attach to the transferred property, and the transferee was considered to hold the property and all of its proceeds in trust for the beneficiary, who was the equitable or beneficial owner of the property.

B. The Civil Law Approach

Continental law evolved along a very different path. The development of the law was not in the hands of practitioners organized around a centralized system of justice. n19 Rather, academic lawyers in the universities were the leading force in the development of the law. The law itself was to be found not in a register of writs, but in the Justinian compilation. n20 A dual legal system never arose. A general theory of contract as a source of obligations was developed early on by scholars, and the notion of obligation remained central to continental legal theory. Consequently, in the continental legal tradition it was obligation that played the most important role in framing trust-like arrangements. n21 This was facilitated by the fact that, in the continental systems, the remedy of specific performance came to be available for the enforcement of any kind of obligation arising from contract, delict, or unjust enrichment. Despite its substantial generality and flexibility, however, the civil law of obligations did not evolve to fully encompass trust-like arrangements. On the contrary, the civil law developed important taboos that would be violated by trust law rules of the form that evolved in England. In particular, trust doctrine runs counter to the so called unitary theory of property rights. n23 During the French revolution, divided property rights came to be considered characteristic of feudalism. As a consequence, it was thought that the number of restricted property rights had to be strictly controlled and limited. The numerous clauses theory was developed, stating that divided interests in property must be strictly confined to a small number of well-defined types, such as servitudes on real property, mortgages, and usufructs. Although this theory was largely the product of the folklore and ideology of the French revolution and lacked a well articulated general rationale, it enjoyed tremendous success and continues to have a strong influence on the civil law. Since the particular division of property rights embodied in the private trust cannot be fit within any of the limited forms of divided property rights recognized by the civil law, the trust has been considered an impermissible arrangement. This is not to say that European law makes no provision for the formation of trust-like relationships. To begin with, European law has various special purpose institutions that serve as substitutes for the trust in certain well-defined situations. These include, for example, special guardianship institutions to manage assets on behalf of minors or incompetents. n27 In addition, for a more general class of transactions that do not fall within the narrow confines of these special institutions, contractually based relationships can be established that have some of the attributes of a trust. The most general of these relationships is the "romanistic fiduciary transaction," or fiducia. This device is essentially a creation of legal scholars that has found its way into the case law, rather than a relationship explicitly recognized by the civil

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codes. It is typically created by means of a contract between the Transferor and the Manager. In the paradigmatic case, the Transferor formally transfers the property involved to the Manager, who becomes the legal owner of the property, while at the same time the two parties enter into a contract under which the Manager becomes the agent of the Transferor and promises to manage the property for the benefit of the Recipient, who becomes a third party beneficiary of the contract. Because, following the dictates of the civil law regime, the Recipient has no property rights in the Managed Property, enforcement of the Transferor's contract with the Manager is the only means of control over the Managed Property that is available to either the Transferor or the Recipient. Nevertheless, since that contract can be specifically enforced under the law of European civil law countries, the Recipient can obtain a degree of protection that is similar in some respects to the protection available in the common law trust. For example, he can regain possession of the Managed Property upon the expiration of the arrangement as long as the property still remains in the Manager's possession - that is, it has not been transferred by the Manager to a third party purchaser. Under this arrangement, the Manager is the sole owner of the Managed Property. This means that she has the capacity to transfer it or otherwise contract for its use in any way. The natural consequence is that a third party who acquires Managed Property from an unfaithful Manager is always protected, even when he knows that the Manager is acting in bad faith. To deal with this problem, legal theory and case law have evolved in some civil law countries to provide trustlike remedies through which the Managed Property can sometimes be recovered from a third party who acquired it in bad faith from an unfaithful Manager, though the scope of this protection is generally not as broad as that afforded by the trust. Another important difference between the fiducia and the common law trust involves the treatment of insolvency - a subject we shall return to in detail below. Strong evidence that the fiducia and other civil law institutions for establishing trust-like relationships do not provide completely adequate substitutes for the common law trust can be found in the fact that, despite the very peculiar institutional setting in which the law of trusts developed, the trust has come to be adopted in a number of jurisdictions beyond the core common law countries. n31 Further evidence can be found in The Hague Convention on the Law of Trusts, to which a group of civil and common law countries became parties in 1985. n32 The Convention establishes choice of law rules providing for recognition, in nontrust jurisdictions, of trusts and trust law from foreign jurisdictions. The principal rationale for the Convention, as well as the principal difficulty in its drafting and the principal source of resistance to its adoption, was the general absence in civil law countries of legal institutions analogous to the common law trust.

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Original URL:
http://cyber.law.harvard.edu/trusting/unit5all.html Other Resources:

What Are a Trustee's Fiduciary Duties? - For Dummies

eu.dummies.com/how.../what-are-a-trustees-fiduciary-duties.ht... As a trustee, you have a fiduciary duty to the trust. You must always act in accordance with the terms of the trust instrument. Your attorney can advise you as to ... [PDF]

Fundamental Duties of a Trustee

www.edwardjones.com/groups/ejw_content/.../web043726.pdfShare File Format: PDF/Adobe Acrobat - Quick View of the trustee's duties and how they affect the trustee and their relationship with trust beneficiaries. To accomplish this, the basic tenants of fiduciary law that are ...

Trustee Duties and Liabilities

www.willmslaw.com/Concepts/article34.htm There are five general fundamental duties which must be carried out by any individual acting as a trustee. These duties consist of: (i) A duty to be generally .

Fiduciary Duties of Trustees

www.mitchell-attorneys.com/.../fiduciary-duties-of-trustees-in-... Learn about the fiduciary duties of trustees. Including duties of a trustee to a trust and its beneficiaries, particularly regarding investment and financial matters.

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