FIDEICOMISO IN THE ARGENTINE LAW

AND THE ENGLISH TRUST

(A comparative perspective)

By
MARCELO ANTONIO PEPE

To my father, in memoriam.

1. Introduction. Fideicomiso in Argentina

The use of “fideicomiso”, a legal devise of versatile structure in many aspects parallel to
the English1 trust, has been until 1995 practically disregarded in Argentine legal transactions and
has therefore received little theoretical treatment amongst Argentine writers. The juridical
tradition in Argentina has been reluctant to the admission of the trust institution of Anglo-Saxon
origin, somewhat different from the fideicomiso recognized by continental legal systems2 and by
the fideicomiso which later came to be enacted by the 1995 Argentine Trust Act No. 24.441 3
(hereinafter referred to as the “1995 ATA”). The 1995 ATA amended, inter alia, sections 2662 and
2670 in fine of the Argentine Civil Code (hereinafter referred to as the “ACC”).
Even though fideicomiso was prescribed by the ACC (sections 2662 and 2841) before the
enactment of the 1995 ATA, the vast majority of Argentine legal scholars disapproved of the
recognition of the figure on account of the lack of practical implications of fideicomiso and
mainly due to its unlawful origins, both in Roman law and in the middle ages.
It is clear, Argentine legal writers went on to say, that fiducia and fideicommissum appear
to have been utilised, in classic Roman law and in the middle ages, among other practices, for
purposes of avoiding feudal incidents, placing property beyond the reach of creditors and
escaping statutory rules of intestacy that deprived certain individuals (aliens) of inheritance
rights.
Indeed, the contrato de fideicomiso has been prescribed by commercial statute in
Argentina long before the enactment of the 1995 ATA4. Section 238 of the Argentine Companies
Act No. 19.550 (“Ley de Sociedades Comerciales”, hereinafter referred to as “LSC”) provides for
the contrato de fideicomiso in connection with the issuance of corporate debentures5. Such
contrato de fideicomiso is entered into between the issuing corporation and a financial institution
(trustee) who is responsible, inter alia, for preserving the rights of both the corporation and those
of the future bond holders, thus assuming the management of subscriptions of debentures and
payment thereof; and defending the interests of debenture holders, as creditors of the corporation
so as long as the loan remains outstanding.

1
Whenever reference is made to English trust or English law, it is meant to be applied to the current legislation and
general principles of the law of England and Wales.
2
Where the historical fact of its unlawful origin and further fraudulent use contributed to the discredit of the figure,
as a consequence of which fideicomiso was abolished or otherwise received little legal treatment in the 19 th century
European codes, which reflected a political, social, economic and legal reaction against the feudal system of land
tenure. The 1804 Napoleon French Civil Code is the most outstanding exponent of the aforementioned liberal
codification movement which greatly inspired, in the area of property law, the enactment of the 1869 Argentine Civil
Code. In North America, the State of Louisiana and the Province of Quebec in Canada were likewise influenced by
the Napoleonic Code, through the enactment of the 1826 Civil Code of Louisiana and the 1863 Civil Code of
Quebec, both prescribing, as the French Code so did, Roman concepts on property.
3
Passed on December 22, 1994 and enacted on January 9, 1995.
4
However with a completely different legal perspective than the contrato de fideicomiso (trust agreement) as
prescribed by section 1 of the 1995 ATA. See 8 infra.
5
See sections 238 et seq. of the LSC.

1
 Notwithstanding the trustee’s capacity as legal representative6 of the bond holders, it (the
trustee) does not, however, become the legal owner of the issued debentures7, the property and
possession thereof being retained by the debenture holders.8
Perhaps one of the greatest advantages of the formal reception of fideicomiso, through the
enactment of the 1995 ATA, was the recognition in Argentina of the legal concept of “separate
property9” (patrimonio separado) of the trust corpus assets which, on being vested in the trustee,
constitute an estate separate and distinct from the personal assets of the settlor, the trustee and the
beneficiary. Consequently, by virtue of the insulation from liability created by the existence of a
separate trust fund, the trust estate (patrimonio fideicomitido) shall be exempt from the claims of
personal creditors of the settlor, trustee and beneficiary, and shall therefore only be available to
trust creditors´ claims (acreedores fiduciarios)10 .
The notion of separate property which, by the creation of a fideicomiso, is introduced to
the Argentine legal scenario, undoubtedly constitutes a major advantage to the participants in the
whole negotiation (settlor, trustee, beneficiary -at times financial investors-, and remainderman)
by allowing the settlor and the beneficiary to rely on a rational administration of the trust property
by the trustee, without the trust assets being exposed to the execution by the trustee´s personal
creditors. The trust estate, in turn, is kept clear of trustee´s bankruptcy creditors, in the event of
his being declared bankrupt. The legal benefits of the “separate patrimony” machinery do not
apply, however, where, pursuant to relevant statutory provisions, the transfer on trust falls within
one effectuated for purposes of fraud, thereby preventing the settlor´s preexisting creditors from
exercising their right of recourse against the property so transferred 11.
The limitation of responsibility by the trustee consequently offers attractive opportunities
to engage in the business of the management of trusts in Argentina, where the trust assets do not
mingle with those of the trustee´s. Further, the insufficiency of the trust estate to meet trust
creditors´claims does not result in the commencement of bankruptcy proceedings, nor does such
6
Who, under prescribed circumstances, might require the suspension of the Board of Directors, thus assuming the
management of the corporate assets under inventory. Basically, the trustee would intervene where the interests of
debenture holders are at a substantial economic risk due to the ill-management of corporate affairs.
7
It must be understood, from the outset, that the transfer of property (through a fiduciary title) to the trustee is one of
the essential requirements for the legal existence of a fideicomiso under the Argentine current legislation, which is
and was not the case of the trust agreement (contrato de fideicomiso) provided by the LSC.
8
According to the language of the former Act governing debentures, No. 8875, the fideicomisario (remainderman)
was the legal representative of the debenture- holders, where, in reality, he should have instead been referred to as
fiduciario (trustee) because he was, in the context of the Act, entrusted the preservation of the debenture- holder’s
interests in the issuing company. Still, as has been pointed out in the text, no fideicomiso there arose by virtue of the
inexistence of the transfer of property of the issued debentures to the so called “fideicomisario”. It is accordingly
stated by proffessor Carregal that “Existe cierta imprecisión en el uso de estos vocablos, especialmente cuando se
utiliza el termino de fideicomisario. Para nuestra anterior ley de debentures número 8875, fideicomisario era el
representante de los tenedores de debentures, cuando en realidad correspondería llamarle fiduciario, ya que ejercía un
encargo de confianza (si bien no un fideicomiso, por no existir traslación de propiedad). En igual confusión incurre la
ley 21.526 (art. 22 inc. g, y 24, inc. i), cuando establece que las entidades financieras a que se refiere podrán actuar
como “fideicomisarios” cuando es más apropiado el término unívoco de “fiduciario”. Este error de nomenclatura ha
sido superado en la ley 19.550, puesto que ahora se habla de “banco fiduciario” (art. 339 inc. 4), de “capacidad de los
fiduciarios” (art. 341) y de la facultades del fiduciario (art. 344, 345, 348 y concordantes). Se menciona también al
“contrato de fideicomiso” y al “fideicomiso” (art. 339 y 338), aun cuando, según nuestro punto de vista, dicha
negociación no encuadra dentro de la definición que hemos dado del “contrato de fideicomiso” por cuanto carece
del elemento esencial que comporta la transferencia de la propiedad. Habrá aquí una fiducia o encargo de confianza,
pero no un fideicomiso”, conf. CAREGAL, Mario Alberto. “El Fideicomiso” Regulación jurídica y posibilidades
prácticas, Editorial Universidad, Buenos Aires 1982, pàg. 90. What has been marked in this footnote, relating to
proffessor Carregal`s opinion, belongs to me.
9
The terms “separate estate”, “separate assets” “separate patrimony” “separate trust fund” “separate fund”
“separate assets/trust assets” are also likely to appear in several legal instruments.
10
The concept of trust property and its availability to trust creditors shall be analysed infra, 15.
11
The incidence of the settlor, trustee or beneficiary´s bankruptcy in relation to the trust property shall be considered
infra. See 15.

2
insufficiency bring about the legal effects of the adjudication of bankruptcy in Argentina with
respect to the debtor.12
The separate patrimony also entails comparative advantages in relation to the creation of
traditional security interests, whereby the debtor (settlor) transfers property in trust to his creditor
(trustee and beneficiary of the trust) or to a third party (trustee) for the purpose of securing
payment of the debt (resolutory condition to which the trust property is subject). Such mechanism,
known in Argentina as fideicomiso de garantía13, encompasses a number of significant
advantages over the Argentine traditional security interest devices hipoteca, prenda or anticresis,
mainly due to the fact that the secured creditor (in his capacity as legal owner) is entitled to
dispose of the trust property, according to the terms of the trust deed, thus obtaining payment
from the proceeds of the sale thereof. The procedure, in substance, takes place out of court 14, and
therefore reduces the cost (reduced or no court costs and attorney’s fees and expenses) and time
of conversion of the secured property into money (the sale is not dependent on the intervention of
the court).
The utilization of the fideicomiso de garantía devise, in Argentine legal practice, has
raised a number of legal issues related to the scope of the beneficiaiarie´s right, particularly
12
It must be remembered that upon being adjudged bankrupt (bankruptcy order/order for bankruptcy relief
(resolución que decreta la quiebra), the debtor is dispossessed of his non exempt property by operation of law
(desapoderamiento de pleno derecho respecto de los bienes objeto de dicha medida), and therefore comes to be
deprived of the right of administration and disposition thereof in favor of the trustee in bankruptcy (síndico) who will
take over. Pursuant to sections 102 to 105 of the Argentine Insolvency Act No. 19.551 (personal effects of the
bankruptcy order), however, after the bankruptcy order has been entered, the debtor shall be bound to appear in
court whenever the bankruptcy judge and the trustee in bankruptcy so require, thus not being allowed to leave the
country without the court´s permission. Further, the bankruptcy debtor may not, until his rehabilitation, incur new
debts, upon pain of a new petition in bankruptcy being filed against him. Finally, bankruptcy proceedings are not
affected by the debtor’s death or his subsequent incapacity.
13
For a concept of fideicomiso de garantía used in transactions in Argentina, see my previous work, “Fideicomiso
de Garantía”, Iturbide, Gabriela A. y Pepe, Marcelo A, JA-1998-II-718. Also see, “El fideicomiso de garantía:
certezas y vacilaciones”, Vazquez, Gabriela Alejandra, LL del 15-2-2006. The use of the trust structure for the
purpose of granting security is also a devise utilised in English practice by the debtor conveying property on trust
for the benefit of creditors. Such mechanism may take various forms. Thus, where the debtor conveys or transfers
property to trustees for the benefit of his creditors, such a disposition may prima facie be revocable by the debtor, the
apparent beneficiaries (creditors) are said to have never acquired any equitable interest in the property at all. The
trustees, in the eye of equity, hold the property transferred to them on trust for the benefit of the debtor himself (Bill v.
Cureton (1853) 2 & K 593). The debtor proposes only to benefit himself by the payment of his debts, his object is not
to benefit his creditors. The trustees are mere mandatories or agents of the debtor who is merely directing the mode in
which his own property should be applied for his own benefit. The deed operates merely as a power to the trustees
which is revocable by the debtor. Alternatively, a true trust may be created by the debtor for the benefit of his
creditors. This will be the case as regards those creditors who have executed the deed (Montefiore v. Browne (1858) 7
HL Cas 241) or who have acted on the deed, for instance by forbearing to sue (Nicholson v. Tutin (1855) 2K & J 18)
or who have assented, not necessarily formally, to the trust (Harland v. Binks (1850) 15 QB 713), or where they have
been expressly or impliedly told by the debtor that they may look to the trust property for the payment of their debts
(Synnot v, Simpson (1854) 5 HL Cas 121). By the Deed of Arrangements Act 1914, a deed of arrangement, made by
the debtor for the benefit of his creditors generally, or, if he was insolvent at the date of the execution thereof, for the
benefit of any three or more of them shall be void if not registered with the Registrar appointed by the Board of
Trade, within seven days of its execution. Further, if a deed is intended to be for the benefit of a debtor´s creditors
generally it will be void unless it has received written assent of a majority in number and value of the creditors
within twenty-one days after registration. Deeds of arrangement affecting unregistered land may be registered under
the Land Charges Act 1972 (s 7. (1), see 14 infra), and if not so registered will be void as against a purchaser for
valuable consideration (s 7(2) ). In the case of registered land, the procedure to protect a deed of arrangement is to
lodge a caution against dealing (currently, under the 2002 LRA, the only possible protection may be in the form of a
restriction, as shall be seen infra 13, vi), and a purchaser will not be concerned with or affected by a deed of
arrangement which is not so protected, Philip H Pettit, MA, Equity and the law of trusts, eighth edition, Butterworths,
London 1994, p. 213 at 215.
14
There is, however, some instance of court´s exercise of jurisdiction, though limited, inter alia, to ensure the debtor
´s right to defend, thereby allowing him to raise relevant affirmative defences that might defeat the creditor’s claim.

3
where the roles of trustee and beneficiary of the trust (creditor) are assumed by the same person.
It is accordingly submitted that such coincidence of roles is not recommendable, considering that
the position of beneficiary-creditor and trustee, when performed by the same person, is
incompatible with the trust institution, whereby the expected absence of personal interest on the
part of the trustee in the underlying transaction giving rise the trust is supposed not to interfere
with his diligent management and disposition of property for the benefit of another.
The beneficiary-creditor is further barred from purchasing the trust property for himself,
pursuant to the prohibition stated by section 7, in fine, of the 1995 ATA. In the context of security
devises, as provided by the civil codification in Argentina, secured creditors are not allowed to
acquire the secured property for themselves (sections 3222 and 3252 of the ACC). Such legal
provisions are in keeping with Roman rules which sought to avoid fraudulent practices on the part
of creditors holding title to the secured property. Secured creditors, usually failed to return the
property given as security and would automatically retain title thereto15, upon mere delay or non
fulfillment of the secured obligation by the debtor. This resulted in the value of the retained assets
normally exceeding the amount of the secured debt (see fiducia cum creditore, 5 a infra).
Other conflicts relating to the trustee creditor in a fideicomiso de garantía occur in
connection with the time and manner the power of sale is to be exercised by the trustee- creditor.
The fact that the trustee is afforded a power of sale of the trust assets for purposes of collection
out of its proceeds has technical implications concerning the independent and fair assessment of
the secured trust property, the proper instance when the right of sale is triggered and the due
preservation of the debtor’s rights to timely defend.
As can properly be seen, the technical implications of the “fideicomiso” structure have not
yet achieved complete consensus among many Argentine attorneys and legal scholars. There are
not, on the other hand, many case precedents, as a result of the relatively few judicial proceedings
involving fideicomiso having been filed in Argentine courts. Notwithstanding the vast amount of
bibliography that has been written on fideicomiso, the institution may still be regarded as brand
new in Argentina, considering that the fideicomiso enacted by the 1995 ATA introduced to our
country (Civil Law-oriented) significant aspects16 of the Anglo-American trusts, a creature of the
English legal culture, with which Argentine legal practice, as has been pointed out, was not
familiar. Many structural elements of Argentine property law, however, still remain as essential
features of the fideicomiso enacted by the 1995 ATA17.
Some more years shall probably go by before the institution be completely developed,
duly construed and applied by Argentine courts.

2. Ethimology
15
By virtue of their being the legal owners and possessors of the property conveyed to them for purposes of securing
performance of the debt.
16
I refer, inter alia, to the introduction to Argentine legislation of the concept of exercise of property for the benefit of
another person (the beneficiary); The systematization of the theory relating to the fiduciary transfer of ownership
title to the trust property; the possibility of constituting testamentary trusts; the formal reception of the “separate
estate” theory in relation to the trust assets; The introduction of securitization as a means of isolating and securing
financial assets for the benefit of investors in the Argentine capital markets; The versatile nature of the fideicomiso
structure, designed to meet indefinite lawful purposes of the settlor; and finally the tax implications of the
constitution of a fideicomiso in Argentina, among other salient features.
17
I refer to the inexistence in the Argentine property law, of the following legal concepts: duality of ownership (trustee
´s legal title and beneficiary´s equitable title); the enforcement of the obligations arising from the fideicomiso by
interested parties, either at law or in equity, be it ordered by a court in its inherent jurisdiction, or upon
commencement of an action by those entitled thereto. These considerations constitute, perhaps, a major starting
difference between Argentine fideicomiso and the English trust. Other differences relate to the absence of implied
trusts (constructive or resulting) in Argentina; Further, the impossibility by the settlor to make a self declaration of
trustee; and the inexistence of a theory of discretionary trusts and charitable trusts under Argentine legislation on
fideicomiso. These are some of the legal aspects not applicable to fideicomiso under the current Argentine legislation
compared with those of the English trust.

4
 Before outlying the main structural elements of the fideicomiso, as enacted by the
Argentine legislation, it would be proper to give a brief notion of the term “trust” and
“fideicomiso” parting from their ethimological origin (for present purposes, the terms trust and
fideicomiso, shall be used interchangeably).
The term “fideicomiso” derives from the Latin fides, meaning, on the one hand, faith
(more at credence, belief), also faithful (meaning loyal, constant, steadfast, resolute); and, on the
other hand, the term derives from confidence (meaning trust, reliance); comiso, in turn, is derived
from the Latin comittere – com- mittere (to send) - (to commit, entrust, confide).

3. Basic structure of Fideicomiso

Whenever a fideicomiso is created, by virtue of a fiduciary agreement18 (contrato de

confianza) or as a result of a testamentary disposition (disposición testamentaria)19, a person
(legal person- be it an individual or an entity (settlor, grantor, trustor) (fiduciante, constituyente,
fideicomitente), resting on the confidence placed in another person (trustee, feofee to use)
(fiduciario), transfers property20 to him in order that the trustee manage the property so
transferred (trust property/trust estate/trust corpus assets/ trust assets/ trust patrimony/ trust
funds) (bienes fideicomitidos/patrimonio fideicomitido/ patrimonio fiduciario), over which he has
control, in accordance with the purposeful directions given by the transferor.

18
The trust agreement constitutes the contractual source or cause (causa fuente) from which a fideicomiso is derived
and also reflects the purpose (causa fin) for which a fideicomiso is created. Under Argentine Law the term
fideicomiso designates, as has been seen, both the contractual source and the settlor´s intention as set out in the trust
agreement (contrato de fideicomiso). Further, the term Fideicomiso also refers to the proprietary right of the trustee
over the trust property (propiedad fiduciaria) once property has been duly vested in him, pursuant to the trust
agreement. As a manifestation of the settlor´s wishes, the trust agreement, as shall be pointed out (8 infra), contains
the instructions (pactum fiduciae) to the trustee relating to the management and disposition of the trust property so
long as the trust remains in force and upon its termination.
19
As has already been pointed out, it is possible, under Argentine current legislation to settle property upon trust
through a mortis causa disposition (disposición mortis causa), thereby appointing a trustee to manage the trust corpus
assets for the benefit of the persons ascertained or ascertainable in the will. The vesting of the trust property in the
trustee appointed in the will shall take effect upon the death of the settlor (fideicomitente testador). The testamentary
disposition, however, must be made pursuant to the legal formalities prescribed by Argentine law for the drafting of
Wills; and the trust property shall only vest in the trustee once probate proceedings have been instituted.
20
It is crucial to understand that the term property, as it appears in the text, is used, and shall hereinafter be used in its
broad legal sense as the subject matter of a fideicomiso in Argentina or under English law, and shall therefore
comprise: 1. corporeal or tangible objects/property capable of economic value - res corporalia- (objetos
corporales/materiales susceptibles de valor económico, conf. art. 2311 del Código Civil Argentino, en adelante
“CC”), be them personal property (personalty) whether registrable or non-registrable (cosas muebles registrables o
no registrables), such as books, cars, horses, ships, etc., or real property (realty) (cosas inmuebles) land, flats,
houses; 2. Incorporeal or intangible objects/property capable of economic value -res incorporalia- (objetos
incorporales/ inmateriales susceptibles de valor económico, conf. art. 2312, primera parte del CC), be them
immovable in nature –heriditaments- (bienes inmateriales de naturaleza inmobiliaria), such as the right of usufruct,
superficiary rights over another´s land, servitudes (easements), profits (and any other interests in land), or movable
intangible property -choses in action- (objetos inmateriales de naturaleza mobiliaria) such as shares, negotiable
instruments, patents and copyrights, debts, cash flows, etc. It must be noted, however, that Argentine legislation,
unlike English Law, does not distinguish between heriditaments and choses in action as forms of incorporeal
property, both categories being included generically in section 2312, first part, of the ACC as objetos inmateriales
susceptibles de valor. Even though the distinction is not statutorily prescribed, such categories are dealt with by
Argentine legal scholars and do appear in judicial decisions, both in civil or commercial matters. The notion of chose
in action, in the sense of a person benefiting form a right by means of a legal action is, in principle, unknown to
Argentine law as a legal category. Still, in the context of negotiable instruments, for instance, some benefits capable
of being obtained from the right thereof may only be asserted by the holder through a legal action (ejecución de la
letra, cheque o pagaré).

5
 The trustee, in turn, binds himself to manage the trust property 21 for the benefit of another
person (beneficiary, cestui que use/cestui que trust) (beneficiario).
Upon termination of the trust (extinción del fideicomiso) the trustee is bound to transfer
the trust property to the remainderman (fideicomisario) who, in turn, becomes the final recipient
(destinatario final de los bienes fideicomitidos), therefore the perfect owner22 (propietario
perfecto), of the property so transferred.

The basic elements of the trust are:

1. The transfer of property.

2. The fiduciary nature of the transfer.
3. The restricted powers of the owner (trustee), in respect of the trust property, designed
to carry out the settlor´s intention.
4. The existence of a beneficiary in whose favour the property is managed.
5. The transfer of the trust property to a final recipient (remainderman) (fideicomisario/
destinatario final de los bienes) upon termination of the trust.

4. Purpose for the creation of trusts

Trusts are primarily about money and the preservation of wealth. The idea of the trust
developed as a means for providing for the family. Although the trust still plays a significant role
in establishing ownership of property on family breakdown, it can no longer be doubted that
equity has moved out of the family home and the settled estate and into the market place23.
A mayor activity, in England, is in the holding of the property of charities and other non-
profit making bodies. Unit trusts and investment trusts are designed to spread investment risks.
Thus the trust continues to be a form of property- holding of ever increasing importance because
of its adaptability and convenience in effecting complicated forms of settlements. In English law,
as the principles of equity permeate the complications of modern life, the nature and varieties of
trusts ever grow.
In England full use has been made of the convenience of the system whereby the legal
estate is in the trustees and the equitable or beneficial ownership is kept separate.
In Argentina, as has been remarked, the fideicomiso structure was in fact used amongst
Argentine attorneys long before the enactment of the 1994 ATA, though mainly in the commercial
legal field and less commonly seen in the context of civil matters, such as for purposes of
securing obligations or otherwise transferring property in trust for conservation, administration of
investment objectives.
After the ATA came into force, however, the fideicomiso devise has been widely spread
throughout the Argentine legal scenario. Property is currently transferred on trust for multifarious
proposes in Argentina (administration, conservation, investment) and also as an efficient means of
providing security, both in the private and public sector.
21
As shall be noted in due course, a salient aspect of the Argentine fideicomiso is the fluctuating character of the
trust property, as a result of the trustee´s management and disposition powers in respect of the trust corpus assets, as
permitted by the trust agreement and the Argentine law, as amended. See infra 11.
22
Argentine Law distinguishes between perfect and imperfect ownership (ss 2507 and 2661 of the ACC), (see infra
footnotes 70 and 72). Perfect ownership arises where the property right of the holder is perpetual (thus of indefinite
duration, not limited in time), (s 2510, first Part, of the ACC), and is not burdened in favour of third persons with
other property rights, be them in the form of land charges or security interests (such as easements, usufructs,
mortgages or other real charges restricting the holder´s property right over land - s 2507, first Part, of the ACC-). The
distinction is derived from the Louisiana Code, section 482; see its text infra (footnote 72).
23
(1995) 9 Trusts Law international, p.36 (Sir Peter Millet), in Modern Equity, by Hanbury and Jill E. Martin,
fifteenth edition, Sweet and Maxwell, Ltd., London 1997, page 39.

6
 Moreover, a considerable number of testamentary trusts have been brought into play as a
mode of disposing property in trust to take effect after the settlor´s death.
Finally, the introduction of the securitization process as way of isolating financial assets
transferred from an originator to a special purpose vehicle, with a view to appropriating the
securitised assets and keeping them off the claim of the originator´s economic risks for the benefit
of financial investors, has undoubtedly enhanced corporate financing at lower costs and higher
benefits in Argentina.

5. Fideicomiso in Roman Law

Before analysing the differences between the Argentine fideicomiso and the English trust
we shall trace some of the salient historical factors which led to the creation of fiduciary legal
relations in Rome, through Fiducia and Fideicommissum. After Roman roots of fideicomiso have
been outlined, the development of trusts in the Common Law shall be dealt with (infra 6).

a. Fiducia

It was customary under Roman Law for a property holder (settlor) to convey title to land
to another person, usually a friend (trustee) to be held in trust while the settlor was away (fiducia
cum amico). The trustee bound himself in conscience24 to reconvey the land to the trustor upon
his return. Failure to comply with this duty, however, only gave the settlor a personal action
against the trustee. If the thing had reached into the hands of a bona fide purchaser, the trustor
was deprived of a tracing action (real action) to recover the thing from the third party. The settlor
might only sue the trustee to recover damages (actio in personam).
The fiducia cum creditore, was a device whereby the property holder (settlor debtor)
transferred property to his creditor (trustee) as security for an existing debt with the trustee,
coupled with a proviso for reconveyance upon full repayment (undisclosed in nature- pactum
fiduciae) (condition subsequent). The creditor (trustee), as legal owner and possessor, was in a
position to abuse his powers by fraudulently retaining property of the thing for an amount
substantially higher than the unpaid balance of the secured debt. Alternatively, the creditor
would, in breach of trust, transfer the thing to a bona fide purchaser, who was able to defeat any
action filed against him by the settlor for recovery of the thing.
Not withstanding that fiducia did not create a divided title as known in modern trust law,
the settlor, as has been seen, in the case of fiducia only had access to an actio in personam.

24
The notion that the trustee bound himself in conscience is perhaps the typical distinctive feature of Roman fiducia
(cum amico and cum creditore) where pursuant to the undisclosed nature of the duty to reconvey the property (by the
trustee amico/creditore), Roman fiducia could be regarded as a pure fiducia (fiducia pura). The moral duty resting on
the trustee was in Rome the means of enforceability of the pactum fiduciae. Nevertheless, an action (in personam)
was available to the settlor to recover the property transferred from the trustee without priority should the trustee go
bankrupt (actio fiduciae directa). The trustee was, in turn, afforded a personal action against the settlor to be
indemnified, had the enforcement of the pactum fiducia caused him any harm (actio fiduciae contraria), conf.
Adrogue, Manuel, E. El derecho de propiedad en la actualidad, Abeledo Perrot, Buenos Aires, 1991, pag. 84, who
states that “En el derecho romano se concedieron las acciones de buena fe, directa y contraria. La directa se acordaba
al enajenante para exigir la ejecución leal completa del pacto de fiducia y consistía en un crédito para exigirle la
restitución sin privilegio en caso de insolvencia del fiduciario. La actio fiduciae contraria se atribuia al adquirente
para reparar el perjuicio que eventualmente le causara la ejecución de la convención”, quoted, Witz, Claude, La
Fiducia en Droit Privé Francais, Económica París, 1981; nro, 22, pág. 22 y 23. Still, the common element of Roman
fiducia was the personal binding effect of the transfer of property and the consequent absence of proprietary tracing
claims available to the settlor against bona fide purchasers, who acquired the thing without notice of the pactum
fiduciae.

7
 The progressive non use of fiducia in Rome was due to the inexistence of a real action
available to the settlor against third parties into whose hands the thing had come, who in good
faith contracted with the trustee. Upon having no notice of the pactum fiduciae, due to its
undisclosed nature, a innocent purchaser would acquire a better title that the trustee’s.
The fiducia cum creditore devise was further replaced by the mortgage (hipoteca),
whereby the debtor retained possession of the mortgaged property, thereby preventing the creditor
(trustee) from defrauding the debtor by conveying the thing to a bona fide purchaser.
Even though Fiducia is referred to as a trust-like device in the sense that there was a
division between title and interest in the thing governed by fiducia, there was, in my opinion, no
such division in Roman Law, as a consequence of the absence of a dual ownership theory relating
to the Roman concepts on property 25.
In texts dealing with the ‘use’26 and the trust, however, Roman terminology is found in
addition to usus: fiducia, ususfructus, fideicommissum and depositum. Is it likely, van Rhee
wonders, that these concepts influenced substantive trust law? To those looking for possible
Roman roots of the trust fiducia may seem a very promising legal concept at first sight27.

b. Fideicommissum

In Roman law Fideicommissum was a means of transferring property upon death. Instead
of directly designating a legatee, a testator could entrust to the faith of a third party that property
be conveyed to the person whom he would otherwise have designated as legatee.
A legacy is a legislative or imperative testamentary disposition: a precative disposition (a
disposition in the form of entreaty) is a trust28.’
25
For a complete survey of Roman ideas on property, see Joshua Getzler, Roman ideas on Landownership, in Land
Law, Themes and Perspectives, by Susan Bright and John Dewar, Oxford University Press, 1998, page 81.
Nevertheless, as van Rhee points out, the similarities between fiducia and trust-like devices are striking. As regards
the similarities between the trust and fiducia cum amico, for example, it may be pointed out that use-like
constructions were employed in England during the times of the Crusades, when people left their motherland on
perilous expeditions to the Holy Land. They placed their property in the hands of a third party, often a friend, to be
held in trust in their absence. This friend also figured in Roman fiducia cum amico. It is unlikely, however, that the
Roman view on fiducia could have influenced English trust law; in any case, such influence could not have occurred
before the nineteenth century, because the exact technicalities of fiducia only became known after Gaius’ Institutes
(ca. 160 A.D) were rediscovered at the beginning of that century. The Corpus Iuris Civilis offers very limited
information on the subject, since references to fiducia were removed from the texts incorporated into the Corpus. For
this reason, English lawyers from the period prior to the rediscovery of Gaius’ Institutes could not have used fiducia
in its technical sense of fiducia cum amico and fiducia cum creditore, conf. T.F.T. Plucknett, A Concise History of the
Common Law, Boston 1956 (5th. ed.), p. 576 ff., quoted, C.H. van Rhee, op. cit page 457.
26
The Roman law term usus is found in the Law of the Twelve Tables (450 BC). There, it served as a requirement for
acquisitive prescription. In classical Roman law (1-250 AD), usus referred to what in modern legal parlance is called
a right in rem. This Roman usus denied the occupant the enjoyment of the (civil and natural) fruits of the object of the
usus; he was only entitled to use the object. The Corpus Iuris Civilis (6th century A.D.) was only slightly more
lenient in that it allowed the occupant to enjoy the fruits to a degree, that is for his personal benefit only. When the
positions of the person enjoying usus in (later) Roman law and a ‘feofee to uses’(trustee) are compared, their
positions show similarities. The term usus, combined with the fact that Roman usus shared some aspects with the
English ‘use’, may suggest a relationship. According to some modern writers, however, the institutions lack common
roots. Whether, indeed, this is correct should be assessed on the basis of possible Canon law influences on trust law.
It seems that the development of the English legal concept of ‘use’ was inspired by ideas of the Church on poverty
and how to deal with church property. The legal instruments that Canon law provided the Church with in order to
continue its teachings on the spiritual dangers of wealth, while at the same time accumulating wealth, may, to a
certain extent, have been influenced by the Roman usus, conf. C.H. van Rhee, (Maastricht) ‘Trusts, Trust-like
Concepts and Ius Commune’, European Review of Private Law, 3/2000, p. 458-462.
27
For similarities and differences, irrespective of their diverse historical appearance, compare the use (6 infra and
footnote 24 supra) and the development of fiducia (5. a supra and footnote 23 supra). Compare also the similarities
between fiedicommissum and trust pointed out by van Rhee (5. b supra and footnote 28 infra)
28
Ulpian, 24, 1.

8
 The original object of trusts was to extend the testator’s bounty to those who were legally
incapacitated to be legatees; for instance, aliens and Latini Juniani; and though Hadrian
subsequently incapacitated aliens for taking the benefit of a trust, yet, as declarations of trust were
exempt from many other restrictions which hampered direct legacies, they survived the
circumstance which was the principal motive of their introduction.
Another object of the declaration of trusts was to avoid the restrictions imposed by the lex
Falcidia on the amount of legacies bequeathable to legatees who were capable of taking (had
capacitas as well as testamenti factio passiva), and this object would continue to operate as a
motive for the employment of trusts even after the invalidation of trusts in favour of peregrini, till
it was defeated by the Sc. Pegasianum.
That trusts had originally no legal validity, we see from Cicero, Verres, 2, 1, 47, where we
learn that it was usual for the testator to make the heir take an oath to perform the testator’s
wishes, thus supplying by religious motives the want of a political sanction. But Augustus, as we
are informed by Justinian, Inst. 2, 23, 1, in some individual cases of breach of trust directed the
consuls to interpose their authority and compel trustees to execute their charge; and trusts soon
became an ordinary mode of testamentary disposition, and, in process of time, a permanent
fiduciary jurisdiction was established, the court of a special praetor fideicommissarius 29 30.

6. Development of trusts at Common Law

When the English knights of the round table left for battle (or to join in the crusades), they
would entrust their legal title to lands and other property to a bishop of the church. The bishop
would then manage the estate until the knight’s return or death. Upon his return, the assets
reverted to the knight, and on his death they were transferred to his heirs and this would terminate
the trust.
Land might be given to a bishop for various reasons. If the Knight were going on a
crusade, then there had to be someone to perform and receive the feudal services.

29
Comentarius Secundus, de Fideicommissariis Hereditatis (Inst. 1, c; and Inst. 2, 23 pr.; Inst, 2, 23, 8). Gai
Institutiones or Institutes of Roman Law by Gaius, with a translation and commentary by the Late Edward Poste,
M.A. Fourth Edition, Revised and Enlarged, Oxford, Clarendon Press, 1904.
30
Fideicommissum shows many parallels to the concept of the trust. Firstly, trust terminology fits fideicommissum
very well: one can consider the testator a ‘settlor’, the third party a ‘trustee’, and the person who eventually acquires
the property a ‘beneficiary’. Secondly, the position of the ‘beneficiary’ under the regime of fideicommissum is just
like that of the beneficiary in modern trust law, proprietary in character (under Justinianic law, the beneficiary
enjoyed protection in the form of an actio in rem). In his contribution to the Helmholz/Zimmermann volume (p. 207
ff.) Michael Macnair offers examples of English writers who have used the term fideicommissum when explaining
the English trust. They include Francis Bacon in his Maxims of Law (1630) and Lord Nottingham (Heneage Finch) in
his Prolegomena of Chancery and Equity (17th century). According to Macnair, these authors are perhaps not saying
outright that trust is a fideicommissum, but they come close to doing so. Their analogy with fideicommissum focuses
on the proprietary character of the trust. However, it must be stressed that the analogy with trusts was not absolute:
unlike the English trust, fideicommissum was primarily used in testamentary transactions. In old trust literature we
find another analogy: between trust and usufruct. Usufruct is a legal device whereby the owner only holds a ‘bare’
title to certain property, whereas the usufructuary has a right in rem to use and enjoy the fruits of this property. Trusts
resemble usufruct in the sense that the trustee, like the owner in usufruct cases, holds a title to the property. This does
not allow him to use the property for his own purposes or allows him to do so only to a very limited extent. In this
respect he is a ‘bare’ titleholder like the owner of property to which a right of usufruct has been attached. It is the
beneficiary who, like the usufructuary, enjoys the fruits of the property. One author (mentioned by Macnair) who
used usufruct to explain trusts is Sir Jeffrey Gilbert in his eighteenth-century Lex Praetoria. According to Gilbert,
trust, like usufruct, resulted in a separation of dominium from beneficial enjoyment. As the fideicommissum analogy,
the usufruct analogy is proprietary in nature. The usufruct analogy differs slightly from that of fideicommissum in that
in cases of usufruct the relationship can be created either inter vivos or by will (as stated above, fideicommissum was
reserved for tranfers of property upon death), conf. conf C.H. van Rhee, (Maastricht) ‘Trusts, Trust-like Concepts
and Ius Commune’, European Review of Private Law, 3/2000, p. 459.

9
 If the person in whose benefit the land was to be held were a community of Franciscan
Friars which, because of the rule of poverty, was incapable of holding property, it was necessary
for someone to hold the land for its benefit 31. Perhaps, however, the settlor was trying to escape
from his creditors; or feared that a conviction for felony would result in the loss of his lands32
In England, many burdens and conditions fell upon the holder of feudal title to real estate.
For example, the lord of the land was entitled to relief (certain payments of money) when the land
had passed on to an heir of full age. The lord was also entitled to aid (money), a duty to pay for
the marriage of the deceased former owner's daughter or the knighting of his eldest son. In
addition, the holder of the land was usually prohibited from selling the land or dividing it among
his heirs. If the holder was convicted of a crime, all of his possessions at the time could be
forfeited to the King (leaving his family destitute). These were the principal restrictions, but there
were nearly a hundred other dues and limitations on the possessors of the land33.
For various reasons it may have been advisable or necessary to put the legal title to the
settlor´s land in the trustee. If B conveyed the land to A subject to an undertaking to hold for the
use of B, B would have no protection at common law, beyond that given in the fourteenth century
to covenants under seal; and if a third party conveyed the land to A to hold to the use of B, no
relationship recognised by the common law existed between A and B.
If the Chancellor found that land was owned by A, but that, in conscience, it should be
beneficially owned by B, he could order A to convey the land to B, or to hold the legal estate for
the exclusive benefit of B.
The Chancellor did not and could not in these circumstances hold that B was the owner.
A´s right at law was undoubted, and the Chancellor could not change the law. What the
Chancellor did was to issue an order to A either to convey the land to B, or to refrain from action
interfering with B´s rights. The Chancellor´s jurisdiction was against the person; in personam,
and directed to the conscience of the individual in question. In the terminology of the time, A was
the feofee to uses, and B the cestui que uses. The use was the forerunner of the trust.34
The employment of the use made it possible to avoid some of the feudal incidents that we
have just mentioned. These burdens could be avoided if the land was vested in a number of
feofees to uses. They were unlikely to die together or without heirs. Those who died could be
replaced, and the feofees would never be minors. Thus, the use to feudal land owners have
something of the appeal of tax planning techniques at the present day35.
Henry the VIII found that his purse was being emptied by the avoidance of feudal
incidents which the system of uses made possible. To small tenants, who had no tenants of their
own, the system of uses was entirely beneficial. To large landowners, it was beneficial, in so far
as they were tenants. To the King it was entirely harmful, because he was the lord of all and the
tenant of none. As the first part of Henry the VIII´s reign was determined to restore the revenue of
the crown by attacking uses, the Statute of Uses was passed in 1535. It mainly provided that
where a person was seized of land or other hereditament, in fee simple, fee tail, term of life or for
years, to the use, confidence or trust of any other person, in every such case, such persons shall
stand and be seized in lawful seisin of the same land and hereditament as they had or shall have in
31
Maitland, p. 25; Holdsworth, H:E:L. Iv, p. 425, quoted, Hanbury and Martin , op. cit., p. 8
32
Davies vs. Otty ( No. 2(1865), 35 Beav. 208, quoted, Hanbury and Martin , op. cit., p. 8.
33
For a complete study of the feudal system and the incidents of tenure, see Cornelius J. Moyniham, Introduction to
the Law of Real Property, Second Edition, West Group, U.S.A., 1999.
34
Hanbury and Martin , op. cit., p. 9
35
It was also possible, in spite of the rule that freehold land could not be devised, to create effective dispositions of
equitable interests on death by vesting the land in feofees and declaring the uses on which the land was to be held
after the settlor´s death. Further, uses made possible the creation of new types of interests in land which were not
possible at common law. For time also, until prevented by statute, land held to uses could be enjoyed by religious
houses in defiance of the old Statutes of Mortmain, which forbade the conveyance of land to religious houses without
permission of the crown (Milsom, p. 204). Land would also be held to uses in order to be placed beyond the reach of
creditors, Hanbury and Martin, op. cit., p. 10.

10
the use. In other words, the feofees to uses were to disappear. The cestui que uses was to have the
legal estate.
The Statute, however, did not suppress all uses36. It only applied where the feofee was
seized to the use of another. If the feofee held only a lease, he would not be seized and the Statute
would not apply. Again, it did not apply to situations where the feofee had active duties to
perform. The feofees were then necessary participants, and the Chancellor held that a duty to sell
the land, or to collect the rents and profits of the land and pay them to X, was a sufficiently active
duty to exclude the Statute37
Passive uses of the freehold land were however executed by Statute, so that the
beneficiary held the legal estate. What would happen if a second use were imposed? If land were
limited to A to the use of B to the use of C, is it possible to argue that the first use will be
executed and that B will hold the legal estate to the use of C? such a solution was reached by
about 170038, and the second use is called a trust.
The abolition of military tenures (Tenures Abolition Act 1660), the reduction in the value
of money which followed the development of the New World, and the changes in the
constitutional and financial structure of the country in the seventeenth century, all helped to make
the collection of feudal dues a minor factor in the royal revenues. The Civil War determined once
and for all that the Government was to be financed by Parliamentary vote. There was no reason of
policy why passive trusts of freeholds should not be enforced as were active trusts and trusts of
leaseholds39.

7. Development of Equity. Equitable rights. Equitable jurisdiction

Equity is a word with many meanings. In a wide sense, it means that which is fair and just,
moral and ethical; but its legal meaning is narrower. Equity is the branch of law which, before the
Judicature Act 1873 came into force, was applied and administered by the Court of Chancery. It is
not synonymous with justice in a broad sense. A plaintiff asserting some equitable right or remedy
must show that his claim has “an ancestry founded in history and in the practice of precedents of
the court administering equity jurisdiction. It is not sufficient that because we may think that the
“justice” of the present case requires it, we should invent such a jurisdiction for the first time 40.
Principles of justice and equity are the basis of equity jurisdiction, but it must not be
thought that the contrast between law and equity is one between a system of strict rules and one
of broad discretion. Equity has no monopoly of the pursuit of justice.41
Developed systems of law have been assisted by the introduction of a discretionary power
to do justice in particular cases, where the strict rules of law cause hardship42
Rules formulated to deal with particular situations may subsequently work unfairly as
society develops.
Equity is the body of rules which evolved to mitigate the severity of the rules of the
common law. Its origin was the exercise by the Chancellor of the residual discretionary power of

36
Holdsworth, H.E.L.. iv. Pp. 467-473, quoted, Hanbury and Martin, op. cit., p. 10.
37
Maitland, pp. 38-41, quoted, Hanbury and Martin, op. cit., p. 10.
38
Simpson, Introduction to the History of Land Law (2nd ed.) p. 203, quoted, Hanbury and Martin, op. cit., p. 11.
39
Hanbury and Martin, op. cit. page 11.
40
Re Diplock [1948] Ch. 465 at pp481, 482, quoted by Hanbury and Jill Martin, op. cit. page 3.
41
Hanbury and Martin, op.cit. page 4. Just as the common law escaped from its early formalism, so over the years
equity has established strict rules for the application of its principles. Indeed, at one stage, the rules became so fixed
that a “rigor aequitas” developed (Allen´s Law in the making, 7th ed. p. 417); equity itself displayed the very defect
which it was designed to remedy, Hanbury and Martin, op cit. page 4.
42
The Praetor performed such a function in Roman law: Buckland and Mc. Nair, Roman Law and Common Law, 2nd
edition p. 1-6, quoted, Hanbury and Martin, op cit. page 4.

11
the King to do justice among his subjects in circumstances in which, for one reason or another,
justice could not be obtained in a common law court43.
Before Royal Courts of Justice were housed at their present place (in the Strand), they
used to sit in Westminster Hall. The three Common Law Courts were on one side of the Hall and
the Court of Chancery was on the other. In this Court equity was administered, and litigants who
could not obtain justice in the common law courts would cross the Hall to seek the Chancellor´s
aid44.
The office of Chancellor (more recently Lord Chancellor) has an ancient history.
Originally, as Shears points out, the cancellarious (from Latin: cancellus: a bar or lattice) was an
usher who served at the bar of a Roman Court. In this form the Chancellor became the king´s
righ-hand man (Secretary of all states for all departments) and the most powerful official in the
realm. He headed the Chancery, the royal secretariat, and was responsible for the use and custody
of the Great Seal of the Realm. He was, moreover, closely associated with the administration of
justice, for the original writs were issued from the Chancery. Further he was a member of the
King´s Council whose duty it became to consider and adjudicate upon petitions addressed to the
Council by subjects who sought justice from it as the body most close to the king himself45.
Petitions may be presented by various reasons. In particular they were often presented by
people who had, in one way or another, failed to obtain justice in the common law courts46. This
failure was usually due to one of three causes. First, the law was in some way defective; for
example the early common law remedies for breaches of contract were grossly inadequate. And
secondly, the only remedy which the common law courts would usually supply was the award of
damages, and damages are by no means always a satisfactory form of relief. Third, although the
plaintiff’s cause of action came within the scope of an existing writ, he would still be deprived of
obtaining relief because of the greatness of one of the parties, who might, in medieval times,
often be in a position to over-awe (mislead the jury, bias the court) the court itself, and the
petitioner would therefore seek another way47. The Chancellor could remedy these defects; being
the head office of the organisation, it was here where the application was made when the ordinary
mechanisms appeared to be incapable of working. The approach to the Chancellor has no
mysterious origin than that48. The Chancellor was bound by neither the rules nor the procedure of
the common law courts; nor was he likely to be corrupted.
In hearing these petitions (or “bills” as they later came to be called when the Chancery
had become a court) the Court of Chancery gradually developed into an independent body and

43
Hanbury and Martin, op cit. page 4.
44
P. Shears and Stephenson, Jame´s Introduction to English Law, thirteenth edition, Butterworths, London 1996,
page 28.
45
Shears and Stephenson, op. cit , page 28.
46
An injured plaintiff could only sue at common law if his complaint came within the scope of an existing writ. In the
thirteenth century the available writs covered very narrow ground. Even if the claim came within the scope of an
existing writ, it may have be that for some reason, such as the power and influence of the defendant, the plaintiff
could not get justice before a common law court. The King and his Council still retained wide discretionary power to
do justice among his subjects, and the plaintiff could petition to the king and Council praying for a remedy, Milson
(quoted, Hanbury) points out that, in its origin, this would not be regarded as an application of a separate and superior
body of rules to those applied by the common law courts. Not only was there no equity as a nascent body of rules
different from those of the common law. There was no common law, no body of substantive rules from which equity
could be different, Hanbury and Martin, op.cit. p.6
47
If the mechanism appeared to work unfairly, as where juries were misled, corrupted or intimidated, the petitioner
would seek another way, Hanbury and Martin, page 6. As Pettit points out, the cases referred to the Chancellor and
the Chancery fall into two main groups, firstly, where the law was defective, and secondly, those where there was
theoretically a remedy at common law but the petitioner was unable to obtain it because of the disturbed state of the
country, or the power and wealth of the other party, who might be able to put improper pressure on the jury or even
the court. For a long time the latter was the most important and frequent type of case to be dealt with, Pettit, Philip,
op. cit., page 2.
48
Milson, cited by Hanbury, op. cit. page 6.

12
evolved as a separate system of rules. Chancellors decreed specific performance and granted
injunctions.
Perhaps a salient feature of equitable jurisdiction related to the enforcement of the
Chancery’s decisions, which were directed in personam, to the conscience of the defendant. In
exercising this jurisdiction, the Chancellor was faced with the problem of ensuring the attendance
of the defendant without the issue of a royal writ. “The Chancellor, having considered the bill, as
it is called, orders the defendant to come before him and answer the complaint. The writ whereby
he does this is called a subpoena because it orders the man to appear upon pain of forfeiting a
sum of money –e.g. subpoena centum librarum” 49.
Failure of the defendant to comply with the Chancellor´s writ of subpoena, however,
resulted in contempt of court, punishable by imprisonment.
If the petition was successful, the Chancellor´s conclusion would be different from that
which the common law would have reached. Otherwise the matter would have been litigated at
common law50
By the close of the fifteenth century the Chancellor was acting in a judicial capacity upon
his own initiative. From the beginning of the Chancellorship of Lord Nottingham in 1673 and to
the end of that of Lord Eldon in 1827, equity was transformed from a jurisdiction based upon the
personal interference of the Chancellor into a system of established rules and principles.
Another important aspect of equity jurisdiction is that early Chancellors administered
justice according to discretion.
The Chancellor would give or withhold relief, not according to any precedent, but upon
the effect produced upon his own individual sense of right and wrong by the merits of the
particular case before him. No wonder, that John Selden (1548-1554- lawyer, populist and
antiquarian-) once remarked that “....equity is a roughish thing. For law we have measure... equity
is according to him that is Chancellor, and as that is longer or narrower, so is equity. “Tis all one
as if they should make the standard for the measure a Chancellor´s foot” 51; Selden meant that
early equity varied according to the Chancellor´s foot.
In medieval times the Chancellor´s jurisdiction was vague and undefined; as wide as the
subject- matter of the petitions which invoked it. The basis of intervention was necessary on
grounds of conscience. The most significant and far-reaching sphere of his jurisdiction was the
enforcement of the use of land52
Chancellors were not only administrative officials but also ecclesiastics. In exercising
their discretion, however, they borrowed from the cannon (church) and Civil (Roman) from
which the former was to a large extent derived. Lawyers and others were sometimes appointed
during the Tudor and Stuart period. The retirement of Lord Shaftesbury in 1872 was the last
occasion on which a non-lawyer held the Great Seal. This factor influenced the development into
one based on rules and precedents rather than on individual conscience.

49
Maitland, Forms of Action at Common Law, (page 5), quoted by Hanbury, op. cit. page 6.
50
If the Chancellor found that Blackacre was owned to A, but that, in conscience, it should be beneficially owned by
B, he could order A to convey the land to B, or to hold the legal estate for the exclusive benefit of B. The Chancellor
did not and could not in these circumstances hold that B was the owner. A´s right at law was undoubted, and the
Chancellor could not change the law. What the Chancellor did was to issue an order to A either to convey the land to
B, or to refrain from action interfering with B´s rights. The Chancellor´s jurisdiction was against the person; in
personam, and directed to the conscience of the individual in question. The Chancellor had the power to back up his
orders with the threat of imprisonment for those in contempt. Although there was, theoretically, no interference with
the common law property rights, there was in substance an interference with common law jurisdiction, Hanbury and
Martin op.cit, page 8.
51
Table Talk of John Selden (ed. Pollock, 1927) p. 43; quoted, Hanbury and Martin, op. cit. page 7.
52
Hanbury and Martin, op. cit. page 8.

13
 Lord Nottingham did much to weld together and consolidate the whole system. To him we
owe the doctrine that there can be no clog on the equity of redemption 53, a classification of trusts54
and the modern rule against perpetuities55. Throughout the eighteenth century, equity, in a period
of legislative stagnation, became the great force that moulded the progress of the law right up to
the beginning of the nineteenth century. In this period the modern law of trusts developed and was
shaped to meet entirely new conditions of social life56
In this period there were many great Chancellors, culminating in Lord Eldon (1801-1806,
1807- 1827), one of the greatest equity Lawyers. His decisions were thorough, painstaking,
learned and clear57.
The Court of Chancery continues to exist until the Judicature Acts 1873 and 1875
abolished it, retaining the memory of its name in the Chancery Division of the High Court of
Justice58.
Each Division exercises both legal and equitable jurisdiction59. Thus any issue may be
adjudicated in any Division; and any point of Law and Equity can be raised and determined by
any Division; but, for the sake of administrative convenience, cases are allocated to the Divisions
according to their general subject- matter60. Thus the court “is now not a court of law or a court
of Equity, it is a Court of complete jurisdiction61
It was foreseen, however, that a court which applied the rules both of common law and of
equity would face a conflict where the common law rules would produce one result, and equity
another. Section 25 of the Supreme Court of Judicature Act 1873 therefore provided for the
solution of many problems in which those rules would conflict. Subsection 11 contained a
residual clause, providing: “Generally, in all matters not hereinbefore particularly mentioned in
which there is any conflict of variance between the rules of equity and the rules of common law
with reference to the same matter, the rules of equity shall prevail”
Notwithstanding the fusion of Law and Equity by means of the Judicature Act, it is argued
that there has merely been a fusion of administration “the two streams of jurisdiction, though they
run in the same channel, run side by side and do not mingle their waters 62. More recently the view
has been expressed that law and equity themselves a fused63.
Though it is clear that the decision in a case may well depend upon an amalgam of rules
from common law and equity and though on a broader canvas one can regard the law of real
property, for instance, as an amalgam of statute, common law and equity, it is accordingly
submitted that to talk of a fusion of law and equity is misleading. The facts, inter alia, that trusts
have been unaffected and there is still duality of legal and equitable ownership, that in the law of
property legal rights and equitable rights may have different effects, for instance as regard to third
parties, that purely equitable rights can still only be enforced by equitable remedies, that the writ
ne exeat regno is only available in relation to an equitable debt, and that tracing in equity is only

53
Howard vs. Harris (1681) 1 Vern. 33, in Hanbury and Martin, page 13.
54
Cook vs. Fountain, (1676) 3 Swam. 585, in Hanbury and Martin, page 13.
55
Duke of Norfolk´s Case (1683) 2 Swam. 454, in Hanbury and Martin, page 13.
56
Hanbury and Martin, page 13.
57
Hanbury and Martin, page 13.
58
These Acts abolished the old separate Courts of Queen´s Bench, Exchequer, Common Pleas, Chancery, Probate, the
Divorce Court and the Court of Admiralty; it created the Supreme Court of Judicature with a High Court divided into
Divisions as the Queen´s Bench Division, the Chancery Division, and the Probate, Divorce and Admiralty Division.
59
Judicature Act, 1873, s. 24. Judicature Act 1925, ss. 36-44; Supreme Court Act 1981, s. 49.
60
Supreme Court Act, 1981, Sched. 1.
61
Pugh v. Heath (1882) 7 App. Cas. 235 at p. 237 (per Lord Cairns), quoted, Hanbury and Martin, page 15.
62
Ashburner´s Principles of Equity, 2nd. ed. p. 18; (1954) 70 LQR 326 (Lord Evershed), in Pettit, Philip, op. cit page
9.
63
Per Lord Denning in Errington vs. Errington (1953) 1K 290 at 298, in Pettit, Philip, op. cit page 9.

14
available when there is an initial fiduciary relationship, are inconsistent with the idea conveyed
by the phrase “fusion of law and equity”64.
Equity, as can easily be seen, assumes the law. It has been consolidated, through the
various quoted enactments, not to defeat the common law but to supplement it and to fulfil it. It is
not a rival but an ancillary system of rules, as Shears puts it. Moreover, as another maxim of
equity has it, equity follows the law, and yet another, that is that it acts in personam, upon the
conscience of the defendant. These considerations lead to the result that a person who has an
equitable right to property has something of less validity than one who acquires a legal right to
the same property, i.e. a right protected by the common law. The rule is that an equitable right
will be destroyed if the property be acquired under a legal (i.e. common law) title by a bona fide
purchaser for value of the legal estate in the property without notice of the right of the person
entitled in equity. This important limitation upon the validity of the equitable right will appear
when the law of property falls to be considered. It is only the bona fide purchaser for value of the
legal title to the property who will prevail. So if the purchaser has reason to know of the existence
of the equitable interest or let him fail to give value for the property, then in either case the right
will cede to the owner in equity. In the one case, The bona fide conscience will be affected by his
knowledge, and the Chancellors would force him to act consciously and yield to the equitable
owner; in the other, equity, as another maxim has it, “will not assist a volunteer”, so that the
purchaser’s gratuitously acquired right (even though he has no notice) gives way to the owner of
the equitable title65.

8. Definition of Fideicomiso. The 1995 Argentine Trust Act. The trust agreement

According to section 1, title 1 of the 1995 ATA, “A fideicomiso shall be created, where a
person (settlor), transfers certain property to another person (trustee), who binds himself to hold
such property for the benefit of whoever is named in the trust agreement (beneficiary) and, upon
the expiration of a certain term or upon the fulfillment of a specified condition undertakes to
transfer such corpus assets to the settlor, the beneficiary or the remainderman”.
The trust agreement (contrato de fideicomiso), as defined by section 1 of the 1995 ATA,
constitutes the conventional source of the fideicomiso (see supra). The 1995 ATA thus provides
that a trust agreement arises whereby the settlor transfers the legal title to certain property (trust
property) to a trustee so that it hold said property for the benefit of a named beneficiary and, upon
termination of a specified term (no more than 30 years), or the fulfillment of a certain condition,
transfer the trust property to the settlor, the beneficiary or any other named person
(remainderman). The elements of the trust agreement described supra66 may be identified in the
definition provided by the 1995 ATA.
It must be noted that the trust agreement may, in the first place, be seen as a bilateral
contract, the necessary parties thereto being the settlor and the trustee. Pursuant to section 2 of
the 1995 ATA, however, the existence of the beneficiary, for the purpose of the execution of the
contract is not required. The beneficiary, thus, might not legally exist at the time the trust
agreement is entered into, in which case relevant information for his further identification should
be supplied.
Upon the trust being completely constituted and the beneficiary duly ascertained,
however, the beneficiary becomes a party to the trust agreement, thus acquiring all the rights in
his favour thereunder, with the ability to enforce the trust convention. The beneficiary is the party
in whose favour the trust agreement is executed. Under Argentine law, the juristic nature of the

64
Philip, Pettit, op. cit. page 10 at 11.
65
Jame´s Introduction to English Law, thirteenth edition, P. Shears and Stephenson, Butterworths, London 1996,
page 29.
66
See 3 supra.

15
trust agreement may further be seen as contract for the benefit of another (s 504 of the ACC), in
our case, the beneficiary, who, upon acceptance of the stipulation in his favour becomes a party to
the convention.67
Accordingly, section 2 of the 1995 ATA provides “A trust agreement shall identify the
beneficiary, stating whether it is a natural or legal person, and whether it exists or not at the time
the agreement is executed. Should the beneficiary not exist, adequate information shall be
provided in order to identify him in the future....”
Turning to its legal nature, it must further be pointed out that the trust agreement is
contractual in character, that is to say it is only enforceable between the parties to it, their
successors and assignees, and therefore ineffective as against those persons not forming part of
the convention (s 1195 and 1198 of the ACC). The beneficiary, as has been remarked, once
ascertained becomes a party to the trust agreement.
The trust agreement is moreover included among those transactions executed on grounds
of conscience -fiduciary agreements- (negocios a título de confianza), the confidence placed in
the trustee being its essential feature.
It has accordingly been said that the confidence placed in the trustee, for the purpose of
carrying out the trust, is twofold: on the one hand, the settlor transfers property to the trustee
having special regard to the moral qualifications of the trustee. The grantor expects the trustee to
carry out the trust with the outmost care and diligence that he would use in the management of
his own affairs, thus not deceiving the settlor´s expectations and directions. The trust agreement,
on the other hand, is executed by the settlor taking into account, amongst other reasons, the
technical qualities of the trustee. In this latter sense the trustor believes that his property shall be
best managed, invested or disposed of pursuant to the solid financial position of the trustee, his
economic expertise or market credibility, among other considerations68.
In the context of trusts created for purposes of providing security (fideicomisos de
garantía), whereby the debtor (settlor) transfers the legal title to property to his creditor (trustee
and beneficiary) or to a third person (trustee) as security for an existing debt, the confidence
placed in the trustee is thereby crucial.
The settlor expects the trust property shall, in due course, be returned to him upon
fulfilment of the secured obligation; or that the trust corpus assets shall otherwise be sold by the
trustee (for purposes of collection) in the manner so specified in the trust agreement. Matters
concerning the preservation of the interests of the parties involved in the transaction, however,
demand a high degree of prudence and fair conduct of the trustee in performing his contractual
duties in respect of the execution of the trust. Specifically, those relating to the interpretation of
the relevant events, as provided in the trust agreement, pursuant to which the trustee’s right to sell
the trust property is triggered; the due valuation of the trust secured property and the proper
restitution of the exceeding amount of the sale to the settlor (residual beneficiary), after
cancellation of the secured debt has taken place.
Section 6 of the 1995 ATA further provides “The trustee shall comply with the duties
arising from the trust agreement or those imposed by statute with the proper prudence and due
diligence of a good businessman, acting on the basis of the confidence onto him entrusted”.
67
Compare the legal nature of the trust agreement in Argentina, with what is later said in relation to the enforcement
of beneficiaries´ rights under English law (infra 13 (b) iii, specially footnote 107).
68
Accordingly, it has been stated that “Es unánimemente aceptado por la doctrina que el negocio fiduciario se
caracteriza por ser, esencialmente, un negocio de confianza. Esta caracterización surge de su propia etimología, pues
fiducia proviene del vocablo latino fides, que significa esperanza cierta, confianza. Es así que el contrato fiduciario
tiene por base la confianza que deposita el fiduciante en el fiduciario. Se ha señalado que dicha confianza se
manifiesta en dos planos distintos; por una lado un sentimiento de confianza moral, que recae sobre las cualidades de
honradez, probidad y lealtad del fiduciario; por el otro lado, una confianza en las cualidades técnicas de la persona a
la cual se le transmite la cosa. No obstante ello, también se concluye en que ambas clases de confianza se encuentran
unidas, aunque en algunos casos exista predominio de una sobre la otra”, conf. Kiper, Caludio, M. Régimen Jurídico
del Dominio Fiduciario, Tesis doctoral, La Ley, Buenos Aires, 1990, pág. 97.

16
 The trust agreement contains the settlor´s wishes and directions in relation to the trust
property. The trust agreement thus specifies the manner in which the trust property should be
managed or disposed of, therefore describing the transaction or series of transactions –
underlying transaction (negocio subyacente)- for which purpose the trust is created (causa fin del
fideicomiso).

9. The trustee

Although any natural or legal person may be appointed as trustee, only those duly
licensed financial institutions governed by applicable legislation, and those legal persons licensed
by the National Securities Exchange Commission under the requirements provided by said
Commission shall be eligible as financial trustees.
Apart from the aforementioned limitations regarding their appointment, trustees may not
be purchasers of the trust property under Argentine law. Accordingly, section 7, in fine, of the
1995 ATA provides “The trust agreement shall not.... exempt the trustee from the prohibition to
purchase the trust’s corpus assets for him/ herself ”.
The rule, which is similarly followed in English law, is based on the principle that a
trustee must not place himself in a position where his interest may conflict with his duties. This
means that they are not to become the owners or lessees of the trust property.
Under English law, the rule is independent of the question of inadequacy of price, or
unfairness, or undue advantage; The sale may have been at auction and the trustee may have
taken the bidding well above the reserve price, but he is still caught by the rule, which derives
from his status and position and not from his conduct in a particular case69. The effect of the rule
is that the sale is voidable at the option of the beneficiary, who is allowed a generous time to
discover the position. The right to avoid the sale is effective against a purchaser with notice of the
circumstances70
Trustees may not, under Argentine law, be relieved from the duty to provide accounts for
the beneficiary, as required by him from time to time, under contractual provisions. Neither may
trustees be relieved from their potential liability for negligence or fraud incurred by them or their
employees.
As a consequence of the right to be informed about matters affecting the trust,
beneficiaries are entitled to accounts render at least once a year. The trustee may thus keep
accounts and be constantly ready to produce them for the beneficiaries pursuant to the trust
agreement Accordingly, section 7 of the 1995 ATA provides that trustees shall, in all cases,
submit a report to trust beneficiaries at least once a year.

10. The trustee’s powers. Purpose of the trust

The abovementioned function of the trust agreement 71 is crucial for determining: a. the
trustee´s powers with regard to the trust corpus assets and, b. the purpose of the trust.
The general principle underlying the 1995 ATA in relation to the trustee´s powers is that
the trustee “... may dispose of, or encumber, the trust’s corpus assets whenever necessary for the

69
Campbell v. Walker (1800) 5 Ves. Jr., 678, quoted, Hanbury and Martin, op. cit. pag 589.
70
Hanbury and Martin, op. cit. page 589. The rule is subject to certain exceptions under English Law, but not in
Argentina. Under English Law, the trust instrument may expressly permit the purchase by the trustee. Secondly, the
court has a discretion to allow such a purchase in a proper case, or to permit the trustee to bid at an auction. Finally a
tenant for life of a settled land, which he holds on trust, is permitted by statute to purchase the property, conf.
Hanbury and Martin, op. cit. pag. 591.
71
See 3 and 8 supra.

17
purpose of the trust without the settlor’s or the beneficiary’s consent, unless otherwise agreed”
(section 17 of the ATA).
In principle, therefore, upon the trust property being legally vested in him, in respect of
the trust corpus assets the trustee holds ample powers of enjoyment, management and disposition
which may only be restricted by the trust agreement for the purpose of the trust. However, the
trustee holds an imperfect ownership72 (dominio imperfecto) over the trust property, in the sense
that that trustee’s entitlement to the trust funds is to terminate upon the expiration of a stated term
or upon fulfillment of a specified condition (resolutory condition).
Even though the trustee may dispose of or encumber the trust property without the settlor
´s consent (unless otherwise agreed upon), a general statutory restriction is however imposed on
the trustee´s powers regarding the trust assets, namely that he may only dispose of the trust
property, where necessary for the execution of the trust. The trustee´s powers may also be
restricted pursuant to the terms of the trust agreement, whereby any transaction that might
adversely affect the economic composition of the trust estate should be subject to the settlor´s
prior consent.
The scope of the trustee´s faculties, so long as the trusteeship remains in force, may then
be restricted by both the trust agreement or by statute.
It may validly be stated, in the first place, that the imperfect nature of the trustee´s
ownership over the trust assets concerns the duration of his legal entitlement, not to the scope of
the powers comprised therein.
Secondly, the purpose of the trust (el fin del fideicomiso) fixes the scope of the trustee´s
powers in relation to the trust funds and profits thereof, and therefore provides a useful rule of
construction when it comes to measuring the validity of the trustee’s transactions and his further
liability relating to the trusteeship.

11. Fluctuating character of the trust estate

Perhaps one of the outstanding features of the fideicomiso, as provided by the 1995 ATA,
is the fluctuating character of the trust property (naturaleza mutable del patrimonio
fideicomitido), meaning that the trust property is capable of being replaced by other assets, thus
72
It should be recalled at this point that, irrespective of the imperfect nature of his ownership title to the trust
property (dominio imperfecto sobre los bienes fideicomitidos), the trustee is the legal registered owner of the trust
property. Therefore, for the statutory 30-year period of duration of the trusteeship, or until fulfillment of the condition
specified in the trust agreement, and when the subject matter of the trust are things (s. 2311 of ACC and s 13 of the
1995 ATA), the trustee enjoys the powers of an absolute owner (in the sense of his broad disposition powers, only
limited by the trust agreement or by statute, for carrying out the purpose of the trust ). Further, pursuant to Argentine
law, the trustee’s dominium is exclusive in the sense that his ownership right over the trust property is not shared with
another person (e.g. the beneficiary) (s 2508 of the ACC); unless property is vested in cotrustees, in which case the
rules of Argentine coownership come into operation (ss 2508 in fine and 2673 of the ACC). Argentine law does not
recognise the existence of dual ownership by virtue of the creation of a fideicomiso, the trustee being the only owner
(though imperfect). The remainderman and beneficiary are therefore entitled to rights in personam against the trustee
to enforce the trust. The trustee´s imperfect ownership (dominio imperfecto) (as defined by ss. 2507 and 2661 of the
ACC) of the trust assets means that the dominium (s. 2506 of ACC) the trustee holds over the trust property is
deprived of one of its essential characters, namely perpetuity, pursuant to the Argentine Civil Code (s. 2515 of the
ACC). The fact of said dominium not being perpetual means that the trustee´s ownership, as has been seen, is to
terminate upon expiration of a specified term or upon fulfillment of a stated condition. In relation to the existence of
property rights over another´s land and the legal nature of the naked ownership (nuda propiedad) (imperfect
ownership) retained by the holder of the land, see my previous study, “Usufructo de Fondo de Comercio”, PEPE,
Marcelo Antonio, La Ley, 28 de Mayo 2007. English law, in turn, recognises the categories of determinable or
conditional fee, (with different legal consequences upon expiration of the term or upon fulfillment of the condition)
but such categories, being a form of modified fee, in principle are not applicable to the law of trusts, when
considering their legal nature. The equitable ownership theory is resorted to in order to explain the juristic nature of
trusts. Only incidentally do legal scholars speak of the determinable fee to refer to the legal nature of protective
trusts, conf. Hanbury and Martin, op. cit. p. 186.

18
increasing or otherwise diminishing the value of the trust estate as a result of the trustee´s
exercise of management, investment and disposition powers, according to the terms of the trust.
In this respect, section 13 of the 1995 ATA provides “....When so provided in the
agreement, the trustee shall acquire legal title to other trust’s corpus assets, which may be
purchased with the trust’s proceeds, or by an act of disposition thereof, evidencing such
circumstance in the relevant records at the time of acquisition.”
In principle, the trust estate comprises property originally transferred by the settlor;
however the trust patrimony may further be modified, not only in respect of the type of property
comprised therein, but also in relation to the economic value of the whole estate, as has been
remarked. A tangible asset may be turned into the proceeds of a valid sale thereof by the trustee.
Conversely, trust money may be invested in the purchase of shares or other relevant piece of
property according to the terms of the trust. Income and profits accruing from the trust property
shall, likewise, be treated as being comprised in the trust estate, for purposes of execution of the
trust (be it that pursuant to the terms of the trust, profits are to be handed over to the beneficiary,
further invested or deposited in a trust account, for instance).
It is important to note, however, that under Argentine Law, the manner in which other
assets may become part of the trust estate may exclusively be governed by the trust agreement (s.
4 ss. b of the 1995 ATA).
Relevant registration evidencing the fiduciary title to the trust property (whether conveyed
upon creation of the trust or newly acquired property), where necessary, must be effected for
purposes of binding effects against third parties.
The trust property is thus capable of conversion73 as a consequence of the valid
management and disposition powers by the trustee, whereby trust property may be turned into
capital trust money or vice versa. This dynamic character of the trust estate when referred to real
property is known as real subrogation (subrogación real) under Argentine legislation. Where real
subrogation occurs, any item of property (tangible or intangible) may be replaced by another, or
by its purchase price, in consequence of a valid sale thereof.
The value of the trust estate, however, is dependent on the economic risk inherent in the
type of investment made by the trustee. The expected expertise, high standard of diligence, care,
good faith of the trustee and his fulfillment of the purpose of the trust is therefore a core matter
relating to the manner, convenience and cost of any such transaction carried out by him.

12. Termination of the trust

As has already been pointed out, the trustee holds an imperfect ownership74, meaning that
the trustee´s legal title to the trust estate is to terminate upon expiration of the maximum statutory
period (30 years) (determinable period) or upon fulfillment of the condition to which the transfer
of the trust property was subject (resolutory condition) (ss. a, s. 25 of the 1995 ATA). Any of such
events (expiration of term or fulfillment of resolutory condition) mark the termination of the trust
(extinción del fideicomiso). The trust may also terminate by revocation of the trust by the trustor,
provided such right has been so provided for in the trust agreement. It is important to note,

73
Compare the dynamic character of the trust property in Argentina with the doctrine of overreaching under the
English law (infra 13 (b) vi)
74
See supra, and also footnote 70. Such is the juristic nature of the legal proprietary right of the trustee, pursuant to s
2507 of the ACC, which legal source is the Louisiana Civil Code, section 482 which provides “ Ownership is divided
into perfect and imperfect. Ownership is perfect, when it is perpetual, and when the thing, which is the subject of it,
is unencumbered with any charges towards any other person than the owner. On the contrary, ownership is imperfect
when it is to terminate at a certain time or a condition, or if the thing, which is the subject of it, being an immovable,
is charged with any real right towards a third person, as an usufruct, use or service. When an immovable is subject
to an usufruct, the owner of it is said to possess the mere ownership”, Civil Code of the state of Louisiana, complied
and edited by James O. Fugua, New Orleans, B. Bloomfield and Co., 1867.

19
however, that the effects of trustor’s termination shall not relate back to the time of creation of
the trust (ss. b, s. 25 of the 1995 ATA). The trust also terminates pursuant to any other reason for
termination specified in the trust agreement (ss. c, s. 25 of 1995 ATA).
Upon termination of the trust the trustee shall be bound to transfer the trust’s corpus assets
to the remainderman (fideicomisario) or his successors, therefore executing all necessary
documents in order to effect such transfer. Relevant registrations must also made by the trustee
for purposes of binding effects of the transfer as against third parties (s. 26 of the 1995 ATA).

i. Effects of termination of the trust.

The provisions of ss. 2669 and 2670 of the ACC apply in relation to the effects of
termination of a trust. Pursuant to section 2669 “Termination of imperfect ownership shall always
relate back to the time when such ownership was acquired, unless otherwise provided by statute
or by the transactions creating it”
The provisions of s. 2669 of the ACC state the general principle of the retrospective
operation of the occurrence of a condition (s. 543 of the ACC75) or the expiration of a term
affecting imperfect ownership, be it in the case of a modified fee (determinable or conditional fee)
or a trust- (efecto retroactivo del cumplimiento del plazo o condición resolutorios en el dominio
imperfecto, trátese de dominio revocable o dominio fiduciario).
The parties to a convention intending to transfer a proprietary right may thus impose
limitations on the right so transferred by virtue of which any such right may revert to its original
holder (reversion of a property right) (revocación del derecho real). Hence, pursuant to Argentine
law such reversion relates back to the time the contract was made (s 1200 and footnote, ss 2669
and 2670 of the ACC). Further, under statutory provisions relating to personal rights, Contracts
(therefore all rights and obligations arising therefrom) are likewise capable of being revoked by
the parties thereto when so authorized by statute (revocación de los contratos en los casos en los
que la ley autoriza) (s 1200 of the ACC and footnote).
Unless otherwise provided by statute76 or by the act of creation, by virtue of the
retrospective operation upon termination of imperfect ownership, any interim right created by the
imperfect owner, whether real or personal in nature, is bound to terminate on the occurrence of
the stated condition or at the expiration of the agreed term. This effect is coherent with the idea
conveyed by the nemo plus iuris rule, according to which the holder of a determinable right may
only convey a determinable title to the transferee (ss 3270 and esp. 3278 of the ACC).
Now, as shall be seen when registration of realty is dealt with, the nemo dat rule may not
be applied to a bona fide purchaser or contractor who, by virtue of his personal good faith, and
having acted as a prudent businessman, could not know of the imperfect nature of the title so
transferred to him 77.
In the above respect, any third party interested shall only be bound78 upon the imperfect
nature of the ownership title being disclosed by the deed conveying the same79. That is to say that
75
Section 543 provides “ Upon fulfillment of the condition, the obligation shall relate back to the time it was
incurred”
76
Cases of statutory provisions where termination of imperfect ownership does not relate back to the time of its
creation may be seen upon termination of the trust by revocation of the settlor (s 25 of the 1995 ATA). Another case
is section 2671 of the ACC which provides that “Termination of imperfect ownership of personalty shall not be
binding on third parties, such as purchasers, usufructuaries or pledgees, unless, by virtue of their bad faith, such
third parties were subject to the obligation to return the thing to its owner”.
77
See footnotes 96 to 100 infra.
78
Thus deemed to have constructive notice of the imperfect nature of the ownership title of the owner with whom
they contracted.
79
Such is the doctrine prescribed by the footnote of section 2663 of the ACC, providing that it is only where
termination clauses (cláusulas resolutorias) appear on the title (deed) conveying a determinable right, that the
person entitled to demand recovery of the thing (reversioner) (revocante) may file a proprietary tracing claim

20
by examining the documents of transfer, third parties may well be put on notice of the nature of
the transferor’s title and are therefore deemed to have constructive notice of the same.
As a consequence of the abovementioned retrospective operation, upon termination of
imperfect ownership the former owner is entitled to recover the property free form encumbrances
such as easements or mortgages created in favour of third parties by the imperfect owner or by
third parties in possession of the thing. The former owner is however bound by any act executed
for purposes of conservation of the thing such as the grant of a lease (s 2670 of the ACC).
Upon termination of the trust, and for purposes of recovering the trust property, two kinds
of actions, capable of being taken by the remainderman, may be distinguished, depending into
whose hands the trust property has come.

i. Property in the hands of the trustee

If the trust property is in the hands of the trustee, the remainderman may recover the
relevant corpus asset by means of a personal action. The claim, being the consequence of a right
in personan (derecho personal), may be filed against the trustee (oponibilidad relativa) and seeks
enforcement of the trust agreement. The action is further affected by the statute of limitations
regarding personal actions (prescripción liberatoria); that is, it may only be filed within the
statutory time limit of ten years (s 4023 of the ACC); the period starts to run from the date on
which the duty to effect the transfer by the trustee is enforceable, pursuant to the terms of the trust
agreement.
The fact of the action being personal in nature, in this first case, has other practical
consequences in relation to the jurisdiction of the relevant court to preside over matters in
controversy. In this respect, section 5 of the Code of Civil Procedure for the city of Buenos Aires
provides that whenever personal actions are brought, the case shall be heard by the competent
court located in the geographic area where the obligation is to be fulfilled or, if the plaintiff so
chooses, by the court located within the area where the defendant resides.
Further, the relevant evidence to be submitted by the plaintiff, in order to be successfully
afforded relief, concerns the contract from which the personal action is derived, or any other
substantial proof relating thereto.

ii. Property in the hands of third parties

Where the trust property so traced has reached the hands of third parties, by reason of any
contract entered into with the trustee, however, a distinction must be made:
If the trust property is in the possession of third parties by virtue of an authorised
transaction as per the trust agreement 80, then third parties´ property rights remain unaffected and
the ramainderman has no right of action against them. In this respect, section 2670 in fine of the
ACC, as amended by the 1995 ATA, provides that “disposition powers exercised by the trustee
pursuant to special statutory provisions shall be binding on those entitled to seek recovery of the
property ”
If, on the other hand, the trust property is in the hands of third parties in consequence of an
unauthorised transaction carried out by the trustee (thus in breach of trust), such third parties
shall only be bound if, notwithstanding non registration of the fiduciary nature of the title to the
property (s 13 of the 1995 ATA), such third parties knew or could reasonably have known of the
existence of the trust (via examination of the trust deed, for instance). In this case, third parties

(acción real) against third parties in possession of the thing so traced.

80
In order for any such transaction to measure up with the legality test, the trustee´s powers must be inquired by third
parties, together with any other relevant restriction arising from the trust agreement relating to the transaction in
question. See trustee´s powers (supra 10).

21
are taken to have constructive notice of the trust and are therefore bound to return the trust
property to the claimant. The same result (the trust is binding on third parties) would be achieved
if the fiduciary title to the trust property acquired by third parties had been entered on the
relevant register (s 13 of the 1995 ATA), whereby the are deemed to have actual notice of the
trust by virtue of registration thereof.
In all cases where third parties, by reason of the knowledge of the trust, are bound to
return the trust property, a real action may be filed against them by the remainderman. The
theoretical basis for the remainderman being afforded a real action is provided by section 2670 of
the ACC which, in turn, states that “.....the former owner is entitled....to recover.... from third
parties in possession..” The footnote of section 2663 also makes reference to a real action81.
Relating to actions filed against third parties claiming recovery of an immovable thing,
section 594 of the ACC, in turn, may be applied for our present purposes; it provides that “If the
thing is immovable and the debtor, with the purpose of conveying ownership title thereof, delivers
possession of the thing to a person other than the creditor, such creditor shall have no right of
action against the person who took possession of the thing ignoring the debtor’s obligation to
transfer it to the creditor. The creditor, however, shall be entitled to claim recovery of the thing
from whoever took possession thereof knowing the existing debtor’s obligation to transfer it to
the creditor”
According to the doctrine of section 594 of the ACC, the remainderman (creditor) is
entitled to recover the thing from third parties (person other than the creditor) only if they knew
or were in a subjective position to know the existing duty of reconveyance by virtue of the trust
agreement (existing debtor’s obligation of transfer).
The real action afforded to the remainderman arises by virtue of a legal disposition (s 594
of the ACC) entitling him to sue in his own name and for his own benefit. There is no assignment
of action by operation of law (cesión implícita de la acción) or by the debtor (cesión tácita de la
acción del deudor) in the claimant’s favour; nor do the rules of subrogation actions apply (s 1195
of the ACC) (acción subrogatoria). The theory of the exercise of one’s own right of action and for
one’s own benefit is therefore applicable (ejercicio de un derecho propio y en beneficio del
demandante) (plaintiff’s own entitlement theory (teoría del título propio del accionante).
As has been remarked, the remainderman exercises a right of action of his own and for his
own benefit against third parties in possession of the thing with whom he has not contracted; that
is the reason why the action is real in nature (legal argument of the footnote of s. 2773 and s 2758
of the ACC). Third parties are therefore not entitled to raise personal defences arising from the
legal relationship between the parties to the original contract (debtor-trustee/creditor-
remaindermam).
In respect of procedural implications, the remainderman´s real action is not affected,
unlike personal actions, by statute of limitations. Real actions are, in principle, not capable of
prescription82. There is thus no limit within which a real action may be filed, save that the
defendant could validly raise the defence of adverse possession (excepción de usucapion) for the
purpose of defeating the plaintiff’s tracing claim (s 2510, in fine of the ACC).
Regarding the court’s jurisdiction where real actions are brought, the case may be heard
by the court exercising jurisdiction over things located within its boundaries (in rem jurisdiction).
The remainderman, as has been remarked83, is likewise entitled to subrogate himself to the
trustee’s rights and take any necessary action (either against the trustee or against third parties)
for preserving his potential rights under the trust agreement. Even though it may at first sight be
thought that such action (conservatory in nature, upon failure of the trustee to act) is intended to
be taken so long as the trust is in force, there is nothing to prevent the remainderman from

81
See footnote 77 supra.
82
Section 4019 ss 1, 2, 4, and 6 of the ACC.
83
See rights of the remainderman, infra 14 b

22
exercising such action in lieu of the trustee upon termination of the trust. In this case (s 18 in fine
of the 1995 ATA), as has been seen, the trustee needs the court´s consent for such purpose, which
shall only be granted upon the court being satisfied of the trustee´s failure to reasonably preserve
the trust property.
The general principle, as we have seen, is the retrospective operation (ex tunc effect) of
the fulfilment of the condition or the expiration of the term regarding imperfect ownership. The
parties to a transaction creating an imperfect ownership, however, are entitled to override such
general principle and thus provide that, upon termination of the proprietary right so transferred,
the legal effects of such circumstance shall look to the future (ex nunc effect), that is, become
effective as from termination of the imperfect ownership. Interim right (either personal or real)
created by the holder of the imperfect ownership in favour of third parties, in the intervening
period, shall therefore remain unaffected (s 2669 of the ACC).
Finally, in any case where ex tunc or ex nunc effects apply, the exercise of disposition
powers by the trustee pursuant to special statutory provisions (s 2670 in fine of the ACC, as
amended by the 1995 ATA and s 17 of the 1995 ATA ), as has been seen, remain unaffected.

13. Requirements for a trust to be completely constituted

(Argentine fideicomiso and the English trust)

When comparing both the Argentine fideicomiso and the English trust, some differences
must be borne in mind for considering the complete constitution of this legal devise in both
systems.
Before a trust may validly come into operation in Argentina and under the English Law,
two requirements must be met: 1. the creation of the trust; and 2. The conveyance of property to
the trustee.

a. Creation

1. Argentina

Relating to the creation of fideicomiso under Argentine Law, the intention of the settlor
must be clearly manifested in the trust agreement, which has already been considered. Sections 1
and 2 of the 1995 ATA refer to the trust agreement84.
A fideicomiso may be created by an agreement inter vivos or by means of a testamentary
disposition (see 3 supra, footnote 16), in which case the trust is to take effect upon the death of
the settlor. In this respect, section 3 of the 1995 ATA provides “A trust may also be created by a
Last Will and Testament in compliance with the formal requirements of the Argentine Civil Code,
including at least the terms required by section 4. If the trustee appointed in the Will does not
accept the trust, the provisions of Section 10 hereof shall apply”.85

84
Section 2 of the 1995 ATA states that “The trust agreement shall identify the beneficiary, stating whether it is a
natural or legal person, and whether it exists or not at the time the agreement is executed. Should the beneficiary not
exist, adequate information shall be provided in order to identify him in the future. More than one beneficiary may be
admitted, all of whom shall benefit alike unless otherwise provided. Substitute beneficiaries may be appointed in
case of non-acceptance, resignation or death of the beneficiary. Should beneficiaries refuse to accept or else resign,
or should there be no beneficiaries at all, the beneficiary shall be deemed to be the remainderman. Should the
remainderman not exist, resign or else refuse to accept the trust, the remaiderman shall be the trustor. The
beneficiary’s right may be conveyed by an inter vivos transaction or by means of a testamentary disposition, unless
otherwise provided by the trustor”.
85
Section 4 of the 1995 ATA, provides “the trust agreement shall also include: a. A detailed statement of the trust’s
corpus assets subject matter of the agreement. If this were not possible at the time the agreement is executed, such

23
 2. English law

In order for an express trust to be validly created under English law, in turn, three
certainties are required, upon pain of rendering the trust unenforceable. Such certainties relate to:
1. The clear intention of the settlor (certainty of intention); 2. The individualization of the subject
matter of the trust; 3. The nature of the beneficial interest (certainty of subject matter; and finally
4. The ascertainment of the beneficiaries under the trust -beneficiary principle- (certainty of
objects).86

It is interesting to note a primary difference with the Argentine mode of creation of trusts,
relating to the legal possibility, under English Law, of the settlor being declared self trustee87.

b. The conveyance of property

(both systems)

Both systems of law, however, recognise a dual cause before a trust may validly come into
operation. On the one hand, a self declaration (declaración unilateral de constitución de
fideicomiso - only in English Law, see footnote 85-), or trust agreement (contrato de fideicomiso)
must exist (both systems); and the vesting of property in the trustee (transferencia de la
propiedad fiduciaria) whereby the property is legally transferred to the trustee.
The trust agreement, on the one hand, reflects the intention of the settlor regarding the
purpose for which the trust is created, and states the term of duration of the trusteeship.

agreement shall contain a description of the requirements and characteristics that assets should have; b. The way in
which other assets may become part of the trust; c. The term or condition for trust ownership; in no case terms may
exceed thirty (30) years from the date the trust was created; in case of the beneficiary’s incapacity, the trust will last
for the beneficiary’s life, or until incapacity may cease; d. Purpose of the assets upon termination of the trust; e. The
rights and duties of the trustee, and the way in which he/she shall be substituted upon termination of his condition as
trustee”. Section 10 of the 1995 ATA, in turn, prescribe that “ Upon termination of the trust for any of the
aforementioned reasons, the trustee shall be replaced by the successor trustee appointed in the trust agreement, or in
compliance with the procedure provided thereby. Should there be no such successor trustee, or should it not accept
the appointment, the competent court shall appoint any of the institutions authorized under the provisions of section
19. The trust estate shall be transferred to the new trustee”.
86
The certainty of objects principle does not apply, however, in the context of non-exhaustive discretionary trusts,
where the trustees may exercise their discretion as to whether and to what extent any distribution is to be made to the
objects (beneficiaries).See (14 a infra). Likewise, objects need not be certain in purpose trusts. Charitable trusts are
purpose trusts. Thus trusts for “charitable purposes” shall be valid. There must, of course, be no doubt that the objects
of the trust are exclusively charitable, and the purpose expressed must not be so vague and uncertain that the court
could not control the application of the assets (Re Koepplers´s Will Trusts [1986] Ch. 423). But there is no need for
human beneficiaries to enforce them, as there is in the case of non-charitable trusts. Individuals who may benefit
from a charitable trust have no locus standi to enforce them. Charitable trusts are public trusts, enforceable by the
Attorney –General in the name of the crown. There must of course be an obligation upon the trustee. A mere power to
apply to charitable purposes cannot be a trust (Re Cohen [1973] 1 W. L. R. 415), Hanbury and Martin, op. cit, p. 379.
87
There is no such legal possibility in the Argentine Law, see definition of trust (fideicomiso) of section 1 of the 1995
ATA, supra. There is no difficulty, however, under English law, if a trustee wishes to declare himself trustee of some
or all of his property. All that is needed is a manifestation of an intention to declare a trust; and, if the property is
land, evidence in writing of such intent. It is necessary to show, not only the intention to benefit someone; but an
intention to be trustee for that person. Men often mean to give things to their kinsfolk, they do not often mean to
constitute themselves trustees (Maitland, p.72). An imperfect gift is no declaration of trust. The question of whether
the property is vested in the trustee, is no problem, since the settlor is the owner. The question is whether a trust has
properly been declared. The problems usually arise in cases where the settlor´s intention was to make a gift to a
donee but the gift failed and the intent to benefit the donee can be construed as a declaration of trust in his favour.
The rule is that equity will not construe a void gift as a declaration of trust. What is needed is a manifestation of an
intention to declare a trust, Hanbury and Martin, op. cit., p. 119.

24
 The conveyance of property to the trustee requires the fulfilment of the necessary
statutory formalities for the property to be legally vested in the trustee. It therefore relates to the
transfer of the fiduciary title to the trust estate (transferencia de la propiedad fiduciaria de los
bienes fideicomitidos).

i. Vesting in Argentina.

It is a general principle of law in both legal systems that conveyance of property ought to
be effectuated according to the nature of property to be so transferred. Accordingly, the 1995
ATA provides “Whenever the trust estate involves things, it shall be governed by the provisions of
both the Civil Code, Title VII, Book III and this Act. On the contrary, if a trust estate does not
involve things, it shall be governed by the provisions applicable to the nature of the property
involved”. Section 12, in turn, provides “Trust ownership shall be enforceable against third
parties upon compliance of formal requirements applicable to the relevant property”

a. Realty

Under Argentine law, any transaction purporting to constitute or transfer a property right
in realty (or any other interest therein) must be executed by a deed of conveyance (escritura
pública) (s 1184. ss 1 of the ACC), unless ownership title to land (or other interests therein) be
acquired pursuant to an auction sale (s. 1184 ss. 1 of the ACC). Further, in order that the relevant
real right over realty be legally constituted in favour of the transferee, delivery of possession of
the thing by the transferor to the transferee (or their respective agents) must occur (ss. 577, 3277
and 3265 of the ACC). Such proprietary rights, in turn, may be registered at the appropriate Land
Registry in order to be good as against all and sundry (s 2505 of the ACC and ss 2, 20, 22 of the
Argentine Land Registry Act No. 17801 (Ley Nacional del Registro de la Propiedad Inmueble),
hereinafter referred to as the “ALRA”.88
Argentine law follows Roman concepts of creation of property rights whereby, in relation
to derivative ownership (adquisición derivada /derivativa o bilateral), a contract could not create
a right in rem. Thus for a contractual transfer it was delivery into possession, rather than the grant
or contract or other iusta causa which was the legal fact clinching the constitution of the newly
transferred property right. A derivative ownership, however, must derive from causa or title not
from mere delivery of possession. In all cases causa or independent source of title was the

88
In Argentina, the rules concerning the derivative and inter vivos creation (cause) of real property rights over things
(be them movable or immovable), whereby the holder needs to be put in possession thereof (derechos reales
ejercitables por la posesión), are governed by the dual title theory (teoría de la doble causa) or theory of title and
mode (teoría del título y el modo). By title is meant any transaction or act which is legally capable of conveying a
proprietary right to the transferee by the holder thereof, provided that the transferor has legal capacity (capacidad)
and that he be the legal holder and with ability to dispose of the relevant interest (legitimación). Further, pertinent
legal formalities must be complied with in order that the transferee be regarded a legal holder of a property right; in
the case of estates in land or other interests therein, the transaction intending to create a property right must be
executed by deed (escritura pública) (s 1184 ss 1 and s 2609 of the ACC), notwithstanding further registration of the
deed of transfer for purposes of binding effects as against bona fide third parties interested (ss 2505 of the ACC and
ss 2, 20 and 22 of the ALRA). It must however be pointed out that, unlike English Law, in respect of property rights
in realty, registration thereof does not constitute title in Argentina, (efecto declarativo de la inscripción registral
inmobliaria).That is to say that real property rights over land and other interests therein are legally constituted before
the deed is registered (outside the register), provided that delivery of possession has taken place, either following the
execution of the deed of transfer or even before (see registration infra). By mode, in turn, is meant the delivery of
possession to the transferee, with respect to the thing subject matter of a proprietary right or any other interest
capable of being created in land (tradición traslativa del dominio o de otro derecho real inmobiliario) (ss 577, 2377
at 2379 and 3265 of the ACC). In relation to iusta causa which, in order to convey a property right, must precede
delivery of possession, see next footnote 87.

25
prerequisite of effective delivery.89 There was causa or source of title in the form of a legal
transaction dealing with ownership; and there was conveyance or constitution of the real right by
delivery and possession90 .
The doctrine is an instance of the idea of Roman law that property rights which bind all
persons should not be transferred by private transactions alone, but by a public apparent act.
Hence some physical, ceremonial and public act of delivery and appropriation was required to
convey property additional to the legal act of contract and grant 91. Delivery should not and cannot
transfer to the transferee any greater title than resides in the transferor. Hence, if someone
conveys land of which he is the owner, he transfers his title; if he does not have ownership, he
conveys nothing to the recipient. The rule was set by Ulpian, Institute 41.1.20. pr. and is known as
the doctrine of nemo plus iuris or nemo dat rule which survives in heavily qualified form, both in
Argentine law (section 3270 of the ACC) and English sale Law92.

b. Personalty

There are, in principle, no statutorily imposed formalities for the transfer of property
rights in personalty in Argentina. The parties are therefore entitled to avail themselves of the
formalities they deem proper (principio de libertad de las formas, art. 974 del CC). However,
contracts exceeding certain amount93 must be made in writing for purposes of evidence (principio
de prueba por escrito, art. 1193 del CC). There are instances where, irrespective of the amount of
the contract, in order to render a contract involving personalty binding on third parties, a specific
kind of document is required, such as a certified document (instrumento público) or a private
document which date is of undoubted evidentiary proof (instrumento privado de fecha cierta)
(e.g. a contract intending to create a pledge, s. 3217 of the ACC -contrato de prenda-). Further, in
all cases, the transferee must be seized of the thing which is the subject of his property right (s
2381 of the ACC).
The general rule regarding ownership of non–registrable personalty (muebles no
registrables) is that possession thereof constitutes title (la posesión vale título), which means that
a bona fide possessor of non- registrable personalty for valuable consideration is presumed to be
the legal owner thereof, thus being able to successfully defeat a proprietary tracing action filed
against him by the alleged owner; provided, however, that the thing (subject matter of the claim)
has not been lost by the claimant or he has otherwise not been stolen of it (ss 2412, 2767 and
2778 of the ACC).
Further, registration (where legally required by applicable statute) must be complied with
in the case of registrable personalty94 (muebles registrables). In Argentina, however, registration
89
Where an existing ownership was to be transferred the rule was that bare delivery never transfers ownership, but
only where there is a prior sale or other ground (iusta causa) on account of which the delivery follows, D. 41. 1. 31.
Paul; and see D. 7. 6. 5. (Ulpian) for Usufruct, quoted, Joshua Getzler, Roman ideas on Landownership, in Land
Law, Themes and Perspectives, by Susan Bright and John Dewar, Oxford University Press, 1998, page 99.
90
Joshua Getzler, op cit. page 99.
91
The institutes state the idea that a delivery executes and concludes a contractual transfer of property in the
following terms: Another natural law mode of acquisition is delivery. What could be more in line with natural justice
than to give effect to a man’s intention to transfer something of his to another? That is why the law allows all
corporeal things to be delivered and all deliveries by owners to pass the property in the thing delivered, Int. 2. 1. 40,
quoted, Joshua Getzler, op cit. page 99.
92
Joshua Getzler, op cit. page 99.
93
Section 1193 of the ACC provides “Contracts, the subject matter of which comprise an amount exceeding A$
10.000 (ten thousand Argentine Pesos) must be made in writing and may not be evidenced by witnesses (as amended
by Act 17.711)”. Any such amount is updated by statute from time to time. In all other cases “Contracts may be
evidenced by the mode provided by local Codes of Procedure, by certified documents, by signed or unsigned
particular documents, by judicial confession or out- of- court confession, by judicial oath, by legal presumptions and
by witnesses”( s. 1190 of the ACC.).
94
Such as cars, ships, aeroplanes, race horses, or cattle.

26
of personalty constitutes title (la inscripción registral en materia mobiliaria es de naturaleza
constitutiva), which means that only upon registration shall a proprietary right over registrable
personalty be deemed to be legally constituted, both between the parties to the agreement creating
the real right and as against third parties interested.
It must be remembered that any form of property95 may be the subject matter of a transfer
on trust, so long as it be valuable in terms of money and capable of legally constituting the
subject matter of a transaction, in accordance with the Argentine Law (ss 21 and 953 of the ACC).

ii. Registration in Argentina

At this stage, a preliminary question arises: what is the purpose of registration? Who is
registration directed to? The answer depends on the effects of registration, according to the type
of property right (whether in realty or personalty) to be recorded in the relevant Registry.
As has been seen, where registration constitutes title (as is the case of registrable personal
property in Argentina) the effect of registration is to bind both the parties to the transaction
creating the proprietary right as well as third parties. It is therefore submitted that for purposes of
acquiring proprietary rights over registrable personalty registration replaces delivery.
Relating to realty, on the other hand, the effect of registration is somewhat different. The
general principle concerning property rights over realty (or other interests therein) is that
registration is effected for binding effects upon bona fide third parties interested (terceros
interesados de buena fe)96. A proprietary right in realty (or any interest therein) is thus constituted
before title to it reaches the register.
Pursuant to the title and mode theory97, a proprietary right over realty is legally constituted
upon the transferor taking possession of the thing and the relevant deed of conveyance having
been executed by the parties to the transaction creating the real right. All these legal acts occur
outside the Registry and therefore form that moment (deed of transfer plus delivery of possession)
any such property right becomes binding on the parties to the transaction creating it, its
successors, assignees, and third parties not interested- poenitus extranei- (terceros
desinteresados).
That is to say that before being entered in the relevant Registry a proprietary right over
realty (or any other interest therein) has full binding effects against the world except for one

95
See footnote 18 supra.
96
For a complete survey on the effects of registration of realty in Argentina and the concept of bona fide third parties
interested in the context of registration of realty, see Alterini, Jorge, H., Gravitación de la Reforma al art. 2505 del
Código Civil, con especial referencia a las proyecciones de la tradición y el concepto de terceros, ED 43-1181; La
buena fe y la publicidad inmobiliaria registral y extrarregistral (con una armonización entre la tradición y la
inscripción registral), Dirección General del Registro de la Propiedad Inmueble de la Capital Federal, Bs. As., 1974.
97
See footnote 86 supra.

27
group of persons, namely bona fide98 third parties99 interested100who, by reason of being
comprised in such category, may validly defend on the ground of the non binding effects of a real
right upon failure of registration thereof (inoponibilidad de los derechos reales no inscriptos).
A bona fide third party interested is thus entitled to say: so long as the property right lacks
registration; and as having acted with the necessary diligence according to the circumstances I
was unable101 to know of the existence of the alleged property right, I am not bound.
In respect of bona fide third parties interested, registration completes title to realty (la
inscripción registral inmobiliaria es perfeccionadora del título al derecho real respecto de
terceros interesados de buena fe); Accordingly, section 2505 of the ACC, as amended by Act
17.711, provides “The constitution or transfer of a property right over realty shall only be

98
By bona fide (good faith) we mean, not only contractual good faith (s 1198 of the ACC) (buena fe contractual), but
specifically, possessory good faith (ss 2356 and 4006 of the ACC) (buena fe posesoria). The party alleging good faith
must have taken the necessary care and diligence, as required by law and according to a reasonable and prudent man
´s conduct, in order to ascertain the other contractor/owner’s capacity to contract and his ability to hold and dispose
of the relevant interest. It is upon the active verification of the other party´s legitimate prerogatives that the possessor
or contractor may be legally convinced, without doubt, of his own lawful rights. Bona fide may then be defined as the
reliance upon (faith in) someone else´s capacity and power of disposition (buena fe creencia) (passive aspect of
faith); coupled with the necessary diligent steps to be taken in order to ascertain such state of things ( buena fe
diligencia) (active aspect of faith). See footnotes 97 to 100.
99
By third parties (terceros), in turn, are meant all those persons that are not a party to any convention creating a
proprietary right. The definition is one of exclusion. The general principle, under the law of contract is that, by virtue
of the privity of contract (relatividad de los contratos), third parties may not be adversely affected by a contract by
reason of not being privy (a party) to it (s 1195 of the ACC). In the context of property law, however, the situation
may well be said to be the other way round. The scope of “binding effects” in the area of real property law is
different from the idea of “affecting third parties’ rights” concerning contract law. Thus, third parties are always
bound by the existence of a property right if they may know it. The concept of knowledge differs according to the type
of third parties in question (whether bona fide third parties, interested or not interested). Bona fide third parties
interested are only bound by a property right upon registration. Third parties not interested (whether in good or bad
faith) are bound upon constitution of the property right (pursuant to the title and mode theory). The scope of
enforceability (oponibilidad) in the context of property law is different from the notion of enforceable contract under
contract law (exigibilidad). A contract is enforceable (exigible) against the parties to it in the sense that only parties
thereto are bound to undertake the duties arising from the contract. A property right, on the other hand, is said to be
binding on third parties (in good faith and interested) on the understanding that, in case of conflict, a property right
with binding effects is allowed to prevail over the rights (real or personal in nature) of the person or persons with
whom it competes, thereby defeating the rights of any such persons. Enforceable contract is a synonym for contract
creating rights and obligations between the parties to it (and their successors and assigns), thus allowing the holder of
contractual rights to resort to court in order to ensure fulfilment of the contract in respect of the obliged parties
thereunder. Enforceable property right means a property right that prevails over a holder of an interest (real or
personal) who may know it, be it by virtue of the property right´s previous creation and due registration (registration
constitutes actual notice- la registarción presume oponibilidad); or by the previous existence of the real right which,
although not registered, was known or could reasonably be known to the person with whom it conflicts (reasonably
careful possibility of knowledge of a property right, based on diligence, constitutes constructive notice) (la
posibilidad razonable de conocimiento de un derecho real, basada en un actuar diligente, presume cognoscibilidad
potencial). Binding effects in the context of property rights follow the maxim “Prior in tempore, potior in jure” (first
in time first in right -primero en el tiempo, primero en el derecho), coupled with effective or sufficient notice.
100
Third parties are interested when they are holders of any right (be it personal or real) in relation to the thing
subject matter of the property right about to be registered. Such third parties are interested in the sense that they may
hold an interest (are holders of a personal or property right) by virtue of any legal relationship with the owner of the
thing over which a property right is about to be registered; for instance, a seller’s creditor (secured or unsecured)
(third party interested) who might be interested in obtaining a levy of execution of his debtor´s property, thus
alleging not to be bound by virtue of the non registration of the property right in the name of the purchaser; the
creditor will be a bona fide third party if it be proved that he did not know or could not reasonably know (pursuant to
a prudent dealing with his debtor) of the existence of the real right in favour of the purchaser. Bankruptcy creditors,
deceased estate’s creditors of the seller, for the same reasons, would also be regarded as bona fide third parties
interested. Third parties, on the other hand, are not interested where they do not hold any right whatsoever (real or
personal) concerning the thing over which a property right is about to be registered: a squatter, a relative of the
contractors´ not having acquired any right in respect of the thing, and the world at large, for instance. Property rights

28
deemed to be legally perfected upon registration of the respective title thereto in the Registry of
the relevant location. Any such constitution or transfer shall only be effective as against third
parties upon registration”.

iii. Registration of the trust property.

Taking into consideration the principles applicable to the transfer of property and the
effects of registration in Argentina, that we have just mentioned, reference must be made to the
effects of registration of the trust property.
Similar criteria apply to the registration of property to be held on trust, depending on the
type of the property concerned (movable or immovable, tangible or intangible). Save that, the
relevant entry must evidence, in all cases, the fiduciary nature of the trust property (s13 of the
1995 ATA) (el asiento registral correspondiente deberá reflejar el carácter fiduciario de la
titularidad de los bienes) .
Accordingly, section 13 provides “In the case of property subject to registration, the
transfer of the trust’s corpus assets shall be registered on behalf of the trustee in the relevant
records. When so provided in the agreement, the trustee shall acquire legal title to other trust’s
corpus assets, which may be purchased with the trust’s proceeds, or by an act of disposition
thereof, evidencing such circumstance in the relevant records at the time of acquisition”.
If, notwithstanding lack of registration of the trust property over realty (s 13 of the 1995
ATA), it can be shown that third parties who pretend not to be bound by the trust, know or could
have reasonably known of the existence of the trust102, they shall equally be bound.
In the above respect, there is a clear cut difference between the Argentine registration
system regarding realty held on trust, and the current English system of registration of the rights
of the beneficiaries under a trust of registered land where, by virtue of the principle that
registration constitutes notice, upon failure to enter a restriction informing third parties of the
existence of minor interests (equitable interests under a trust), the beneficiaries´ equitable

in realty are binding on third parties not interested, regardless of their good faith, even if such rights are not
registered.
101
In order to qualify as bona fide third parties, the purported persons must show that they have acted in good faith
and with the prudence and diligence of a good businessman (ss 512, 902 and 909 of the ACC) (see footnote 96
supra). Although third parties have reasonably complied with all legal requirements, they may not be put on notice of
the existence of the proprietary right, or other charge affecting the land. Argentine courts must be satisfied, among
other things, of the following acts by third parties that contribute to their acting in good faith: Obtention from the
Land Registry of the relevant administrative certificates: certificate of property register (certificado de dominio) and
certificate of proprietorship register (certificado de inhibiciones); Title inquiry/search (estudio de títulos): a prudent
purchaser is expected to examine all relevant documents and title deeds which trace the history of the ownership of
the transferor and his ability to convey the same, for the purpose of ascertaining the inexistence of charges and
encumbrances over land that have not been registered, or other defects in the root of title that might render any
subsequent transfer void and null or ineffective. The purchaser is expected to examine any previous deed of transfer
starting with a good root of title, at least 20 years old, which is the maximum statutory period for the acquisition of
title to property through adverse possession in Argentina (s 4015 of the ACC); the statute of limitations regarding
personal actions being, in turn, 10 years, unless a shorter period be prescribed by statute (s 4023 of the ACC).
Further, the investigation would likewise ascertain the absence of restrictions affecting the transferor’s disposition
powers, by the existence of potential creditors with priority rights that have not reached the register (of diverse
nature; a secured creditor, pursuant to a non-registered mortgage deed, for instance). The purchaser is deemed to have
constructive notice of any interest or charge disclosed by earlier deeds or other documents examined or that could
have been examined relating to the required statutory period (20 years). Inspection of the premises may likewise be
exacted from a prudent purchaser, for purposes of corroborating the absence of occupants in adverse possession, who
might object to the purchaser’s taking possession, etc.
102
It must be shown that the third party knew of the existence of the trust deed (escritura constitutiva de fideicomiso),
that he actually had access to its terms and naturally that the trust was perfectly constituted (see constitution of trust
supra), notwithstanding non- registration of the deed of trust.

29
interests are void against subsequent holders for valuable consideration who take free of them,
even if they actually knew of the existence of the trust103.
Upon Argentine statutory requirements regarding registration of the trust property being
complied with, third parties, in turn, are put on notice of the fiduciary nature of the trust property,
and thus warned that any transaction carried out with the trustee (legal owner in whose favour the
proprietary right is entered) must qualify as one to be executed according to the terms of the trust
agreement, upon pain of nullity.
In the abovementioned circumstance, third parties are further subject to return the property
upon a tracing action being filed by the settlor, the remainderman or the beneficiary in the context
of s. 18 in fine of the 1995 ATA (for purposes of preserving their respective rights under the
trust)104.
Alternatively, by virtue of registration of the trust, or on account of their bad faith, third
parties may likewise be liable to restitution, regarding property acquired from the trustee in
breach of trust (s 17 of the 1995 ATA).
It is highly advisable, therefore, that those contracting with the trustee should always
require the he produces the trust instruments in order to ensure that any such transaction is in
accord with the terms of the trust agreement, the 1995 ATA or any other applicable statute.

iv. Vesting under English Law

(a) Legal Interests

The classic statement of the law relating to the requirement of a transfer of property to
trustees is that of Turner L.J. in Milroy v. Lord:
“I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid
and effectual, the settlor must have done everything which, according to the nature of the property
comprised in the settlement, was necessary to be done in order to transfer the property and render
the settlement binding upon him. He may, of course, do this by actually transferring the property
for the persons for whom he intends to provide, and the provision will then be effectual, and it
will equally be effectual if he transfers the property to a trustee for the purposes of the settlement,
or declares that he himself holds it in trust for those purposes; and if the property be personal, the
trust may, as I apprehend, be declared either in writing or by parol; but in order to render the
settlement binding, one or other of these modes must, as I understand the law of this court, be
resorted to, for there is no equity in this court to perfect an imperfect gift. The cases, I think, go
further to this extent, that if the settlement is intended to be effectuated by one of the modes to
which I have referred, the Court will not give effect to it by applying another of those modes. If it
is intended to take effect by transfer, the court will not hold the intended transfer to operate as a
declaration of trust, for then every imperfect instrument would be made effectual by being
converted into a perfect trust”105.
The transfer to the trustees must accord with the rules applicable to the property
concerned. Legal estates in land must be transferred by deed, equitable interests and copyright by
writing, chattels by deed of gift, or by an intention to give coupled with a delivery of possession,
a bill of exchange by endorsement, and shares by the appropriate form of transfer followed by
registration. Since July, 1996 it has been possible to transfer shares in certain quoted companies

103
See iv infra.
104
See 14 b infra
105
Milroy v. Lord, (1862) 4 De. G. F. & J. 264 at pp 274-275. quoted, Hanbury and Martin, op, cit. page 114.

30
electronically, thereby avoiding the need for transfer forms and share certificates, but this does
not detract from the principle that the legal title passes on registration. 106
Once the property has been vested in the trustees, and the trusts declared, the trust is
constituted, and the settlor is unable to reclaim the property, even though the beneficiaries may be
volunteers. It has been held that the trust may be constituted where the property is vested in the
trustees, even though it reached in a capacity distinct from their office as trustees of the trust in
question107.

(b) Equitable Interests

The same general principle applies where the settlor´s interest is equitable. A correct
transfer of the equitable interest to a trustee upon properly declared trusts is necessary to create a
trust of that equitable interest. A disposition of an equitable interest must be in writing (LPA s 53
(1)(c)). In Kelewick v. Manning, shares were held on trust for A for life and then for B. B assigned
his equitable interest in remainder to trustees to hold on certain trusts, and this was held to create
a trust of the equitable interest in remainder108.

(c) Covenants to settle

If the settlor has neither conveyed the property to trustees nor declared himself a trustee,
no trust is created. If he has covenanted by deed to settle the property, the crucial question is
whether or not he intended beneficiary can compel him to carry out the covenant and settle it. The
general rule is that a third party cannot sue upon a contract 109. A beneficiary who has given
consideration can enforce the covenant by obtaining specific performance; one who has not given
consideration cannot do so. Equity will not assist a volunteer.
For this purpose, “consideration” has a wider meaning than at common law. The term
includes everything that would be included by the common law, but equity also treats as having
given consideration, in a case of a covenant in a marriage settlement, the husband and wife and
issue of the marriage. They are said to be “within the marriage consideration”110 .

v. The Bona fide rule. The doctrine of notice

As has been seen111, the use was enforceable to the feofee to uses because the feofee´s
conscience was bound by the undertaking which he had given to hold the property to the use and
benefit of the cestui que use. So long as the same person remained trustee this theory works quite
simply. But if the legal estate passes from him to another person how is the conscience of the
transferee affected? The question is then one of determining, as a matter of policy, whether this
new holder of the legal estate is to be bound by the trust. Any way in which the equitable
ownership of the beneficiary is destroyed is of course a serious weakening of the position of the
beneficiary; and equity strives always to protect him112. Thus a trust is binding on a person to

106
Hanbury and Jill E. Martin, op. cit., page. 115.
107
Re Ralli´s Hill Trusts [1964] Ch. 288.
108
Re Kelewick v. Manning, [1851] 1 De G.M. & G. 176; Gilbert v. Overton [1864] 22H. H. & M. 110.
109
But, according to Law Com. No. 242, (1996), it is proposed that third parties identified in the contract by name,
class or description should be able to sue if such a right is given by an express term of the contract or if the contract
purports to confer a benefit on the third party unless, in the latter case, the contracting parties did not intend the third
party to have enforcement rights, conf. Hanbury and Martin, op, cit. page 122.
110
Hanbury and Martin, op, cit. page 122.
111
See 6 supra
112
Maitland, page 220, quoted, Hanbury and Martin, op, cit. page 32.

31
whom the trustee gave the property113, or a mere occupier114 or adverse possessor115, and also on a
purchaser who bought it if he knew or could by reasonable inquiries have found out about the
existence of the trust116. In short the trust is binding on anyone coming to the land, except a bona
fide purchaser of the legal estate for value without notice actual, constructive or imputed117.
The doctrine applies to land and personalty. As far as land is concerned, its importance has
diminished now that the system of registration of title applies throughout England and Wales.
Under this system the doctrine of notice has no application. Equitable interests under a trust being
regarded as minor interests, if protected on the register118 bind a purchaser, regardless of notice.
But much unregistered land remains (perhaps around one-fifth of freehold titles) 119,
because there was originally no duty to register title conveyance until after the area had become
one of compulsory registration of title. However, according to the provisions of the Land
Registration Act 2002 (LRA), ss 4 to 6, some disposition acts of the part of a land owner trigger
registration and the land thus becomes registered land.
In respect of a freehold estate and a leasehold estate with more than seven years
unexpired, certain events will trigger the need to compulsorily register title. Such events, pursuant
to s 4 of the LRA are: 1. The transfer (for consideration, by way of gift, in pursuance to a court
order or by personal representatives upon death) of an unregistered legal estate, be it freehold
(fee simple absolute in possession) or leasehold with more than seven years left to run (leases for
seven or less years in duration are overriding interests); 2. The grant of a lease of more than
seven years (for consideration, by way of gift or pursuant to a court order); 3. The grant of a lease
of any duration to take effect in possession after the end of a period of three months (reversionary
lease); 4. The creation of a protected first legal mortgage (defined in s 4 (8) of the LRA 2002).
The Even with registered land the doctrine of notice was largely replaced, as will be seen,
by the Land Charges Act 1925 (now the Act of 1972).
It should thus be borne in mind that in the case of registered land, the traditional doctrine
applies only to transactions occurring before the title was registered although some aspects of the
doctrine have wider application, as we shall see.

a. Purchaser for Value

The purchaser must have given consideration in money or money’s worth 120, or in
consideration of marriage121. Otherwise he is a donee, and bound by the trust regardless of notice.
A purchaser includes a mortgagee122 or lessee.

b. Legal Estate

This doctrine is based on the maxim that when the equities are equal the law prevails. In
the case of the purchase of a legal estate for value without notice, the equities are equal between
the beneficiaries and the purchaser; the purchaser’s legal estate is allowed to prevail123.
113
Re Diplock [1948] Ch. 465 at pp. 544-545
114
Mander v. Falcke [1891] 2 Ch. 554.
115
Re Nisbet and Pott´s Contract [1906] 1Ch 386.
116
Pilcher v. Rawlins [1872] LR 7 Ch, App. 250
117
Such a person can pass his good title to a purchaser with notice under the rule of Wilkes v. Spooner [1911] 2 KB
473.
118
See v infra and protection of minor interests.
119
See v infra.
120
Thorndike v. Hunt [1859] 3 De G & J. 563; Midland Bank Trust Co. Ltd. v. Green [1981] A.C. 513.
121
E.g. a future marriage. An ante-nuptial settlement is deemed to be made for value in respect of the spouses and the
issue of the marriage, conf. Hanbury and Martin, op. cit., page 33.
122
Kingsnorth Finance Co. v. Tizard [1986] 1 W.L.R. 783. See LPA 1925. s 205 (xxi).
123
Hanbury and Martin, op. cit , page 33.

32
 The position is different where the purchaser is a purchaser of an equitable interest only.
The competition then is between two equitable interests. The rule here is that the first in time
prevails124: First in time first in right. By way of exception, as Hanbury states, a purchaser of an
equitable interest can defeat prior “mere equities”, such as the right to rectification or to set aside
a conveyance125. It seems that a bona fide purchaser of an equitable interest in the land for value
without notice will take free of mere equities, and a fortiori, a purchaser of a legal estate126.

c. Notice 127

i. Meaning of Notice.

Apart from legislation128, a purchaser is taken to have notice of an equitable interest unless
he can show that he took all reasonable care and made inquiries, and that, having taken that care
and made inquiry, he received no notice of the trust which affected the property. He must show
that he had no notice actual, constructive or imputed.
Actual notice is the simple case where the purchaser subjectively knew of the equitable
interest. Constructive notice exists where knowledge of the equitable interest should have come to
him if he had made all such inquiries as a prudent purchaser would have made. Imputed notice
covers actual or constructive notice to his agent who was acting as such in the transaction in
question (s 199 1925 LPA).

ii. Duty to make inquiries

The enquiries which should be made will depend on the type of property in question. A
purchaser should always inspect the premises, and has notice of the interest of the person in
occupation of the property.129

(a) Land: With the unregistered title system the vendor satisfied a purchaser of his
ownership of the land by producing title deeds which traced the history of the ownership of the
land. The title had to start with a good root of title130 at least 15 years old (LPA 1969 s 23). A
prudent purchaser would examine that document and every one subsequent to it. He would
normally be held to have constructive notice of every equitable interest which appeared on the
title, but not of those disclosed by earlier deeds with which he was not concerned. If he agreed to
accept a title which began later than the statutory period of 15 years, he did so at his own risk, and
he would be bound by equitable interests disclosed by documents which were within the statutory
period.131
A person intending to enter into a lease is not entitled to examine the title of the lessor
(freeholder), and does not have constructive notice of equitable interests which he would have
discovered if he had examined it. The lessee is however bound by land charges which are
registered under the Land Charges Act132.
124
Philips v. Philips [1862] 4 De G. F. & J. 208 at p.218.
125
Shiloh Spinners Ltd. v. Hardings [1973] A.C. at p- 721, quoted, Hanbury and Martin, op. cit , page 33.
126
Hanbury and Martin, op. cit , page 33.
127
Compare the concept of notice in English Law with the standard of good faith exacted from the bona fide third
party interested in connection with the effect of registration of realty in Argentina, especially see footnotes 96 to 100.
128
Especially the 1972 Land Charges Act, see infra v.
129
Barnhart v. Greeshields (1853) Moo. P.C. 18; Hunt v. Luck [1902] 1 Ch. 428;
130
A document which describes the land sufficiently to identify it, which shows a disposition of the whole legal and
equitable interest to be sold and which contains nothing to throw any doubt on the title.
131
Hanbury and Martin, op. cit., page 34.
132
White v. Bijou Mansions [1937] Ch. 610 at. Page 619.

33
 (b) Personalty: The doctrine of notice in the strict conveyancing sense does not apply to
personalty, because there is no duty on the purchaser to examine the seller’s title; and usually
there are no documents of title. A purchaser of shares is not required to enquire about beneficial
ownership, nor may notice of any trust affecting the shares be entered on the company’s register
of shareholders.
However, where some equitable interest or charge is disclosed to a purchaser of
personalty or presents itself to his notice, he will be bound by it if it is not satisfied out of the
purchase money133. The doctrine of constructive notice applies even to commercial dealings with
personalty, where the facts known to the purchaser make it imperative to seek an explanation,
without which it is obvious that the transaction is improper134
Apart from commercial dealings with personalty, the defence of purchaser without notice
operates in the context of personal claims arising from the receipt of trust property transferred in
breach of trust and proprietary tracing claims.

vi. The doctrine of Overreaching

As shall be seen, under the 1925 LPA, s. 1(1), the only legal estates capable of subsisting
in land are: 1. the legal fee simple absolute in possession, and 2. the term of years absolute. Thus,
in every case in which the beneficial ownership of land is split into successive interests (other
than leases) the interest is equitable.
The 1925 Act provided that all successive beneficial interests in land are to be held either
behind a trust for sale or under a strict settlement under the Settled Land Act 1925 (hereinafter
referred to as the “1925 SLA”). Further, under Part 1 of the Trusts of Land and Appointment of
Trustees Act 1996 (hereinafter, the “1996 TLATA”) this dual system was replaced by the single
system of the “Trust of land”. Although existing settlements are unaffected, no new ones may be
created. The trust of land now embraces situations (primary co-ownership and intestacy) where
statutory trusts for sale were imposed before 1996 TLATA, expressly created trusts for sale, and
bare trusts of land (where the land is held for an adult beneficiary absolutely entitled 135. The legal
estate is vested in the trustees, who have a power of sale. Trustees have a power to postpone sale
which is not capable of being excluded by the directions of the settlor. When the land is sold by
trustees (or by the tenant for life of an existing strict settlement in whom the legal estate is
vested), the purchaser takes free of the beneficial interests, which are transferred to the proceeds
of the sale. Thus the beneficiaries have interests in the proceeds which are equivalent to those
which they had in the land. This is whether the title is registered or unregistered.
The process of transfer of beneficial interests from the land to the purchase money is
called “overreaching”136. Provided that any capital money which is payable is paid to at least two
trustees or a trust company, the purchaser takes free of the beneficial interest even if he knew of
them. There is no room for the application of the rule that occupation by the beneficiaries gives
constructive notice to the purchaser137. Nor in registered land, is there any machinery for the
registration of such interests. Where, however, the purchase money is paid to a sole trustee, the
doctrine of overreaching cannot apply. In such a case the doctrine of notice remains applicable.

133
Nelson v. Larholt [1948] 1 K.B. 339.
134
Macmillan Inc v. Bishopsgate Investment Trust plc (No3) [1995] W.L.R. 978 at. P. 1014 (shares), quoted Hanbury
and Martin, op. cit, page 35.
135
1925 LPA s 2 (1), as amended by the 1996 TLATA.
136
Hanbury and Martin, op. cit., page 36.
137
City of London Building Society v. Flegg [1988] A.C. 54; cf. Law Com. No. 188 (1989); overreaching can occur
even if no capital money is payable at the time of the conveyance.

34
 It is interesting to relate the English doctrine of overreaching, by which beneficial
interests take the place of the proceeds of a valid sale, with the Argentine fluctuating character of
the trust estate where, as has been pointed out138, the trust fund may be replaced by another asset
(tangible or intangible), in consequence of a valid act of disposition, or converted into the
proceeds arising from an authorised sale of a trust asset, in either case by the trustee, pursuant to
the provisions of section 13 of the 1995 ATA139.
The doctrine of notice in English Law, in its conveyancing sense, therefore applies only in
the cases of equitable interests in unregistered land, which are neither registrable nor
overreachable140.

vii. Registration under English Law

Land registration was first introduced to England and Wales by legislation of 1862 and
1875. Those Acts provided only for voluntary registration of title, and few titles were registered
until the Land Transfer Act 1897 made registration of title compulsory in dealings with land in the
County of London. Under the Land Registration Act 1925, hereinafter referred to as “the 1925
LRA” compulsory registration was gradually extended to cover the rest of the country. Since 1
December 1990, the whole of England and Wales has been subject to compulsory registration.
This requires registration of a conveyance of a freehold estate, a grant of a lease of more than 21
years, and an assignment of leasehold land with more than 21 years to run. If the disposition is
not registered within the required time, it becomes void as regards the transfer or creation of a
legal estate or mortgage. The legal estate reverts to the person transferring it (who then,
however, holds it on a trust for the intended recipient).
The Crown is the only absolute owner of land in England and Wales: all others hold an
estate in land. Estates, which derive from feudal terms of tenure, originally took many forms but
were reduced by the 1925 LRA to two, an estate in fee simple absolute in possession, generally
known as "freehold"; and an estate for a term of years absolute generally known as "leasehold".
Apart from an estate, land may have the benefit of or be subject to other interests, which are
rights and obligations relating to the land, belonging to the owner or to a third party.
Before the introduction of registration, there was only one way to establish the seller's
right to sell a property. Purchasers had to satisfy themselves from the title deeds, searches and
inspection of the land that the seller had power to sell the land, and that it was subject to no
undisclosed obligations. That remains the case with properties which have not yet been registered
(perhaps around one-fifth of freehold titles).
In registered conveyancing, there is a single statement of title as it stands at any given
time, guaranteed by the State. If any person suffers a loss as a result of some omission or mistake
in the register of title, they are entitled to be indemnified for that loss.
Land registration in England has recently been modified by the enactment of the Land
Registration Act 2002(c.) which received Royal Assent on 26 February 2002, (hereinafter referred
to as the “2002 LRA”)141.
One of the objectives of the Law Commission and Land Registry's report is that
registration alone should confer title.142
138
See 11 supra.
139
See text 11 supra.
140
Such as a restrictive covenants entered into before 1926 and a few other examples. The cases seem to show that
there may be well rights of an equitable character outside the provisions as to registration and which are incapable
of being overreached, conf. Hanbury and Martin, op. cit. page 37.
141
The Act has introduced a number of significant changes to English registered conveyancing which shall be
pointed out where appropriate.
142
Explanatory Notes to the Land Registration Act 2002, ISBN 010 560 902 1.

35
 Under this system freehold titles are registered with three degrees of quality, and leasehold
with four. A purchaser may also be bound by two kinds of interest on the land: an overriding
interest, which does not appear in the register (e.g. leases for 7 years or less and rights of access
across the land), and minor interests which only bind if they are protected by some entry in the
register (e.g. a contract for sale or a restrictive covenant).
Under the registered system, any interest in land falls under one of the three heads:

a. Registered interests

1. The transfer of a legal fee simple

2. The grant of a legal lease for a term over 7 years.
3. The grant of a legal rentcharge (before the Rentcharges Act 1977).
4. The grant of an express legal easement or profit.
5. The grant of a legal mortgage (no deposit of title deeds). Puisne mortgages.

It must be noted that either the grant of a fee simple or the express grant of legal
easements and profits are registered interests, and are therefore treated a legal estates or
interests when they are naturally created out of a registered title (the doctrine of notice applies
otherwise). This means that, upon failure to substantively register the grant of a fee simple or an
express grant of an easement or profit, they will become equitable estates or interests, and shall
be therefore considered minor interests, protected by the entry of a notice or a restriction, as the
case may be.
An equitable fee simple estate may arise due to various reasons: 1.Upon failure to
comply with the legal formalities relating to the transfer of title, that is by lack of execution of a
deed of transfer (e-g where the transfer is effected by the parties entering into a legally
enforceable contract of sale). In such a case (by application of the doctrine of Walsh v. Lonsdale)
the vendor is considered a constructive trustee, holding the legal fee simple for the benefit of the
purchaser. The purchaser is taken to hold an equitable fee simple estate, until the execution of
the deed of transfer in his favour, when the legal fee simple shall be vested in him. In this case
the purchaser´s equitable interest is a minor interest protected, as an estate contract, by the entry
of a notice on the register; 2. An equitable fee simple may likewise arise in consequence of
failure to substantively register the grant, in which case the legal estate shall rest in the
registered proprietor who shall be considered a trustee holding the legal estate on a bare trust
for benefit of the purchaser who will, until registration, be holding an equitable fee simple
estate; 3. Finally, an equitable estate or interest arises by virtue of the grant, transfer or creation
of a proprietary right in respect of an equitable estate or interest having arisen in any of the
pervious forms (1 and 2). Such would be the case of the grant for valuable consideration of an
equitable estate or the creation of a mortgage over an equitable estate.
Regarding the express grant of legal easements and profits (because implied or
prescriptive ones are considered, provided certain circumstances are met, overriding interests),
they become equitable in the following circumstances: 1. Upon failure to register an express
grant of an easement or profit; 2. Because the easement or profit is to endure for the life or lives
of the a person or persons, that is, when they are granted as personal life interests and; 3.
Because they were created out of a written contract not in the form of a deed .

b. Overriding interests: They were originally defined in s70 of the 1925 LRA. Their
essential characteristic is that they bind any holder irrespective of whether he has notice of them
or not.143 Despite the imperfection with the registered land system, the LRA 2002 did not take
143
It must be noted, however, that pursuant to the current 2002 LRA, new provisions relating to overriding interests
have been introduced. Under the 1925 LRA, these include all the encumbrances, interests, rights and powers which

36
the opportunity to rid the registered land system of such interests, although it has reduced their
number. The reason for the continued existence of such interest may be because, for many of
them, it would be unreasonable for the holder of the interest to take steps to protect the interest
by entering it on the register, In addition, the interest falling into this category can often be
evidenced in other ways, for example through common usage ascertainable by making physical
possession of the land itself.
A report by the Law Commission, made prior to the introduction of the LRA 2002, also
noted that the wholesale abolition of such interests, without compensation payments to those
affected might contravene Art. 1 of the First Protocol of the European Convention on Human
Rights 1950, incorporated into English Law by s 1 Human Rights Act, 1998.144
Overriding Interests include:

1. Legal leases granted for a term not exceeding 7 years.

2. Rights acquired or in course of being acquired under the Limitations Acts.
3. The rights of every person in actual occupation of the land or in receipt of rents
and profits thereof.
4. Implied and prescriptive easements and profits
5. Upgraded property rights (schedule3, paragraph 3 of the LRA).
6. Rights of common public rights.
7. Local land charges.

In relation to upgraded property rights (as mentioned in 5, above), it must be mentioned

that certain minor interests are capable of being upgraded to an overriding status, in so far as: 1.
The property right is exercisable by actual possession by its holder; 2. Possession is obvious; 3.
The claimant was reasonably expected to reveal it to a purchaser; 4. A purchaser knew of it (e-g-
obvious possession) upon reasonably careful inspection of the land in question.
In relation to easements and profits created by implication or prescription, they are
governed by the LRA, 2002, schedule 3, paragraph, 3. They will only reach overriding status if
the following conditions are met: 1.The purchaser had actual knowledge of them at time of the
grant; 2. The existence of the right would have been apparent on a reasonably careful
inspection of the land over which it is exercisable, and; 3.If the implied or prescriptive easement
or profit has been exercised at least once a year prior to the land transfer (very criticised by
English writers).
Enforceability of overriding interests may be distinguished according to whether they
override first registration, thus bringing land into the registered system, or they otherwise
override registered dispositions, that is, affecting estates or interests already registered.
The first case (interests which override first registration) is governed by schedule 1 of the
LRA 2001, the schedule contains 3 paragraphs:
Para 1: Legal leases of seven years or less in duration.
Para 2: Interests of persons in actual occupation.
Para 3: Legal easements and Profits

In relation to interests which override first registration, legal estates include legal leases
not exceeding 7 years, and legal interests such easements and profits.

are not entered on the register, but override registered dispositions under the Act. Such interests create a number of
problems, since people can find that they have bought estates which are subject to adverse interests which are not be
clear from the register, and can be quite difficult to determine. In the Act, the categories of interests which are not
registrable appear in two distinct lists, one relevant to first registration of title, the other to dealings with registered
land. In each list they will be reduced in scope. The ambit of particular categories will be narrowed, some categories
will be abolished altogether, and others will be phased out after ten years.
144
SAYLES, Victoria, “Land Law”, Second Edition, Oxford University Press, 2011, page 41

37
 Legal easements and profits, be them express or implied, shall always bind a first
registered proprietor. In this case, namely unregistered conveyancing, the general principle that
legal interests bind all the world is substantially applicable.
Enforceability of legal easements and profits in unregistered land may, however, be
opposed to the binding effects of legal easements in the context of registered conveyancing,
where, the express grant of a legal easement, being a registered interest, can only successfully
bind a purchaser of land provided it has been registered (see registered interests 4, above).
Conversely, in registered conveyancing, implied and prescriptive easements are
considered overriding interests, provided, however, that they comply with the requirements of
paragraph 3 of schedule 3 of the LRA 2002 (a. The purchaser actually knows of the existence of
the easement, b. The interest would be obvious upon reasonably careful inspection of the land
and, c. The interest has been exercised in the year immediately preceding the disposition).
Further, overriding interests prevail over registered dispositions regardless of registration
if the conditions set out in schedule 3 (which also has 3 paragraphs) of the LRA 2002 are
satisfied. In other words, an interest shall override a registered transferee of the land over which
the interest is intended to be exercised if it falls within any of the three categories outlined by
paragraphs 1 to 3 of schedule 3 of the LRA 2002. They shall be treated separately.
Paragraph 1 of schedule 3 refers to legal leases of 7 years or less in duration which will
automatically bind a purchaser of the land, without the need for any further conditions to be met.
Paragraph 2 of schedule 3 relates to any person holding a legal or equitable proprietary
interest in land, existing at the time of the disposition and in actual occupation of the land over
which it is to be exercised, such possession being obvious on a reasonably careful inspection of
the land or, even if not obvious, the purchaser has actual knowledge of the interest.
This is provided the holder of the interest did not fail to disclose the interest if enquiry
had been made of him. On top of this last statement, it must be remembered that any person in
actual occupation of the land intended to be purchased is expected to reasonably disclose the
nature and extent of the interest he holds, upon pain of being unable to enforce the same against
anyone coming to the land. Naturally, a person may be only be able to reveal the type of
possessory interest he holds provided he knows about it and not otherwise. Such would be the
case, for instance, if someone is unaware of the fact that he has acquired an equitable interest in
property in consequence of having contributed to its purchase price (equitable owner pursuant to
a constructive bare trust, the legal title being held for his own benefit by person in whose name
the property has been registered).
However, according to the doctrine of the case Hodgson v. Marks [1971], the purchaser
is expected to make enquiries of the actual holder of the interest, it not being enough to only
make enquiries of the registered owner.
If the above requirements can be established by the purchaser, the interest shall be
binding to the extent of the land actually occupied and no more.
Regarding possession, in order that an overriding interest should be successfully
enforceable there must be some physical presence on the land with a degree of permanence and
continuity. Temporary absences, even at the exact time of the disposition, may not prevent a
finding of actual occupation, so long as the reasons for such absences can be justified and is not
too long.
c. Minor Interests: They must call for attention, for our present purposes. An interest in
land that is not a registered interest or an overriding interest is a minor interest.145 They include:

1. Equitable leases.
2. Equitable easements and profits.
3. Beneficiaries´ rights under a trust (overreachabe under the TLATA 1996).
145
1925 LRA, s 3(xv).

38
 4. Puisne mortgages (legal mortgages where there is no deposit of title deeds, basically
because a first mortgage has already been created). They are registered as Class C (I)
of the Register.
5. Equitable mortgages (registrable as Class C (III) of the Register as General Equitable
Charges).
6. Matrimonial homes´ rights.
7. Estate contracts (contracts for the sale of land).
8. Restrictive covenants (between freehold owners).
9. Options to purchase.
10. Licenses by estoppel (proprietary estoppel).

Minor interests do not, like registered interests and overriding interests, bind a
purchaser: They require protection by the making of an entry on the title register 146 of the land
affected. An entry protecting minor interests may take one of four forms. The entry might be
made in the form of a notice, a caution, a restriction147 or an inhibition. Pursuant to the 2002
LRA, however, the methods of protecting the interests of third parties over registered land have
been reduced to two. Notices may be used to protect encumbrances on land that are intended to
bind third parties (such as easements or restrictive covenants). Restrictions regulate the
circumstances in which a disposition of a registered estate or charge may be the subject of an
entry in the register148.
Minor interests are dealt with by the Land Charges Act 1972 (hereinafter referred to as
“1972 LCA”), which basically provides for the registration of equitable interests, (including
equitable mortgages) except legal mortgages where the mortgagee does not take possession of
the title deed (this legal mortgage is called puisne mortgage).
Minor interests also include the interest of beneficiaries under a trust such as the
interests of beneficiaries under a strict settlement (in existence on January 1997), interests of
beneficiaries under a trust for sale, prior to the Trusts of Land and Appointment of trustees Act
1996 (hereinafter “the 1996 TLATA”); and Interests of beneficiaries under a trust of land after
the 1996 TLATA. All beneficiaries´ interests under a trust in the preceding cases are therefore
considered minor interests.
Beneficiaries´ interests under a trust (expressly created or constructive) are protected by
the entering of a restriction on the register. Remaining minor interests (see 1-7, above) are
protected by the entry of a notice.
146
The register for each particular piece of land is divided into three sections, viz: A. Property Register; B.
Proprietorship Register; and C. Charges Register. The term register may mean different things within the LRA. It
may mean: (i) the register required to be kept by s 1 of the Act (comprising all registered land); (ii) the register
relating to one particular piece of land (genus); and (iii) the section of that register (species). The register is kept on
an individual card index system and the three sections A, B, C are entered on separate cards. The property register
describes the land concerned and the interest involved (freehold or leasehold). Other legal interests, such as
easements may also be entered and the entry will constitute title to them. The proprietorship register states the class
of title and the name, address and description of the proprietor. It may also contain any entries of matters which affect
his right to dispose of the land “restrictions”. For example, where land is held under a strict settlement, a restriction
may be entered preventing the registration of any sale or other disposition of land upon which capital money will
arise, unless payment is made to the trustee or is paid into court. Further the restriction must prevent the registration
of any disposition which is not authorised by the Settled Land Act 1925 (hereinafter referred to as “1925 SLA”.
While safeguarding the rights of the beneficiaries under the settlement, this, of course, preserves the “curtain
principle”. The purchaser knows that there is a settlement but he has no notice of the interests of the beneficiaries.
The charges register contains entries of encumbrances, such as restrictive covenants, conf. P. Shears and Stephenson,
op. cit. page 400.
147
See previous footnote 143.
148
Either can be sought without the consent of the registered proprietor who must be notified and who will be able to
apply for cancellation of the notice, or object to an application for a restriction. People who apply for either must act
reasonably.

39
 According to the provisions of the LRA 2002, however, in order to enter a notice or a
restriction on the register consent of the registered proprietor is no longer needed. He may,
however, challenge the entry of a notice or a restriction by a person without reasonable cause
and ultimately seek damages for the harm suffered (s 36 of the LRA, 2002). The dispute is
referred to by a judge called Land Registry Adjudicator and cannot be settled by negotiation.
The Adjudicator shall order that the notice remain on the register if the person claiming entry
has a valid right; or may otherwise order that the entry be deleted (removed from the register) if
the claimant has not a valid right. Damages by the proprietor could be claimed upon the loss of a
sale at a good price, for instance.
It must be noticed that the matters registrable (situaciones registrables) with which the
LCA 1972 is concerned with are equitable interests. They basically comprise, as has been seen,
beneficiaries´ interests under a trust, equitable leases, easements and profits and equitable
mortgages.
Estate contracts, that is, contracts for the sale of land before conveyancing takes place,
options to purchase and pre- emption rights, are also included among the matters registrable as
Land Charges. Estate contracts are registrable as Class C (IV).
A last group comprises restrictive covenants (registrable as Class D (II)) and rights to
occupy the family home (registrable as Class F).
Restrictive covenants are
Under the Family Law Act 1996, the right to occupy the matrimonial home entitles the
spouse to occupy the family home which, if registered as a land charge, is enforceable against
anyone coming to the land. Although a statutory right, rather than a proprietary interest,
enforcement of occupation rights of the family home is governed by the LCA 1972. Occupation
rights relating to the family home are also currently conferred on civil partners (suerte de
concubino en virtud de una unión civil) under the Civil Partnership Act, 2004 (Unión Civil).
The only case of a legal interest being registered as a Land Charge (Class C (I)) is the
Puisne Mortgage, which is type of legal mortgage created over unregistered land and where
there is no deposit of title deeds with the mortgagee, basically due to the fact that the mortgage
is a second or subsequent one, the title deeds being in possession of the mortgagee by virtue of
the first mortgage (that which ranks first in priority for purposes of collection upon sale of the
mortgaged property). In other words, mortgages, either legal (including puisne mortgages) or
equitable, be them constituted over registered or unregistered land, must always be registered in
order to render them enforceable against third parties interested.
Registration of interests under the 1972 LCA is deemed to be actual notice to all persons,
so long as the registration remains in force149, whereas failure to register makes the charge void
against the purchaser150. Transferees pursuant to a gratuitous title (donees) are not protected,
however. As Registration under the 1972 LCA constitutes notice, the Act has vitally affected the
old doctrine of notice. A purchaser is deemed to have notice of a charge only if it is registered. If
the charge is not registered, it has been held that he takes free even if he actually knows about it
151
or the interest in question is that of a person who is in actual occupation of the land 152. The
House of Lords has held that the court cannot inquire into the good faith of the purchaser, nor
into the adequacy of the consideration paid to him153.
Upon equitable interests of beneficiaries being protected by a restriction entered on the
title register, no disposition may be registered unless specified conditions are satisfied. Thus, in
the case of a trust of land, under the 1996 TLATA, a condition will require the purchase money to
149
1925 LPA, 198 (1).
150
s 4 of 1972 LCA, and 1925 LPA, s 1999 (1) (i).
151
Hollington Brothers v. Rhodes [1951] 2 All E.R. 578n. in Hanbury and Martin, op.cit. p.35.
152
Smith v. Jones [1954] 1 W.L.R. 1089; Lloyds Bank plc. v. Carrick [1996] 4 All ER 630, in Hanbury and Martin,
op.cit. p.35.
153
Midland Bank Trust Co Ltd v. Green [1981] A.C. 513, in Hanbury and Martin, op.cit. p.35.

40
be paid to the trustees being two in number or a trust corporation (and not to a sole trustee).
Another will provide that only a disposition authorised by the 1925 SLA may be registered.
A restriction may be entered by a settlor, or trustees of a trust of land, or by any other
person interested, e.g. the beneficiaries. In practice, the Registry ensures that when it is evident
that a restriction is required, one is entered in suitable terms154.
It will be apparent that it is vital for the protection of beneficiaries under trust of land
under the 1996 TLATA that a restriction should be entered: if none is entered, a disponee who is
registered as proprietor takes free of their equitable interest, even if he has notice of them (section
74 of the 1996 TLATA).
As shall be seen, if upon sale of land subject to a trust of land, money is paid by the
purchaser to two trustees or a trust company, and provided a restriction has been entered, by
virtue of the doctrine of overreaching the purchaser takes free of the equitable interest of the
beneficiaries, therefore he is not bound by the trust. In this respect interests in the proceeds of a
sale under a trust for sale are held to be a minor interest in land by virtue of the 1925 LRA,
section 3 (xv)155

14. The right of the beneficiary

a. English Law

Theoretical debate arises amongst English legal scholars as to the juristic nature of the
right of the beneficiary under a trust in English Law. The question is whether the right of a
beneficiary is a right in personam, a contractual right with limited effects, or otherwise
proprietary in character, a right in rem, thus enforceable against the world.
In its simplest form, one view emphasises the fact that a beneficiary´s remedy historically
and practically is in the form of an action against the trustee; a right in personam. On the other
hand equitable interests under trusts are equitable proprietary interests, corresponding to legal
estates, and the beneficiary can properly be regarded as the owner of the beneficial interest; and
ownership is a right in rem156. Trying to define both concepts, Hanbury points out that they mean
different things in different contexts157. It seems that the proper meaning of a right in rem, in the
present context, is a right enforceable against the world in respect of a particular thing. It is
assumed throughout that a legal owner does have rights in rem. How, then, does a beneficiary
under a trust measure up with this test?
The basis of equitable jurisdiction, historically and presently, is that, in accordance with
the maxim, equity acts in personam, equitable rights grew up where the Chancellor was willing to
intervene. The use has its origin in the insistence of the Chancellor that the feofees to uses should
administer the property for the cestui que uses. Similarly with the trust. Equity did not say that the
cestui que use was the owner of the land, it said that the trustee was the owner of the land, but
added that he was bound to hold the land for the benefit of the cestui que trust. This raised the
question of the effect of the sale of the land by the trustee. The answer was that the transfer was
effective against everyone except a bona fide purchaser for valuable consideration without notice,
actual or constructive, of the equitable interest.
Indeed, a beneficiary´s interest behind a trust has long been treated as having the basic
characteristics of a proprietary interest in that it can be bought, sold, mortgaged, or bequeathed.

154
J. G. Riddal, Land Law, sixth edition, Butterworths, London 1997, p. 525.
155
Elias v. Mitchel [1972] Ch 652, [1972[ 2 All ER 153, quoted J. G Riddal, Land Law, p. 515.
156
Jill, E. Martin, op. cit. p.17
157
Jill, E. Martin, ibidem

41
 Even though, historically, protection of the beneficiary was based on the Chancellor´s
willingness to proceed in personam against the trustee, that protection has ended up by creating
rights in the nature of ownership 158. To argue that a beneficiary´s right is proprietary is not the
same that legal rights are the same as equitable, or that equitable ownership is the same as legal.
Rather, it is to accept the basic peculiarity of ownership under the English law of trusts. The
trustee is the owner at law; and the beneficiary is the owner in Equity159
If the beneficiary´s interest in the trust property is a right in rem (si el derecho del
beneficiario es de naturaleza real, si es un derecho real), such circumstance gives rise to the
system of dual or split ownership (the legal ownership of the trustee and the equitable ownership
interest of the beneficiary).
The aforementioned statement, however has practical consequences relating to the nature
of the beneficiary´s actions for tracing the trust property, or its proceeds, if it be disposed of by
the trustee in breach of trust.
In relation to some claims affecting the trust property, the trustee is able to sue and not the
beneficiary. Thus the trustee sues for rent160, or for possession; and with personalty the trustee, not
the beneficiary, sues for conversion of the trust property. The beneficiary´s right is to compel the
trustee to take action; though he may, in some cases, take action himself on behalf of the trust,
joining the trustee as defendant. This right may sometimes be inadequate as where the trustee has
sold the trust property to a bona fide purchaser.
From a practical point of view, it can be said that where the problem involves the working
of the trust machinery, so that the beneficiary asserts his rights by an action against the trustees
to enforce their duties, the old theory that equity acts in personam is wholly acceptable. But in
other cases, usually, tax cases, the theoretical view is overtaken by a pragmatic approach. Perhaps
the better view, is that the beneficiary´s interest is sui generis161.
I think that, perhaps the best way to grasp the proprietary nature of the beneficiary´s
interest under a trust in the English law is the fact that his right might be disposed of and also by
the fact that the beneficiary is allowed to bring proprietary actions, relating to the trust property,
against third parties who had notice (actual, constructive or imputed) of the trust.
Further, much of the English theoretical construction in relation with trusts relates to the
idea of a dual ownership entitlement, where the notion of durability (an aspect inherent in real
property rights), binding effects (naturally with exceptions that confirm the rule) and tracing
claims concerning beneficiaries´ rights are not to be spurned.
For the sake of comparisons, the right of beneficiaries, under Argentine law, though
personal in character, is capable of being transferred inter vivos or by will (s 2, in fine, of the
1995 ATA); beneficiaries may be authorised to take any action with the object of preserving their
rights, even against third parties (in the context of s. 18 in fine of 1995 ATA); finally, should the
beneficiary be the remainderman of the trust, upon its termination, he is entitled to file a real
action in his own name for recovery of the residuary trust property in the hands of third parties
with actual or constructive notice of the trust, (ss. 594, 2670 and footnote of s 2663 of the ACC).
Turning to English law, in the context of discretionary trusts, however, the nature of the
interests of the discretionary beneficiaries is different. A discretionary trust may be exhaustive,
that is where the trustees are bound to distribute the whole income, but have a discretion as to
how the distribution is to be made between the objects (beneficiaries). Alternatively, in a non-
exhaustive discretionary trust the trustees have a discretion not only as to how the distribution
must be made, but also as to whether and to what extent it is to be made at all. 162

158
Sinclair v. Brougham [1914] AC. 398 at p. 444.
159
Jill, E. Martin, op. cit. p.18.
160
Schalis v. Naddler Ltd. [1933] 2 K B. 79.
161
Hanbury and Jill, E. Martin, op. cit. p.19, quoting the concurrent opinion of Pettit, Equity and Law of Trusts,
Buttleworths, London, fifth edition, 1998, p.76

42
 Whereas, in the case of a fixed trust the beneficiary´s interest is regarded as proprietary.163
He is the owner of an equitable interest under a trust. This is not so in the case of a
beneficiary under a discretionary trust. He is dependent upon the exercise of the trustees of their
power of selection in his favour. The position is particularly relevant under the English
inheritance system, where the death of a discretionary beneficiary is not an event upon which the
trust fund is taxable.
This raises the question: What is the trustee´s duty? Clearly, it is different from the case of
a fixed trust. Where are the beneficiary´s correlative rights? This situation does not fit neatly into
the right duty correlation. The beneficiary has no proprietary rights. Is it correct to describe the
situation as a trust; which by definition involves a duty? The answer, it is submitted, is: yes. This
is a trust, and it involves a duty, although different from that in the case of a fixed trust164 .
The duty here is to exercise the trust. In the case of an exhaustive discretionary trust, a
selection must be made; whereas where the trust is non-exhaustive, the discretion may be
exercised by deciding to accumulate.165
The rights of a potential beneficiary under a discretionary trust are in fact similar to those
of the objects of a mere power given to trustees in their fiduciary capacity. The main difference
lies in the fact that the object of a mere power has no ground of complaint if, after due
consideration, the trustees decide not to exercise their power at all. Further although “the
discretion of the trustees ought to be exercised promptly in every case where the exercise is
obligatory166, as is the case with a discretionary trust.

b. Argentine Law (the rights of the beneficiary and the remainderman).

i. The beneficiary

As has already been remarked167, Argentine legislation only recognises one form of
ownership, namely perfect or imperfect and in the context of fideicomiso in Argentina the only
legal owner, though imperfect owner168, is the trustee.
Among other things, the aforementioned principle means that, unless otherwise agreed,
the income and profits accruing from land held on trust belong to the imperfect owner (trustee) as
a consequence of the absolute and exclusive character of his ownership entitlement (conf. ss
2508, 2513 and 2522 of the ACC).
The rights of the beneficiary are therefore contractual in nature. Beneficiaries are entitled
to a right in personan against the trustee to enforce the trust. A beneficiary may thus bring
judicial proceedings against the trustee and obtain a court order to compel him to execute the trust
in the beneficiary´s favour regarding his entitlement to benefits therein.

162
Pettit, Philip, Equity and the Law of Trusts, Butterworths, London, eighth edition, 1998, page 70. According to
Hanbury, a discretionary trust may require the trustees to distribute all the income; or it may give the trustees a power
to accumulate a period allowed by law. Similarly, it may require the trustee to dispose of the capital during the trust
period, or it may provide for a gift over of the assets of the trust at the end of the trust period. Whether the trust is
exhaustive or non- exhaustive an individual beneficiary is not regarded as having any proprietary interest in the trust
property. If the trust is exhaustive, there is authority to say the class as a whole, if adult and under no disability, can
terminate the trust (Re Smith), conf. Hanbury and Jill Martin, op. cit. page 206.
163
Hanbury and Martin, op. cit. page 203, somehow contradicting his former view acknowledging the sui generis
character of the beneficiary´s interest under a fixed trust (see this section above and footnote 158).
164
Handbury and Martin, op.cit. 206
165
Hanbury and Martin, ibidem.
166
Re Lockers Settlement Trusts [1978] 1 ALLL ER 216 at 219, per Goulding J.
167
See footnote 70 supra.
168
See footnotes 70 and 72 supra.

43
 In relation to the preservation of the trust estate, the general principle outlined by section
18 of the 1995 ATA is that “The trustee is authorized to bring any action necessary, both against
third parties and the beneficiary in order to safeguard the trust’s corpus assets”.
However, the court may authorize the settlor or the beneficiary to bring an action in lieu of
the trustee, whenever the latter fails to do so without reasonable cause (s 18 last part of 1995
ATA).
Having obtained the court´s consent, the beneficiary is entitled to subrogate himself to the
trustee’s rights and exercise any action as is necessary for preserving his rights in the trust
property. Proprietary tracing claims are included. A statutory limitation is however imposed on
the beneficiary´s right to sue, namely that he may only take action upon the trustee´s failure to do
so without reasonable cause. The legal solution has been criticised in the sense that conservatory
actions on the part of potential owners or creditors are not dependent on the court´s authorisation,
by general principles Argentine civil law169.

ii. The remainderman

The juristic nature of the right of the remainderman is likewise capable of being defined
as contractual in character. The basic difference between the beneficiary´s rights under a trust and
those of the remaindeman relate to the time of vesting. Whereas the beneficiary holds a present
contractual right, enforceable against the trustee, so long as the trust is in force, the
remainderman is entitled to a future interest, enforceable upon termination of the trust.
The remainderman holds a right in expectancy (contractual in nature), which shall
constitute a real property right once property (if any) comprised in the residuary trust estate is
legally vested in him upon termination of the trust.
I believe that the remainderman, although not mentioned by s 18 in fine of the 1995 ATA,
is likewise entitled to take any necessary action (either against the trustee or third parties) in order
to preserve his potential right as final recipient of the trust property; if the ratio legis of the action
afforded to the settlor and beneficiary is the preservation of their respective rights under the trust,
the remainderman´s right to protect his potential right is undoubted (who may as well be the
settlor or the beneficiary); the remainderman might therefore have founded reasons to subrogate
the trustee’s rights; he needs the court´s consent for such purpose, which shall only granted, as
has been seen, upon the court being satisfied of the trustee´s failure to reasonably preserve the
trust property.
The nature of the interest of the remainderman may be compared with that of legatees or
devisees under a will under English Law170. A legatee or devisee does not, on the testator’s death,
become equitable owner of any part of the estate. The executor takes full title to the testator’s
property, not merely a bare legal title. He is, by virtue of his office, subjected to various fiduciary
duties, which can be enforced against him by persons interested; and these duties are inconsistent
with the holding of property on trust for the legatee or devisee. The equitable ownership is in
suspense171. It may be, as with an insolvent estate, that nothing is left which can be applied for the

169
Accordingly, it is argued that “Es criticable la exigencia de la autorización judicial, lo que no surge de los
principios generales emergentes del Códgo Civil y, además puede traer más complicaciones que soluciones, máxime
teniendo en cuenta que estará en juego una discusión de hecho, cual es la prueba de que el fiduciario tenía “motivo
suficiente” para hacerlo y no lo hizo, conf. Kiper, Claudio M. y Lisoprawski, Silvio. Fideicomiso, Dominio
Fiduciario y Securitización, Editorial Depalma, Buenos Aires 1995, pag. 297.
170
Notwithstanding the structural differences between the fiduciary relationship in both types of trust. The trustee´s
duty is to manage the estate as it continues. The personal representative’s duty is to liquidate the estate and distribute
the assets; either to individual beneficiaries, or, if a trust is established by the will, to the trustees.
171
J. Sainsburry, plc v. O´Connor (Inspector of Taxes) [1991] STC 318 at p. 326.

44
beneficiaries. Even if the estate is solvent the legatee or devisee is not the owner in equity of any
asset in the estate. He has a chose in action, a right to compel the administration of the estate.172
A devisee or legatee may be said to become the equitable owner of specific property once
property has been allocated by the executor for the purpose173.
For the rights of the remainderman upon termination of the trust, see 12 i. supra.

15. The Separate Estate in Argentina

The greatest advantage of the 1995 ATA was the introduction of the “separate trust
assets”, a useful machinery designed to legally isolate the trust property and thus shield it from
the settlor and trustee´s personal creditors´ claims, except those claims of creditors arising from
liabilities incurred by the trustee in the execution of the trust (trust creditors), who may only
satisfy their claims from the trust assets.
The incidence of the “separate patrimony” doctrine, which admission in the Argentine
legal system, has been for some years object of theoretical debate among Argentine scholars, has
practical consequences in the case of the settlor or trustee being declared bankrupt and where by
virtue of the Argentine torts law, the trustee incurs strict liability.
Accordingly, section 14 of the 1995 ATA provides that “The trust’s corpus assets are
separate from the trustee’s and the settlor’s assets....”
The separate nature of the trust property is also provided by the 1984 Hague Convention
on the law applicable to Trusts and their Recognition, which has been ratified by England by
means of the Recognition of Trusts Act 1987174.
Recognition implies that the trustee may sue and be sued in his capacity as trustee and,
pursuant to Article 11, as set out in the schedule of the 1987 Act, the trust property is a separate
fund and is not part of the trustee´s estate.
Relating to the trustee´s bankruptcy in England, section 283.3 of the Insolvency Act 1986,
provides that if the trustee becomes bankrupt, the trust property does not pass to the trustee in
bankruptcy and does not become available to the trustee´s creditors.
By virtue of the creation of the trust in Argentina the trust estate constitutes a separate and
distinct entity, and thus may not be reached by the settlor´s personal creditors (be them individual
or bankruptcy creditors).
The legal provision is logical when considering that upon a transfer in trust, the trust
property is excluded from the settlor´s estate, thus being placed beyond his creditors´grasp.
If by constituting a trust, however, the debtor fraudulently gets rid of his assets for the
purpose of defeating his creditor’s rights, the trust transfer is ineffective as against them.
Accordingly, section 15 of the 195 ATA states that “The settlor’s creditors shall not be entitled to
file any actions against the trust’s corpus assets, except for cases of fraud”.
The trust patrimony does not form part of the trustees personal estate either. The legal
devise, which provides for the “separate estate” as has been previously considered 175, entails a
number of legal consequences in relation to the trust funds and creditors seeking to obtain
payment therefrom:

172
Hanbury and Jill Martin, op. cit, page 58.
173
Hanbury and Jill Martin, op. cit, page 59.
174
It is stated that the ratification does not have the effect of changing the substantive law of trusts of the United
Kingdom, nor of importing trusts into civil law jurisdiction. The Convention seeks to establish uniform conflict of
laws principles and to assist civil law states to deal with trust issues arising within their jurisdiction, Hanbury and
Martin, op. cit, p.
175
See 1. Introduction supra .

45
 Firstly, the trust property176 may only be executed by trust creditors (acreedores
fiduciarios) and is therefore beyond the reach of the trustee´s personal creditors.
A trust creditor, in turn, is a creditor whose claim has arisen by virtue of any obligation
lawfully incurred by the trustee in the execution of the trust 177. Accordingly, section 15 of the
1995 ATA provides that “The trust’s corpus assets shall be exempted from any single or collective
action taken by the trustee’s creditors.

Secondly, the beneficiary´s creditors may not file collection claims against the trust estate.
Beneficiary´s creditors may only execute the beneficiary´s interest, for which purpose they may
subrogate themselves to the beneficiary´s right (s 15 of the 1995 ATA).

Thirdly, trust creditors may only be paid out of trust assets. The trustee’s assets, therefore
may not be used to satisfy trust creditors´ claims.

Fourthly, Insufficiency of the trust property to meet trust creditors´ claims shall not result
in an adjudication of bankruptcy178. If such were the case, and should the settlor or the beneficiary
not have other resources available in accordance with the trust agreement, the trustee shall
dispose of the trust’s corpus assets and assign the proceeds from sale thereof for the benefit of
creditors pursuant to the order of priority set up for bankruptcy. The provisions of section 24 shall
apply to financial trusts (s 16 of the 1995 ATA).

16. The court’s jurisdiction in relation to trusts in Argentina

The incidence of the classification of trusts, basically the one concerning the existence in
the English Law of implied trusts179 (those created by operation of law, irrespective of the
intention of the parties), has practical consequences in relation to the court´s jurisdiction
regarding trusts.

The inexistence of the category of implied trusts in Argentine law consequently limits the
Argentine courts´ jurisdiction over trust matters: Argentine courts, would refrain from declaring
the existence of a trust, on account of the implied intention of the parties or as a consequence of a
trust being implied by statute.
In Argentina the court´s inherent jurisdiction, however, concerns the enforceabililiy of the
trust agreement, whereby it may order the transfer of the corpus assets on trust to the trustee. The
courts would also compel enforcememt of any other obligation arising from the trusteeship, be it
during its legal existence or upon its termination. Argentine courts may also exercise in rem
jurisdiction in connection with the filing of proprietary tracing claims in resepct of the trust
property, by the parties interested.
Argentine courts may, likewise, order enforcement by the trustee of his contractual or
statutory duties. Alternatively, courts may grant remedies in the form of damages where a
justiciable harm has been infringed to a claimant, pursuant to the directions of the trust
agreement.
Other instances of court intervention in Argentina concern the appointment of a trustee,
where, upon expiration of the trustees´s office, there is no alternate trustee appointed in the trust
agreement, or the one appointed as alternate trustee would not accept office. Courts may as well

176
It must be remembered, for these purposes, the fluctuating character of the trust property referred to supra.
177
See purpose of the trust supra.
178
For the personal effects of the adjudication of bankruptcy in Argentina, see 1. Introduction, supra.
179
Any such classification is unknown to the Argentine legislation.

46
exercise jurisdiction in relation to the determination of the trustee´s remuneration, where the
amount of the trustee´s tasks are not specified in the trust agreement, in accordance with section 8
of the 1995 ATA, which provides “Unless otherwise provided for, the trustee shall be entitled to
reimbursement of the expenses incurred and to a remuneration for the services rendered. Should
such remuneration not be specified under the trust agreement, it shall be determined by the
competent judge, taking into consideration the nature of the task and the importance of the duties
to be performed”.

___________________________________________________

47
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