Trustees: appointment, duties, rights and disabilities - Property Law

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1. Duties of a trustee: sections 11 to 22
2. Liability for breach of trust: sections 23 to 30
3. Rights and powers of trustees: sections 31 to 45
4. Disabilities of trustees: sections 46 to 54
5. Appointment of new trustees: sections 73 to 75
6. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

Four lists and one rule. Duties (Chapter III), liabilities for breach (also Chapter III), rights and powers (Chapter IV), disabilities (Chapter V). The rule that ties them together: a trustee must act for the beneficiary, with ordinary prudence, and never for his own advantage.

1. Duties of a trustee: sections 11 to 22

To execute the trust, s.11. He must fulfil the purpose of the trust and obey the directions of the author given at its creation, except as modified by the consent of all beneficiaries competent to contract. He need not obey a direction where doing so would be impracticable, illegal or manifestly injurious to the beneficiaries.
To apply the property, s.12, in accordance with the trust.
To acquaint himself with the trust property and protect title, s.13. He must, as soon as possible, ascertain the nature and circumstances of the trust property, obtain transfer of it where necessary, and maintain and defend all suits for its preservation and the assertion of title.
Not to set up title adverse to the beneficiary, s.14. He must not, for himself or another, set up or aid any title to the trust property adverse to the beneficiary's interest.
Care required, s.15. He must deal with the trust property as carefully as a man of ordinary prudence would deal with it if it were his own; so dealing, he is not, in the absence of a contract to the contrary, responsible for its loss, destruction or deterioration.
To convert perishable property, s.16, where the trust is for successive beneficiaries, into property of a permanent and income-yielding character.
To be impartial, s.17, between several beneficiaries, and not to exercise a discretion for the benefit of one at the expense of another.
To prevent waste, s.18, where the trust is for successive beneficiaries and one of them is in possession.
To keep accounts and give information, s.19. He must keep clear and accurate accounts and, at the request of the beneficiary, give full and accurate information about the amount and state of the trust property.
To invest trust money, s.20, where it cannot be applied immediately, in the securities the section lists (such as Central and State Government securities and other securities notified by the Central Government), or any other investment the instrument authorises. Related: ss.20A to 22 on redeemable stock, mortgages of land, and sale by a trustee directed to buy.

2. Liability for breach of trust: sections 23 to 30

Section 23. Where a trustee commits a breach of trust, he is liable to make good the loss caused to the trust property or the beneficiary, unless the beneficiary has by fraud induced the breach, or, being competent to contract, has himself concurred in it or released him, or confirmed the breach. He is also liable for interest in the cases set out.
No set-off, s.24. A trustee liable for a loss cannot set off against it a gain made to the trust by another breach.
Predecessor's default, s.25. A trustee is not liable for a breach committed by his predecessor.
Co-trustee's default, s.26. He is not liable for a breach by a co-trustee, unless he has delivered the property to the co-trustee without seeing to its proper application, or allowed him to receive it and failed to make due inquiry, or become privy to the breach, or failed to take steps to redress it.
Several liability, s.27. Where co-trustees jointly commit a breach, or one by neglect enables another to commit it, each is liable to the beneficiary for the whole loss. Between themselves they contribute equally, except that a trustee guilty of fraud, or who alone received the benefit, must indemnify the others.
A trustee who pays the beneficiary without notice of a transfer of the beneficial interest is protected.
Indemnity, s.30. Each trustee is answerable only for what he himself receives and for his own acts, neglects and defaults, and not for those of co-trustees, bankers, brokers or others with whom trust money is properly deposited.

Limitation: under s.10 of the Limitation Act, 1963, no period runs against a suit to follow trust property in the hands of a trustee to whom it has been vested for a specific purpose.

3. Rights and powers of trustees: sections 31 to 45

Title deeds, s.31: to possession of the instrument of trust and all documents of title.
Reimbursement, s.32: to be reimbursed all expenses properly incurred in the execution of the trust, with a first charge on the trust property for them.
Indemnity from gainers by breach, s.33: a trustee who has paid for a breach may recover from a person who got the benefit of it.
Opinion of the court, s.34: he may apply to a principal civil court of original jurisdiction, by petition, for its opinion, advice or direction on any present question of management.
Settlement of accounts, s.35: when his duties are completed, to have the accounts examined and settled.
General authority, s.36: to do all acts reasonable and proper for the realisation, protection or benefit of the trust property and for the protection or support of a minor beneficiary.
Powers, ss.37 to 43: to sell in lots and by auction or private contract, to convey, to vary investments, to apply property of minors for their maintenance and education, to give receipts, and to compound, compromise or abandon debts.
Survival, s.44: on the death of one of several trustees, the powers may be exercised by the survivors, unless the instrument says otherwise.
Suspension, s.45: once a decree is made in a suit for execution of the trust, no trustee may exercise any of his powers except in conformity with it or with the court's sanction.

4. Disabilities of trustees: sections 46 to 54

Cannot renounce after acceptance, s.46, except with the court's permission, the consent of the beneficiary competent to contract, or by special power in the instrument.
Cannot delegate, s.47: delegatus non potest delegare. Exceptions: the instrument allows it, the delegation is in the regular course of business, it is necessary, or the beneficiary competent to contract consents. Appointing an attorney to do purely ministerial acts is permitted.
Co-trustees cannot act singly, s.48: all must join, unless the instrument provides otherwise.
Control of discretion, s.49: where a discretionary power is not exercised reasonably and in good faith, the court may control it.
May not charge for services, s.50, unless the instrument provides, the beneficiaries agree, or the court directs. The office is gratuitous.
May not use trust property for his own profit, s.51.
Trustee for sale may not buy, s.52, the property, directly or through another.
Trustee may not buy or become mortgagee or lessee of trust property, s.53, without the permission of the court, which is given only where the transaction is manifestly for the beneficiary's advantage. The bar extends to a person who has recently ceased to be a trustee.
Co-trustees may not lend to one of themselves, s.54.

5. Appointment of new trustees: sections 73 to 75

Under s.73, whenever a trustee dies, disclaims, is absent from India for six months, leaves India to reside abroad, is declared insolvent, desires to be discharged, refuses or becomes unfit or personally incapable of acting, or accepts an inconsistent trust, a new trustee may be appointed in writing by the person nominated in the instrument for that purpose, or, if none, by the author if alive and competent, or by the surviving or continuing trustees, or by the legal representative of the last surviving trustee. Under s.74, where the vacancy cannot be filled under s.73, the beneficiary may apply to the court, which appoints a fit person, having regard to the wishes of the author, the interests of all beneficiaries and the execution of the trust. Under s.75 the trust property vests in the new trustee jointly with any continuing trustees, and he has the same powers as if originally appointed.

6. Problem

T1 and T2 are trustees of a fund for M, a minor. T1 leaves the whole management to T2 and signs cheques without inquiry. T2 invests the money in his brother's unlisted company, which collapses.

Law. Sections 15, 20, 26, 27, 47 and 51.

Application. The investment is not an authorised security under s.20 and benefits T2's family, contrary to s.51; it is a breach by T2. T1 has handed over the money without seeing to its application and failed to inquire, so s.26 does not protect him; leaving everything to a co-trustee is also an improper delegation under s.47.

Conclusion. Both are liable to M for the whole loss under s.27. As between them, T2, who acted for his family's benefit, must indemnify T1.

How this is examined

Ten marks: “Discuss the duties and liabilities of a trustee”, “rights and powers of a trustee” or “disabilities of a trustee”. Arrange by section. Short notes: delegatus non potest delegare; liability for breach of trust; appointment of new trustees.