Beneficiary’s right in a property are in rem or in personam

To understand if a beneficiary’s right in a property are in rem or in personam we must first differentiate between the two.  Whilst it would be an easy task to state the answer to the question we must first discuss what is meant by in rem and what is meant by in personam, how they are to be categorized and what rights would arise from applying each respectively.

The common law definition of rights in rem is that it is a right held against an indefinite class of people in respect to an asset.  We know that in equity someone that has equity rights over a property can excersise those rights over any person except for equity’s darling (purchaser for fair value of property without notice). That right gives him the power to bring action not only against the trustee who acted in a breach of trust but against any party who had knowledge that the asset was part of a trust.  In Personam would be a right against a particular individual.

Using these definitions all signs would point to the clear outcome that a beneficial interest in a trust should be categorized as existing in rem.  We can make this point using the example of if the trust property were lost/stolen would the beneficiary still have a right to sue the trustee for the asset?  As soon as the trust property is stolen or destroyed so along with it is the trust and any rights that the beneficiary had over that asset.  A distinction can be seen here between contracts and trusts.  In contract the seller would still be obliged to offer/compensate even if the property was stolen from him, in trusts as long as the trustee had no involvement in the theft/destruction of the asset he would not be held liable to provide the benfeciaries with compensation for the trust asset.

As we have stated the interest of the beneficiary would be held in rem even if the original trustee were to sell/gift the property to another party the equity rights of the beneficiary would mean that he could force the new owners to carry out the terms of the trust.  If the rights were held in personam as soon as the property was transferred to a third party the beneficiary would still have rights over the person but no longer over that property and subsequently losing all interest in the property.  Even though the rights of the beneficiary diminish once the property has been transferred over to a bona fide purchaser at fair value the beneficiary still has rights to claim compensation for whatever arrangement the trustee came to with the bona fide purchaser for example if the asset was sold for £200,000 the beneficiary would still have an equitable interest in the £200,000.

Equity rights are also in rem to ensure that should a trustee ever go bankrupt the rights of the beneficiary are still protected.  When someone declares bankruptcy all their assets are pooled together to pay creditors.  As the legal title in the trust has transferred over to the trustee it could be transferred into the pool of assets along with the debtors original assets and used to pay creditor of which the beneficiary would be one.  However, as equity makes sure that the beneficiary is the equitable owner of the property the trust asset would not be pooled together with the original assets, nor would the beneficiary be deemed as a creditor.  He would retain equitable ownership of the trust property and any subsequent person who received legal ownership of the trust property would have given the beneficiary his rights.  Often creditors will try to claim that past dealings have led them to believe that they have a trust with the bankrupt in the hope that they can be removed from the list of creditors and remove their property.

It should be noted that even though one had in rem rights they must also have in personam rights to be able to bring action against those that have done wrong with regards to the trust property. Thus Salmond states:

 

‘‘The reason why sanctioning rights are in personam is obvious enough. Rights in rem are negative and avail against all the world, i.e., an open or indefinite class of persons. Violations of such rights, therefore, must consist of positive acts, and positive acts can only be performed by specific persons; it makes no sense to talk of a

positive act performed by an indefinite class of persons; in other words a violation by all the world is a logical impossibility. Consequently, it is only against specific persons that sanctioning rights can be either necessary or operative: they must be, therefore, rights in personam’’.[1]

It could be inferred that the right over the property comes along with the right over the individual.

[1] Fitzgerald, Salmond on Jurisprudence, 244.