VALUABLE LAW WORKS PUBLISHED BT STEVENS AND SONS, LIUITED. 119 & -120. CHAMCEBY LAMJ:. LONDOM. W-C marstiall lEquttg CCoUwttnn dtft of IE. 3. iiatoljaU. ^■^- ^- 1834 _* "■)~-""^»T Lth on By ro. 37. E. ,w. m, to ->ne of Her Majesty's Counsel, Author of " A Complete Praotioe of the Countv Courts." Imperial 8vo. 1889. Price 6s. boardfi. A Catalogue of Law Works obatis on appUcaUon. STEVENS AND SOKS, Palmer's Company Fzec and Precedents for us Companies Acts, 1862 to ProsireotuaeB, Agreements, Ma Resolutions, Notices, Certifiq Attorney, Debentures and D Writs, Statements of Claim, jj Amalgamation, Arrangementa^ Copious Notes, and an Appendix containing Acts and Rules'. Fovirth Edition. By FRANCIS BEAUFORT PALMER, assisted by CHARLES MACNAGHTEN, Eaqrs., Barriaters-at-Law. Royal 8to. 1888. Price 34s. cloth. " In company drafting it stands unri-valled." — Law Times. 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" ' ♦ ~ — — -^4- *«* All 8tcmda/rd Law Works are kept in Stock, in lam calf cmd othar iinMngs. Cornell University Library The original of tliis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924084259864 GEARE'S INVESTMENT OF TEUST FUNDS. SECOND EDITION. (RE-ISSUED.) Note. — The Trust Investment Act, 1889, received the Royal Assent after the first publication of this Edition. In the Appendix, however, will be found the text of that Statute, with some Notes and References. The pages in the body of the Work which contain passages affected by the new Act are specified in the Appendix, and the effect of the new Act upon the subject-matter of such passages is concisely stated. THE mVESTMENT TRUST FUNDS INCOEPOBATINO THE TRUSTEE ACT, 1888, AiTD (m appendix) THE TEUST INVESTMBNT ACT, 1889. BY EDWAED AEHNDEL GEAEE, Esq., OF ST. John's college, Cambridge, b.a., and of the innee temple, babhister-at-law. SECOND EDITION. [RE-ISSUED.) LONDON: STEVENS AND SONS, LIMITED, 119 & 120, OHANOBRY LANE. 1889, SQ^d^i LONBON : PBINTED BY 0. P. EOWOETH, GBEAT HEW STEEET, PETTBE LAITE, E.C. <y . . . . solicitor as point a soHcitor to be his agent to receive and give agent. a discharge for any money or any valuable con- sideration or property receivable by such trustee .under the trust by permitting such solicitor to have the custody of, and to produce, a deed con- taining any such receipt as is referred to in the 44 & 45 Vict, fifty-sixth sectiou of the Conveyancing and Law of Property Act, 1881 ; and no trustee shall be TRUSTEE ACT, 1888. cliargeable -with breach of trust by reason only of his haYmg made or conourred in making any such appointment ; and the producing of any such deed by such solicitor shall have the same validity and effect, by virtue of the said fifty-sixth section, as the same would have had if the person appointing such solicitor had not J)een a trustee : Provided that nothing herein contained shall exempt a trustee from any liability which he would have incurred if this Act had not passed in case he per- mits such money, valuable consideration, or pro- perty to remain in the hands or under the control of the solicitor appointed as aforesaid for a period longer than is reasonably necessary to enable such solicitor to pay or transfer the same to the trustee. (2.) It shall be lawful for a trustee to appoint a banker or solicitor to be his agent to receive and give a discharge for any money payable to such trustee under or by virtue of a policy of assurance by permitting such banker or solicitor to have the custody of and to produce such policy of assurance with a receipt signed by such trustee, and no trus- tee shall be chargeable with a breach of trust by reason only of his having made or concurred in making any such appointment : Provided that nothing herein contained shall exempt a trustee from any liability which he would have inouixed if this Act had not passed, in case he permits such b2 4 THE INVESTMENT OF TRUST FUNDS. money to remain in the hands or under the con- trol of the banker or solicitor appointed as afore- said for a period longer than is reasonably neces-- sary to enable such banker or solicitor to pay the same to the trustee. (3.) This section shall apply only where the money or valuable consideration or property is to be received after the passing of this Act. Sub-sect. (1) of this section enables trustees to receive consideration money payable to them under a deed in the same way as persons who are not trustees. Sect. 56 ol the Conveyancing Act, 1881, obviated the necessity of production by the solicitor of a written direction by the client to pay to the solicitor, in addition to the deed duly executed containing a receipt. 24 Ch. D. 387. In Re Bellamy and The Metropolitan Board of Works, Mr. Justice Kay, and also, in the Court of Appeal, Lord Justice Baggallay, held that this provision of the Con- veyancing Act applied where the persons signing the deed were trustees ; but Lord Justice Cotton and Lord Justice Bowen decided otherwise ; hence this statutory provision. 27 Ch. D. 592. See also the later case of Be Flower and Metropolitan Board of Works, where a similar point arose. Sub-sect. (2) of this section was added by the Standing Committee on Law. As to allowing trust moneys to remain at a banker's for an unreasonable time, see post, 11 Ha. 160. pp. 187 et sej. ; also the case of Johnson v. Newton there referred to. The provision at the end of each of these sub-sections warns trustees against the danger of allowing the trust moneys to remain in the hands of solicitors or bankers ; it is no justification for such a, course that some other investment is Ukely to be made immediately : per Lord 5 App. Cas. 1. Selborne, L. C, in Speight v. Gaunt. TBUSTEE ACT, 1888. 5 3. — (1.) No sale made by a trustee shall be im- Depreciatory peacbed by any ces^Mj que trust upon tbe ground ^"es by "^""^ that any of the conditions, subject to which the *""'^^- sale was made, may have been imnecessarily de- preciatory, unless it shall also appear that the consideration for the sale was thereby rendered inadequate. (2.) No sale made by a trustee shall, after the execution of the conveyance, be impeached as against the purchaser upon the ground that any of the conditions subject to which the sale was made may have been imnecessarily depreciatory, unless it shall appear that such purchase^ was acting in collusion with such trustee at the time when the contract for such sale was made. (3.) No purchaser, upon any sale made by a trustee, shall be at liberty to make any objection against the title upon the ground aforesaid. (4.) This section shaU apply only to sales made after the passing of this Act. The necessity for such, pro-visions as are contained in sect. 3 is illustrated ty the case ol Dunn v. Flood. There 28 Ch. D. 586. a distinction between what is permissible to absolute owners and to trustees in the matter of conditions of sale was plainly referred to by Lord Justice BaggaUay. At p. 592 of the report the Lord Justice said: "It was 28 Ch. D. 592. argued that it was usual for absolute owners of land to insert a condition as wide as this [the condition being that the lots were sold subject to existing tenancies and restrictive covenants, if any, affecting the same, the fact 6 THE INVESTMENT OF TRUST FUNDS. Jbeiiig that there were no tenancies, and no restrictiye covenants] : that may be bo, but it does not follow that trustees ought to do so; it only shows the ■pitfalls ly which trustees are surrounded." It mil be observed that the onus is now thrown on the cestui que trust to show (1) that the consideration for the sate has been rendered inadequate by reason of the unnecessarily depredatory conditions, or (2) that the purchaser was colluding with the trustee at the date of the contract — as the case may be. Loans hy 4. — (1.) No trustee lending money upon the security, of any property shall he chargeahle with hreach of trust hy reason only of the proportion home hy the amount of the loan to the value of such property at the time when the loan was made, provided that it shall appear to the Court that in making such loan the trustee was acting upon a report as to the value of the property made hy a person whom the trustee reasonahly helieved to be an able practical surveyor or valuer, instructed and employed independently of any owner of the pro- perty, whether such surveyor or valuer carried on business in the locality where the property is situate or elsewhere, and that the amount of the loan does not exceed two equal third parts of the value of the property as stated in such report, and that the loan was made under the advice of such surveyor or valuer expressed in such report. And this section shall apply to a loan upon any pro- perty of any tenure, whether agricultural or house TRUSTEE ACT, 1888. or other property, on which the trustee can law- fully lend. (2.) No trustee lending money upon the secu- rity of any leasehold property shall be chargeable with breach of trust only upon the ground that in making such loan he dispensed, either wholly or partially, with the production or investigation of the lessor's title. (3.) No trustee shall be chargeable with breach of trust only upon the ground that, in effecting the purchase of any property, or in lending money upon the security of any property, he shall have accepted a shorter title than the title which a pur- chaser is, in the absence of a special contract, en- titled to require, if in the opinion of the Court the title accepted be such as a person acting with prudence and caution would have accepted. (4.) This section shall apply to transfers of exist- ing securities as weU. as to new securities, and to investments made as well before as after the pass- ing of this Act, except where some action or other proceeding shall be pending with reference thereto at the passing of this Act. This section introduces a very important change in the matter of investment by trustees, and abolishes the old distinction between advances on freehold agricultural land and upon house property; the old rule (see post, p. 114 et eeg.) being that trustees might lend two-thirds of the value of freehold agricultural lands and one-half 8. THE INVESTMENT OF TRUST FUNDS. 28 Ch. D. 268. only of the value of house property. The case of Fry v. Tapson emphasised the rule as to loans upon house pro- perty ; Mr. Justice Kay remarking upon the -wisdom of the general rule that not more than one-half of the estimated value should be lent by trustees upon house 34 Ch. D. 70. property. See also the later case of Olive v. WesUrman. It may be suggested that recent experience shows that the value of land fluctuates now as much as the value of house property, and that the raison d'etre for the rule has consequently disappeared. The words, "whether such surveyor or valuer carried on business in the locality where the property is situate or elsewhere," are of much importance, having regard to 28Ch.D. 268. the decision in Fry v. Tapson; there the trustees acted upon the report of a London surveyor as to house pro- perty at Liverpool, and the learned judge in that case remarked upon this in the following language: — "He (Mr. Kerr, the surveyor) was a London surveyor, not shown to have any of that local knowledge which was so important in this case, and his employment was inex- L. E. 7 Ch. pedient for that reason : Budge v. Oummow." And again, 28 Ch d' at towards the close of his judgment, his lordship said : p. 282. "They (the trustees) most incautiously employed the mortgagor's agent, who had been puffing the proposed security, and was interested in obtaining the loan, to value on their behalf, and they accepted his valuation without attempting to check it, and this although he was a London surveyor, and it was most important to obtain the opinion of some experienced local surveyor as to property of this kind." The words in this section, " instructed and employed independently of any owner of the property," seem to hit the mischief pointed out by Mr. Justice Kay in the above judgment, when he says : " They most incautiously em- ployed the mortgagor's agent." The words, "whom the trustee reasonably believed to be an able practical surveyor or valuer," appear to leave 28 Ch.D. 268. untouched the decision in Fry v. Tapson, that the valuer TRUSTEE ACT, 1888. must be selected by the trustee himself, and that he cannot leave the selection of the valuer to his solicitor. To summarise : A trustee, to enjoy the protection given by this section, must attend to these three matters : — • 1. He must act on a report as to value made by a person reasonably believed by Tii'm to be an able practical valuer, instructed and employed inde- pendently of any owner of the property. 2. The amount lent must not exceed two equal third parts of the value as stated in the report. 3. The loan must be made under the advice of the valuer expressed in the report. Sub-sect. 2 of sect. 4 extends the provisions of the Vendor and Purchaser Act, 1874, s. 2, sub-s. (1), and the Conveyancing and Law of Property Act, 1881, b. 3, sub-s. 4, by which, on a purchase of leaseholds, the pur- chaser is not to be entitled to insist upon production of the lessor's title, to the case of a mortgage. Sub-sect. 3 of sect. 4 relieves trustees from the obliga- tion of insisting upon a forty years' title. Seeing that in sales by auction the title is most frequently restricted to a shorter period, trustees are at present clearly exposed to risks which ought not to fall upon them. The concluding words of this sub-section merely reiterate the rule that the trustee must conduct the business of the trust in the same manner that a prudent man of business would conduct his own. It is important to observe that sect. 4 is retrospective, unless at the passing of the Act some action or other pro- ceeding is pending. 5. — (1.) Where a trustee shall have improperly Liability for , , , , , ., loss by reason advanced trust money on a mortgage security of impioper which would at the time of the investment have ™^*^ ™™ ^' been a proper investment in all respects for a less sum than was actually advanced thereon, the secu- b5 10 THE INVESTMENT OF TRUST FUNDS. rity shall he deemed an authorized investment for such less sum, and the trustee shall only be Hahle to make good the sum advanced in excess thereof with interest. (2.) This section shall apply to investments made as well hefore as after the passing of this Act, except where some action or other proceeding shall be pending with reference thereto at the passing of this Act. The Court has inBiany cases ordered the defendant trustees, in. the class of cases referred to in this section, to replace the whole of the trust fund, they, upon such pay- ment, becoming entitled to the security. The relief in such cases ■will in future be given in accordance with the provisions of this section. The excess will be so much of the sum advanced as exceeds two equal third parts of the value of the mortgaged property. ' This section is retrospective, unless some action or other proceeding is pending at the passLiig of the Act. Indenmityfor 6. — (I.)' Where a trustee shall have committed breach of , , „ , , ,, . ,. ,. trust. a breach oi trust at the mstigation or request or with the consent in writing of a beneficiary, the Court may, if it shall think fit, and notwith- standing that the beneficiary may be a married woman entitled for her separate use, whether with or without a restraint upon anticipation, make such order as to the Court shall seem just for impounding all or any part of the interest of the beneficiary in the trust estate by way of TEUSTEE ACT, 1888. 11 indemnity to the trustee or person claiming througli him. (2.) This section shall apply to breaches of trust committed as well before as after the passing of this Act, except where an action or other proceed- ing shall be pending with reference thereto at the passing of this Act. Formerly, where there was a restraint upon anticipa- tion, a married woman could not concur in a breach of trust as to a fund settled to her separate use. The pro- vision in this section as to the restraint on anticipation may, perhaps, be regarded as the outcome of recent legislation, such as the Married Women's Property Act, 1882, sect. 19, and the Conveyancing and Law of Property Act, 1881, sect. 39. It was always the rule of the Court that where a bene- ficiary who was tenant for life, or had a partial interest, was responsible for haying joined in a breach of trust, all the benefit that would have accrued to him might be stopped by or on behalf of the cestuis que trust as against him, his trustee in bankruptcy, or judgment or general creditors, and others claiming under him, until the amount impounded compensated the trust estate for the loss for which the beneficiary was responsible. But this rule did not apply where the beneficiary was a married woman entitled for her separate use, and re- strained from anticipation. The interest of amy beneficiary, at whose instigation a breach of trust is committed, may now be impounded to indemnify the trustee committing the breach of trust, or any person claiming through such trustee. This section also is retrospective, with the quaKfication above men- tioned. 7, — (1.) It shall be lawful for, but not obliga- Trustee may 12 THE INVESTMENT OP TRUST FUNDS. insure liuildings. toiy upon, a trustee to insure against loss or damage hj fire any building or other insurable ' property to any amount (including tlie amount of any insurance already on foot) not exceeding three equal fourth parts of the full value of such build- ing or property, and to pay the premiums for such insurance out of the income thereof or out of the income of any other property, subject to the same trusts, without obtaiaiag the consent of any per- son who may be entitled wholly or partly to such income. (2.) This section shall not apply to any build- ing or property which a trustee is bound forthwith to convey absolutely to any cestui que trust upon being requested so to do. TUs section wiU remove all doubt as to whether a trustee can insist on having trust property insured at the expense of the tenant for life. This was formerly uncertain ; and in Lewin (p. 580, 8th ed.) it is said that, where there is a tenant for hfe, the trustee could not be advised to in- sure the trust property out of income without the tenant for life's consent. Statute of limitationB may be pleaded by trustees. 8, — (1.) In any action or other proceeding against a trustee or any person claiming through him, except where the claim is founded upon any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee TRUSTEE ACT, 1888. 13 and converted to his use, the following provisions shall apply : — (a) All rights and privileges conferred lay any statute of limitations shall be enjoyed in the Kke manner and to the like extent as they "would have been enjoyed in such action or other proceeding if the trustee or person claiming through biTn had not been a trustee or person claiming through him : (b) If the action or other proceeding is brought to recover money or other property, and is one to which no existing statute of limitations applies, the trustee or person claiming through him shall be entitled to the benefit of and be at liberty to plead the lapse of time as a bar to such action or other proceeding in the like manner and to the like extent as if the claim had been against Mm in an action of debt for money had and received, but so nevertheless that the statute shall run against a married woman entitled iu possession for her separate use, whether "with or "without a restraint upon anticipation, but shall not begia to run against any beneficiary unless and until the interest of such beneficiary shall be an interest in possession. (2.) No beneficiary, as against whom there would be a good defence by virtue of this section, shall derive any greater or other benefit from a judg- 14 THE INVESTMENT OP TRUST FUNDS. ment or order obtaiaed by another beneficiary than he could have obtained if he had brought such action or other proceeding and this section had been pleaded. (3.) This section shall apply only to actions or other proceedings commenced after the first day of January, 1890, and shall not deprive any executor or administrator of any right or defence to which he is entitled imder any existiag Statute of Limi- tations. This sectioa undoubtedly effects a great change in the existing law as to the relation of trustee and cestui que ivutst. It is intended to enahle innocent trustees to pro- tect themselves by statutes of limitations. Formerly, a trustee, having once incurred a liability, could never get relieved of it. The Bankruptcy Act, 1883, s. 30, enacted that an order of discharge should release the bankrupt from all debts provable in bankruptcy, other than those specified in sub-sect. 1 of sect. 30. A debt incurred by breach of trust (not being a fraudulent breach of trust) is not among the excepted liabilities. The present enactment appears to be an extension of the principle that trustees ought, under certain conditions, to be relieved from their liability. It mil, however, be observed that in three cases trus- tees are not to be allowed to escape under the provisions of this section, viz. : — (a) Where the claim is founded on fraud or fraudulent breach of trust, to which the trustee was party or privy ; (b) "Where the claim is to recover trust property, or the proceeds thereof, still retained by the trustee ; (c) Where the claim is to recover trust property, or the proceeds thereof, previously received by the trus- tee and converted to his use. TRUSTEE ACT, 1888. 15 As regards the first class of cases, the words " to which, the trustee was party or privy," are aU-importaat. The second class prevents a trustee setting up anything like a title by adverse possession as against his cestui que trust. The third exception enables the arm of the Court to recover trust property without regard to the lapse of time, where, for example, the trustee may have mixed the trust-moneys with his own, and employed both in his own business : see^osi, Chap. VI., pp. 166 ei eeq. Sub-sect. 1 (b) is intended to protect an innocent trus- tee against stale claims, and to place him (subject to the exceptions (a), (b) and (c), above referred to) in the same position as if he were defending an action of debt against himself for money had and received. Two important provisions will be f oimd at the end of sub-sect. 1 (b), viz. : — 1. The statute will run against a married woman en- titled in possession for her separate use, whether restrained from anticipation or not. 2. The statute will not begin to run against any bene- ficiary, unless and until the interest of such bene- ficiary shall be an interest in possession. The words " in the like maimer and to the like extent" keep alive the provisions made in existing statutes for cases of infancy or other disabflity. Sub-sect. 2 prevents a beneficiary, to whose claim the statute might be pleaded, from taking advantage of a judgment obtained by any other beneficiary. The section, it wiU. be observed, applies only to proceed- ings taken after 1st January, 1890, and preserves the rights and defences of executors and administi:ators under existing statutes. 9. A power to invest trust money in real Investments securities shall autliorize and shall be deemed of long terms to have always authorized an investment upon. 16 THE INVESTMENT OF TEUST FUNDS. mortgage of property held for an unexpired term of not less than two hmidred years, and not suhject to any reservation of rent greater than one shilling a-year, or to any right of redemption, or to any condition for re-entry except for nonpay- ment of rent. This section deals witli tie question which was referred 14 Oh. D. 626. to in In re Boyd's Settled Estates, where Sir George Jessel, M. E., said : "I desire to express my opinion that, as a general rule, long teims of years do not answer the description of ' real securities.' " This opinion was acted upon, as the writer is informed, by Mr. Justice Stirling in the later case, not reported, of Leigh v. Leigh (see^osi, p. 155 et seq.). It is presumed that the section means that at least 200 years of the term piust be unexpired at the date of the iuTestment. Trustees of renewable leaseholds may renew. 10. It shall he lawful for any trustee of any leaseholds for lives or years which are renewahle from time to time, either under any covenant or contract or by custom or usual practice, if he shall in his discretion think fit, and it shall be the duty of such trustee, if thereimto required by any person having any beneficial interest, present or future or contingent, in such leaseholds, to use his best endeavours to obtain from time to time a renewed lease of the same hereditaments on the accustomed and reasonable terms, and for that purpose it shall be lawful for any such trustee from time to time to make or concur in making such surrender of TRUSTEE ACT, 1888. 17 the lease for the time heing suhsisting, and to do all such other acts as shall be requisite in that behalf; but this section is not to apply to any case where by the terms of the settlement or wiU the person in possession for his life or other limited interest is entitled to enjoy the same without any obligation to renew the lease or to contribute to the expense of renewing the same, unless the consent in writing of such person is obtained to such renewal on the part of the trustee. TMs is a re-enactment ol sect. 8 of 23 & 24 Vict. c. 145; 23 & 24 Viot. the concluding words of this present section, " unless the "■ ^*"" consent, &c.," being now added. The earlier enactment was repealed by 45 & 46 Vict. c. 38, s. 64. 45 & 46 Viot. c. 38. U. In case any money shall be required for Power to the purpose of paying for the renewal of any lease raise money as aforesaid, it shall be lawful for the trustee on renewal of efBecting such renewal to pay the same out of any money which may then be in his hands in trust for the persons beneficially interested in the lands to be comprised in the renewed lease, and if he shall not have in his hands as aforesaid sufficient money for the purpose, it shall be lawful for the trustee to raise the money required by mortgage of the hereditaments to be contained in the renewed lease, or of any other hereditaments for the time being subject to the subsisting uses or trusts to which the hereditaments comprised in the renewed 18 THE INVESTMENT OF TEUST FUNDS. lease shall be subject; and no mortgagee ad- vancing money upon such mortgage, purporting to be made under this power, shall be bound to see that such money is wanted, or that no more is raised than is wanted for the purpose afore- said. The pro-visions contained in tliis section were contained in sect. 9 of the aboye-mentioned repealed Act of 23 & 24 Vict. 0. 145. It seems somewhat strange that, as amended by the Standing Committee on Law, the present Act did not contaia each a section. The subject of the payment of fines on renewals by trustees is discussed in Chap. XV. of Lewin's Law of Trusts, 8th edition. Application 12. — (1.) This Act shall apply as well to trusts of Act. created by instrument executed before as to trusts created after the passing of this Act. (2.) Provided always, that save as in this Act expressly provided, nothing therein contained shall authorize any trustee to do anything which he is in express terms forbidden to do, or to omit to do anything which he is in express terms directed to do, by the instrument or instruments creating the trust. 19 CHAPTER II. OF THE CONDUCT EXPECTED OF THE TRUSTEE IN INVESTING THE FUND. Of all the duties wHcli a trustee is bound to perform, perhaps none is more important than that of seeing that the trust funds are properly invested: it is a matter of the most vital im- portance both to the beneficiaries and to the trustee himself. It is proposed, in the present chapter, to con- sider the question of the duty of the trustee in regard to the mode of investing the trust fuuds ; or, in other words, the conduct expected of the trustee by the Court in iavesting the fund. In his vrell-known Commentaries on Equity Sect. 1268. Jurisprudence, Mr. Justice Story has observed that, as a trustee is supposed merely to take upon himself the trust, as a matter of honour, con- science, friendship, or humanity, and as he is not entitled to any compensation for his services, at least not without some express or implied stipula- tion for that purpose, he would seem, upon the 2Q THE INVESTMENT OF TEUST FUNDS, analogous principles appHcatte to bailments, bound only to good faith and reasonable dili- gence ; and, as in the case of a gratuitous bailee, liable only for gross negligence. " It would be difficult, however," continues the same learned author, "to affirm that courts of equity do, in fact, always limit the responsibility of trustees, or measure their acts, by such a rule." This observation appears eminently true in respect of the conduct expected of trustees in the investment of trust funds, 1 Eden, 143. The observation of Jjord Northington in Harden V. Parsons, that " no man can require or with rea- son expect that a trustee should manage another's property with the same care and discretion that he would his own," has, ever since its first utterance, ■ been referred to only with the result of drawing down strong expressions of disapprobation; and Sect. 1268 b. the American jurist above quoted admits that, at the present time, it cannot be asserted that a trus- , tee, who has the entire management of an estate entrusted to "him, or even a general supervision, for the benefit of those interested, is only liable Sect. 1271. for gross negligence : and that in respect to the manner of managing funds and laying out moneys on securities considerable strictness is required by the rules of courts of equity. These rules, iowever, should not be laid down, CONDUCT EXPECTED OF THE TRUSTEE. 21 as Lord Hardwioke remarked in Hx parte Bekhier Ambler, 219. and Parsons, " with a strictness to strike terror into mankind, acting for the benefit of others, and not for their own." In Knight v. Earl of Plymouth, the same judge l Dick. 126. ohserved that, "as a trust is an office necessary in the concerns hetween man and man, and which if faithfully discharged is attended with no small degree of trouble and anxiety, it is an act of great kindness in any one to accept it; to add hazard or risk to that trouble, and to subject a trustee to losses, which he could not foresee, and consequently not prevent, would be a manifest hardship, and would be deterring every one from accepting so necessary an office." These observations are commended by the Sect. 1272. American jurist, but it does not appear to him that courts of equity have always proceeded upon so broad and liberal a basis. It has been very commonly observed that a trustee must act with good faith in the exercise of a fair discretion with regard to the trust property, in the same manner that he would ordinarily act in reference to his own property; and that, so acting, he ought not to be held responsible for any losses accruing in the management of the trust property: and Lord Hardwieke said that, " where trustees act by other hands, either from necessity or con- 22 THE INVESTMEKT OP TRUST FUNDS. formaUy to the common usage of manMad, they are not answerable for losses." How the courts of equity have regarded these general principles will appear when we come to examine some of Sect. 1272. the reported cases. In the opinion of Mr. Justice Story, the courts have laid down artificial rules with regard to trustees and their duties, " which import extraordinary diligence and vigilance in the management of the trust property." The mode of With a view to ascertaining what these rules are, — (in the first place as to the manner of in- vesting trust funds), — and how they are at the present time interpreted, it is proposed to examine here, somewhat in detail, two or three of the most recent and leading cases upon this suhject; in which cases the practice of the Courts £rom early days has heen reviewed. The first case to which attention is directed is 22 Ch. D. 727. that of Speight v. Gaunt. The testator in this case devised and bequeathed his real and personal estate to two trustees upon trust to convert the same, and invest the proceeds in or upon (among other securities) the stocks, funds, debentures, mortgages, or securities of any company, corporation or public body incorporated by charter, or a special Act of Parliament. One of the two trustees became a liquidating debtor, and though the trust funds continued to stand to CONDUCT EXPECTED OF THE TRUSTEE. ^3 the joint account and in the joint names of the Speight v. two trustees, the defendant Gaunt had the entire control over them. In or ahout the month of October, 1880, it became necessary that some of the securities and shares — ^part of the trust estate — should be sold. This was done, and the proceeds of sale were paid into a bank to the credit of the trust account. It is important to observe that the broker employed in these sales, at the request of the family, was a member of a firm standing in high repute, and which firm had been employed by the testator as his brokers. The defendant Gaunt discussed with the family the question of re-investment. The trustee proposed consols ; the family objected, because of the rate of interest. In the result, Yorkshire Corporation Bonds were selected for the investment, with the assent of the family, who, moreover, expressed a wish that the broker above referred to should be employed in preference to another firm, suggested by Gaunt as being his own brokers. Shortly after Gaunt saw the selected broker, and told him that it was pro- posed to invest 16,000^. in corporation stocks, and instructed him to buy 5,000^. Halifax, 5,000/. Huddersfield, and 6,000/. Leeds, the broker stating, in reference to his commission, that he should get it from the other side. Some days later (on the 24th February, 1881) the broker brought to Gaunt 24 THE INVESTMENT OF TRUST FUNDS. Speight V. a " bought note," from which it appeared that his ^'"^*' (the broker's) firm had on that day purchased for the trustees of the testator, subject to the rules of the London Stock Exchange, the above-mentioned stocks for a total of 15,275^. There was no chaxge for commission, and no date was added after the printed word "Account " at the foot of the bought note. The broker, when he brought the bought note, told Gaunt that he wanted the money for the stocks to pay next day. As a matter of fact, the next day (25th February) was the next ac- count or settling-day on the London Exchange. Three cheques were accordingly drawn for 5,275/., 5,000/., and 5,000/., in favour of the broker's firm, " or order," and. were signed " Isaac Graunt, for self and co-executor." Eour days later Gaunt asked the broker for the securities, and was in- formed that they had not come yet, that he could not tell when they would arrive, as they took some time to make out. From time to time Gaunt was put ofE with similar excuses, and about a month after the cheques were given the broker absconded, without having procured any bonds, and having appropriated the cheques to his own use, so that the 15,275/. was absolutely lost. The action was then brought by beneficiaries under the win, claiming a declaration that Gaunt had com- mitted a breach of trust in reference to the 15,275/., CONDUCT EXPECTED OF THE TRUSTEE. 25 and the intended re-investment thereof, and an Speight t. order for ^im to make good the loss to the trust estate, mth interest at 4 per cent. It appeared that in the majority of cases appli- cations for these stocks were made to the corpora- tion by the puhKo direct, and that in such cases the applicant obtained from the town clerk, or borough accountant, a fortn which was filled up and returned, that the security might be prepared. The applicant then paid the amount to the corpo- ration bankers, who gave a receipt, to be ex- changed for the security when prepared. Many applications, however, came through bankers, soli- citors, and brokers, in which cases the corporation paid a commission. There was also evidence that the bought-note, though not suggestive of fraud, was unbusinesslike in not stating whether the transaction was for cash, or, if not for cash, when payment was to be made : and the experts said they should infer that it referred to stocks not bought in the market, but direct from the corporation ; but they did not think the public would do so. Gaunt stated that when he gave the cheques he had no idea whether he was getting the securities direct or by purchase. It was also stated to be the usual practice where brokers were instructed G. C 26 THE INVESTMENT OF TRUST FUNDS. Speight X. to buy for them to- receive the money without waiting for the actual delivery of the securities. Argrmneutfor j^ ^as of course contended on hehalf of the plamuSs. plaintiffs that the employment of the broker was unnecessary and unusual, and that, in permitting' the money to remain in the broker's custody with- out security and without necessity, there was such a want of proper precaution as rendered the trustee liable for the loss of the trust funds. It was also urged that the money should have been paid into the bank of the corporation, and that no man of common prudence would have trusted the broker implicitly, and waited many weeks without ascer- taining whether the stock had actually been bought. It was, moreover, insisted that tfie ab- sence of any date for completion of the purchase in the bought-note, and the non-payment of com- mission, ought to have excited the trustee's suspi- cion. Gross negligence was also to be attributed to the trustee for allowing the money to remain in the broker's hands without security and with- out definite information for four or five weeks. Argument for For the defendant trustee the rule was relied deiendajit. on, that to fix him with habOity it must be shown that he departed from the ordinary course which a reasonable prudent man of business would have taken in dealing with his own money, and it was said to be the ordinary course for persons invest- CONDUCT EXPECTED OF THE TEUSTEE. 27 ing money in tlie purcliase of securities, on getting Speight y. tte bought or advice note, to give to the broker a cheque for the amount, to be retained by the broker vrithout security during the interval be- tween the purchase and the transfer of the secu- rities. The absence of a date in the bought-note was said to be immaterial, if it were an irregularity, there being a verbal explanation by the broker as to when the money was wanted : nor was the transaction to be impeached in the circumstances, ■ because it was arranged that the broker should not charge commission for the investment, but should do it " nett." The practice of inserting an indemnity clause protecting innocent trustees against loss occasioned by brokers or bankers has been recognized and extended, by 22 & 23 Vict. e. 35, s. 31, showing that risks from the dishonesty of bankers and brokers stand on the same footing. Yiee-Chancellor Bacon held that the trustee V.-C. Baoon. had neglected his duty, and that his neglect of duty had caused the loss of the trust moneys. His lordship, in stating what the law on the sub- ject is, and for centuries has been, observed that " a trustee who takes another man's money into his hands is bound, whatever other duties he may have to discharge, to take care that that money c2 28 THE INVESTMENT OF TRUST FUNDS. Speight \. shall 1)6 preserved, and not to deal witli it or to Gaunt. . , . , . ■, do anything with it which a prudent and reason- able man would not do with his own money." [This- proposition was referred to by the late Master of the RoUs, in the Court of Appeal, as " a very clear statement of the law," with which he. had no fault to find.] The learned Yice-Chancellor then proceeded to apply that rule to the present case. " Could any- body," asked the learned judge, " say that a trus- tee with 15,000/. of other people's money in his hands should have parted with it to the broier upon that scrap of paper (the bought-note).? Certainly not. The paper upon the face of it, as a witness has said, as to Mr. Gaunt, meant ' your money is to go to the corporations,' and the broker, in answer to inquiries, said, in effect, ' Tou are to have security for it, but it wiU take time to pre- pare the security — you must have a receipt, certificate, scrip, or somethiug of the kind.' Mr. Gaunt, as a man of business, accepts the excuse from the broker." Farther on the learned judge observed : " I say he (the trustee) is fixed with knowledge that the broker's pretended dealings had been with the corporations, he is fixed with knowledge that the money was to go to the corporations, and he draws a cheque in favour of the broker." And again, CONDUCT EXPECTED OF THE TRUSTEE. 29 " There was no earthly reason why the trustee Speight v. shotild not have drawn the cheque in favour of the corporations that had sold him the stocks." After pointing out that a wide field would he opened to frauds (hy collusion hetween the trustee and the broker) if it were adopted as a rule of law, estahlishing a custom, that if a man employs a broker and takes from him* a sale-note, he is there- upon at liberty to pay to that broker the price of the thing bought, the learned Vice-Chancellor expressed his opiaion that if Mr. Gaunt had acted with the ordinary precaution which a man takes in dealing with his own property he would not have trusted the broker with the 15,000/. of trust- moneys. Having done so, he was ordered to make -good the loss within six months, with interest at four per cent., and to pay the costs of the action. - The defendant appealed. Court of The Court of Appeal reversed the decision of 22 ch i) 739 Yice-ChanceUor Bacon. ^PP«*l allowed. The late Master of the EoUs (Sir George Jessel), Jessel, M.R. in giving his judgment, considered the question of the liability of a trustee who is required to make an investment on behalf of his cestui que trust. He stated that in his opinion a trustee ought to conduct the business of the trust in the same manner as an ordinary prudent man of business would conduct his own, and that beyond that there 30 THE INVESTMENT OP TEUST FUNDS. Speifht V. is no liatiKty or obligation on the trustee. His Gaunt, lordship added, that it never could be reasonable to make a trustee adopt further and better precau- tions than an ordinary prudent man of business would adopt, or to conduct the business in any other way : and he proceeded to consider what the usual precautions taken by men of business, when they make investments, are. " If the investment," said his Lordship, " is an investment made on the Stock Exchange through a stockbroker, the ordinary course of business is for the investor to select a stockbroker in good credit and in a good position, having regard to the sum to be invested, and to direct biTn to make the investment — ^that is, to purchase on the Stock Exchange of a jobber or another broker the invest- ment required. In the ordinary course, all that the broker can do is to enter into a contract — usually it is for the next account day. .... Before the account day arrives, the purchasing stockbroker requests his principal to pay him the money, because on the account day he is himself liable to pay over the money to the vendor, whether a jobber or broker, and therefore he must have it ready for the account day, and, according to the usual course of business, he sends a copy of the purchasing-note to the principal stating when the money is required to be paid, and he obtains the CONDUCT EXPECTED OF THE TEUSTEE. 31 money from him a day or two before the account Speight v. day. When he gets it, he pays it over, if it is a single transaction, to the vendor. . . . It is after payment, and very often a considerahle time after payment, that is several days, that he gets the securities perfected." After thus stating the ordinary course of bvfei- ness, the learned judge expressed the conclusion arrived at by biTn in these words : "If, therefore, the trustee has made a proper selection of a broker, and has paid him the money on the bought-note, and, by reason of the default of the broker, the money is lost, it does not appear to me that the trustee can be liable." In the next place, Sir Greorge Jessel proceeded to consider the authorities, to show that he had given the fair result of them, as they stand. He commenced with Ex parte Belchier : and described Ambler, 219; that case as " the leading case upon the subject." There, the assignee of a bankrupt employed a broker to sell a large quantity of tobacco belonging to the bankrupt : the broker received the money, and ten days after died insolvent. The commis- sioners in bankruptcy fixed the assignee with the loss. The assignee appealed to Lord Hardwicke. It was in evidence that it was a common practice to sell mercantile goods by auction and to employ a broker, and for him to receive the money. Lord 32 THE INVESTMENT OF TRUST FUNDS, Speight V. Hardwicke reversed the decision of tlie commis- Lo^Hard- sioners : he said, "If Mrs. Parsons (the assignee) "^HeB^eUMer ^^ chargeable in this case, no man in his senses ■wotild act as assignee under conunission of a bankrupt;" and, farther on in his judgment, " where trustees act by other hands, either from necessity or conformably to the common usage of manldnd, they are not answerable for losses." Sir George Jessel explains the words, " either from necessity or conformably to the common usage of mankind," as meaning, where in the ordinary course of business transactions an agent is employed. The next case referred to by the Master of the 5 Ves. 331. Rolls was Bacon v. Bacon : he sums up the "view Lord Lough- taken by Lord Loughborough in that case in these borough in .^^ Baem v. words, Vvhere you must necessarily employ an agent, or where you might reasonably in the ordi- nary course of business employ an agent, and you use due diligence in the selection of your agent, you are not liable for the consequences. You have only conducted the business ia the way an ordinary prudent man of business would have done.'' [It wiU. be observed that the two cases (1) where you must necessarily employ an agent, and (2) where you might reasonably in the ordinary course of business employ an agent, axe practically identical with those put by Lord Hardwicke, Bacon. CONDUCT EXPECTED OP THE TRUSTEE. 35 namely, "where trustees act by other hands, either Speight v. from necessity or conformably to the common usage of mankind."] After briefly referring to the decision of Lord Eedesdale in Joi/ v. Camplell, which dealt with i Seh. & Lef. 328 the question of selecting an agent— the Lord Chan- Lord Eedes- ceUor in that case observing, that the executor oam^eliJ' ^' could not discharge his dfity if made responsible where he remitted money to a person to whom he would have given credit, and would in his own business have remitted money in the same way — the Master of the Rolls proceeds to consider the ease of Clough v. Bond. 3 My. & Cr. There Lord Cottenham says, in reference to a j^^^^ Cotten- loss arising from the dishonesty or failure of one ^^^ ™ Glougk to whom the possession of part of the estate has been entrusted, " Necessity, which includes the regular course of business in administering the property, wiU, in equity, exonerate the personal representative." This statement. Sir George Jessel observes, is valuable on accoimt of the interpreta- tion of the word " necessity," as being nothing more and nothing less than the regular course of business. Before proceeding to consider the case made Sir Greorge against the defendant Graimt by the pleader, the as to the Master of the EoUs expressed his view in reference ^gii^^e. to the question of negligence, as follows: — "My c5 34 THE INVESTMENT OP TRUST FUNDS. Speight v. Gaunt. The duty of the Court. view has always been this, that where you have an honest trastee fairly anxious to perform his duty and to do as he thinks best for the estate, you axe not to strain the law against him to make him liable for doing that which he has done, and which he believes is right in the execution of his duty, without you have a plain case made against him. In other words, you are not to exercise your inge- nuity for the purpose of finding reasons for fixing a trustee with liability; but you are rather to avoid all such hypercriticism of documents and acts, and to give the trustee the benefit of any doubt or ambiguity which may appear in any document, so as to relieve him from the liability with which it is sought to fix him." " I think," the learned judge continues, " it is the duty of the Court in these cases where there is a question of nicety as to construction or otherwise to lean to the side of the honest trustee, and not to be anxious to find fine and extraordinary rea- sons for fixing him with any liability upon the contract. Ton are to endeavour, as far as possible, having regard to the whole transaction, to avoid making an honest man, who is not paid for the performance of an unthankful office, liable for the failure of other people from whom he receives no benefit. I think that is the view which has been taken by modern judges, and some of the older CONDUCT EXPECTED OF THE TEUSTEE. 35 cases in ■which a different "view has been taken Speight v. ■would now be repudiated with iadignation." [The above passages (except the last four lines) "were quoted by Mr. Justice North, ia his judgment in the case of Billing v. Brogden, that learned as Oh. D. 546. judge observing, " I adopt as my own the very important observations of the late Master of the Rolls in Speight v. Gaunt*"'\ Sir George Jessel then proceeded to consider the Case made by case made by the statement of claim. He observed, of daim. that there was no allegation in the statement of claim that "the defendant ought not to have em- Emplojoueut ^ 111 11,-1 !• •• of a broker. ployed a broker, and stated, as his opmion, that the defendant was entitled to employ a broker even if he could have obtaiaed the securities from the corporations direct. After dealing with the ques- tions of the inference to be dra"wn from the bought- note by Graunt, that the stocks "were to be obtained direct from the corporations, of the absence of any date for the account-day mentioned in the bought- note, and of the absence of any charge by the broker for commission, the Master of the Eolls stated his opinion to be that the meaning of the bought-note was " a statement by the broker to Meaning of ■fche principal that he had bought these debenture note. ° stocks," on the Bradford Exchange, subject to the rules of the London Stock Exchange. That being so, the learned judge did not consider that the 36 THE INVESTMENT OF TRUST FUNDS. Spmght T. trustee was bomid to suspect Ms own broker, and -go about trying to discover from wbom be bad purcbased. " It is quite plain," be said, " tbat no man in tbe ordinary course of business ever does anytbing of tbe kind:" and bis conclusion was tbat tbere was no ground wbatever for saying tbat tbe defendant Gaunt was guilty of negli- gence. Payment to On tbe important question, wbetb^r, if tbe de- fendant knew tbe stocks were to be obtained from tbe corporations direct, be ougbt to bave paid tbe broker. Sir George Jessel reserved bis opinion. Lindley, L. J. Lord Justice Lindley described tbis case as one of very great importance " to trustees in general wbo bave to iuvest, or wbo do invest, money tbrough brokers." Was it proper, bis lordsbip iaquired. Employment for tbe trustee to employ tbe broker at aU ? a trustee baviag no busLuess to cast upon brokers, ' or solicitors, or, anybody else, tbe performance of tbose trusts and tbe exercise of tbat discretion wbicb be is boimd to perform and exercise bim- self . On tbe otber band, a trustee may employ brokers and solicitors to do tbat wbicb iu tbe ordinary course of business otber people would employ brokers and solicitors to do. Tbe conclusion at wbicb tbe Lord Justice arrived was, tbat it was impossible to say tbat " tbe trustee, actiag bonestly, was not entitled to CONDUCT EXPECTED OF THE TRUSTEE. 37 employ a broker" to do the business in question. Speight v. Nor did the learned judge think the trustee guilty of negligence either in leaving to the broker's discretion the question from what source the broker was to obtain the desired securities, or in paying to the broker the purchase-money — the trustee being entitled to treat the securities as bought by the broker in the ordinary way of business as a broker on the Exchange. On the important question whether " if the Payment to trustee had notice and really did know that these things had not been bought on the Stock Ex- change," he ought not to have paid the purchase- money to the .principals, the Lord Justice observes, " it is quite possible that he ought so to have paid it. I say nothing about that." As to the alleged negligence ia not getting the [See Bullock securities. Lord Justice Liudley said that it l. j. (^[ seemed to him clear to demonstration that no '■' discovery Mr. Gaunt could have made after the cheques were cashed could have saved the pro- perty. Eeferring to the case of Bostock v. Flayer, in L. r., i Eq. 26 which Lord EomiUy held a trustee responsible for Lord Romilly moneys given to his solicitor to invest, the Lord ^loy^^ ^' Justice Lindley observed that the ratio decidendi of that case was, that it is not " the ordinary course of business for a trustee to place money in 38 THE INVESTMENT OP TRUST FUNDS. Speight V. the hands of a solicitor to invest. It was not a Gaunt. specific investment. [The words, " it was not a specific iavestment," appear to have a deep significance.] After questioning the decision of Lord Eomilly L. R., 11 Eq. ia JEqpgood Y. Parkin (see post, pp. 109 etseq.), Lord Justice Lindley, at the close of his judgment, protested against the notion that trustees, where justified in employing agents and employing agents in good repute, and employing those agents to do that which is in the ordinary course of their husiness, " guarantee the solvency or honesty of the agents employed." " Such a doc- trine," said his lordship, "would make it impossible for any man to have anything to do with a trust." Bowen, L. J. Lord Justice Bowen concurred in allowing the appeal. " The proposition," his lordship re- marked, "as to trustees and agents, that they Delegation, cannot delegate, means this simply, that a man employed to do a thing himself has not the right to get somebody else to do it, but when he is employed to get it done through others he may do so." 9App. Cas. 1. Speight v. Gaunt was carried to the House of Lords. After arguments, which occupied several days, the House took time for consideration. Earl of The Earl of Selborne, L. C, in delivering his Selborne. -to Amb. 218. judgment, referred to Ex parte Belchier, and said CONDUCT EXPECTED OP THE TRUSTEE. 39 that that authority has heen always followed, and Speight v. that, in conformity with it, the statute 22 & 23 Lord Yict. 0. 35, s. 31, enacts that every instrument |t^^Leonaras' creatiug a trust shall be deemed to contain a clause exonerating the trustees from liahility " for any banker, broker, or other person, with whom any trust moneys or securities may be deposited." But the Lord Chancelloi* proceeded to point out that neither the statute nor the doctrine in Ex Amb. 218. parte Belchier authorizes a trustee to delegate at his own mere will and pleasTire the execution of his trust, and the custody of trust moneys, to strangers, in the absence of a " moral necessity from the usage of mankind" for the employment of such an agency. The cases of Rowland v. («) 3 Mac. & Witherden (a) and Flayer v. Bostoch (b), and many An sa'seav. others, show that trustees, bound to invest, are ^^^' prima facie answerable for the safety of the trust funds until they are actually invested. [See the recent case of Brier v. Evison, in which 26 Ch. D. 238. FloyerY. Bostock and Speights. Gaunt -weve cited.] The trust moneys are not, pending iavestment, to be left in the hands of professional advisers to whom, for many purposes connected with the trust, the trustee may properly have recourse. Lord Selbome, after dealing with the facts of the case before the House, and commenting upon the evidence, observed that the first point for con- 40 THE INVESTMENT OF TRUST FUNDS, Speight v. sideration was whether the payment of the trust Gaunt. ■ Payment to moneys to the hroker on the 24th of Fetruary the broker. ^^ ^ ^^^^^^ ^f ^^^^P "That," Said his lord- ship, " depends upon two questions, (1) whether it was proper for the respondent, as a trustee, to use the agency of a hroker for the purpose of the intended investment, and (2) whether (if so) the payment of the money to the hroker so employed, under the circumstances of this case, was justified Amb. 218. upon the principle of Ex parte Belchier ?" Employment In Lord Selhome's opioion, the trustee was of broker. entitled to give such instructions to a competent hroker as he actually gave to the broker in the present case, namely, " to buy 5,000^. of Hudders- field, 5,000/. of Halifax, and 5,000/. of Leeds, free of commission." That beiug so, was it a proper consequence of that employment that the trust moneys should pass through the broker's hands. Lord Selbome said that it appeared to him that the case would have been different if the broker had reported to the trustee that he had entered into contracts with the corporations direct : for the agency of a broker, as such, is not required to enter into a contract of that kind. The consequences of employing a broker in such a case would be the same as if a solicitor, or any other person, had been employed. In such a case there would be no sufficient prao- CONDUCT EXPECTED OF THE TEUSTEE. 41 tical reason for payment of the money to the Speight v. agent. Moreover, the payment might be made by a cheque payable to the borrower or his order, and crossed. Such a case, ia Lord Selbome's judgment, " would faU within the principle of Rowland v. Witherden (a) and Floi/er v. Bostock (b) (^"Iq^^"' * rather than that of & parte Belchier (c)." (*) 35 Beav. -r. • 1 * ^°'^- But m the present case Lord Selbome thought (c) Amb. 218. " the lust and reasonable conclusion from the evi- ^'ay^ent to broker justi- dence " was, that the trustee was justified in pay- fi^ii- ing the money to the broker, such a payment being in conformity with the usual and regxilar course of business on the London Exchange. Upon the question whether the trustee was liable for his omission to take active measures be- Omisaion to obtain doou- tween the date of signing the cheques in favour of ments of title. the broker and the date when the broker's insol- vency became known' (between foxir and five weeks), to obtain from the broker documents of title which the broker ought to have received in exchange for the money from the seller (if the purchase had reaUy been made), the Lord Chancellor declined [Distin- to hold the trustee liable — ^if not liable on other jj^ibck v. grounds — " merely for believing that such an in- j," /" ch.^ terval or delay as took place between the 24th of ^^^-^ February and the latter part of March might be no more than it was proper or reasonable to allow, in the ordinary course of such business, for obtain- 42 THE INVESTMENT OP TEUST FUNDS. Speight v. Gatmt. Lord Black- bum. Exceptions to general inle as to manage- ment of trust estate ; -viz. — (1) as to choice of invest- ments ; (2) as to deposit of money with agent. 9 App. Cas. 1 . ing from the corporations tlie proper evidence of title." Lord Blackfcnm considered the case one of general importance, so far as the application of the principles, on which the Court acts in respect to the liahihty of trustees to make good losses of trust funds, to the facts in evidence, "will be an authority in future cases. After consideration, and reading the evidence, his lordship thought that the judgment of the Court of Appeal should he affirmed. Lord Blackburn poiated out that there is one exception to the general rule that a trustee suffi- ciently discharges his duty if he takes, in managing trust affairs, all those precautions which an ordi- nary prudent man of business would take m managing similar affairs of his own, viz. : — (1) A trustee must not choose investments other than those which the terms of his trust permit, though they may be such as an ordinary prudent man of business would select for his own money ; and (2) however usual it may be for a person wishing to invest his own money, and instructing an agent to seek an investment, to deposit the money at interest with the agent tOl the investment is found, that is lending it on the agent's personal security, and is a breach of trust. In Speight v. Gaunt no such question arose. CONDUCT EXPECTED OP THE TRUSTEE. 43 Lord Blackburn also pointed out that it is while Speight v. . , Gaimt. the course of business is usual that it is permissible Ordinary to trustees to adopt it. His lordship instanced the tu^ess*to be practice, which has arisen within living memory, ^^i^iu™^^ of making cheques payable to order and crossing '''siial. them, and observed that when such a practice arises, it is used to avoid a risk formerly inevitable. " So that," said his lordship, " what was at one time the usual course, may at another time be no longer usual." In reference to the inquiries which the plain- Justification tiff's counsel suggested that the defendant ought conduct, to have made as to how the stock was to be ob- tained, Lord Blackburn observed, that "inde- pendent of the unreasonableness of requiring a trustee to leave his own business, and do part of what a stockbroker is generally employed to do, there would be great risk of a trustee missing the most profitable way of obtaining the investment, which a stockbroker would not." " Li my opinion," Lord Blackburn observed, The question in the cause, farther on in his judgment, " tne whole question in the cause is whether it is made out that Mr. Gaunt neglected his duty as a trustee not to ex- pose the property of his cestuis que tnist to unusual risks, so far as to be guilty of a breach of trust." And the answer to that question, in his lordship's opinion, greatly depended on the evidence of 44 THE INVESTMENT OF TRUST FUNDS. Speight V. ffaunt. what was at that time the usual course of husi- Payment to ■broker. ness. Eefemng to the mode of payment adopted by the defendant, Lord Blackburn, said, "If the usage change, a trustee who should pay in this way after it had ceased to be usual so to do, may be responsible. As to that I give no opinion. We must look to what was usual at the time he acted." In concluding his judgment. Lord Blackburn said, that he thought the judges (of the Appeal Court) were right in thinking it not necessary to •pronounce any opinion on what might have been the liability of Mr. G-aunt, in paying the trust money to the broker, if he had believed, or ought to have believed, that the transaction was one of loan negotiated with the corporations, and not of purchase in the market, for there was nothing to lead the defendant to think that "such was the state of the case. " I do not," said his lordship, " think it necessary to form a final opinion on a point which does not arise." Lord Watson. Lord Watson entirely concurred. Lord Fitzgerald thought that " looseness and seeming carelessness characterized the conduct of the trustee in the absence of specific instructions to the broker, and in not withholding his final in- structions until the broker had informed him what Lord Fitz gerald. CONDUCT EXPECTED OF THE TRUSTEE. 45 the specific securities were to be, and how to be Speight v. obtained." It also seemed to his lordship that "the trustee, before he paid over the money on the 24th of February into the hands of the broker, might well Payment to broker, have made some inquiries from him, which pos- , sibly might have led either to the detection of the fraud about to be perpefi-ated, or defeated it by either withholding the money for a time or taking some special steps to provide for its reaching the proper destination." Lord Fitzgerald hesitated very much on the question whether there was a breach of trust in placing the trust funds in the hands of the broker : but his doubts were not so strong as to warrant him in dissenting ; he was coerced to concur, though with much hesitation, in the affirmation of the decision of the Court of Appeal. On the question of neglect of duty by the Neglect to trustee in not making inquiry after the trust fund payment, during the four or five weeks between the dates when the trust moneys were paid to the broker and when the broker's insolvency became noto- rious, Lord Fitzgerald said that the evidence satisfied him " that due diligence was not used, and that in allowing himself to be satisfied with the statement of the broker ' that he (the broker) could not tell when the securities would be there, 46 THE INVESTMENT OF TRUST FUNDS. Speight v. they took some time to make out,' he (the trustee) Gaunt- . . , ... was not exercismg that care which a prudent and reasonahle man ought to have exercised if the money had heen his own." , Appeal dis- The order of the Appeal Court was affirmed, missed.. . . and the appeal dismissed with costs. So ended the case of Speight v. Gaunt. It Lord Hard- appears to establish the rule laid down by Lord Tin nlrfl h ml p Haxdwicke more than 130 years ago, viz., that where trustees act by other hands, either from necessity, or conformably to the common usage of mankind, they are not answerable for losses : and, 9App. Cas. 1. if Speight \. Gaunt introduces no new doctrine, it certainly establishes, on the very highest autho- rity, the old. The statement of the rule is amplified by Lord Selbome, C, at the commence- ment of his judgment (p. 4 of 9 App. Cas.). To 22011.1). 127. Speight v. Gaunt, moreover, we owe the clear statement of the law by Six George Jessel, M. R. Eule as stated (at p. 739 of 22 Ch. D.), that " a trustee ought to by Sir George n , , i n • Jessel. conduct the busmess of the trust m the same maimer that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee." It will be observed, too, that the difference between Vice-Chancellor Bacon on the one hand, and the judges in the Court of Appeal and the law lords in the House of Lords on the other, CONDUCT EXPECTED OF THE TRUSTEE. 47 appears to liave been rather as to the knowledge Speight v. to be imputed to the trustee from the sight of a particular document, than as to the principles upon which a Court of Equity proceeds in exa- mining the conduct of trustees. In the opinion of the learned Vice- Chancellor the bought-note told, or must be taken to have told, the trustee- that the stocks were obtained, direct from the cor- porations, whereas the Court of Appeal and the House of Lords held that no such knowledge could be imputed to the trustee. It will be ob- served that several of the judges ia the Court of Appeal and the House of Lords expressly ab- staiued from saying, that, if the Vice-Chancellor had been correct in assuming against the trustee that he knew the stocks were to be acquired from the corporations direct, they should have held the trustee justified in paying the trust moneys to the broker. The exceptions pointed out by Lord Blackburn in Speight v. Gaunt to the rule that a trustee dis- 9 App. Cas. l. charges his duty if he manages the trust estate with those precautions which an ordinary prudent man of business would take in managing similar affairs of his own, are important : 1. He must not choose iavestments, however Exceptions to . general rule, desirable in themselves, other than those authorized by his trust. 48 THE INVESTMENT OF TRUST FUNDS. 2. He must not deposit money at interest with the agent while an investment is heing found : for that would be investiag upon personal security. It is also desirahle to note that, according to the judgment of the same nohle and learned lord, it is only while a particular course of business remains the usual course that a trustee can safely adopt it. Fry V. Tapsan. Within a year after Speight v. Gaunt had been finally disposed of by the House of Lords, Fry v. 28 Ch. D. 268. Tapson was decided in the Chancery Division of the High Court by Mr. Justice Kay : ia this 22Ch.D. 727; case, which it is next proposed to consider, Speight 9 App. Cas. I. V. Gaunt was cited. The material facts in Fry v. Tapson are as follows : the defendant, A. J. Tap- son, and W. H. Benyon-Wiadsor were the Eng- lish trustees of the will of John Dunn, of Tasmania, deceased. In August, 1875, a sum of 6,439/. 9«. 2d. New Three per Cent. Annuities was standing La their names as such trustees. The testator, by his will, directed his trustees to stand possessed of daughters' shares in the proceeds of the sale and conversion of his real and personal estate, upon trust to invest each such share in the names of the trustees, or of such persons as they should appoint for the purpose, in or upon first mortgages of real estate in Tasmania or Gbeat Britain, or the pubHo ' CONDUCT EXPECTED OF THE TKUSTEE. 49 stocks or funds of the United Kingdom, and ^^1/ v. Tapson. during the life of each daughter to pay the in- come of her share to her for her separate use without power of anticipation, and after her death to hold her share upon trust for her children and remoter issue as she should appoint. One of the daughters of the testator was the plaintiff, Catharine Fry, the widow of H. P. Fry. Mrs. Fry resided in England, and, under powers in the will, the defendant, A. J. Tapson, and Mr. Benyon- Windsor had heen appointed trustees of such part of Mrs. Fry's share as might be re- mitted to them ; the above-mentioned sum of New Three per Cents, arose from the investment of a sum of 5,000/. which had been so remitted to them. Mrs. Fry's co-plaintiffs were her four children. The same solicitors, Messrs. Eoy & Oartwright, acted for Mrs. Fry and for the trustees; it is stated in the report that Mr. Benyon- Windsor took the more active part in administering the trust; he died in November, 1879, and his executors were co-defendants with Mr. Tapson; Mrs. Fry, desiring a higher rate of interest than the investment in the New Three per Cents. afforded, communicated her wish to her soUoitors. In the said month of August, 1875, a surveyor named Paterson Kerr, who carried on business in 50 THE INVESTMENT OF TEUST FUNDS. Fry V. Tapson. London -under the firm of Messrs. Paterson Kerr & Groldruig, offered the solicitors a freehold house and grounds near Liverpool as a security for a loan of 5,000/. on mortgage. This offer was com- municated by the solicitors to each of the trustees ■by letter : the letter to the defendant Tapson stated that Mr. Benyon- Windsor desired the writers to tell Tapson that he (Benyon- Windsor) approved of the security subject to the solicitors being satisfied as to title and value. The writers observed, " the security appears to be a perfectly good one, and Mrs. Fry's income will be materially improved by the transaction." In each letter was enclosed an extract from the surveyor's communication, in which it was stated that the house and groimds cost the present proprietor between 8,000/. and 10,000/. a few years ago, and that 350/. per annum had been offered on a seven years' lease, but declined as the proprietor intended to sell. The extract from Mr. Kerr's communication (forwarded to the trustees) contained moreover the following statements: "We feel quite confident that this is a first-class security, and we should say that even if the borrower wished to mortgage up to the hUt, for he is, we might! sayi ahnost a millionaire. The recej)tion'3?ooms®n -the ground floor will sufficiently, speak ''for the - character of the house withouifc' giviiig you .in' the meantime CONDUCT EXPECTED OF THE TRUSTEE. ■ 51 furtlier details. They consist of magnificent Fry v. Tapson. diiiing-rooms and morning-room, large library, spacious and splendidly-fitted tilHard-rooms, very large and lofty hall, and most complete offices. This secmity, we may as well assure you, has been offered to no one else either here at Liver- pool or elsewhere, and if jon. have a client de- sirous of investing this sum («. e., 5,000/. at four and a-half per cent), we feel siire you cannot do better than advise him to take this security." On the 20th August, 1875, the defendant, A. J. Tapson, replied to this letter, that the description of the investment was satisfactory as far as it went, except that if the money was only wanted for a short time it was hardly worth while to disturb the present investment, and that he would rather that the decision about the matter should be left vrith Mr. Benyon- Windsor, adding " I shall be content, if he is." Tapson was afterwards informed by the solicitors that it had been arranged that the borrower should take the money for five years certain. About the 28th August, 1875, Kerr was verbally instructed by Cartwright, the solicitor, to report as to the value of the property. His report was received by the soHeitors, and sent by them to Mr. Benyon- Windsor : the report is set out on pages 271, 272, and 273 of the Law 28 Ch. D. 271 D 2 52 , THE INVESTMENT OF TEUST FUNDS. Fnj T. Tapson. Eeport, and for the present purpose may, perhaps, he sufficiently descrihed, in the language of the learned judge, as " reoommending the property in terms which read more like the language of an auctioneer, puffing what he had to sell, than of a man exercising a calm judgment upon its value as a security for a loan of trust money." The solicitors of the trustees paid Kerr. 751. for his charges : this sum, being in the nature of a ; commission to Kerr for ohtaining the loan, was afterwards repaid hy the mortgagor. It appeared that the ordinary fee at Liverpool for such a report would have heen about ten guineas. Mr. Benyon- Windsor returned the report to the solicitors with a letter saying that, as the report read all right, the matter had better be followed up. The title was therefore investigated and ap- proved, and the mortgage deed prepared. On the 24th September, 1875, Mr. Benyon- Windsor wrote to the defendant, Tapson, that he " quite approved of the matter, and thought the affair ' alL right ' in every particular." On the 28th September the transaction was completed, the trustees advancing the 5,000^., which they had raised by a sale of the. New 3^. per Cents., to Mr. George Campbell at 4i per cent, interest, and he executing a mortgage in fee to CONDUCT EXPECTED OF THE TRUSTEE. 53 them of the house and grounds ; the mortgage Fry v. Tapsom deed contained a proviso that upon punctual pay- ment of interest, the principal money should not be called in for the period of five years. For five years from the date of the security, the interest was regularly paid. After the bankruptcy of the mortgagor, how- ever, the payments became irregular, and the pro- perty fell vacant. Meanwhile the adjoiniag pro- perty had been covered with buildings of an in- ferior description, the back windows of which overlooked the mortgaged property. Owing to this circumstance, and to the depression of trade in Liverpool, the value of the mortgaged property decreased. In May, 1879, Kerr, the surveyor, inspected it and made a further report, from which it appeared that since 1875 a very great alteration had taken place in the immediate sur- roundings of the property, and that arrangements still to be completed would, when carried out, stiU further interfere with the value of the seciirity. " It is, therefore," the report continued, " to us a source of gratification, that the property in 1875 afforded such an ample margin as it did for the advance then made upon it, as we hope that by taking action at once there may be no diflBculty in obtaining such a price now as will secure the re- payment of the mortgage." 54 THE INVESTMENT OF TRUST FUNDS. Fiyv.'Tt^ion. All attempts, however, to sell the property for a sum sTiflBcient to pay off the mortgage failed, and on the 6th June, 1883, this action was brought to oMain a declaration that the mortgage invest- ment was an improper one, and was made by the wilful default of the trustees, and to have the mortgage realized, and any loss to the trust estate occasioned by such improper investment and wilful default made good by the trustees, with ancillary relief. Statement of The plaintiffs by their claim alleged that the trustees had advanced the 5,000/. upon a report and valuation made on behalf of the mortgagor alone, and that such report and valuation showed upon the face of it that the security was not suffi- cient for an advance of 5,000/. by trustees, and further, that the property would not produce two- thirds of that amount if sold at the time of action brought. Defence. The defence stated that in making the invest- ment the trustees had acted with due care and prudence, under the advice of experienced solici- tors, and upon a report and valuation by a com- petent valuer, who was not known to them to be an agent of the mortgagor ; also, that at the date of investment the security was sufficient, and that its depreciation could not have been anticipated by the trustees, and had happened through no fault CONDUCT EXPECTED OF THE TRUSTEE. 55 or neglect of theirs ; also tHat the change of in- Fry v. Tapsm. Testment was made upon the solicitation of the plaintiff, Mrs. Fry, and that the security was accepted with her knowledge and approval. Evidence was given as to the comparative value Evidence, of the mortgaged property in 1875 and 1884; also as to the usual practice with reference to the selection of valuers in mortgage transactions. It was argued for the plaintiffs that Tapson's Plaintiffs' conduct in leaving the transaction to his co-trustee, who contented himself with a valuation made hy the borrower's agent — a London auctioneer with- out local knowledge, and with a pecuniary interest in the money being lent — amounted to wilful default and neglect ; that trustees ought to exer- cise their own discretion in the choice of a valuer, and not leave it to their solicitors ; and that the trustees lent more than half the value on house property. For the defendants it was contended that the Defendants' trustees were obliged to employ solicitors to con- duct the transaction ; that it was an usual practice for the solicitors to select a valuer ; that the trus- tees were not bound to foUow their soKcitors and valuers all over the country to see that they did their duty ; and that there was nothing to fix the trustees with knowledge who the valuer was, or that there was any connection between hiTn and 56 THE INVESTMENT OF TRUST FUNDS. :^ry v.'?Vo«- the mortgagor, or between him and the writer of the extract sent to them by their solicitors. Judgment. At the commencement of his judgment Mr. Justice Kay observed that the arguments had raised some very important questions as to the duties of trustees investing money on mortgage. In stating the facts of the case, his lordship remarked that the effect of the correspondence between the solicitors, Mr Benyon-Wiadsor and Mr. Tapson, was, so far as Mr. Tapson was con- cerned, to make him liable for everytHng done by his co-trustee imder the authority delegated to him by Mr. Tapson's letter of the 20th August, 1875. General rule After commenting upon the improvident nature on house of the loan and the wisdom of the general rule that not more than one-half of the estimated value should be lent by trustees upon house property [But Bee (see ante, pp. 8 et seq. and also post, pp. 114 ef sect. 4 of Trustee Act, seq.), his lordship observed that no prudent man 1888, ante, ■,■ ,^ , n p. 6, and reading the surveyor s first report would have put the value of the property as a security for trust money higher than 7,000^., and that to lend 6,000^. upon it was obviously rashly to disregard the Employment ordinary rule. But, ia his lordship's opinion, the of mort- gagor's sur- most incautious act was to employ Kerr to value vcvor. for the mortgagees, and to accept his report as a sufficient evidence of value. He was a London CONDUCT EXPECTED OF THE TRUSTEE. 57 surveyor witliOTit local knowledge (see ante^ pp. 8 Fty v. Ta^mn.-. et seq.) ; he was employed by the mortgagor, and g^t^Tof pecuniarily interested in finding some one to take ?^^*^® •*^°*' 1888, antCj the security ; and the soHeitors called for the de- P- 6, and note thereto.] fence confirmed the learned judge's impression that no prudent lender, whether a trustee or not, would have heen satisfied with his valuation under the circumstances. Mr. Justice Kay then dealt with the argument that the trustee, having employed competent so-. licitors, who instructed Kerr, was absolved, and observed that Speight v. Gaunt had been pressed 22 Ch. D. 727; ,1 ., , . T ,1 . . . , 9App. Gas. I. as an authority deciding this question m the trus- tees' favour. " Speight v. Gaunt," his lordship said, " did not Observations lay down any new rule, but only illustrated a very Gamt. old one, viz., that trustees acting according to the ordinary course of business, and employing agents, as a prudent man of business would do on his own behalf, are not liable for the default of an agent so employed. But an obvious limitation of that rule is, that the agent must not be employed out of the ordinary scope of his business. If a trustee employs an agent to do that which is not the ordi- nary business of such an agent, and he performs that unusual duty improperly, and loss is thereby occasioned, the trustee would not be exonerated." His lordship put the ease of trustees, when seUing d5 58 THE INVESTMENT OP TETJST FUNDS. Fry V. Tapmi. trust property, or changing an investment, allowing . the Trastee °* *^s* hm&s to pass into tlie hands of their solicitors, Ao*> 1888, g^^ ^jjg funds heirig lost ia consequence : the and note trustees, his lordship observed, would he liahle. thereto.] '■ 22 Ch. D. 727- ^^ i^ Speight v. Gaunt the trustee had exercised 9 App. Cas. 1. jjQ discretion as to the choice of a broker, but had left that to his solicitors, who had employed a man known to them to be untrustworthy, would the trustee have been exonerated ? " In my opiaion," Mr. Justice Kay observed, " clearly not, because he would have delegated to his solicitors that which was not properly the business of solicitors, but a matter as to which his own judgment should have been exercised." Choice of a " Now," continued his lordship, " is it part of valuer. the ordinary busniess of a solicitor to choose a valuer for trustees intending to invest trust money on mortgage ? To take Lord Hardwicke's words Amb. 218. in Ex parte Bekhier, is that a case ' where trustees act by other hands, either from necessity or con- formably to the common usage of mankind ? ' I should suppose not." His lordship proceeded to poiat out that the question was not left in doubt, eminent solicitors having been called on behalf of the defendants, who all agreed that this was not the solicitor's business. They said that, if asked to name a valuer, the ordinary course was to submit a name CONDUCT EXPECTED OF THE TRUSTEE, 59 or names to the trustees, and so tell tliem all that Fry v. Tapsm. was known to guide theix choice, tut to leave the choice to the trustees. The unfortunate iuTestment beiug due, in the learned judge's opinion, to the employment of a valuer whom no prudent person woiiLd have em- ployed, his lordship said that he could not " hold the trustees exonerated because such valuer was appoiuted, not by them, but by their solicitors, i£ the fact were so." In the result, Mr. Justice Kay held the trustees [See sect. 5 of , , the Trustee jomtly and severally liable to replace the 5,000/., Act, 1888, with interest at 4/. per cent, from the time of the and note ' loan, against which interest the sums paid to the ^'* "■-' tenant for life were to be set off. The defendants were ordered to pay the costs of the action, they being declared entitled to the mortgage upon pay- ment of the 5,000^. and interest. The limitation stated iu Fry v. Tapson to the Agent must •••11 • r. ^°^ ^^ ^°'" rule agam and agam msisted upon m Speiyht v. ployed out of Gaunt, is of great practical importance, namely, the employment of an agent must not be an em- ployment out of the ordinary scope of his busiuess. The evidence in Fry v. Tapson established to the satisfaction of the Court that it is not part of the ordinary business of a solicitor to choose a valuer for trustees about to lend trust money on mortgage. This selection, it would appear, is a matter as to 6(V THE INVESTMENT OF TEUST FUNDS. Fry V. Tapson. wMcli the judgment of the trustees should have been exercised. 28 Ch. D. 268. Before passing away from Fry v. Tapson, it 23 C!h. D. 483. may he well to refer hriefly to the case of Godfrey V. Faulkner, which had been decided in the pre- vious year by the Yice-Chancellor Bacon, and which was cited by the counsel for the defendant Tapson. In Godfrey v. Faulkner, two trustees, one a farmer, and the other a solicitor, had in the year 1870 lent a sum of 2,400/., trust money, with another sum of 2,600/., not trust money, on the security of a freehold farm, the trustees having power to advance on contributory mort- gages. The farm in question had been sold in 1868 to the mortgagor, and on that sale had been valued on behalf of the vendors, of whom the solicitor-trustee was one, at 6,895/. This valuation was communicated to the other trustee at the date of the mortgage : no other valuation was made. Owing to unfavourable seasons, the farm, which was on a clay soil in a wet situation, became unsaleable and unlettable : the mortgagor became insolvent. The beneficiaries claimed against one of the two trustees and the executors of the other to be declared entitled to payment of the 2,400/. and certain arrears of interest. 23Ch.D.483. The head-note to the report states as f oUows : CONDUCT EXPECTED OF THE TEUSTEE. 61 " Seld, notwithstanding that no valuation was used Godfrey v. at the date of the mortgage other than the valua- tion made on behalf of the vendors at the time of the sale to the mortgagor : that Gr., the trustee, was himself one, and solicitor of the others, of the vendors to the mortgagor : and that the sum advanced was more than two-thirds of the esti- the Trustee mated value of the farm— that the trustees were ante, p. 6,' not liable to make good the deficient security. therSo.] " The test of liability always is, whether or not Test of the trustees have acted as prudent men would ^^ ' have acted in dealing with their own property. " The ' two-thirds ' rule is not enforceable with "Two- thirds" rule, exact strictness. [-gee ggct. 4 of In his judgment in Godfrey v. Faulkner, Yice- Act''i™88^^ Chancellor Bacon referred to the questions of the *"'*' P- ^-^ valuation, and the " two-thirds " rule, it having ° been contended, on the plaintiffs' behalf, that in both these matters the trustees had rendered themselves liable. As to the valuation, the learned Vice-ChanceUor stated the facts of the case : he said that the Charity Corporation (the vendors to the mortgagor), having this estate to sell, employed a man to value. " He values the estate," the learned judge continued ; " his evi- dence has been read, and the result of it is that he valued it at an excessive price, at more than its real value, and he explains in the evidence why 62 THE INVESTMENT OF TRUST FUNDS. Godfrey v. he did that. He says : ' I valued it not for a ^" mortgage, but I valued it for the owners, to guide them itt the sale they were ahout to make, at 6,890^., exclusive of timber.' Mr. Godfrey was a member of the corporation that was goiag to sell this property, and he was one of the persons who had employed Mr. Wood to make the valua-. tion, so that he was ia possession of the fact of Mr. Wood's notion that the seller might ask 7,000^. for it. What a vendor may ask is one thing, what he may accept is another ; but neither one nor the other furnishes a reasonable ground for saying what is the true value of the thing to be bought." Beyond the above observations, the Yice- Ohancellor did not deal with the question of the valuation of 1868 ; nor does he further discuss the charge made against the trustees that no proper valuation was ever taken on behalf of the trustees of the wiU.. It may be that the learned judge considered that the solicitor-trustee was entitled to act upon the information which he had acquired when, as one of the vendors he had, two years previously to the mortgage, concurred in the employment of the valuer, who on the occa- sion of the sale valued the estate. Moreover, as the Vice-ChanceUor pointed out, a valuation was made in 1877, by the direction of the mortgagor,. CONDUCT EXPECTED OF THE TRUSTEE. 63 when the value was estimated at 7,500^., exclusive Godfrey v. of timher. This fact appears to have had some weight with the learned judge. The case is very Diatingmslied diflFerent to that of Fry v. Tapson, where a valuer Tapsm?' ^ was employed, hut the trustees faQed to exercise any discretion in the selection of the valuer, leaving it to their solicitors to choose one : it not heing part of the ordinary husiness of a solicitor to choose a valuer for trustees intending to invest trust money on mortgage. In regard to the " two-thirds " rale (see ante, " Two- * ^ .' thirds" rule, pp. 7 et seq., and post, pp. 114 et seq.), the Vice- Chancellor made the following ohservations : — " Then there is the arithmetical point. It is said that without taking into account what Mr. Wood (the valuer) has designated, owing to certain circum- stances, 'the latent value,' the amount advanced was more than two-thirds of the estimated value of the security ; and then, it is said, the ' two- thirds ' rule has heen departed from. But the ' two-thirds ' rule has never heen appKed with mathematical exactness where the amount has heen exceeded by such a proportion as 300/. or 500/. hears to the sum advanced in this case." It is not conceived that the learned judge in- tended to throw discredit upon the general rule referred to : hut he did not apply it with mathe- matical strictness to a case where an advance of 61 THE INVESTMENT OF TRUST FUNDS. Godfrey v. 5,000/. had been made, wMcli exceeded the amount Faulkner. allowed by the rule by somewhere about 400L 28 Ch. D. 268. This, again, is a very different case to Fry t. Tapson, where 5,000/. had been advanced — and upon house property, to which the " one-half " rule formerly applied (see ante, pp. 7 et seq., and post, pp. 114 etseq.) — upon a security the value of which " no prudent man," as Mr. Justice Kay observed, " reading the valuer's report (at the date of the advance) would have put higher than 7,000/." 23 Ch. D. 483. In Godfrey v. Faulkner, Vioe-Chancellor Bacon declined to make the order asked for : the action was dismissed, but without costs. The next case which it is proposed to consider in regard to the proposition that trustees acting in the regular course of busiriess are protected, and in which it was contended that the defendant- trustees had acted honestly and in the regular course of business and with the consent of the 30 Ch. D. 490. beneficiary, is that of Smethurst v. ffastings.. SmMMrst v. Hastings was decided by Vice-Chan- 28 Ch. D. 268. ceUor Bacon some months after Fry v. Tapson had been disposed of by Mr. Justice Kay. In Smet- 9 App. Cas. 1. hurst v. Hastings, Speight v. Gaunt was cited by 23 Ch. D. 483. the defendants' coimsel, as was also Godfrey v. 28 Ch. D. 268. Faulkner : on behalf of the plaintiffs Fry v. Tapson was cited : mmierous other authorities were re- ferred to on either side. CONDUCT EXPECTED OF THE TRUSTEE. 65 The facts in Smethurst t. Sastings appeeir to Smethmst v. have been shortly as follow : Mrs. Theresa Smet- jq (^ ^ ^g. hurst was tenant for life, under a post-nuptial settlement, dated the 11th day of November, 1875, "with an ultimate trust, in default of children (which happened), for her testamentary appointees. By the settlement it was declared that the trustees thereof should stand possessed of a sum of 10,767/. 3s. 3(f., Reduced 3/. per Cent. Annuities, upon trust to permit the same to remaia va. its actual state of investment, or, at any time, with the consent of Theresa Smethxirst, to sell and invest the proceeds in or upon (among other securities) leasehold or chattel real securities in England, and to pay the income to the said Theresa Smethurst during her life (but, during the joint lives of herself and her then present husband, for her separate use), and after her death to stand possessed of the trust funds for her children, and, in default of children, upon trust for such persons as she should by will appoint. Theresa Smethurst died in October, 1881. By her will (having had no children) she appointed the trust funds as therein mentioned, and appointed her husband, Augustus William Smethurst, and John Cole Stogdon (the plaintifPs), her executors : the will was duly proved by both the executors. It appears that in May, 1881, in order to in- 66 THE INVESTMENT OP TRUST FUNDS. Smethurst v. crease Mrs. Smethurst's income, tlie trustees with, her consent sold the annuities, and on the 10th of May invested part of the proceeds (namely, 7,535^.) upon separate suh-mortgages of eleven leasehold houses at Bedford Park, Tumham Green. Each sub-mortgage recited a lease from the Ecclesi- astical Commissioners, hy direction of one Carr, to the huilder .of the house at a ground rent, a mortgage of that lease hy the builder to Carr, ■with usual covenants and power of sale, then the loan made by the defen4ant-trustees to Carr, for securing which Carr made a sub-mortgage to the trustees: the amount of the loan on the sub- mortgage was the same as on the original mort- gage. The sub-mortgage contained a covenant by CaoT for payment of principal with interest, and an assignment by him of the original power of sale. One of the eleven sub-mortgages was paid off, the mortgage debt being thus reduced to 6,885Z. In May, 1881, the Bedford Park estate was not fully developed: the roads not completed: the drainage defective: the houses comprised in the sub-mortgages were unlet, and not completely finished. Interest on the sub-mortgages was paid by Carr for twelve months : Carr then became insolvent. On the 18th December, 1883, the trustees CONDUCT EXPECTED OF THE TRUSTEE. 6. transferred the sub-mortgages to the plaintiffs, Smethurst t. who thereupon entered into possession of the " property. The property proving unsaleable, the executors of Theresa Smethurst, on the 22nd May, 1884, commenced this action against the trustees, alleg- ing that since the transfer the plaintiffs had dis- covered that the houses were a wholly insufficient security for the sum advanced, and unfit for the in- vestment of trust funds : that the selling value was less than the money advanced : that the advance was made without proper inquiry or valuation : that precautions proper to be taken by trustees lending trust funds on the security of leasehold property were not taken. At the trial, the plain- tiffs contended also that the investment on sub- mortgage, and on separate securities, was im- proper : it was argued that a sub-mortgage is only a security upon the money due under the original mortgage, and therefore nothing more than a personal security; upon which, in the present case, the trustees had no power to invest. The plaintiffs claimed payment by the defend- Plaintiffs' ants of 6,885^., with certaiu iaterest, and sub- mitted, on such payment, to transfer the securities to the defendants: ia the alternative, the plain- tiffs asked that the sub-mortgages should be 68 THE INVESTMENT OF TEUST FUNDS. Smethiirst v. Hastings. Defendants' case. Admission that more than half the value was advanced. [See Trustee Act, 1888, 8. 4, ante, p. 6.] Judgment. realized, and that the defendants should make good the loss arising from the investments. The defendants alleged that a proper valuation "was made prior to the advance, and with Mrs. Smethurst's privity. Another defence— not mate- rial to the present purpose — was raised as to the adoption and acquiescence by the executors of and in the investments, evidenced by their taking the transfers from the defendants with knowledge of all the circumstances. The defendants, more- over, denied that the houses were entirely of a speculative character, and insisted that they had acted with respect to the investment bona fide, without negligence, with reasonable care and diligence, and following the usual and regular course of business pursued by ordinary prudent men in making such investments. It was admitted at the trial that more than half the estimated value of the property had been ad- vanced : but there was a conflict of evidence as to whether the valuation on which the defendants acted was an independent one made on their account, or whether it was first obtained by Carr for his own purposes, and then accepted by the defendants : Carr not being called as a witness. Vice-Chancellor Bacon said, at the commence- ment of his judgment, that it was not clear whether the valuation was made on behalf of the CONDUCT EXPECTED OF THE TRUSTEE. 69 mortgagor or mortgagees, though the tone of the Smethm-si y. Sastings. aocument seemed to indicate that it had heen made in the interests rather of a borrower than a lender. As to Mrs. SmethuTst's consent to the invest- Consent by beneficiary, ment in question, the learned judge said that it ■was given in full reliance upon the discharge hy the defendants of the duties they had undertaken. The houses, as the Court found, were un- state of the finished, the roads not practically usable, the ^ ^ ' " drainage insufficient. In this state of circumstances the defendants agreed to lend Carr this sum of 7,535^. on the security of the eleven houses. The learned judge also stated that the plaintiffs Value of security, had proved that the value of the property included in the mortgages was very considerably less than that stated in the valuation on which the defend- ants acted. After disposing of the defence grounded upon adoption and acquiescence, and which defence en- tirely failed (the judge remarking that there was no pretence for the allegation that the plaintiffs, when they took the transfers, knew of the circum- stances under which the investments had been made), Yice-Chancellor Bacon proceeded to deal with the fiarther topic of defence, namely, that the defendants procured a proper valuation to be made by competent surveyors, with the privity of 70 THE INVESTMENT OF TKUST FUNDS. Defence not supported by the evidence. One rule never de- parted from. Application thereof. Mrs. Smetliurst, before advancing the money; and that they made all proper inquiries and took all precautions proper to be taken by trustees ad- vancing trust funds on the security of leasehold property. These allegations, the learned judge said, were not supported by the evidence. Eef erring to the cases cited, the Yice- Chancellor said that it was perhaps true that of late the Courts have been less severe than they were in. former times in fixing trustees personally vdth such losses ; " but," said his lordship, " there is one clear, homely, iateUigible, rule which has never been departed from, in times ancient or modem, viz., that a trustee is bound to act ia the execution of his trust as a prudent man would in deaUng with his own property. Applying that rule to the present case, can it be said that any prudent man, having to invest nearly 7,000^. upon leasehold property with a view to present income (as was Mrs. Smethm'st's plainly-expressed desire) would venture his money to the extent of more than half the estimated value of the property, when that property consisted of houses recently built, unoccupied, not wholly finished, producing no fixed certain rents, burdened with ground- rents and insurances, liable for future repairs, imperfectly drained, and without proper roads?" CONDUCT EXPECTED OF THE TRUSTEE. 71 " Upon the wliole case," the learned judge Smetl^rst v. observed, farther on in his Judgment, " I am of opinion that the investment of the several sums composing the aggregate trust funds upon eleven mortgages of houses which would not he imme- diately occupied, and from which rents were not secured nor receivable, was a hreach of the duties of the trustees, and a violation of the rule 'which requires trustees to deal with their trust funds as a prudent man would deal with his own pro- perty." The defendants -were therefore ordered to pay to the plaintiffs the sum of 6,885^., and an ac- count was directed as to interest : the plaintiffs to transfer the securities to the defendants, and to account for all rents received by them since taking possession of the houses. The defendants were ordered to pay the costs of the action up to the trial, future costs being reserved. In this case the defendants gave notice of Compromise, appeal, and the appeal was set down, but did not come on for hearing, the action being com- promised. The last case which it is proposed to consider at present in reference to the conduct expected of the trustee when investing trust funds is that of Whiteley v. Learoyd, which was also before Yice- 32 Ch. D. 196. Chancellor Bacon, in the early part of the year 72 THE INVESTMENT OF TEUST FUNDS. Whiteiey x. 1886, and in which Speight v. Gaunt, Fry v. Tap- son, Qodfrey t. Faulkner, and Smethurst v. Hast- ings were all cited, hesides other eases. In Whiteiey V. Learoyd, the trustees were authorized to inTest a sum of 6,000/. on (among other securities) " real securities in England or Wales." One of the plaintiffs was entitled to the income for life : her three infant children, entitled in remainder, were co-plaintiffs ; 3,000/., part of this sum of 5,000/., was invested hythe defendant trustees in the year 1878, upon a mortgage of a freehold brickfield with machinery, kilns, and buildings thereon; the .remaining 2,000/. was, in the same year, invested on mortgage of four small freehold houses. In October, 1884, the mortgagors of the brickworks were adjudicated bankrupts. In April, 1879, the defendants went into possession of the four small houses. In consequence of the failure of the investments this action was brought against the trustees, claiming {inter alia) that they might be ordered to invest 5,000/. or so much thereof as was not properly invested upon the securities men- tioned in the will. The defendants were charged with investing the 5,000/. upon securities not authorized by the wiU, with not making proper inquiries as to the values of the properties, and with not causing proper valuations to be made before advancing the trust funds. The defendants CONDUCT EXPECTED OF THE TRUSTEE. ^ 73 alleged that the inTestments were authorized by Whiteley. v. the will, that they had made proper incjuiries, and had employed an experienced firm of surveyors to r value and report, that they were advised by such firm that the properties formed good security for the sums proposed to be advanced, and that the securities, when taken, were of sufficient value to secure the amounts advanced. The Yice-Chan- Judgment cellor observed, in the early part of his judgment, that the trust upon which the defendants held the 5,000/. did not authorize them to advance any part of it on the security of a trade, and, in his lordship's opinion, part of it was in fact advanced upon the security of a trade. The learned judge deoliaed to follow the decision of the late Mr. Jus- tice Pearson, in Re Pearson (see posi, pp. 112 51L.T.,N. S. 692 et seq.), and observed that, with the exception of that case, he knew of no case " which says that the trade of brickmaking faUs within the description of a 'real security.'" On the ground that the money was really advanced upon the security of a trade, the Vice-Ohancellor appears to have decided this part of the case against the defendant trustees. After carefully reviewing the evidence, his lordship says, " Giving the trustees credit for the most honest intentions, was it right for them to invest 3,000/. upon property of this description — a sum which they could not hope to get back unless the ■t * THE INVESTMENT OP TEUST FUNDS. Whiteley v. mortgagors' business should turn out to be profiti- able ? " In the result the learned judge held that the trustees had not acted in the matter " as pru- dent persons would have acted in their own con- cerns," and the defendants were ordered to pay the 3,000^. into Court. On the other part of the case — ^the investment of the 2,000^. — the decision was in the defendants' favour, apparently on the groimd that the four houses came cleaxly within the description of " real securities," and had been duly valued before the advance was made and pronounced by the valuer to be a good security for 2,000^. From this decision both parties appealed, and both appeals were dismissed. It should be 33 Ch. D. 347. observed, however, that Lord Justice Cotton,, in the Court of Appeal, appears to have held that the brickfields were real property, and, therefore, within the power of investment : but his lordship and the other members of the Court held that a prudent man would not have advanced so much money on such a property, and the trustees were held liable in respect of this investment. The opening remarks in the judgment of Lindley, L. J., are of great value as a comment upon the principle established by Speight v. Gaunt. " The duty of a trustee," observed his lordship, " is not to take such care only as a prudent man would take if he had only himself to consider : the duty CONDUCT EXPECTED OF THE TRUSTEE. 75 rather is to take such care as an ordinary prudent WhiteUy v. man would take if he were minded to make an investment for the benefit of other people for whom he felt morally hound to provide." But see the observations of Lord Halshury, C, when the case 12 App. Gas. 727 came before the House of Lords on the appeal of the trustees. The appeal was dismissed. Such are some of the more recent cases which ObBervations , . , on the cases illustrate the manner in which the Courts of considered. Equity, at the present time, deal with trustees in disohargiug their important duties as to the in- vestment of trust funds : so far as the conduct of the trustee in investing the funds is concerned. The cases referred to are of course illustrations only: illustrations, that is, of the general rule again and again recognized and referred to iu all these cases, sometimes laid down in exact terms, that the trustee ought (to repeat the lan- guage of Sir Greorge Jessel in Speight v. Gaunt) 22 Ch. D. 727, " to conduct the busiaess of the trust in the same manner that an ordinary prudent man of business would conduct his own." It is not probable that iu any two eases the same state of facts will ever occur : and it is to each different state of facts that the Court has to apply the rule as the case comes before it. So that the cases discussed above can do no more than iQustrate the rule : that is to say, they can only show how the rule was e2 THE INVESTMENT OP TRUST FUNDS. applied to ' a particular state of facts : how the rule would be applied to a state of facts where this or that one important circumstance may chance to differ, must of course he to some extent a matter of speculation and uncertainty. The Court must in each case decide whether the trustees have acted as prudent men would have acted in dealing with their own property. But one important use which may he made of these same eases is to observe how a rule, laid down in apparently general terms in one case, receives a limitation or qualification in another. Take, for example, the employment of an agent. Speight v. Gaunt confirmed the rule that a trustee acting according to the ordinary course of, busi- ness, and employing agents as a prudent man of busiaess would do on his own behalf, is not liable for the default of an agent so employed. Fry V. Tapson supplies a necessary limitation of that rule, viz., the agent must not be employed out of the ordinary scope of his business. So that while a trustee investing trust money on mortgage may employ a soHeitor to do the solicitor's proper part of such business, he must not delegate to bim a duty beyond the solicitor's proper province, e.g., the selection of the valuer to value on the part of the intending mortgagees. So, also, while a trustee investing upon such a security as corporation 1 bonds, may point to Speight v. Gaunt, and say, on CONDUCT EXPECTED OF THE TRUSTEE. 77. the authority of that case, I am justified ia paying the tnist moneys to the broker, the limitation sug- gested by Lord Blackburn warns him that he can only do so with safety while it remains the usual course of business. Aud this further qualification seems to suggest itseK from a perusal of the cases, namely, that a trustee may not do all that which an ordinary prudent man of business might do in managing his own concerns, but that which the prudent man of business would do while strictli/ following the ordi- nary course of husiness. For instance, many an ordinary prudent man of business, having com- plete confidence in his solicitor, and intending to . invest his own money on mortgage, might well say to the solicitor, " Gret an independent person to value the proposed security." But such a course is not open to the trustee investing trust funds ; he must exercise his own discretion in selecting the valuer ; that is to say, he must strictly follow the ordinary course of business; he must himself employ a valuer — whose busiuess it is to value — ^to make the valuation; just as he himself employs a solicitor to prepare the agreement or the mort- gage deed. If he wishes to employ an agent to do that which he is justified in employing an agent to do, he must select the agent who is to do that particular business. 7.8 THE INVESTMENT OF TEUST FUNDS. CHAPTER III. OF THE ADVICE OBTAINABLE BY TRUSTEES. Applications to judge for advice, &c., tmder 22 & 2 Vict. 0. 35. In this chapter, it is proposed to consider shortly the means of oMaiaing advice, in regard to the management of the trust funds, which are generally open to trustees. And in the first instance it appears desirahle to call attention to the provision made by Lord St. Leonards' Act for enahling trustees or executors to apply to a judge of the Chajicery Division of the High Court for the opinion and advice of the judge on matters arising in the management of the trust property. Sect. 30 of the Act in question is as follows : — " Any trustee, executor, or administrator shall be at liberty, without the institution of a suit, to apply by petition to any judge of the High Court of Chancery-^ (now the Chancery Division of the High Court of Justice) — or by summons upon a written statement to any such judge at chambers, for the opinion, advice, or direction of such judge, on any question respecting the management or administration of the trust property, or the assets of any testator or intestate, such application to be served upon or the hearing thereof to be attended by all persons interested in such ' applicar ADVICE OBTAINABLE BY TRUSTEES. 79 tion, or such of them as the said judge shall thiak expedient ; and the trustee, executor, or administrator, acting upon the opinion, advice, or direction, given hy the said judge, shall he deemed, so far as re- gards his own responsihOity, to have dis- charged his duty as such trustee, executor, or administrator, in the suhject-matter of Indemnity to the said application ; provided, neverthe- *™8tees. less, that this Aft shall not extend to indemnify any trustee, executor, or ad- ministrator, in respect of any act done in accordance •with such opinion, advice, or direction as aforesaid, if such trustee, exe- cutor, or administrator shall have heen guilty of any fraud or wilful concealment or misrepresentation in ohtaining such opinion, advice, or direction ; and the costs of such application as aforesaid shall he in the discretion of the judge to whom the said application shall be made." The following rules of Order LII. of the Eules Order LII. of the Rules of of the Supreme Court, 1883, now regulate the 1883. procedure under the section above set out. 19. All petitions, summonses, statements, affi- davits, and other written proceedings for the opinion, advice, or direction of a judge under the 30th section of the Act 22 & 23 Yiet. c. 35, shaU be intituled in the matter of that Act, and in the matter of the par- ticular trust, will, or administration, and every such petition or statement shall state the facts concisely, and shall be divided into paragraphs numbered consecutively. 20. At the time when any such summons as in the last preceding rule mentioned is sealed. 80 THE INVESTMENT OF TRUST FUNDS. the statement upon which the same is grounded shall he left at the chamhers of the judge to whom the same is assigned, and shall on the conclusion of the proceed- iug he transmitted to the chancery regis- trar by the chief clerk with the minutes of the opiaion, advice, or direction given hy the judge, and the registrar shall cause such statement to he transmitted to the central office to he there filed. 21. Every such petition or summons as in Rule 19 mentioned shall be served seven clear days before the hearing thereof, unless the person served shall consent to a shorter tioie. 22. The opinion, advice, or direction of the judge, as in Rule 19 mentioned, shall he passed and entered and remain as of record in the same manner as any order made hy the Court or a judge, and the same shall be termed " a judicial opinion," or " judi- cial advice," or "judicial direction," as the case may be. Petition. As a general rule, it appears that the applica- 8 Jut., N. S. tion should be made by petition. In Re The Tri 1388. of the Will of 8. O. Dennis, where the application was in the first instance made in chambers, Vice- Chancellor Stuart expressed an opinion that it was " far more desirable to have embodied in a petition that, statement of facts upon which his opinion was asked." 23 & 24 Viot. Sect. 9 of the Act 23 & 24 Vict. c. 38, provides c. 38. _ _ ' ■■^ . that a petition or statement under Lord St. Leo- ADVICE OBTAINABLE BT TRUSTEES. 81 nards' Act must be signed by counsel. And such Counsel's signature is still necessary, notwithstanding Ord. q^^ jj^ XIX. r. 4, of the Eules of 1883, as interpreted ^- *■ Sect. 100 of by sect. 100 of the Act of 1873. In Ee Boultons the Act of Trusts, Mr. Justice Chitty, referring to the last- 30 to- jj 595 mentioned rule, pointed out that general provi- sions in an Act of Parliament do not override * special provisions contained in an earlier Act; and also suggested other reasons why Eule 4 of Ord. XIX. could not be applied to applications for advice under Lord St. Leonards' Act. In Be Muggeridge's Trusts, Vice- Chancellor Johns. 625. Wood said that the opinion of the Court was to be Affidavits not admissible, obtained on the trustee's statement of the facts, and that affidavits were not admissible ; also, that the petition should not, in the first instance, be Semoe. served on any person, but application should be made in .chambers for a direction as to service ; but see Eule 21 of Ord. LII. supra ; also In re 6 Jur., N. S. Greenes Trusts, where Yice- Chancellor Kindersley stated the proper course to be pursued. And in Eule 19 of Ord. LII. it will be observed that Ord. LII. r. 19. affidavits are referred to. _ ... Questions Under this Act the Court wiU give advice as to entertained— investments, as in Re French's Trusts : see, also, ^ „ ^ ' ' ' L. E., 15 Bq. 68. In re Clergy Orphan Corporation. Upon such anL.E.,i8Eq.28o application Lord EomiUy, in Be Peyton's Settle- L. R., 7 Eq. ment Trust, advised the trustees that a power to E 5 82 THE INVESTMENT OF TRUST FUNDS. invest in the purcliase of lands in fee simple in possession, authorized an investment in the pur- L. R., 10 Eq. chase of freehold ground rents. So, in Ee Lang- dale's Settlement Trusts, Yice-Ohancellor James advised the trustees that the bonds of a French railway company, the payment of the capital on which within fifty years was secured by a sinking fund guaranteed, together with interest iu the meantime, by the Imperial Govemment, were not "securities of a foreign country," the trustees having power under the settlement to invest in 9 Ch. D. 112. such securities. In Me Wedderhurn's Ti'usts, Vice- ChanceUor Malins advised (see post, p. 96) that 23 & 24 Viot. trustees comiag within the Act 23 & 24 Yict. e. 38,. may invest in any securities in which cash under the control of the Court may be invested, not- withstanding prohibitive or restrictive words in. the instrument creating the trust. And upon an application under the Act 22 & 23 Vict. c. 35, 15 Ch. D. 78. s. 30, the same learned judge, in In re T , expressed an opinion that the consent of a married woman of unsound mind, not so foimd, whose written consent was required to investments by the trustees, might be dispensed with. Questions not But upon such applications the Court will not entertain questions of detail for the proper deter- mination of which affidavit evidence is required. 1 J. & H. 142. In Be JBarrrngton's Settlement, trustees having_ ADVICE OBTAINABLE BY TRUSTEES. 88 power to purcliase lands on the request of tenants for life, desired the opinion of the Court as to the propriety of applying 1,200/. on such request in permanent improvements and repairs ; no answer was given on the petition. Vice-Chancellor Wood said, " The case goes iato details with which the Court cannot effectually deal without having a superintending power, and being informed by affidavits ; whereas under this statute the facts must be taken to be as they are stated in the petition of the trustees, "who take the risk of any misstatement ; and the Court has no means of exercising any controlling power over the subject- matter." No inquiries will be directed on the application: No inquiries see He Mockett : in that case Vice-Chaneellor joj,i,g 628 Wood also expressed an opinion that proceedings No appeal; under the Act admitted of no revision of his judg- Morris, infra. ment : but whether this is so since the Judicature Act, 1873, seems doubtful. In In re Norris a "W. N. 1883. 35. petition was presented for the opinion of the Court as to the propriety of accepting an offer of a cor- poration to purchase certain freehold houses. Mr. Justice Pearson answered the question in the nega- tive. The petitioners appealed. The Court of W. N. 1883, 65. Appeal appears to have entertained the appeal, and to have differed from Mr. Justice Pearson. As a rule the costs of the application will be Costs. 84 THE INVESTMENT OF TEUST FUNDS. ordered to come out of the corpus of the trust estate : but where the order made on the petition • dealt only with the income of the trust fund, the Lords Justices ordered the costs to be defrayed' 8 W. R. 333. out of the income of the trust property : Ee (a Itmatic not so found). Ord. LXV. Eule 26 of Ord. LXV. of Supreme Court Eules, r. 26. 1883, directs that the fees and allowances tO' soHoitors on proceedings under the Act 22 & 23 Vict. c. 35, s. 30, shall be the same as are payable for business of a similar nature under the rules and by the practice of the Court. Applications By Ord. LV. r. 3 (g) of the Eules of the LV. r. 3 (g). Supreme Court, 1883, it is provided that a trustee may take out as of course an origiuatiag summons for the determination of any question arising in Ord. LV. r. 5. the administration of the trust. Eule 5 of this Order provides for the service of such summons. 27Ch. D. 553. In the case of In re Household an originating ■ summons was taken out under Eule 3 of Ord LY. askiag that the trustees of the will might advance to the tenant for life (there being no investment clause m the will) part of the residuary personal estate for the purpose of stocking and cultivating- a farm forming part of the real estate. On evidence that the outlay would be to the advan-.. tage of iofant remaindermen, Yice-Chancellor Bacon made the order as asked, the tenant for ADVICE OBTAINABLE BY TRUSTEES. 85 life imdertaking to expend the money advanced as mentioned in the summons. The case of In re The Trusts of the Will of 8. 6 Jur., N. S. 1388 G. Dennis has heen already referred to {ante, opinion of p. 80). At the close of his judgment in that °°'^«'- case, Sir John Stuart, V.-C, said he wished very much that opinions such as those contemplated hy the Act (Lord St. Leorfkrds'), and to be binding upon the parties, could be given by Queen's counsel, and other members of the Bar. Apropos of counsel's opinion, it seems desirable, in con- cluding this chapter, to refer very briefly (1) to the right of trustees to take counsel's opinion, and (2) to the, protection afforded them by acting under the advice of coimsel : — (1) The rule on this point is thus stated in Lewin : — " So a trustee may give fees to counsel, 8th edition, and shall have allowance thereof." In Foole v. i Beav. 600. Pass, the counsel for the defendant trustee asked for his costs as between solicitor and client, and the costs of the opinion imder which the trustee had acted. Lord Langdale gave these costs, observing, "I think no trustee would be safe unless such costs were allowed." (2) As to the protection afforded to trustees by acting under counsel's opinion, it seems to be the rule that, while a trustee who takes upon himself to act upon a particular construction of a wiU 86 THE INVESTMENT OF TEUST FUNDS. without seeking tlie direction of the Court ■will not he protected hy the opinion of counsel, how- ever eminent, yet where a trustee hrings an action to protect the trust estate under the advice of counsel, though not ahsolutely indemnified hy such advice from liahUity to the costs of the action, as between himself and his beneficiaries, such advice would go a long way to justify the proceedings, if instituted bond fide. 25 Ch. D. at In a very recent case — 8toU v. Milne — (where trustees had brought actions under the advice of counsel), the Earl of Selbome, L. C, said that, under the circumstances of the case, the Court " ought to be clearly satisfied that the actions were improper before reversing the decision that the costs of them were properly payable out of the estate." His lordship thought, however, that the reason given for allowing them in the decree appealed from was not sufficient, because it merely stated that they were brought under the advice of counsel. " Now," continued his lordship, " I cannot say that because an action is advised by counsel it is always and necessarily one which trustees may properly bring. The advice of counsel is not an absolute indemnity to trustees in bringing an action, though it may go a long way towards it." ( 87 ) CHAPTER IV. OF PERMISSIBLE INVESTMENTS. It is a "weU-known rule that trustees are not iustified in aJlowiug tlie trust funds to lie idle : that is to say, that where the trust money is not to be applied, either shortly or immediately, to the purposes of the trust, the trustee mtist make the fund productive by a proper investment thereof. It may be stated generally, that where there is a power to invest, such power carries with it the power to vary the investments : In re Clergy L. R., 18 Eq. 280 Orphan Corporation. And the Court will not in general control the discretion of trustees as to varying investments : Lee v. Young. 2 T. & C. Ch. In this chapter it is proposed to consider upon what securities a trustee may invest the trust fund. Before proceeding to do this, it maybe premised that a trustee may find himself in any one of the following positions: (a) he may be an original trustee of a settlement, with (1) moneys paid to him -for investment, or (2) stock transferred into his name with a power to vary such investment, 88 THE INVESTMENT OP TRUST FUNDS. or (3) -witli a trust or a power to sell real estate and invest the proceeds : or (b) lie may be appointed a trustee by will: or (o) be may be appointed a new trustee of an existing trust, wbere the investments have already been made. It is presumed that bis duty in regard to the investment of the trust estate is very much the same in all cases : that is to say, if there is money to invest, he must see that proper investments are made; if the trust property does not consist of money, he must see that proper iuvestments have been made ; and if he finds that the trust estate consists of improper investments, he must see that such improper investments are exchanged for others of a proper character; either such as the instrument, of which he is a trustee, sanctions ; or, if that instrument is silent on the subject, such as the Court allows trustees to invest upon. Eule as to The rule as to conversion may be briefly stated conversion. as follows : where the testator gives personal estate in trust for several persons in succession, and the subject of the bequest is either oi a wasting nature, as leaseholds, or property producing a high rate of interest in proportion to its money value, as railway shares or foreign bonds, the persons entitled iu expectancy have a right to call for a conversion iuto an authorized security; an intention being presumed that the estate sboidd PERMISSIBLE INVESTMENTS. 89 assume a permanent character, and so become capable of succession. This is the rule of the Court, and trustees are bound to observe it in administering property out of Court. If they fail to do so, they wiU be liable, and the remain- derman is entitled to a share of any extra profits of annual produce : Dimes v. Scott. i Buss. 195. But, of course, there are exceptions where special powers are given to retain existing investments, as in Gray v. Siggers, which was cited in the very 15 Ch. D. li. recent case of Nixon v. Sheldon. 39 ch. D. 60. To proceed then with the question, upon what securities may a trustee properly invest ? Let us, by way of answer, consider upon what securities the Court pennits investment, where the instru- ment creating the trust is silent upon the subject ; and also, where there is a power to invest, what the Court considers a proper exercise of that power. Until certain recent statutes, which will be re- ferred to immediately, trustees of an instrument containing no express power of investment were accustomed to invest in 3/. per cent, annuities only. Attention has been called to the observation of Lord Blackburn in Speight v. Gaunt [ante, p. 42), 9 App. Cas. 1. that the trustee may not choose investments, how- ever desirable in themselves, other than those authorized by his trust ; it may be added that formerly, where the instrument was silent, he was 90 THE. INVESTMENT OF TRUST FUNDS. practically debarred from exercising any clioice. But lie cotild always invest in one of tlie govern- ment or bank annuities, the reason beiag, as 3 Atk. 439. pointed out by Lord Hardwicke ia Tr afford v. Boehm, that the directors have no power "by mis- management or speculation to hazard the property Lewin's of the shareholder." Mr. Lewin, in his well- Trusts, p. 314 (8th ed.). known Treatise, observes, that " if a trustee who has money ia hand, which he ought to render productive, invest it on this security, he has done his duty, and will not be answerable for any sub- sequent depreciation." 22 & 23 Vict. By the statute 22 & 23 Vict. c. 35 (Lord St. Leo- c. 35. nards' Act), it is enacted (sect. 32) as follows : — ' "32. When a trustee, executor or administrator shall not, by some instruments ereatiag his trust, be expressly forbidden to invest any trust fund on real securities in any part of the United Kingdom, or on the stock of the Bank of England or Ireland, or on East India stock, it shall be lawful for such trustee, executor or administrator to invest such trust fund on such securities or stock ; and he shall not be liable on that account as for a breach of trust, provided^' that such investment shall ill other respects be reasonable and proper." 2 J. &H. 191. In In re Warded Settlement, it was held " that the 32nd section of the Act refers to those cases only where a trustee has power, independently of the, Act, to make some investment of his trust PERMISSIBLE IITVESTMENTS. 91 fund, and operates in those oases, but in those cases only, to enlarge the class of legitimate in- vestments." Where the fund is already invested, and the trustee has no power to vary any invest- ment, the section does not apply. It is true that in Waite y. Littkwood the con-4iL. T.,N.S. (Ch.) 636. trary was held ; hut in the last-mentioned case He Warde's Settlement was not cited. 2 J. &H. 191. In Re Miles' Will, Sir John Eomilly held that 5 Jur., N. S. 1236. sect. 32 does not apply to trusts created by an instrument dated before the Act. Sect. 12, however, of the Amendment Act (23 23 & 24 Viot. c. 38. & 24 Vict. c. 38) has made sect. 32 of the original Act retrospective. The Court having refused, in Re The Colne Johns. 528. Valley and Salstead Railway, to sanction, under the 22 & 23 Yict. c. 35, an investment in stock created under the India Loan Act (22 & 23 Viot. 22 & 23 Viot. 0. 39. 0. 39), it was enacted by the first section of 30 & 30 43J yj^^. 31 Vict. c. 132, that the words " East India Stock" "■ ^^2- are to be taken to include as well the Old East India Stock as " East India Stock charged on the revenues of India, and created under and by virtue of any Act of Parliament which received her Majesty's assent on or after the 13th day of August, 1859." It is the fact that the stock tmder the India 22 & 23 Vict. 0. 39. Loan Act has been issued under the name of 92 THE INVESTMENT OF TRUST FUNDS. " India" and not " East India " Stock : upon this a doubt has arisen whether "India" Stock is 30 & 31 Viot. within the purview of the Act 30 & 31 Vict. c 132. c. 132 : the learned author of Lewin on the " Law of Trusts" thinks that the douht is " purely tech- nical, and has no solid foundation." It is also observed, in the same treatise, that the stocks created hy later East India Loan Acts are thereby expressly directed to be deemed East India Stock 22 & 23 Viot. within the 32nd section of the 22 & 23 Yict. c. 35, c- 35- .-IT. unless and until it is otherwise provided by Par- liament. 22 Ch. D. 93. In Ex parte St. John Baptist College, Oxford, the late M. E., Sir George Jessel, observed, " It has always been held that New East India Stock was within the intention of the General Order («. e. the Order of 1st February, 1861). The provisions of the Act (22 & 23 Yict. c. 35) have been extended to new stocks, and by analogy the general order may be extended to them also." It was, therefore, held that the cash in question in that case might be invested in stock created by the 42 & 43 Vict. 0. 60, being New 3i per Cent. East India Stock. ■W. N. 1867, In Green v. Angell, it was held that railway stock, upon which interest at 61. per cent, is charged upon the revenues of India, is not within the meaning of the 30 & 31 Vict. c. 132, s. 1. PERMISSIBLE INVESTMENTS. 93 The Court of Chancery was empowered by Power to sect. 10 of the 23 & 24 Yict. c. 38, to make orders as to general orders as to the investment of cash under 23^ 2™ Viot the control of the Court {post, p. 94) ; and by "• ^^> ^- ^^• sect. 11 of the same Act, it is enacted that " when Sect. 11. any such general order shall have been made it shall be lawful for trustees, executors, or adminis- trators having power to invest their trust funds upon Government securities, or upon Parliamen- tary stocks, funds, or securities, or any of them, to invest such trust funds, or any part thereof, in any of the stocks, funds, or securities in or upon which by such general order cash under the control of the Court may from time to time be invested." By sect. 27 of the National Debt (Conversion) 51 Viot. 0. 2, Act, 1888 (51 Vict. c. 2), it is provided that when any stock converted or exchanged by virtue of the Act into new stock is held by a trustee, such trustee may sell and iavest the proceeds in any of the securities in which cash under the control of the Court may be invested, notwithstanding any- thing to the contrary contained in the instrument creating the trust. It may be observed here that as far back as Difference between "go- 1842 the Vice-ChanceRor of England (Sir Lance- vemment" lot ShadweU) had pointed out, in Sampayo v. securities. Gould, the difference between the expressions ^^ ®"°' *^®- 94 THE INVESTMENT OF TRUST FUNDS. " gOTemment securities " and " putKo secimties." His Honour there observed, at p. 435, " tMs Court does not allow property to be invested in public securities whicb axe not government securities." Order now The Order now regulating the investment of regulating /^ . t-» investments cash under the control of the Court is Eule 17 of Ord. XXII. of the Eules of the Supreme Court, 1883 ; which Rule may be also cited as the Rule of the Supreme Court, November, 1888. The Rule is as follows : — Ord. XXII. " Cash under the control of or subject to the order of the Court, may be invested in the foUowiag stocks, funds, or securities, namely : — "Two and Three-quarters per Cent. Consoli- dated Stock (to be called after the 5th of April, 1903, Two and a Half per Cent. Consolidated Stock). " Consolidated Three Pounds per Cent. Annui- ties. " Reduced Three Pounds per Cent. Annuities. "Two pounds Fifteen Shillings per Cent.' Annuities. " Two Pounds Ten Shillings per Cent. Annui- ties. " Local Loans Stock under the National Debt and Local Loans Act, 1887. " Exchequer Bills. PERMISSIBLE INVESTMENTS. 95 " Bank Stock. " India Three and a Half per Cent. Stock. " India Three per Cent. Stock. " Indian guaranteed railway stocks or shares, provided in each case that such stocks or shares shall not be liable to be redeemed within a period of fifteen years from the date of inYestmefit. "Stocks of Colonial Governments guaranteed by the Imperial Government. "Mortgage of freehold and copyhold estates respectively in England and Wales. " Metropolitani Consolidated Stock, Three Pounds Ten Shillings per Cent. " Three per Cent. Metropolitan Consolidated Stock. " Debenture, preference, guaranteed or rent- charge stocks of railways in Great Britain or Ireland having for ten years next before the date of investment paid a dividend on ordinary stock or shares. "Nominal debentures or nominal debenture stock under the Local Loans Act, 1875, provided in each case that such debentures or stocks shaU. not be liable to be redeemed within a period of fifteen years from the date of investment." See observations on this rule, post, p. 221 et seq. Chap. IX, " Investments by the Court." 96 THE INVESTMENT OF TEUST FUNDS. Absence of In regard to sect. 11 of the 23 & 24 Vict, words in 0. 38, it may be observed that the words " where 23°&24Vict. they {i.e. trustees) shall not by the instrument °' ^^' creating the trust be expressly forbidden " to ■ invest as therein is mentioned, are wanting, and the section contains no such restrictive words 22 & 23 Viot. as are found in the 32nd section of the 22 & 23 Vict. c. 35. Vice-ChanceUor Malins, therefore, 9Ch.D. 112. in In re Wedderburn's Trusts, held, that trustees coming within the operation of the 23 & 24 Vict. c. 38, s. 11, may invest 'the trust funds m any securities in which cash under the control of the Court may be invested, notwithstanding pro- hibitive or restrictive words in the instrument creating the trust. Before the Act (23 & 24 Vict. c. 38), it had been 2 Beav. 430 held (Pride V. FooJcs), that a trustee, who, being directed by the wiU of the testator to invest the residue in consols and to accumulate the dividends, invested it on mortgage of real estate, was liable to make good the amount of stock which would have been purchased in consols, together with the amount of accumulation which would have been produced by a proper investment of the dividends of such stock. 3 De G., F. & In Cockhurn v. Peel the Court declined, in the J. 170. ...... absence of special circumstances making the in- crease of the income of the tenant for life beneficial to those entitled in remainder, to autiiorize the PERMISSIBLE INVESTMENTS. 97 transfer of a fund from consols into East India Transfer from , consols to stock, the latter investment producing a larger India stock. income, but likely to cause a loss to those entitled in remainder; the East India stock being more liable to be paid off than the 3/. per cent, annuities. But in giving judgment in this case, Lord Justice Turner observed, " I desire to be xmderstood as not intending to embarrass trustees in the exercise of their discretion, which the statute gives to them where the funds are not in Court. I think they DifBerence will be fully entitled to the protection of the Court „ot in Court. where they act bond, fide in the exercise of that discretion." The old East India stock, however (which was Old East the stock referred to in Cockhurn v. Peel), has now has ceased to been redeemed or commuted, and has ceased to exist. In Hume v. Richardson the circumstances were 4 De G., F. & J 29 shortly as follow : — A testator directed his trus- j^g^g^tion of tees to convert his personal estate, and invest the testator's ^ India and produce in land, and in the meantime to invest ^^^^ stock. it in the funds and pay the dividends as directed by his will. The testator died shortly before the passing of the 22 & 23 Yict. c. 35, possessed of 22 & 23 Vict. u. 35. bank stock and East India stock. On a special case, to obtain the opinion of the Court, the Lords Justices (who heard the case in the first instance), held that after the passing of the 23 & 24 Yict. 23 & 24 Vict. G. F 98 THE INVESTMENT OF TRUST FUNDS. c. 38, the trustees were justified in retaining tlie bank stock and East India stock, and investing other moneys in like stocks, until a suitable iuvest- ment in land could be found, and that the tenant for life was entitled to the whole income from them subsequent to the passing of the last-named act : but that for the period between the death of the testator and the passing of that act, the tenant for life was entitled only to such income as she woidd have received i£ the stocks had been con- verted at the testator's death, and invested in 22 & 23 Viot. consols, the 32nd section of the 22 & 23 Yict. c. 35, 0. 35, s. 32. bemg made retrospective for the purpose of mak- ing it applicable to instruments which would not otherwise have been included in it, but not for the purpose of altering rights which had already accrued. Funds under For cases in which the Court has refused or control of _ Court. sanctioned investments in East India or bank stocks of funds under its control, see post, pp. 224 et seq. Application Eeferring to the question whether the acts acts, where enlarging the powers of trustees as to investment required. ^Pplj where the consent of the tenant for Hfe is required to the exercise of the powers of invest- sthed. p. 311. ment, Mr. Lewin conceives "that the effect of the acts is to authorize trustees to invest on the extended securities, provided the investments be PEEMISSIBLE INVEiSTMENTS. 99 acoompanied -with all the conditions required for investment upon the securities specified in the settlement." JnEeMackemie'sTrustSythetestiktoT left200,000/. 23 Ch. D. 750. to trustees to lay out the same in the purchase of Settled Land estates to be settled in strict settlement, with a viot. o. 38). direction, until a proper purchase should be found, to invest the legacy in government or real secu- rities, but not in any other mode of investment. The beneficiaries, being desirous that the money should not be laid out in the purchase of estates, requested the trustees to invest the money in debenture stock as mentioned in sect. 21 of the Settled Land Settled Land Act, 1882. The trustees presented s. 21. a petition asking for the advice of the Court on ^?*i*i°'i ^°^ ^ ° advice. the point. It was argued that the tenants for life could immediately on a purchase of land being made by the trustees, effect their object by selling the land and investing the proceeds as desired. Mr. Justice Chitty said : " I am of opinion that the trustees may make the required investment, as it is absurd to suppose that that could not now be done which a tenant for life could without question do after an estate had been purchased, by selling the estate and invest- ing the moneys arising from the sale as asked for by this petition." As to cases where the power to invest depends f2 100 THE INVESTMENT OF TEUST FUNDS. 33 Ch. D. 455. upon sect. 21 of the Settled Land Act, see Be Maberly. Investments Other investments (not beinsr real securities) open to . trustees. open to trustees, to the extent provided by the under-mentioned statutes, are the following : — 30 & 31 Vict. (n) By 30 & 31 Vict. c. 132, s. 2, it is enacted that it shall be lawful for any trustee, executor or administrator to invest any trust fund in his possession or under his control in any securities, the interest of which is or shall be guaranteed by parlia- ment. 34 & 35 Vict. (J) By 34 & 35 Vict. c. 47, s. 13, it is enacted that trustees empowered to invest in the pubHo funds or other government securities may, unless forbidden by the instrument under which they act, whether prior in date to the act or not, invest in consolidated stock created by the Metropolitan Board of "Works. See also rule 17 of Ord. XXII., ante, p. 95. 42 &J3 Vict. (c) By 42 & 43 Vict. o. ccvi. s. 37, trustees having power to invest in the stock or shares of any Indian railway, the iaterest on which is guaranteed by the Secretary of State, may invest in the purchase of annuities of the class thereby authorized to be created. C. OCVl. PERMISSIBLE INVESTMENTS. («?) By 31 & 32 Viet. c. 109, s. 9, provision is 31 & 32 Vict. c. 109. made for the iavestment ty Ohiirch trustees incorporated imder tliat act of any funds in their hands. (e) By 34 Vict. c. 27, it was enacted that where 34 Vict. o. t7. power had been given before the passing of that act, or should thereafter be given, to trustees to invest on the mortgages or bonds of a railway or other company, such power should, unless the contrary be ex- pressed in the instrument, be deemed to include a power to invest in the debenture stock of a railway or other company : an investment in debenture stock may now be made. And see ante, p. 95. (/) By 38 & 39 Vict. c. 83, s. 27, trustees 38 & 39 Vict, authorized to invest in the debentures or debenture stock of any railway or other company, unless the contrary is expressed in the instrument, are empowered to invest in any nominal debentures or nomiual de- benture stock issued under that act. The act is known as " The Local Loans Act, 1875," and a similar power is usually given by local acts to invest in corporation or county stocks issued thereunder. Ante, p. 95. (g) By 43 & 44 Vict. c. 8 (Isle of Man Loans 43 & 44 vict. Act, 1880), provision is made for the in- "' ' 102 THE INVESTMENT OF TEUST FUNDS. vestment of trust funds, as in sect. 7 is mentioned, in securities of government of tlie Isle of Man, under that act. Forei^ As to foreign bonds it may be observed that securities. j a j where a testator directed his personal estate, in- vested in government or other securities in bonds or shares of whatever nature or kind, to be held in the same or like investments, executors were held justified in retaining in specie Yictoria bonds, Brazilian and Russian bonds, English and Indian «2i'W.E. 155. railway stock and East India stock {^Arnouldy. i>6Ch.D.7io. Grinstead). And in ^ Ca&« v. ^ar/e it was held by Sir George Jessel, M. E., that a power given by will to trustees to invest " upon any of the stocks or funds of the government of the United States of A Tin erica, or of the government of France, or any other foreign government," authorized an investment in New Tork and Ohio stocks and Georgia bonds. 29Ch. D. 889. In a very recent case. Re Brown, where a testator directed his trustees to invest the trust moneys in such mode or modes of investment as they in their uncontrolled discretion should think fit, the trustees, before the commencement of the administration action, invested in the bonds of a foreign government, bonds of a colonial railway company, and shares of a bank on which was a further liability. The chief clerk disallowed the PERMISSIBLE INVESTMENTS, 103 sums expended in the purchase of these bonds and shares: hut the late Mr. Justice Pearson allowed the investments. His lordship observed, "The terms of the power are very wide, the trustees have acted bond fide, and there has been no loss to the trust estate. The securities in question ought to be converted, though the trustees have power to postpone the conversion, but the conversion ought not to be iudefinitely postponed." Of course, where expressly empowered to do so Personal by the instrument creating the trust, a trustee ^^""^ ^' may even lend on personal security : Paddon v. 7 De G., M. & Richardson; and see further j?os^, pp. 141 et seq. See also the case of Millett v. Hawarth, where 29 Sol. Jo. Pearson, J., refused to direct the sale of invest- ments not limited in liability. Mortgages. Investment on moitgages. Previously to the passing of the act 22 & 23 Vict. c. 35 (which act received the royal assent on the 13th August, 1859), there was some doubt as to how far a trustee was justified, without the indemnity of a decree, in putting out trust moneys on a real security. The early decisions, such as Knight v. Earl of l Diok. 120. Plymouth and Pocock v. Reddington, seem to favour 5 Ves. Jr. 794. the view that such investments were open to 104 THE INVESTMENT OP TEUST FUNDS. trustees. But at a later period (1855) the idea that a trustee might properly invest trust funds in his hands upon mortgage does not seem to have 7 De G., M. & commended itself to the Court ; for in Eabi/ v. Ridehalgh we find the following remarks in the judgment of Lord Justice Turner : " The first question which arises upon this appeal is, whether under the trust of this wiU [there were no powers or directions for the investment of the personal estate] the trustees were justified in laying out the trust money upon mortgage at all. That is a question of some difficulty, and is one upon which I desire to give no conclusive opinion. I am not disposed to hold out any encouragement whatever to the notion that a trustee, in the ahsence of any power for that purpose, is entitled to lay out the trust fund upon mortgage. I desire to he understood as not giving any sanction to that notion." Whatever may have been the rule of the Court 7 De G., M. & on the subject when Rahy v. Ridehalgh was decided 22 & 23 Vict. (1855), the statute above referred to, 22 & 23 "■ ■ Vict. c. 35, settled the question : for, as we have seen {ante, p. 90), by the 32nd section of that act it was made lawful for a trustee, when not ex- pressly forbidden by the instrument creating his trust, to invest the trust fun^ on (among other investments) "real securities in any part of the United Kingdom." PERMISSIBLE INVESTMENTS. 105 It seems douttful, even under the mde expres- Scotland, sion used in this section, " any part of the United Kingdom," whether a trustee should lend trust money upon the security of real estate ia Scotland : at all events, in In re Miles' s Will, Sir John ^ Jur., N. S. . . . . 1236., Homilly, without actually deciding the point, ob- served, "The investment proposed {i.e., the invest- ment of 10,000/. on the security of real estate in Scotland of ahundant value) is not one which I, as a trustee, would adopt." On the 23rd July, 1860, the statute 23 & 24 23 & 24 Viot. . 0. 38. Vict. c. 38, received the royal assent : hy virtue of section 11 of this act, and the existing order Ord. XXII. 1 7 made in pursuance of section 10 of the same "" statute, trustees, as we have already seen {ante, p. 93), having power to invest trust moneys on government securities, may invest the same on (among other iavestments) " mortgage of freehold and copyhold estates respectively in England and Wales." In lending trust moneys on copyholds, as a real Copyholds, security, the trustees should take care that they are of adequate value, and should not rely on the mere covenant to surrender, but should procure an Lewin, 8th ed. actual surrender. ^' By the statute 33 & 34 Vict. c. 34, which re- 33 & 34 Viot. 0. 34. eeived the royal assent on the 1st August, 1870, corporations it is made lawful for corporations and trustees in f or^charitaUe f5 106 THE INVESTMENT OF TEUST FUNDS. or public purposes. Where trustees em- powered to invest on real securities. Duties of trustees lending on mortgage. As to valua- tions. the United Kingdom holding moneys in trust for any public or charitahle purpose to invest the same on real securities without infringiag the laws re- lating to mortmain. And by the 2nd section of this act it is provided, that in every case in which the ecjuity of redemption of the premises comprised in any such security becomes liable to foreclosure, the same shall be held in trust for sale and con- version, and shall be sold, and if a decree is made in a suit to redeem or enforce such security, such decree shall direct a sale (ia default of redemption) and not a foreclosure of such premises. It may be observed iu reference to the interpre- tation of the words "real security" ia this act (sect. 3), that such words are to " include all mort- gages or charges, legal or equitable, of or upon lands or hereditaments of any tenure, or of or upon any estate or interest therein, or any charge or incumbrance thereon." Where trustees are expressly empowered to invest on real as well as government security, and there is a power to vary securities, the trustees may safely sell the government securities, and invest the proceeds on mortgage. In lending upon mortgage, the trustees must see carefully as to the value of the proposed security : and for this purpose they should have a valuation made for themselves by a valuer selected by them- PEEMISSIBLE INVESTMENTS. 107 selves. Tke fact of a valuation, having been pre- viously made by a surveyor wiU not exonerate them if the security prove deficient. In Bell v. W. N. 1874, Turner [which is not, except on a small poiut of practice, reported ia the Law Eeports], the trustees 17 Eq. 439. in October, 1869, lent 7,000/., part of a trust fund, to a mortgagor upon the security of a freehold property situate at Hartford. A previous valua- tion by a surveyor put the value of the property at 11,375/. : but this had been made upon the basis of the land being let for building purposes : the house, shrubbery and gardens being valued only at 5,000/. In October, 1870, the trustees ofEered the property for sale : there were no bid- dings. After March, 1871, the property was unoccupied, and 50/. per annum was required to keep it from going entirely to ruin. Yice-Ohan- ceUor Hall, in May, 1874, said the valuations were based upon very insufficient data : sufficient inquiries had not been made; and the trustees, not having discharged the duty cast upon them of making a proper investigation before they accepted the security, must be held responsible for any loss that might accrue: accounts and iaquiries were accordingly directed. Nor, as we have seen {ante, p. 57), can trus- tees rely upon a valuation made by a surveyor employed by the mortgagor. In Ingle v. Part- 34 Beav. 4ii. 108 THE INVESTMENT OF TRUST FUNDS. ridge (No. 2), trustees in 1857 lent 8,000^. on mortgage of freehold property at Llanon in Car- martlienshire, proceeding solely on a valuation made the previous year hy a surveyor employed hy the mortgagor to value the estate. He had valued it at 12,684/. The property turned out a very inadequate security for the 8,000/. The Master of the EoUs said, "A trustee cannot with propriety lend trust money upon mortgage upon a valuation made hy or on behalE of the mort- gagor. If he does, and the valuer has hona fide valued the property at douhle its value, the trustee must take the consequences : he ought to have employed a valuer on his own behalf to see to it." L. E.,7Cli. In Budge v. Oummow, the trustees were, on App. 719. " ' _ ' appeal, charged with loss occasioned hy an invest- ment of trust funds on insuflBcient security. The head-note of the report states : " The property was a hotel in the country, and the trustees had sent down a London surveyor who valued the hotel, including therein the licence, at nearly double the sum to be advanced. The hotel turned out to be worth much less than the sum advanced. The trustees gave no further accoimt of the cir- cumstances tmder which the advance was made." The licence was valued at 800/. Lord Justice James said, " It appears to me that that report is one upon which no sensible or prudent man would PEEMISSIBLE INVESTMENTS. 109 ever lend sucli a sum as 1,400/. The value of the hotel licence was thrown in, but how could a land surveyor, who was a stranger to the place, estimate the value of the licence? The trustees ought to have ascertained, as they might easily have done, that the hotel was hut recently opened, and that the licence could have no such value." It will be remembered that the provision of the Provisions as . to Taluation Trustee Act, 1888, is that the report as to value in Trustee should be by a person reasonably believed by the trustee to be an able, practical surveyor, instructed and employed independently of any owner of the property, and whether carrying on business in the locality where the property is situate or elsewhere. (See ante, pp. 6 et seq.) In Fry v. Tapson, as we have already seen {ante, 28 Ch. D. 268. p. 58), it was held that the trustees should exercise valuer. their own judgment in the selection of the valuer, and not leave the choice to their solicitors. The title of the mortgagor is also a subject to Mortgagor's title, which trustees, about to advance trust moneys on mortgage, should give their attention. The head-note to Sopgood v. Parkin is as fol- L. E., llEq. lows : — "A trustee is liable for the loss of a trust fund occasioned by his soHeitor having neglected to take proper precautions on the occasion of the invest- ment of the fund on mortgage. 110 THE INVESTMENT OF TRUST FUNDS. " Whether the loss falls on the trustee, if occa- sioned by a fraud practised on him, qucere." The trustees in this case, as appears from the judgment of Lord Eonullj, M. E., advanced trust money on a property sufficient to cover the mort- gage, if it were the first mortgage: the fapt of the existence of a prior mortgage was carefully concealed from them. "Does the loss fall on them, or on their cestuis que trust?" That was the question which the learned judge asked him- self. In his judgment he makes the following observations at p. 78 of the report : — L. E., iiEq.' "First it is material to consider the course 78. pursued by the solicitor of the trustees. It is true that his conduct is not theirs ; but he is appointed by them, he is their agent for the management of the affairs of the trust, and if he misconducts himself through ignorance or negligence, or wilfully, he is answerable to the trustees, and they cannot, in my opinion, throw any of the loss thereby occasioned on their cestuis que trust." And farther on in the judgment his lordship said that the trustees are bound to employ competent persons, and that if they do not the loss must fall on the trustees : and the trustees were held liable. This decision, it should be observed, was ap- pealed against, but a compromise was effected with the sanction of the Lords Justices on behalf PERMISSIBLE INVESTMENTS. Ill of infant plaintifEs, and the representatives of a deceased trustee. Tm 1 . 1 . . . „ 22 Ch. D. Wnether, since tne decision m Speight v. Gaunt, 727 ; 9 App. the judgment of Lord Eomilly, in Sopgood v. l. k. n Eq. Parkin, could be supported, seems doubtful. If it '*" is the ordinary business of a solicitor to investi- gate the title, and if a trustee, Hke any ordinary prudent man of business, conducting his own business, is justified in employing a solicitor to perform this task, then, looking at Speight v. Gaunt, it seems difficult to say that the trustee " acting by other hands conformably to the common usage of mankind " could be held liable for the default of the solicitor, — his agent for the purpose of investigating the title. It -was possibly to this class of cases that Sir George Jessel, M. E., referred in Speight v. Gaunt, 22 Ch. D. at when he spoke of older cases in which a view different to that taken by modem judges had been taken, and which " would now be repudiated with indignation." Lord Justice Lindley in terms questioned it. His lordship said, " That case {Sopgood V. Parkin) certainly goes much further 22 Ch. D. at than I should have thought right : " and then pointed out that it was appealed, and that a compromise was sanctioned by the Court of Ap- peal. In the year after Sopgood v. Parkin was de- 112 THE INVESTMENT OF TRUST FUNDS. cided (1870), Lord Eomilly, M. E., had before L. E., 12 Eq. Tn'm the case of Sutton v. WiUers, in which case 373. he held a trustee liable for the loss of a trust fund caused by his solicitor haviag committed a fraud on the occasion of the trust fund being invested on mortgage. L. R., 11 Eq. Hopgood T. Parkin was cited iu the recent case 51 L. T. °^ ^'^ Pearson, Oscley v. Scartk, which was decided N. S. 692. -jjy. ^g ig^ ]^ Justice Pearson on the 24th June, 1884 : the head-note states as follows : — " A trus- tee advanced trust moneys to a brick-building firm upon the security of a first mortgage of their premises, freehold and leasehold, and some of the plant. In so doing he acted upon the advice of his solicitor, and upon a favourable report and valuation made by a respectable firm of architects and surveyors. A bank of good standing, more- over, consented to postpone a charge of theirs to his mortgage. " The mortgagors failed three years afterwards, whereby their lease of that part of the property upon which was most of the clay and shale necessary for the carrying on of the business, became forfeited. The remainder of the property proved unsaleable, and rapidly went to ruin. " An action was subsequently brought by the cestuis que trust to make the trustee liable for the loss sustained by them, and it appeared that the PERMISSIBLE INVESTMENTS. 113 report and Yaluation proceeded, ex facie, in some respects upon faulty principles. " Held, nevertheless, applying the rule stated in Godfrey r. Faulkner (48 L. T. Eep. N. S. 853; 23 Ch. Div. 483), that the trustee had acted as a prudent man would have acted in dealing with his own property, and was therefore not liable." Though Sopgood \.*ParMn was referred to inL. E., iiEq. 74 tibis case, as ahove mentioned, Mr. Justice Pearson did not discuss it in his judgment; hut in the judgment, at p. 694, this passage occurs, " for 51 L. T., trusting his solicitors and valuers no fault can he ' ' found with him (the defendant trustee), if that were all ; hut it is said that when he knew what the property was, as he did, and when the valua- tion came and was read, his own ordinary sense and intelligence ought to have told him that the security was not a proper or sufficient one." Towards the close of his judgment, Mr. Justice Pearson said, " I think it would he a bad prece- dent if, when a trustee has taken the same pains with regard to an investment of trust property as if it were his own, being carefully advised by persons who are in no way supposed to have been acting fraudulently, or wUfully leading him into error, without having shut his eyes to anything which he ought to have seen — ^if, in such a case, because imder circumstances which occur the 114 THE INVESTMENT OF TEUST FUNDS. security turns out bad, he were to be held re- sponsible for the loss." It may be mentioned here, that in the later 32 Ch. D. 196. case of Whiteley v. Learoyd (see ante, p. 73), Vice- Chaneellor Bacon declined to follow the decision in 51 L. T., jRe Pearson, so far as the last-mentioned case can N. S. 694. _ ' _ be said to decide that a power to trustees to invest on " real securities " authorizes an iuvestment on freehold property, such as brickworks, dependent for its value on a trade carried on thereon. But 33 Ch. D. 347. in the same case {Whiteky v. Learoyd), in the Court of Appeal, Cotton, L. J., said that brick- fields were real property, and therefore within the power of investment. Limit of The old rule as to the limit of advance as stated advance. 5th ed. p. 328. ^ " Coote's Law of Mortgage," was as follows : — " Under a power to invest on real securities, the sum advanced may be to the amount of two-thirds of the value of the property, if of a permanent value (as freehold agricultural land), but not more than one-half, if it consists of houses and buildings, and much less if of buildings used in trade." But this is no longer the rule of the Court : the Trustee Act, 1888, having enacted that section 4 thereof, which justifies a trustee in lending two equal third parts of the value of the property as stated in such a report as is therein mentioned, shall apply to a loan upon any property of any PEEMISSIBLE INVESTMENTS. 115 tenure, whether agrictiltiiral or house, or other property on which the trustee can lawfully lend (see ante, p. 6). The former rule was well illustrated by the case of Stichiey v. Sewell which was decided hy the l ^y- & Or. 8. Master of the Eolls in 1835. In the later case of Stretton v. Ashmall a small ^ I^re^- 9- Trade trust fund was invested by trustees, who had buildings. power to invest on such securities as they should approve, upon a mortgage of trade buildings : it was held that, notwithstanding the wide terms of the investment clause, the trustees were bound to exercise a careful discretion in selecting a security, as to value ; and that, not having ascertained that the trade buildings were at least worth twice the money invested, a breach of trust had been committed. After observing that it was the duty of trustees, as a rule of ordinary discretion, not to lend more than two-thirds of the actual apparent value, even when the property was land of an apparently fixed and permanent value : but that if it were property of a fluctuating character, they ought not to lend upon property of less than twice the amount lent, Yice- Chancellor Kindersley said : " I ought to observe upon the question of breach of trust, that in aU. cases where a trustee lends on property of an irregular description, it lies Onus, where ^y, . fund is lent on him to show that the property was sufficient : on irregular 116 THE INVESTMENT OF TEUST FUNDS. deaoription of the onus is not on the cestui que trmt to show that property. . „, . . „ it was msTimcient. Freehold It seems that a power to invest on the security of freeholds and copyholds authorizes an invest- ment on freehold ground rents reserved out of 3 N. E. 286. houses. In Vickery v. Evans such an investment was ohjected to, hut the Master of the EoUs was of opinion " that the freehold ground rents were a sufB.cient security; the value of the houses was reaUy included in it, as the landlord might enter if the groimd rent were not paid." 2 Sm. & G. In Farrar v. Barraclough, Yioe-Chaneellor Stuart 231> Absence of Said, " An attempt has also been made to charge power o sa e. ^g ^ breach of trust, that the defendant took the mortgage without having had given to him a power of sale ; but I never heard that that amounted to a breach of trust. If such a breach of trust be the sole object of this suit, it is not sustainable on that ground." Haviag regard to the provisions of the recent C. A. 1881 Conveyancing Acts, it is perhaps hardly likely & doubt he might have got 5 per cent, upon personal security. The rules are now so well understood it is waste of time to repeat them. An executor, if he will take upon hicaself to act with regard to the tes- tator's property in any other manner than his trust requires, puts himself in this situation : that he cannot possibly be a gainer by it ; any gain must be for the benefit of his cestui que trust; and if there is any loss upon the capital, as if the stocks rise ever so much, he must replace it, in order that the cestui que trust may sustain no damage from his conduct. Every farthing more than the dividends, that lay in his hands, is just so much gain to himself. For every shilling he got by any of these transactions he shall pay interest at PEOFITS MADE BY TRUSTEE OUT OF ESTATE. 171 the rate of 5 per cent, for every minute it lay in his Fiety v. state. hands. As to wliat he lent to his son, paying only the dividends of the stock, he ought to have lent it at 5 per cent. What business had he to lend it to his son upon such terms ? There is a breach of trust in that respect. He must there- fore pay 5 per cent, upon the whole. I suppose he imagined he might make an advantage to himself if he could do so without any disadvan- tage to the cestuis que trust : which is the notion of trustees : but he must pay for that." An account was accordingly directed of all the Account defendant had made, with interest at the rate of 5 per cent, upon the balances in his hands. Fiety V. Stace was cited in the later case of i Ves. 619 a. Docker v. Somes, the appeal in which was before 2 My. & K. 655 Lord Brougham, C, in the year 1834. It will have been observed that the Court in Option to Piety v. Stace directed the executor to account where fund with interest at 5 per cent. ; in Docker v. Somes trustee's "" the Court went a step further, and held that where '^^ ^' a trustee mixes the trust fund with his own private moneys, and employs both in his trade, the cestui que trust may, if he prefers it, insist upon having a proportionate share of the profits, instead of interest on the amount of the trust funds so employed. The facts in Docker v. Somes were shortly as 2 My. & K, I 2 '"'• 173 THE INVESTMENT OF TEUST FUNDS. Doclcer v. follow : — The testator bequeatlied his property, Somes. K „ 1 . J 1 Trust funds Consisting {inter aha) of a ship, and shares m trSw^"' several other ships, to two sons, Samuel Somes ^^^^^- and Joseph Somes, whom he also appointed executors, upon trust for the henefit of his six children, as in his will mentioned. His will con- tained a proviso that, if his trustees should think it advantageous for his estate, they might carry ■ on his shipping business for any period not ex- ceeding six years from his death, and might employ in it such capital as was then employed therein, or such greater capital taken from the rest of his property as they should think fit, and that the profits of the husiuess so carried on should he added to the rest of his property and be con- sidered as part thereof, and distributed accord- ingly. The testator died in November, 1816. The trustees carried on the shipping business for six years. The concern proved a losing one, and at the expiration of the six years the testator's estate was worth less than at the time of his death. The suit was instituted after the sis years had expired by a daughter of the testator against the executors and trustees, for an account, and payment of het distributive share. The de- fendants admitted that within a year after the testator's death they began business in partnership as ship-chandlers and sail-makers, that in winding PROFITS MADE BY TKUSTEE OUT OP ESTATE. 173 up their testator's estate they had received divers Doelier v. moneys for which they had charged themselves 5 per cent, from the time of receiving the same, and that such sums were paid in by them at their bankers to the credit of their general account, without distinguishing the same from the moneys employed in their own business, conceiving that as the testator's estate was benefited by receiving a higher rate of interest than could have been obtained on government or real securities, and as they were making arrangements for putting an end to the shipping business and settling the concerns of the testator's estate, such a temporary disposition of his assets was for the benefit of the persons iaterested therein, and therefore not ob- jectionable or improper. The Yice-ChanceUor, at the heariag, declared that the sums on which the defendants had charged themselves with interest at 5 per cent, were to be considered as employed in their trades, and the Master was directed to inquire what pro- portion of the profits received by the defendants from such trades was properly attributable to the moneys to be considered as employed in their trades. Against that part of his Honour's decree, an appeal was presented. The judgment of the Vice-Chancellor was aflirmed. 174 THE INVESTMENT OF TEUST FUNDS. Docker v. The Lord Chancellor, in an elaborate judgment, Somes. . 1 1 ■ J. 1 iT_ Judgment pointed out that where trustees had invested the Brougham c '^''^^'^ moneys in such transactions as buying and selling land, or in stock speculations, or in the trade of another person — it being easy in such cases to tell what the gains are — ^the rule was that the trustee shall account to the cestui que trust for all the gain which he has made. His lordship then proceeded to inquire whether the Court could consistently except from the general rule those instances where the risk of malversation is most imminent, where the trustee is most likely to misappropriate, namely, those in which he uses the trust funds in his own traffic? There was, his lordship admitted, no decision allowiag ia such cases an account of actual profits : the Court uni- formly giving interest at different rates, and sometimes with rests where the trust funds had been employed ia the trustee's own trade. " The reason," said his lordship, "which has induced judges to be satisfied with allowing interest only, I take to have been this: they could not easily sever the profits attributable to the trust money frojin those belonging to the whole capital stock. ... In cases of separate appropriation, there was no such difficulty : as where land or stock had been bought and sold again at a profit : and here accordingly, there was no hesitation in at once PROFITS MADE BY TRUSTEE OUT OF ESTATE. 175 making the trustee accoimt for the whole gains he DocTcer v. had made. But where, having engaged in some trade himself, he had invested the trust money in that trade along with his own, there was so much difficulty in severing the profits which might he supposed to come from the money misapplied from those which came from the rest of the capital em- harked, that it was deemed more convenient to take another course, and instead of endeavouring to ascertain what profit had been really made to fix upon certain rates of interest as the supposed measure or representative of the profits, and assign that to the trust estate." After pointing out the convenience of this plan, and also the " sacrifices of justice" made for this convenience. Lord Brougham continued, " But 2 My. & K. at the principal ohjeetion which I have to the rule is founded upon its tendency to cripple the just power of this Court in by far the most wholesome and indeed necessary exercise of its fimctions, and the encouragement thus held out to fraud and breach of trust. "What avails it towards prevent- ing such malversations that the contrivers of sordid injustice feel the power of the Court only where they are clumsy enough to keep the gains of their dishonesty severed from the rest of their stores ? It is in vaia they are told of the Court's arm being long enough to reach them, and strong enough to 176 THE INVESTMENT OF TEUST FUNDS. Docker v. hold them, if they know that a certain delicacy of Somea. touch is required, without which the hand might as well be paralysed or shrunk up. The distinc- tion, I will not say sanctioned, but pointed at, by the negative authority of the cases, proclaims to executors and trustees, that they have only to invest the trust money in the speculations, and expose it to the hazard of their own commerce, and be charged 5 per cent, on it ; and then they may pocket 15 or 20 per cent, by a successful ad- venture. Surely the supposed difficulty of ascer- tainiag the real gaia made by the misapplication is as nothing compared with the mischiefs likely to arise from admitting this rule, or rather this exception to one of the most general rules of equitable jurisdiction." 2 My. & K. at At the close of his iudgment the Lord Chancellor p. 673. . T pointed out that should in any case a serious diffi- culty arise in tracing and apportioning the profits, that might be a reason for preferring a fixed rate of interest in that particular case. L.R.,7H.L. In the case of Vyse r. Foster, already quoted, at p. 337. Lord Hather- Lord Hatherley referred to, and expressly ap- S~y! proved, the doctrine of '■Fiety v. Stace, and "^ Docker mlTv. ^- '^"'"^*' ^^^ lordship said, « I wiQ not say one Somes. single word to detract from the somewhat strone MVes. 620. . - . , b 2 My. & K. expressions used m the case of Fieiy v. Stace, ^^®" or from those used in the later case of Docker PROFITS MADE BY TRUSTEE OUT OP ESTATE, 177 V. Somes, in both whicli cases the learned judges, before whom matters of this description arose ■with reference to the employment of the money of cestuis que trust in partnership or business transactions, have thought it right, -with some degree of force and vehemence, almost passing beyond the bounds of ordinary judicial expression, to mark the decided course that the Court of Chancery will always take in keeping a trustee strictly in bounds with regard to dealing with the money committed to his trust." ^ Docker V. Somes -was cited in ^Townendr. Town- a 2 My. & K. end, where executors and trustees, surviving part- b j q^ goi ners of the testator, directed by his will to invest Profits by employment an infant's legacy on government or real securi- of legacy in ties, took a security for it in the form of a mort- trade. gage on the freehold and leasehold property and fixtures, belonging to the partnership in which they were the testator's surviving partners. Viee-Chancellor Stuart held that the trustees were bound to account for the profits made by so employing the legacy and interest in their trade. " It is said," his Honour observed, "that is a severe and penal decree. I conceive it to be a decree which the law of this Court makes it imperative upon me to pronounce." It must be borne in mind that a trustee who is' Trader- a trader is considered by the Court as employing ing trust i5 178 THE INVESTMENT OP TEUST FUNDS. moneys at his the trust fund in trade, if lie lodge it at Ms banker's. . . , . » canker's, and place it m ms own name : tor a merchant must generally keep a balance at Ms tanker's, and tMs answers the purpose of Ms credit as much as if the money were Ms own : per Lord 1 Ves. jr. 90. Thurlow, C, m In re Hilliard. What part of As to the interest allowed to the tenant for life profit to be treated as in respeot of income, when trust funds have been improperly employed in trade, and what propor- tion of the profits are to be treated as capital, see 50 L. J., In re Hill, Sill v. Hill. N. S. 651. ' . . , . , _, The cases considered in tms chapter show suffi- ciently, it is hoped, the extreme strictness with wMch the Court enforces the rule that no trustee shaU be allowed to make any profit whatever by the employment in Ms own trade of any portion of the fund of wMch he is a trustee. It may be observed, that if a trustee purchase an estate, partly with Ms own money and partly with the trust fund, Ms cestui que trmi has a lien Ambler. 409. on the whole for the amount misemployed : Lane V. Dighton. No remunera- It may be added that the general rule of the tion allowed to trustees. Court deprives the trustee from receiving any remuneration for his personal services. 15 Ves. 584. Thus, in Sutton v. Jones, Lord Eldon, C, acted upon the general rule that a trustee shaU not be receiver with emolument, observing that " if the PROFITS MADE BY TRUSTEE OUT OF ESTATE, 179 infant is to pay a receiver, he is entitled to have his judgment checked by the persons executing the power, which is to be executed as coupled with a trust." The rules as to solicitor-trustees, and trustees who happen to be brokers, bankers, &c,, are stated, and the authorities given, in Mr. Lewin's treatise. 8th ed. p. 280 . . * . ^^ SCO, As the matter is not immediately connected with the subject of this work, it is not proposed to pur- sue it further here, beyond calling attention to two very recent cases referring to the question of what are known as "profit costs." In In re Barber, the question was considered by 34 Ch. D. 77. Mr. Justice Chitty, and the earlier cases of Cra- 1 Mac. & G. 664. dock V. Piper and Broughton v. Broughton were 5 d. M. & G. discussed. ^^''• In In re Corsellis, the matter came before the 34 Ch. D. 675. Court of Appeal on an appeal from Mr. Justice Eay, and Lord Justice Cotton dealt very fully with the question, referring to, among many other authorities, the cases of Cradock v. Piper and Broughton v. Broughton. 180 THE INTESTMENT OF TEUST FUNDS. OHAPTEE YII. OF NEGLECT BY THE TRUSTEE TO INVEST : AND OF BRINGING THE FUND INTO COURT. It happens sometimes that a trustee neither invests the fund properly, according to the direc- tions contained in the instrument creating the trust, or, if that is silent upon the suhject, in such manner as we have seen is open to him, nor commits that breach of trust which we have recently considered, namely, that of investing the fund improperly : it may he that he abstains from investing the fund at all. We proceed to consider the cases (1) where the trustee, by non-investment, allows the fund to He idle, and, probably, in danger, and (2) the right of the beneficiaries in such eases to have the fund brought into Court. Uimeoessaiy It is a welL-established rule that if trustees are the funds. directed to invest trust money in the public funds, and instead of doing so they retain the money in their hands, the cestui^ que trust may elect to charge them either with the amount of the money, or NEGLECT BY TEUSTEE TO INVEST, ETC. 181 ■with the amount of stock which might have been pnxchased with the money. This opinion was expressed hy Yice-Chancellor Wigram in Shepherd 4 Ha. 600. V. Mouls, and was approved hy the Court of Appeal in Chancery in the case of Robinson v. iDeG-.,M.& Robinson. The object of this doctrine is, says Mr. Justice Sect. 1278. Story, to compensate the cestui que trust, and to place him in the same situation as if the trustee had faithfully performed his own proper duty. The Roman law, observes the same author, acted Sect. 1279. with the same protective wisdom and foresight. In that law, if a guardian, or other trustee, was guilty of negligence in suffering the money of his ward to remaiu idle, he was chargeable at least with the ordinary interest. " Quod si pecunia mansisset in rationibus pupilli, prcestandum quod bona fide percepisset, aut percipere potuisset, sed foenori dare, cum potuisset, neglexisset ; cum id, quod ab alio debitore nomine usurarum cum sorte datur, ei, qui accipit, totum sortis mcefungitur, ml fungi debet." Dig. lib. 26, So again if the trust fund is standing upon a unne'oeesary proper security, and the trustee calls it in for no ^^® °* stock. purpose connected with the trust, and therefore in Le-win,8tlied. dereliction of his duty, or for a purpose not autho- rized by the terms of the trust, he will be compel- lable at the option of the cestui que trust either to replace the specific stock, or the stock into which, 182 .THE INVESTMENT OF TKUST FUNDS. if not sold out, it would liave been converted by act of parliament, with tbe intermediate dividends ; or to account for tbe proceeds of sale witb interest at 5 per cent. 7 Ha. 516. In Phillipson v. Gatty, tbe marginal note states, " wbere trustees baving power to invest on govern- ment or real security, and vary sucb investment from time to time, sold out stock for tbe purpose of investing tbe produce of tbe stock in a mortgage wbicb tbey were not justified in taking, it was held tbat tbe Court could not treat tbe sale of tbe stock as lawful, and tbe investment as unlawful, so as to satisfy tbe trust by replacing tbe money ; but tbat tbe wbole must be treated as one unjusti- fiable transaction, and tbat tbe trustees must replace tbe stock." After deciding tbat tbe investment on mortgage in question was an improper one, Yice-Cbancellor Wigram, iu bis judgment, said : " Tben comes anotber material question, — Are tbe trustees to replace tbe stock or tbe money produced by tbe sale ? Mr. Wood argued tbat tbey were liable to make good tbe money only, distinguisbing tbe sale, wbicb be said was lawful, from tbe investment wbicb I bave decided to bave been a breacb of trust. My opinion is tbat tbe trustees must replace tbe stock. Tbere was no autbority to sell, except ■witb a view to a re-iavestment ; and bere tbe NEGLECT BY TRUSTEE TO INVEST, ETC. 183 sale was made with a view to the investinent I FhilHpson v. Gatty, have condemned. It was all one transaction, and the sale and investment must stand or fall together." This judgment was affirmed by the Lord Chancellor. See also the case of Davenport v. Stafford. 14 Beav. 319. Ajid in Bostock v. BlaTceney, Mr. Justice Buller, 2 Bro. C. C. sitting for the Lord Chancellor, held that where stock was sold by a trustee, contrary to the trust, the cestui que trust has a right to elect to have the stock restored, or the produce of it paid, as the trustee shall never make the advantage when he could replace the stock at a less price than that at which he sold it. In Crackett v. Bethune, an executor, directed l J- & W. 586. to lay out assets in the funds, unnecessarily sold stock and kept large balances ia his hands : he was charged with 5 per cent, interest and costs. If the trustee should become bankrupt it appears Bankniptoy on the authority of Ex parte Shakeshaft, that the g g^^ q q cestui que trust may at his option prove for the ^^^• proceeds of sale with interest, or for the price of the specific stock at the date of bankruptcy with interim dividends. " The question of the loss of trust funds," it is Funds left at . stated in Story's Jurisprudence, " by means of the gggt_ i^io a. failure of bankers is a constant source of contro- 184 THE INVESTMENT OP TEUST FUNDS. versy in the Englisli courts of equity. If tHe investment is made with a hanker, in a manner not authorized hy the will, the trustee will be held 29 Beav. 213. responsible (as we have already seen in Rheden v. Wesky, ante, p. 162). But, as a general thing, it is said there is no impropriety in the tem- porary investment of trust money on a deposit note." The statement contaiaed in the last paragraph of this section appears to be founded upon the 8 Jur., N. S. observations of Lord Westbury, C, in Wilkins v. Sogg, where trustees, until an eligible investment could be found, deposited the trust funds in their joint names in a bank. " The money was to be deposited," as the report of the judgment states, " on what was known as a deposit account, which differed from a common drawing account in the particular that in the former a notice of some days was required prior to the withdrawal of the money, and it was not a common practice among bankers to pay interest on moneys otherwise deposited. His lordship saw nothing improper in this mode of dealing with the property, regarding it as a mere temporary investment : it teas not material, however, to decide that." 4 Ha. 565, In Challen v. Shippam, a trustee deposited a trust fund with his bankers, accompanied with an order to invest the money in consols ; the bankers NEGLECT BY TRUSTEE TO INVEST, ETC. 185 omitted to make the inTestment, and for five months the trustee made no inquiries : the bankers became bankrupt : the trustee was held liable for the loss which was sustained. The decree was for payment by the defendant trustee of the amount deposited, with interest at 4 per cent., and costs. And see post, p. 186, under " Greneral rule as to neglect to invest. " If a trustee mix the trust fund with his own Mixing trust inoneys, either at his bankers or otherwise, he wiQ trustee, become responsible for the replacing of the trust money with interest during the interyening period. Story, It was said by Yice-Chancellor Stuart, in Cook "v. ^ g, 7 Eq Addison, that " It is a well-established doctrine in *^^- this Court, that if a trustee or agent mixes and confuses the property which he holds in a fiduciary character with his own property, so as that they cannot be separated with perfect accuracy, he is liable for the whole. This doctrine was explained by Lord Eldon in Lupton v. White." 15 Ves. 432. Turning to Lupton v. White, we find that Lord Eldon refers to this doctrine as "the great principle, familiar both at law and in equity, that, if a man, having undertaken to keep the property of another distinct, mixes it with his own, the whole must, both at law and in equity, be taken to be the property of the other, imtil the former puts the subject under such circumstances, that it may be 186 THE INVESTMENT OP TRUST FTJNT)S. distingliislied. as satisfactorily, as it migM liave been before that tmauthorized mixture upon his part." 1277 g. "But," contiaues Mr. Justice Story, in the section last referred to, " tbe cestui que trust cannot claim any balance remaiaiag iu the bands of the bankers of the trustee wben it does not appear that any portion of such balance arose from the same identical money:" and the learned author 41L.T.,N.S. refers to the case of Brown v. Adams as his autho- 71. rity for this proposition. 31 Beav. 579. In Eager v. Barnes, one of the trustees "was a in coffers of member of a firm of solicitors, and, -with the sanction of his partners, part of the trust funds came into the coffers of the firm, and was mis- applied by the trustee : it was held that not only the trustee, but his partners also were liable to make good the loss. General rule " It may be stated as a general rule, that if a as to neglect , , , -m. p to invest. trustee be guilty of any unreasonable delay in investiag the fund, or transferring it to the hand destined to receive it, he will be answerable to the cestui que trust for interest during the period of 8thea.p. 338. laches." Thus is the general rule given by Mr. Lewin. 1 Mad. 290. In Tebbs v. Carpenter, Yice-OhanceUor Plumer said that "A special case is necessary to induce the Court to charge executors with more than 4 NEGLECT BY TRUSTEE TO INVEST, ETC. 187 per cent, upon the balances in tlieir hands." See general rule as siedted. post, p. 189. It has been said, however, that the Court is not Interest on in the habit of giving interest on what may be income, found due for arrears of income ; and this, upon the authority of Blogg v. Johnson, where the head L. E., 2 Ch. note states as follows: "The Court will not charge an executor, who has been guilty of delay in accounting, with interest on arrears of income un- paid by him." In Moyle v. Mo-yle, the trust was to convert with 2 Euss. & My. 710. all convenient speed, and after payment of debts, -^^g^ i_^„ &c. invest in 3 per cent, consols, or some other of J^^^* ■■^ ' bankers who the parliamentary stocks, and apply the dividends **^- as directed by the will. The will contained a clause that the trustees should not be liable for any loss which might happen by the failure or insolvency of any banker with whom the trust moneys might be lodged for safe custody or in- vestment, or otherwise in the execution of the trusts. The trustees, for upwards of a year after the testator's death, allowed a considerable portion of the assets to lie unproductive in the hands of a banker, who failed : they were held liable to make good the loss. In the course of his judgment, the Lord Chan- cellor (Lord Brougham) said, " In this case it is 188 THE INVESTMENT OF TRUST rtTNDS. clear tliat if these executors had been acting in their own affairs, they would not have allowed so large a sum to lie unproductive in the hands of a hanker, exposed to the hazard of his failure." 11 Ha. 160. It should be mentioned that in Johnson y. Newton, Yice-Chancellor Sir W. P. "Wood said, of Moyle v. Moyle, that it was " very strong, and it was a hard ease upon the executors:" but that learned judge does not appear to have differed, and in another part of his judgment he distin- guished it from the case before him, and thus 2Russ. &My. referred to it : " In Moyle v. Moyk there was an 710. express direction to invest the surplus, and the defendants had moreover not only resisted an application for the payment into Court of the balance which appeared in their hands, but had also, after the balance had been greatly iacreased, kept it at their bankers, without any sufficient reason, for considerably more than two years after the death of the testator." 1 Bear. 525. In Darke V. Martyn, where the trustees de- necessarily on posited part of the assets in the hands of their tank^ * bankers — more than twelve months after the tes- tator's death — on the bankers' notes carrying in- terest, and the bankers failed, Lord Langdale, M.E., held the trustees responsible for the loss, no neces- sity having been shovmfor the deposit. His lordship said, " With respect to these sums, I have no doubt : NEGLECT BY TRUSTEE TO INVEST, ETC. 189 if the executors liad stated in their answer that it was necessary for the purposes of the will to have a balance in hand, and that they had kept these sums in the hands of the hankers, it would he a suhject of excuse : hut as I understand the facts, they are quite inconsistent with such a statement. .... These sums were improperly lent on the personal security of the bankers : the trustees therefore became answerable." A trustee may deposit trust money for tem- Temporary deposit, when porary purposes in a responsible bank, but it allowable. should be done in such a way that the cestui que trust may follow it into the hands of the bankers; and it must not be allowed to remain longer than the purposes of the trust require : see South v. 3 Ves. jr. 565. Sou-ell ; also the case of Johnson v. Newton, above ii Ha. 160. referred to. It should be remembered that the new Act, Trustee Act, , . 1888, ». 2. sect. 2, contams provisions that nothing therem contained shall exempt a trustee from liability if he permits the trust estate to remain in the hands of solicitors, bankers, or others longer than is reason- ably necessary to enable payment or transfer to the trustee : ante, pp. 2 et seq. "If an executor has retained balances in his General rule as to rate o£ hands which he ought to have mvested, the Court interest on will charge him with simple interest at 4 per cent. on these balances ; if, in addition to such reten- 190 THE INVESTMENT OF TRUST FUNDS. tion, he has committed a direct breach of trust, or if the fund has been taken by him from a proper state of investment in which it was producing 5 per cent., he will be charged with interest after the rate of 5 per cent, per annum ; if, in addition to this, he has employed the money so obtained by him in trade or speculation for his own benefit and advantage, he wUl be charged either with the profits actually so obtained by him from the use of the money, or with interest at 5 per cent, per annum, and also with yearly rests, that is, with compound interest." Such was the rule laid down by Sir John 15 Bear. 388. Eomilly, M. E., in Jones v. Foxall: and the dicta in the various cases appear to support it. 3 Jut. n. s. In Penny v. Avison (a later case), Vice-Chan- cellor Wood said, " There are now three cases in which the Court charges more than its usual rate of 4 per cent, upon balances due from a trustee. This will be done, first, where the trustee, in the opinion of the Court, ought to have received more than 4 per cent. ; secondly, where he actually has received it ; thirdly, where he is, in the opinion of the Court, to be presumed to have received it." 49L.T.,N.S. In a recent case, Jones v. Searle, trustees had 91. allowed large balances to remain at their bankers, or in their hands, unemployed. The beneficiaries asked for 5 per cent, interest. Vice-Chancellor NEGLECT BY TEUSTEE TO INVEST, ETC. 191 Bacon said, that " if a man chooses not to inyest money, but pays it into his account at his hankers, he borrows it, and he must pay 5 per cent, from the date of the payment of the testator's debts and liabilities." See also Burdick v. Garrick. And see the L- K., 5 Cfi. App. 233. observations of Lord Cranworth in Att.-Gen. y. 4DeGr. M. & Alford, approved by Lord. Justicfr James in Vyse ^'\,\ rt' V. Foster. App.atp.333. In In re Emmefs Estate, where the trust was, 17 Ch. D. 142. after the determination of a life estate, to pay a fund to a child on attaining twenty-one years, with a provision for accumulation if the child should be an infant when the life estate deter- mined, and the trustee, after the child attained twenty-one, retained the fund, it was held by Vice-Chancellor Hall that the trustee must be taken to have continued to hold the fund after the child attained twenty-one, on the same trusts, and with the same obligations to accumulate as before, and that he was liable to account for the fund with compound interest: and it appearing that part of the fund had been invested at 5 per cent, and at other rates of interest upon autho- rized securities, and that the rest had been either improperly invested or had been mixed with the trustee's own moneys, it was further held, that as to so much of the fund as had been properly in- l92 THE INVESTMENT OF TRUST FUNDS. Tested, interest must be calculated at tlie rate actually yielded ; that the rest of the fund must he treated as having been in the trustee's hands uninvested, and that, under the circumstances, he must be charged with compound interest thereon at 4 per cent. At p. 150. The Vice-ChanoeUor said, " I think that there is no absolute rule of law which compels me, under all the circumstances, to charge this trustee vidth 5 per cent., and I shall charge bini with compound interest at 4 per cent." 8th ed. p. 342. Mr. Lewin observes that, " "Whether, where the money has been employed in trade, simple or compound interest shall, as a general rule, be charged, is a point upon which the decisions are in conflict, the older authorities pointing to simple interest as the proper measure of liability, and the more recent to compound interest." 4DeGr. M. & And in the case of Att.-Oen. v. Alford, already G- 843 -J ^ J referred to. Lord Cranworth, C, after stating that one question then before bim was, " what is the principle by which, in the case of executors and trustees having money in their hands which they ought to invest and do not invest, the Court is regulated in dealing with them in respect of interest," observed, " I have always felt this to be a very unintelligible question, for there is no definite rule applicable to it." NEGLECT TO INVEST : PAYMENT INTO COUET. 193 It should perhaps be mentioned that Jones v. 13 Beav. 388. Foxall does not appear to have heen cited ia Att.- i De G. M. & Gen. V. Alford; and see the observations of Lord Selbome on ^ Jones v. Foxall in the case of '' Yyse v. '15 Bear. 388. Foster. Also the case of "Burdiekr. Garrick, iajj.it ^.3i6. •which Jones v. Foxall was cited. °^- ^'i ^^' App. 233. Payment into Court. We have already seen that in many cases where the trust fund is improperly invested, the Court will direct that within a certain period the trustee shall pay it into Court : as, for instance, where the trust fund has heen lent upon an equitable mort- gage : Swaffield v. Nelson {ante, p. 158) : where W. N. 1876, the late Master of the EoUs, Sir George Jessel, ^' ordered the defendant to pay the money into Court within sis months. So, in Vigrass v. Binfield, 3 Madd. 62. where, the executor acknowledged that he had received the testator's property and had lent it on a promissory note, the Vice-Chancellor, Sir John Leach, said, "The point is settled. He admits that he has possessed the property, and he cannot protect himself from the payment of the amoimt into Court by alleging an improper application of it." But it is not only in such cases that the fund will be ordered into Court. It was said by Lord G. K 194 THE INVESTMENT OF TRUST FUNDS. 12 Beav. 89. Langdale in Boss v. Boss, that there was a time when if was almost considered as a mere matter of course to order trust funds to be brought into Court ; "but now " (1849), said his lordship, "the question always is, whether there exists any suffi- cient ground for such an interposition." 14L. T.N.S. In a later case, Bobertson v. Scott, Sir John 187. Stuart, V.-C, expressed his surprise at the language ascribed to Lord Langdale in Boss y. Boss, and said, "As far as I know it is the iuTariable prac- tice of the Court, in suits for the administration of trust property, to order the money, upon the ap- plication of the parties beneficially interested, to be paid into Court." 21 Ch. Div. However, in the still later case of In re Braith- waife, Yice-ChanceUor Hall seemed to doubt the absolute nature of the rule. " Although," added his lordship, "the fund would, no doubt, be brought into Court in any case where there was reasonable ground for the application." It is conceived that the fact of the trustee improperly retaining the funds in his hands unin- vested, would be a reasonable ground for applying 27 Ch. D. 251. to have the fund brought into Court : see Sampden V. Wallis. Plaintiffs' The plaintiffs, according to the rule laid down 3 Mer. 29. ^J Lord Eldon in Freeman v. Fairlie, must be either "solely entitled to the fund, or have acquired NEGLECT TO INVEST : PAYMENT INTO COURT. 195 in the whole of the fund such an interest, together ■with others, as entitles them, on their own hehalf, and the hehalf of those others, to have the fund secured in Court." It has also been said, upon the authority of Holder v. Bank of England, that " if the defendant lO Ves. 352. admits himself to be a trustee for some one, but it remains to be ascertained whether he is a trustee for the plaiutifE or for other parties, the plaintiff may move upon his possible title, where all persons are before the Court, among whom there will be found some one who is entitled." In Sammond v. Walker, Vice-Chancellor Wood 3 Jur., N. S. 686. ordered one moiety of the fund into Court, the Que moiety parties entitled to the other moiety not beiug be- "'""^'^^^ ™- fore the Court : his Honour expressing an opinion that, if a proper case were made for doing so, he could, on an application by one of several cestuis que trust, order the whole fund into Court. According to the old rule it was necessary to Defendant's , . admission. spell out from the deiendant s answer an admis- sion " that the money was in his hands, or that the stock was in his name : " and " where you moved agaiust several defendants, you must have the admissions of all : " per Lord Langdale, M. R., in Boschetti v. Power. In the same case that 8 Beav. 98. learned judge observed, " The Court, however, does k2 p. 90. 196 VpHE INVESTMENT OF TRUST FUNDS. not, upon motion, order money to be brouglit into Court upon any evidence which may satisfy the judge of the fact (that the stock is standing in the names of the defendants), hut it prooeedi alone upon the admissions of the defendant." Present Such an admission as will enable the Court to practice as to admission. act, may now be gathered from other sources than the defence^ " There is not, as far as I know," observed Sir George Jessel, M. E. (sittiag in the Court of ^^90 ^ **■ -^PP^^l)) i^ t^s ''^se of London Syndicate v. Lord, " any virtue in one mode of admission rather than in another. What the Court has to be satisfied of is that the defendant has admitted the amoimt to be due. At one time it was supposed that the admission must be in an answer, and no doubt that was the practice of the Court of Chancery before decree. It was next settled that it need not be in the answer, but that it might be in. an affidavit brought in by the defendant, or in an answer to a question which he could not help answering on an examination taken by direction of the Master. "Whether it was a compulsory statement on oath or a voluntary statement on oath was immaterial, because it need not be upon oath at all. A man may admit by his agent or solicitor that the suin is due : he may put ia a formal admission to that effect without any oath whatever, or he may act NEGLECT TO INVEST : PAYMENT INTO COURT. 197 in such a manner as to authorize a third person to admit for him." And the same learned judge (sitting as a judge of first instance), in Freeman v. Cox, where notice 8 Ch.D. 148. of motion was served on a defendant, an executor, for payment into Court of money, part of the testator's estate, which it was shown by affidavit that he had received, and the defendant did not appear on the motion, held that the defendant not having disputed the affidavit, there was a sufficient admission that the money was in his hands, and that he must he ordered to pay it into Court. The Master of the Eolls said, " Here we have the affidavit of the plaintiff, and the service of the notice of motion on the defendant. This, I think, is a sufficient admission, the principle being to make the defendant pay into Court what he does not dispute to he owing from him." In this case there was no suggestion of any investment, either proper or improper, having been made. ^Freeman v. Cox was cited" in ^Hampden v. ° 8 Ch.D. us. Wallis, which was before Mr. Justice Chitty in 1884. In the latter case trust funds were ordered to be brought into Court by the trustee upon admissions contained in letters, written before action brought, that he had received the money, and a recital to that effect contained in the settle- 198 THE INVESTMENT OF TEUST FUNDS. ment, his execution of ■whicli as trustee was proved, although there was no formal admission in his pleadings or affidavits that he had received and held the money. 31 Ch.D. 52. In the stiU later case of Porreft v. White, the Court of Appeal expressly approved and followed 8 Oh. D. 148. Freeman v. Cox. The defendant in Porrett v. White, one of the trustees of a settlement, in letters written to the plaintiff, his co-trustee, before action brought, admitted having received part of the trust moneys and invested the same in an imauthorized manner. The defendant appeared, and the plaintiff took out a summons to have the moneys brought into Court, and made an affidavit deposing that he had paid the moneys in question to the defendant, and stating the admissions contained in the defendant's letters as to its application. The defendant did not answer this affidavit, or adduce any evidence. Mr. Justice Chitty ordered the money into Court, on the ground that the letters were a sufficient admission Ord. XXXII. within Ord. XXXII. r. 6. The defendant ap- r. 6. ^ pealed, and the Court of Appeal held that, as the defendant had not met the affidavit, there was a sufficient admission that the money was in his hands, and that the appeal must be dismissed. Fiy, L. J., in Lord Justice Fry said, ^' I am not satisfied that Forrett v. . White. this case does not come within the General Orders, NEGLECT TO INVEST : PAYMENT INTO COURT. 199 and if it were necessary to decide whether there is not an admission within Ord. XXXII. r. 6, I should wish to consider the matter further : hut I agree in deciding this case on the ground taken ia Freeman v. Cox." 8 Ch. D. 148. It may he noted that hefore the decision of the Court of Appeal va. Porrett v. White, the Yioe- 31 Ch. D. 52. Chancellor in teland had, in Neshitt v. Baldwin, L. E. (Ir.), declined to foUow the decision of Sir George Jessel in Freeman v. Cox. 8 Ch. D. 148. It is conceived that under the present practice Admission of plaintifE's any admission of the plaintiff's title hy the de- title. fendant, whether express or implied, is sufficient to enahle the Court to order the money to be paid in : though formerly the rule was no douht stricter: Dniless v. Flint. i My. & Cr. 502 It may he added that it is not necessary that -p^^^^ ^^^ the defendant should acknowledge that the fund 5°! '' j™^, ° defendant 8 is in his hands at the date of the defence : if he ^?°^ ^* ^**s of defence. admits that he once received it, and afterwards dealt with it in an unauthorized manner, the Court win act upon his having received it, and not allow liim to escape by pleading that he has committed a breach of trust. In Wigksivorth v. Wiglesworth, two trustees, 16 Beav. 269. having power to vary a trust fund, sold it out for that purpose, but allowed the produce to be received by one alone: it was held, upon motion before 200 THE INVESTMENT OF TEUST FUNDS. decree, that the other^ who failed to show that the fund was properly invested, was hound to pay the 32 Beav. 661. amount into Court. See also Ingle v. Partridge, where the marginal note is as follows : " Trustees authorized a firm of solicitors (one of whom, W., was a trustee) to draw the trust funds out of a hank. W. drew it out and misapplied it. The trustees were, on interlocutory application, ordered to pay the amount into Court. " Three trustees sold out trust funds and the pro- duce was paid to one alone. The other two were, on motion, ordered to pay the amount into Court.'' 31 Ch. D. 470. In the recent case of Staniar v. Evans, an order was made on a trustee to pay into Court interest found due from him, and the halanee heyond his taxed costs of capital certified to have come to his hands. The capital had been received by the trus- tee's solicitors as part of the trust estate. The order was made on statements which implied that the trustee, who was unable to pay, was solvent. The trustee having made def aidt ia paying in the interest, the Court ordered that, notwithstanding the former order, the solicitors should pay into Court the capital come to their hands with interest. Application The application is usually an interlocutory one, interlocutory made by motion ;• and the Court will not listen to the objection that the action is for the very pur- pose of securing the fund in question, and that the NEGLECT TO INVEST : PAYMENT INTO COUET. 201 order for payment in ought not to he made before the trial. See Bothwell y. Bothwell. 2 S. & S. 217. In an anonymous case, the Yice-ChanceUor of Payment in of . balance. England (Sir Lancelot ShadweU) said, " "Where 4 gjj^ 359 an executor admits in his answer that he has received a specific sum belonging to his testator's estate, but adds that he has made payments on account of the estate, the amount whereof he does not specify, the Court will allow him to verify the amount of his payments by affidavit, and then will drder him to pay the actual balance into Court." The right of the plaintiff to have the money Eight brought into Court must proceed on an admission equity raised made in reference to an equity raised by the state- ment of claim, and not in reference to an indepen- dent equity stated only in the defence : per Lord Langdale, M. E., in Proudfoot v. Hume. i Beav. 476. In Wood v. Dou-nes, after the usual decree for l V. & B. 49. an account, an application was made for an order g^^^^^^"^" for payment into Court of a principal sum and "'*^'^^^*- interest, the defendant, in his answer to interroga- tories, having set forth specific sums which he had received and paid, but having omitted to cast them up, or strike a balance. The plaintiff's solicitor made an affidavit stating that he had struck the balance, which amounted to 8,540/. for principal, and had computed the interest thereon, which k5 202 THE INVESTMENT OP TRUST FUNDS. added to tlie atove made a sum of upwards of 11,000/. due from the defendant. 3 Mer. 29. During the argument the case of Fairly v. Freeman {qy. Freeman v. Fairlie) was referred to, in which case it was alleged, on the part of the 1 V. & B. 49. plaintiff in Wood y. Downes, that the Court had ordered payment into Court to be made of a prin- cipal sum of 2,000/. admitted to be in the de- fendant's hands, together with interest. Lord 1 ^- * ^- a.t Eldon, C, said, in his judgment in Wood v. Dawnes, " I certainly do not recollect any instance in which the Court has gone this length upon 3 Mer. 29. motion merely. In the case of Fairly t. Freeman, I went on a different ground : taking the answer to be that the defendant had received the 2,000/., and admitting that he had made interest to a greater amount than I directed him to pay. I am very unwilling to carry the practice farther than it has been carried." The order in Wood v. Downes was restricted to payment in of the sum due for principal only : 34 C!h. D. 470. but see the recent case of Staniar v. Evans. Trustee Where a trustee admits himself to be a debtor debtor to trust ... ■, r~i estate. to his trust estate, the Court will, it seems, upon motion, order payment into Court of what is ap- parently a mere debt : the reason being (per Lord 4 My. & Or. Oottenham, C, in Richardson v. Banh of England that, " the person to pay and the person to receive NEGLECT TO INVEST : PAYMENT INTO COURT. 203 being the same, the Court assumes that what ought to have been done has been done, and orders the payment, not as of a debt by a debtor, but as of moneys realized in the hands of the executor or trustee." The mere existence of a discretionary power in Disoretiouaiy power in trustees over a lund affords no reason why the trustees over Court should not order payment of the fimd into Court, unless such payment into Court would inter- fere with the exercise by the trustees of such discretion. But where it appears that the trustees are about, in the due exercise of their discretionary power, to deal with a fund, the Court will not order payment into Court, although the trustees have not actually parted with the fund : " not because such an order would necessarily interfere with the exercise of the discretion, but because it would create useless expense : " per Kindersley, V.-C, in Talbot v. Marshfield. 2 Dr. & Sm. 285 In The Governesses' Benevolent Institution v. ,„' 18 Beav. 467. Susbridger, the Master of the EoUs, Sir John Order at the Eomilly, appears to have drawn some distinction between an application for payment into Court by a party haviag a contingent interest in the trust fund made on an interlocutory motion and a similar application made at the hearing. His Honour said, "I think myself bound, ex debito justitice, to order the fund iato Court, but I never 204 THE INVESTMENT OF TEUST FUNDS. saw a case in which there was less danger. I cannot refuse a decree, hut I will hear the plain- tiffs why costs should not come out of the fund." 10 Ha. App. In Isaacs v. Weather stone, Vice-ChanceUor Wood ordered payment into Court at the hearing without a notice of motion for that purpose. Time for pay- If the fund is lent upon an unauthorized mort- mentin. gage, a reasonahle time will he given for payment 3 Beav. 498. jnto Court : Wyatt v. Sharatt, where Lord Lang- dale, M. E., said, " The defendant ought to have some reasonahle time to enahle him to get in the W. N. 1876, mortgage." See, too, Swaffield v. Nekon, where Sir George Jessel, M. E.., allowed six months to hring in funds invested upon equitable mortgages. If the fund is in the defendant's hands, the order will he for payment in forthwith ; and an imme- diate order may be made for transfer of stock standing in the defendant's name : and if an order has heen already made to restrain a transfer, the transfer into Court may he ordered to be made " notwithstanding the iajunction." Fund should The notice of motion should specify the funds which the plaintiff desires to have brought into 2 Ph. 19. Court : see Nohes v. Seppings. Debtors' Act ■ The Debtors' Act, 1869, excepts from the opera- (32 & 33 Viot. . ... c. 62). tion of sect. 4, which abolishes imprisonment for debt, the case of (sub-sect.. 3) — " 3. Default by a trustee or person acting in a NEGLECT TO INVEST : PAYMENT INTO COURT. 205 fiduciary capacity and ordered to pay hj a court of equity any sum in his possession or under Ms control." As to the present procedure in regard to attach- ment, see Ord. XLIV. and Ord. LII. r. 4, of the Ord. XLIV. Kules of the Supreme Court, 1883. r. 4. In order to briag a trustee within the third When trustee » _ is Tvithin third exception of sect. 4 of the act, it is not neces- exception. sary that the money should have been in his sole possession or imder his sole control. Where a sum of money, forming part of the assets of a testator's estate, was paid into a bank to the joiat account of two executors, with power to one of them to draw cheques, and he drew out the money and misapplied it, and an order was made against both executors for payment of the money into Court, it was held by the Lords Justices (affirm- ing the decision of Sir George Jessel, M.. E.), that the other executor was within the exception, and that a writ of attachment might be issued against him for non-payment of the money: Mians , V. Sear. L.E., lOCh. Where, however, a trustee has been ordered to "v^ien he is pay money which he has neglected to recover, he "°*' is not within the third exception of sect. 4, and cannot be committed for default in paying the money : Ferguson v. Ferguson. L- K., lo Oh. By the act to amend the Debtors Act, 1869, it Debtors' Act 206 THE INVESTMENT OF TRUST FUNDS. 1878 (41 & 42 is' enacted, hj sect. 1, that " In any case coming "Vict c 54^ TvitMn tlie exceptions nunibered 3 and 4 in the 4th section of the Debtors' Act, 1869, and in the 5th section, of the Debtors' Act (Ireland), 1872, respectively, or within either of those exceptions, any Court or judge making the order for payment, or having jurisdiction in the action or proceeding in which the order for payment is made, may inquire into the case, and (subject to the provisoes contained in the said sections respectively) may grant or refuse, either absolutely or upon terms, any application for a writ of attachment or other process or order of arrest or imprisonment, and any application to stay the operation of any such writ, process, or order, or for discharge from arrest or imprisonment thereunder." Previous to the passing of this act, it had been L. R., 10 Ch. held in JEvans v. Bear, both by Sir Greorge Jessel, App. 76. , M. E. (in the Court below), and by the Lords Justices in the Appeal Court, that a writ of attachment for non-payment of money was a matter of right, and that the Court had no dis- cretion to refuse it. 41 & 42 Vict. Under the amending act, the Court has refused c. 54. _ _ o 7 to issue a writ of attachment against a defaulting trustee, where it appeared that the issuing of the writ would not induce the trustee to pay, he bfeing • imable to do so, and that no good purpose could NEGLECT TO INVEST : PAYMENT INTO COUET. 207 be served by sending him to prison: Barrett v. lOCh. D.285. Sammond, and tbe case, reported in tbe note thereto, of Street v. Hope. lo Ch. D. . . 286, n. But m the later case of Mams v. Ingram, Sir 13 Oh. D. 338. George Jessel, M. E., does not appear altogether to hare agreed mth the decision in Barrett v. lO Ch. D. 285. Hammond. His lordship said, "The act (1869) abolishes imprisonment for debt in the case of an honest debtor, but it is at the same time intended for the punishment of a fraudulent or dishonest debtor. It is in that sense vindictive, and intended to be so." And referring to the Amendment Act of 1878, his lordship said, that "it was not intended by this act (1878) to get rid of the penal clauses of the previous act, but only to give the judges a judicial discretion to deal with exceptional cases, which the legislature did not think of when it passed the previous act." In the case then before him, the learned judge said that the trustee had no merits whatever, " and he ought to be sent to prison unless he has no means, as to which I am not satisfied." In B,e Knowks, where the Court was not satis- 52L.J.(N.S.) fied that the trustee could not pay, Kay, J., ob- served, " I think that this is a case in which the punishment ought to be inflicted, for the purpose of teaching this man that a dishonest act of this kind wlU not be passed over with impimity, even 208 THE INVESTMENT OF TRUST FUNDS. though he is unable to pay, and for the purpose of teacHng other trustees the same lesson — a very salutary one in many cases." 20 Oh. D. 532. In Solroyde v. Garnett, Yiee-Ohancellor Bacon 13 Ch. D. 338. distinguished the ease before him from Marris y. Ingram, and, on application for an attachment agaiQst a defaulting trustee, held that, the Court having jurisdiction to inquire into the circum- stances of the case, where there had been no actual fraud or emhezzlement, but merely an erroneous application of the trust fund, the application might be refused. The trustee in this case offered to give a charge upon all his property, and the motion stood over until the charge was executed. 37Ch.D. 104. It should be borne in mind ih&t in Preston y. Etherington Lord Justice Cotton has pointed out that to render a person liable to attachment under the exception, it is not necessary that he should have been guilty of fraud. " One object of the act," observed his lordship, " is stated to be the punishment of fraudulent debtors, but we cannot, on that ground, confine to cases of fraud the ex- ceptions made by the act from the protective clause in favour of debtors." ( 209 ) CHAPTBE VIII. OF STRANGERS HELD RESPONSIBLE AS CONSTRUCTIVE TRUSTEES. The principles upon ■whicli the Court acts in ex- tending the responsibility imposed upon trustees to others who are not properly trustees, were considered by the Earl of Selbomey L. C, ia Barnes v. Addy ; the facts in that case wereL. Il.,9Ch. A.T)T> 244. shortly as follow : — The testator, William Addy, by his will appointed W. Crush, J. Lugar, and J. W. Addy, a nephew, to be his executors and trustees and the guardians of his infant children. He devised and bequeathed his real and personal estate to his trustees, upon trust to sell and convert the same and to invest the proceeds thereof, and, after giving an annuity to his widow, he declared that the residue should be held in trust for three daughters and one son equally. He then settled the share of one unmarried daughter, Ann, upon her for life for her separate use without power of anticipation, and after her death for her children as she should by deed or will appoint, and in default of any such appoint- 210 THE INVESTMENT OF TRUST FUNDS. £ames v. ment, and so far as any such should not extend, the share was to he held upon trust for such of her children as should attain twenty-one years equally: with the usual survivorship and main- tenance clauses. The testator then settled the share of another unmarried daughter, Susan, in like manner. The power to appoint new trustees was vested in the executors without the consent of any other person ; there was no authority to diminish the numher of trustees. The will was dated the 25th November, 1835 ; the testator died in the following month, leaving his widow and the four ^children named in the wiU. Crush renounced and disclaimed : the wiU was proved hy Lugar and J. W. Addy- alone, who, after appropriating part of the estate to answer the annuity, invested the residue, about 9,000/., in their names in consols. In 1837, the daughter Ann married H. N^ Barnes. The six plaintiffs were the children of this marriage. In 1846, the daughter Susan married J. "W. Addy. Lugar and J. W. Addy appointed one Clark a trustee in the place of Crush. Lugar died in 1852 and Clark in 1857, leaving J. W. Addy sole trustee of the will. STRANGERS TREATED AS TRUSTEES. 211 Mr. J. Parker acted as solicitor to the trustees Mai-nes v. till 1851, when Mr. Duffield heoame solicitor to J. W. Addy ia the place of Mr. J. Parker. The shares of the son and the third daughter (Mary Myhill Addy) were paid to them : only the shares of Mrs. Barnes and Mrs. Addy remained suhject to the trusts of the will. Differences having arisen between Mr. Barnes and J. W. Addy, it was arranged that J. W. Addy should retire from the trust so far as the share of Mrs. Barnes was concerned, and that Mr. Barnes should succeed him as trustee of that share. It appears that Mr. Duffield strongly advised .. 73,114 Beokee: Employment of, by trustee . . . . . . 35, 40 Payment of money to . . . . . . . . 36, 40 Exoneration of trustees from UahiUty for . . . . 39 BuiiDiirGS : Advance on trade buildings .. .. .. ..115 BUSINESS ; Ordinary course of, ■when open to trustee . . 43, 77 Calls: Trustee liable for, under sect. 30 of Companies Act . . 153 Capital : What share of profit treated as, where fund employed in trustee's trade ,. .. .. .. .. 178 Cash: finder control of Court, Court empowered to make orders as to investment of . . . . . . . . 93 Cestttib auE textst : Eights of, where money lent in trade . . . . . . 171 And see Option. ' Chanqe : In firm, effect of, where money lent on personal security . . . , . . . . . . . . 145, 146 Chaeitable Pttbposes : Trustees.for, as to investmeats by,. on real securities. . 105 Chtteoh Tetistees : Provision for investment of funds in hands of , . 101 INDEX. 241 CoiiONIAI : PAQE Railway, bonds of, when investment on, allowed . . 102 Stock Act, when trustees may hold certificate to bearer under . . . . . . . . ■ . . . . 153 Colonial GrovEEiratENTS : Investment on stocks of . . . . . , . . . , 95 CoMPAinEs Act : Trustees are shareholders under .. ., .,152 Company : Investment on stock of private . . . . . . . . 147 Precautions to be taken before investing in shares of . . 151 CouPENSAnON ; Trustee not entitled to, generaJly . . . . . . 178 CoiiFOTmi) Intebest : When given to cestui que trust ., .. ., 167, ,192 Conditions : Depreciatory, on sales by trustees, as to . . . . 5 Annexed to power to invest must be strictly observed 136 Consent : Of married woman to investments dispensed with . . 82 Application of enabling Acts where consent to invest- ments required . . . . . . , . . . . . 98 Court not fettered by want of, in securing the fund . . 135 To transposition of securities, what amounts to . . 137 Consols : Transfer boin, to East India Stock , , . . . , 97 CONSTETJCnVB Tetjst : When raised in equity . . . . . . . . , , 166 CONSTEFOnVE Teubibbs : Strangers treated as . . , . . . . . 209 et seq. CONTBIHnTOET MoETOAGB : Trustees should not lend on . , , . . . . , 159 Control or One Tettsteb : Funds should not be subjected to .. ,, ,.138 G. M 242 INDEX. CoirTEBSioN : page Kale as to . . , , ..... . . . . . . 88 Of Consols into other securities, when the Court will order, , . , . . , , , . . . . . 222 ei seq. Where trustees with power to postpone, should not postpone indefinitely . . . . . . , , . . 103 CoisrvBTANonro Acts : Enlargement of long terms under . . . . . . 156 CoPTHou) Acts : Investment of money in Court under . . . . . , 232 . Copyholds and Pbebholds in Englasd and Wales : Mortgages of, sanctioned as investments . . . . 105 Duty of trustee lending on security of copyholds . . 105 COBPOBATIONS : As to investments by, on real securities . . . . 105 Costs : Of appKoation under Lord St. Leonards' Act . . 83, 84 taking counsel's opinion, allowed to trustees . . 85 appKoation to vary investment of funds in Court. . 223 CO-TBUSTEES : Held liable for absconding solicitor-trustee . . 129 et seq. CotmsEL : Signature of petition or summons for advice by, still necessary , . . . . . . . . . . . 81 Opinion of, right of trustee to take . . . . . . 85 protection afforded to trustees acting under 86, 86 CouBSE : Of business, ordinary, when open to trustee . . . , 43 Cotiet: Investments by the . . . . . . . . 221 et seq. what investments allowed. . .. 221 change from Consols to other per- mitted investments . . 222 — 224 on mortgage . , . . . . 226 on house property . . . . . . 227 on personal security , . ( . . 227 INDEX. 243 CoDET — continued. page Investments by the, of moneys paid in under L. C. C. Act 227—229 of moneys paid in under Settled Estates Act 229 of personal estate of lunatic in pur- chase of land . . . . . . 235 interim investment on real security 231 Metropolitan Stock 232 procedure on . . . , . . 232 Duty of, to lean to side of honest trustee 34 Empowered to make orders for investment of cash under its control . . . . . . . . . . 93 Order of, trustees may iavest on securities sanctioned by, when 93 Is not fettered by want of consent to change of in- vestments, where fund insuf&ciently secured . . 135 Does not usually control trustees' discretion as to varying investments 87 Debenture Stock : Of railway or. other company, provision for invest- ment on 101,126 Debbmttjees : Issued tmder Local Loans Act, 1875, provision for in- vestment on .. .. .. ., .. 96,101 Dbbtoes Act, 1869 : Trustee ordered to pay, excepted from sect. 4 of . . 204 Amendment Act, discretion given to Court by . . 206 Deceee; No advance on mortgage after, without leave of Court 117 'ESeat of, on discretion of trustees as to investment , . 233 Deleoahon : Meaning of the rule against 38 Kot justifiable, when 39 Deposit Account : Investment on . , . , 162 m2 244 INDEX. Deposit : page Of title deeds, trustees should not lend on . . . . 159 Of trust money with- agent, not allowed ., ..42 Temporary, of fund at bank, when allowed . . , . 189 DBPOsiT-Noii: : Temporary investment on, how far justifiable . . 183 Funds unnecessarily left on . . , . . . . . 188 Deeeeoiation : In value of govemment securities, trustees not answer- able for 90 Depeeoiatoet Conditions : On sale by trustees . . . . . . . . . . 5 Detail : Questions of, not entertained on applications under Lord St. Leonards' Act . . . . . . . . 82 DlSOEETION : Trustees should exercise, in choice of agent . . . , 68 Estimate of loss when trustees have, as to investment 119 Court exercises, as to investments, after decree 117, 233 does not usually control trustees',, as to varying investments . . . . . . . . . . 87 DOCTDMENT : Trustee entitled to benefit of ambiguity in, when . . 34 Duties: of trustees for, purchase .... .. .. .. .. 181 lending on mortgage . . . . 106 et seq. as to valuation . . . . , . . . 106 as to investigation of title . , 109 et seq. as to limit of advance .. .. \\i et aeq, as to not tying up the money . . . . 116 as to mortgages after decree .. ..117 as to appropriating testator's mort- gages 118 as to real securities in Ireland . . 121 " ■ as to lending to one of themselves . . 123 • ' as torailway mortgages . . 126 et aeq. as to parting with the money . . 129 et seq. Dutt: Of trus't'ee in investing .." .." .. .. 19 et seq. INDEX. 245 East India. Stocz : faoe An authorized investment . . . . . . . . 90 To include " old " East India Stock 91 Frovislons for including later, in sect. 32 of Lord St. Leonards' Act .. .. .. .. .. ..91 New, is -withiu Order XXII. r. 17 92 Transfer to, from Consols 97, 224 Old, has ceased to exist . . . . . . . . . . 97 Executor held justified in retaining . . . . 97, 102 East Indian Hailway Co^any Fitboease Act : Investment in annuities created under . , , . , . 225 Ecci>ESiASTicAi, Estates Act : Investment of money in Court vmder . . 232 Enabunq Acts : Application of, where consent to investments required 98 Enoiand, Bank op, Stock : An authorized investment . . . . , . , . 90 English Cottets : Enabled to enforce payment of money lent on real securities in Ireland ,. ., .. .. ..121 EniiAbgement : Of long terms into fee simple . . . . . . . . 156 EaUITABI^ MOBTQAQES : Trustees must not lend on . . . . ,, 158 et seq. Estate : Entitled to benefit of all the trustees' discretion . . 123 Esttmate: Of loss, where trustees have discretion as to invest- ments .. .. .« .. .. •• .• 119 Exception : To general rule as to management of trust estate . . 42 ExcHEauEB Bills : Are government securities . . . . . . • . 225 ExEcnroE : When entitled to remit money to agent • . . . 33 246 INDEX. EXECTTTOBS : FAOE Partners of their testator, employing legacy in their ' ' business, account against . . . . . , . , 177 Expbctanot: ISght of persons entitled in, to conversion . . 88, 89 EXPBESBIOITS : Held insufficient to justify loan on personal Beouiity 147 et seq. " To increase and improve, by placing out at interest as the trustees should see occasion" 147 • " And place the same out at interest at their discretion" . . . . . . . . . . 148 " Or on such other good security as they could procure and should think safe " . . . . 148 " In real or personal or government securities in Ireland" . . . . . . . . . . 149 " And lay out the money at greater interest if they could" 149,163 Fee simple : Enlargement of long terms into , 166 EiBU: EfEect of change in, where money lent on personal security of 145, 146 EoEECLosTJEE Aoirbii : Where corporation plaintifl, provisions as to . . . . 106 '' EOEEIGK CoinilET, SEOTIEIirES OP : " When bonds of French railway not . . . . . , 82 EOEEItm GOVEEHMENT : Bonds of, when investment on, allowed . . . . 102 EOEEIQN Secubities : detention of, .when justified ., ..102 FoETY Tbaes' Title : Trustees not bound to insist on . , . . . . . , 7 Feattd: Trustee cannot plead Statute of Limitations to claim. founded on . . . . , . . . , , . . 14 By trustee in obtaining judge's opinion, effect of . . 79 '- solicitor, liability of trustees for 112 INDEX. 247 B'beeeolss : paqe Limit to advance on freehold lands ,. .. 6,7,114 Power to. puTcbase, authorizes investment in freehold ground rents ... . . . . . . . . . . 81 And copyholds in England and Wales, mortgages of, sanctioned as investments . , . , , . . , lOS Power to invest on security of, authorizes investment on freehold ground rents .. .. ..' ..116 Fbbnoh Eitt-wAT : When honds of, not " securities of a foreign country" 82 Geoboia Boiros : Where investment in, authorized . . . . . . 102 " GtOveenment" SEormiTiES : Not identical with "public" securities .. ..93 GfBXnmo Kknts : IVeehold, investment in, authorized, where power to purchase freeholds . . , . . . . . . . 81 Investment on, authorized, where , power to invest on security of freeholds .. .. .. .. .. 116 House Pbopeett : Limit of advance now same as on freehold lands. . 6, 7, 114 Court win not invest fimd in Court upon . . . . 227 Htjbband: Liability of trustees lending to, on his bankruptcy . . 144 In trade, lending to, a breach of trust . . . . . . 145 Effect of insolvency of, where power to lend to . . 146 Loan to, on mortgage of his life interest in real estate and collateral security, when a breach of trust . . 154 Impbovement of Liiro Act : Provisions as to investment under , . . . 128, 129 lUPBOVEJEENTB AND KePAIBS : Question of, not entertained on application for advice 83 Inclosube Act : Investment of money in Court xmder . . . . . . 232 Inooue: When costs of application for advice are paid out of . . 84 248 INDEX, Indemiiitt to Teustebs : paob For breach of trust . . . . . . . . . . 10 Under Lord St. Leonards' Act . . . . . . . . 78 How far advice of counsel is . . 86 India: Railway stock, with interest charged on revenues of, not within 30 & 31 Vict. c. 132, s. 1 92 India and Bane Siocse : Eetention of testator's . . . . . . ■ . . . 97 India (East) Stock : An authorized investment . . . . . • . . 90 To include " old" East India Stock 91 Provision made to include later, in sect. 32 of Lord St. Leonards' Act . . 91 "India" Siock: Q^(ere within the purview of 30 & 31 Vict. c. 132 . . 92 Indian Railwats oxtabantbed Stocks oe Shaebs : Investment on . , > . . . . . . . . . 95 Inqtheies : Not directed on applications for advice.. .. .. 83 Inquibt : Directed where fund employed in trustee's trade . . 171 Ihbolvenct : Of husband, effect of, where power to lend to him . . 146 Insufficiency of Teust Estate : No defence against trustee's liability for calls, when. . 163 Inbuee : Trustee may, against fire 11, 12 Inteeest : Rule as to conversion of property producing high rate of 88 When guaranteed by Parliament on securities, invest- ment allowed . . . . . . . . . , , . 100 Usually, charged on balances in hands of trustees 189 et seq. Rule in Jones v. Foxall . . . . , . , . . . 189 On arrears of income . , . . . . ; . , ; 187 INDEX. 249 litTEST : PAGE Power to, usually carries power to vary . , . . 87 conditioiis annexed to, should be strictly observed 136 Invested : Wiere fund already, and no power to vary, sect. 32 of Lord St. Leonards' Act does not apply , . . . 91 Investment : Usual course in maMag, on Exchange . . . . 30 Trustee's choice as to, limited . . . . . . . . 42 When allowed under 23 & 24 Vict. c. 38, notwith- standing' prohibitive words . . , . . . . . 96 Court empowered to make orders as to . . , , , . 93 On mortgage, before the 23 & 24 Vict. o. 38 . . 103—105 Of fund under provisions of Settled Land Act 99, 100 On mortgages . . . , , . . . , . 103 et seq. On personal security . . . . . . . . 141 et seq. In trade 146 On stock of private company . . , . . , . . 147 On railway mortgages . . , . . . .. 126 et seq. On leaseholds 15, 16, 165, 156 .And see Leaseholds. On second mortgage, improper . , . . . . . . 157 On equitable mortgage, improper . . . . . . 158 On contributory mortgage, improper . , . . . . 159 On sub-mortgages, whether justifiable . . . . 160 On stock-mortgages, not justified . . . . . . 161 On deposit account ,, ,. ,, .. .. 162 In trustee's own business . . . . . . 166 et seq. Temporary, on deposit note, whether justifiable . . 184 Effect of decree on trustee's discretion as to . . . . 233 Of personal estate of lunatic in purchase of lands . . 235 Investments : Court will entertain question of, on application for advice 81 Consent of married woman of imsound mind to, dis- pensed with , , , , . . . . . . . . 82 Of permissible . . . . . . . , ,. 87 et seq. Not permitted . . . . . . , . . . 141 et seq. Practice as to, where no express power, before Lord St. Leonards' Act . . . , i . . . < • 89 H 5 250 INDEX. luvESTMENTa (continued) : page Other than real securities, open to trustees . . 100 et seg. By the Court . . 221 et seg. And see Court. Under the Settled Land Act, 1882 230 Unauthorized, when trustee allowed to retain . . 234 Authorized by trust allowed, if fund in Court, when . . 235 InELAm) : Bank of, stock, an authorized investment , . . . 90 As to lending, on real securities in .. .. .. 121 InTestmeut on leaseholds for Uvea in, when allowed. . 153 Joint Teitstees : Kespousible for acts of each other, when . . . . 139 JuDQE ; AppUoation to, for advice . . . . . . 78 ei seg. Exercises personal discretion as to investments after decree . . . . . . . . . . . . . . 234 Eenton's, Loed: • Statement of rule against loans on personal security. . 143 Lands Clauses Act : Money in Court under, is cash under control of Court .. 227—229 Investment of money in Court under , . . , . . 227 Lapse op Time : may he pleaded by trustee .. .. .. ..13 Leasehold' SEomaTT : Loan upon . . , . . , . . . . , . . . 167 Leaseholds : Trustee of renewable, may renew . . . . 16, 17, 18 Tor lives, when investment on, permitted . . . . 153 Perpetually renewable, whether within "real" secu- rities . . . . . . . . , . . . . , 163 For long terms are real securities . . . . 15, 16, 165 Short, with covenants . . . , . , , . . , 156 .Legacy Dmsr Act : Investment of money in Court under .. ., .. 232 Legal Estate : ' Trustees lending on.real security should get the . , 157 INDEX. 251 Lsssob's Title : faob Trustee lending on leaseholds may dispense ynth. in- vestigation of , . , . , 7 Liabilitt: Of trustees for loss by lending too much . , . . 9 Limit of trustee's, per Jessel, M. K. . , . . , , 46 Exoneration of trustees from, in respect of broker . . 39 Of trustee for neglect of solicitor . . . . . . 109 ■who subjects trust fund to control of co- trustee . . . . . . . . . . 138 ■who mixes the trust fund . . . . . . 185 Of solicitors for trust funds in coffers of firm . . . , 186 Of trustees for funds lying idle at bankers, who fail . . 187 left on deposit at bankers, who faU 188 Lien: Cestui que trust has a, on estate purchased partly with trust fixads .. .. .. .. .. .. 178 Lips Asstjbanoe Acts : Investment of money in Court under . . . . . . 232 Life Intebest in BeaIi Estate : Mortgage of, not a real security , , . . . . 154 Lhot: Of trustees' choice as to investments . . . . . . 42 Of advance 6,114 Limitation : Statutes of, may be pleaded by trustees . . 12 et seq. Of general rule as to employment of agents . . . . 57 Lives: Leaseholds for, when investment on, permitted . . 153 Loan: To two not authorized by power to lend to three . . 123 By testator on personal security vriU not justify similar loan by trustees . . . . . . . . 144 LocAi. Loans Act, 1875 : Provision for investment on debentures, &c. issued under . . . . . • . • . • • • 95, 101 LoNO Teems op Teaes : Are real securities.. .. .. ■« ..15,16,155 Enlargement of , into fee simple 158 262 INDEX. liOED St. Leon abds' Act : pagb Applications to judge by trustees for advice under 78 et seq. Loss : • ■ ■ Estimate of, where trustees have discretion as to in- ' vestxnents ;, .. .. .. ., .. 119 Lunatic : ■ ■ Investment of personal estate of, in purchase of lands .. » 235 Kan, Isle'cp, Loans Act : Provision as to investments under » . . . . . 101 Mabkied Woman : Breach of trust at instigation of . . . . . . 10 When statutes of limitation run against . . . . 13 Consent of, to 'investments, when dispensed with , , 82 Meteopolitan Boabti op Wokks : .Investment allowed on stock created by 9S, 100, 232 MixiNo: Trust funds by trustee . . . . 185 Money : As to parting with the, on mortgage security 129 et seq. MoHTdAGE : Absence of power of sale in, no breach of trust .. 116 Of life interest in real estate, not a real security . . 154 Investments on, before the 23 & 24 Vict. c. 38 . . 103 Duties of trustees lending on . . . . . . 106 et seq. And see Duties. Koetqaqes : Investment on 103 et seq. Of freeholds and copyholds in England and Wales, sanctioned as investments . , , , . . . . 95 Trustees should not advance on, after decree, without leave of Court .. ., .. .. ., ., 117 Appropriation of testator's, by trustees .. ..118 Railway . . . . . . . . . . . . . . 126 Second, improper investment . . . , . . . . 157 Equitable, trustees must not lend on . . . . . . 168 Contributory, trustees should not lend on . . . . 169 Stock-, not justified by power to vary .. .. .. 161 Investment on, by the Court 226 INDEX. 253 MOETMAm : PAOB Investment on real securities by corporations without infringing laws relating to . . , . . . . . 106 Natiohai Debt and Looai Loans Act, 1887 : Investment on stock under . . , . . . . . 94 "NBCESSITf " • Lord Cottenham's interpretation of . , . , . . 33 Nkoleot : To invest the trust funds . . . , . . 180 et seg. * general rule as to . . . . 186 Neguqenob : Sir Greorge Jessel's view as to . . . . . . . . 33 Of solicitor, liabiKty of trustee for . . . . 109 et seq. In executing power of attorney to sell stock . . . , 129 In payment of fund to solicitor to invest on mort- gage 130 New East India Stock : Is within Ord. XXII. i. 17 92 New Yoke and Ohio Stocks : Where investment in, authorized .. .. ..102 Note oe Hand : Bond directed to be taken instead of, when . . . . 142 Office: Trustee may make no profit by Ms . . . . 166 e< seq, Ohio Stocks : Where investment in, authorized ,. .. ..102 OuissiON : By trustee to obtain documents of title . . 37, 41 " One Half " Euib (as to house property) : Abolished 6,7,114 Omits of Peoof : As to sufficient value of mortgage security . . . . 115 Opinion of Counseii : Bight of tmstees to take 85 Protection afforded to trustees acting under . , 85, 86 254 INDEX. Option : paoE When cestuis giie trust have none in charging trustees, for loss ... .. ..120 None to trastees required to invest on leaseholds, if tenant for Ufe insist . . . . , . . , . . 156 Gestuia ,q.ue trust have, when fund employed in trustee's trade, to receive interest or share of profits . . Ill et seq. Of cestuis que trust, where trustees nimeoessarily retain trust funds . . . . . . . . . . . . 180 Of cestuis que trust, where trustees unnecessarily sell stock .. 181 Of cestuis que trust to prove on bankruptcy of trustee . . 183 Oedee: Of Ist February, 1861 92,226 Oebees : Court empowered to make, as to investment of cash under its control . . . , . . . . , . 93 Oedees : (Rules of Supreme Court, 1883) XIX. r. 4 81 XXII. r. 17 .. .. 94,100,105,127,221,227 r. 18 222 XXXII. r. 6 198 XHV 205 LII. i. 4 ,205 r. 19 79, 81 rr. 20, 21, 22 80, 81 LV. rr. 3, 6 84 LXV. r. 26 84 Oedinabt Couesb of Business : When open to trustee . . . . . , . , . . 43 Oeioinatinq Summons : When trustee may take out . . . . . . . . 84 Service of, by trustee . . . . . , . . . , 84 Paeliament ; Investment allowed on securities when interest gua- ranteed by . . . . . . . . . . , . 100 Paeliamentaet Deposit Act : Investment of money in Court under . . . . , . 232 PAETliTBEB OS"' SOLICITOE-TEtrSTEE : Liabilitjr of, for funds in coffers of firm . . . . 186 INDEX. 255 PAQE Paymbnt DTK) COITKT 193 et seq. Wleu ordered . . . . . . . . . . . . 194 What interest.plaintiff must have . . . . . . 194 One moiety of fund ordered in . . . . . . . . 195 Admission by defendant, what necessary . . 195 — 199 may be gathered from letters 197 Fund not necessarily in defendant's hands at date of defence . . . . . . . . . . . . . . 199 By solicitors having trust funds in hand . . . ■ 200 Application for, how usually made , . , . . . 200 Of balance, ■when ordered .. .. ,. ..201 Bight to, depends on equity raised by claim , . . . 201 Order for, does not usually extend to interest, . 201, 202 Where trustee is debtor to trust estate . . . . . . 202 Where trustees have a discretion over fund . . . . 203 Ordered at the hearing . . . . . . . . . . 203 Time allowed for 204 How order for, enforced . . . . . , ; . 204 — 208 Patment of Monet : To broker, when justified . . . , . . 35, 41 Patmastee-Geneeal : Procedure on investment by . . . . . . • . 232 Peppeeooen Eent : Enlargement of long terms at a . . .. .. ..156 Peesonal Ceedit op Debtoe : Trust money should not be left out on 141 Peebonal Estate : Invested on preservation of real estate . . . . . . 84 Febsonal Repbesentative : Exonerated by " necessHy " 33 Peesonai. Secueitt : Expressions held insufficient to justify loan upon 147 et seq. And tee Expressions. Two interpretations of 142 As to lending on . , . . . . . . . . . . 103 Deposit of money with agent pending investment is lendwgon.. ... •; ..42 256 INDEX. Petition fob Advicb : paob Under Lord St. Leonards' Act 78 Service of . . - . . . . . . , . . . . . 81 Costs of 83, 84 PouoT : Trastee may appoint agent to receive money payable under . . . . . , , , , , , , . . 3 PoWEB OP Sale : Absence of, in mortgage, not a breach of trust .. 116 Power to Invest : Usually carries power to vary . . . . . . . . 87 Qonditions annexed to, should be observed strictly . . 136 PowEE TO Lend : To three, does not authorize loan to two . . . , 123 Peeoautions : To be taken before investing in shares of company . . 151 Pebbeevation of Real Estate : Personal estate invested on . . . . . . . . 84 Petvate Cohpant : Investment in stock of . , . . . , . . . . 147 Peofit : Trustee may not make, by his office , . . , 166 et seq. Cestuis qtie trust entitled to share of, when fund em- ployed in trustee's trade . . . . , , . . 171 What share of, treated as capital where fund used in trustee's trade . . . . . . . , . , . . 178 "Peofit Costs:" Eeoent cases as to . . . . . , . . . , . . 179 Pbofiis : Trustee chargeable for, if made on personal security - 142 Peohibitive Woedb : Investment under 23 & 24 Vict. 0. 38, when allowed notwithstanding , , . . . . . . . . 96 Peotbotion : Afforded to trustees acting under counsel's opinion . . 85 '" Pdblio " . Seotjbities : Not identical. with " government " securities . . . . 93 Pueohase: Duties of trustees for , ,,131 INDEX. 257 BaIL'WAT : FAOE Stock, with interest charged on revenues of India, not . Jlast India Stock 92 Dehenture, &o., stock of, proTision for investment on 95, 101 Mortgages . . 126 et seq. Biiiii EsxATE : Personal estate invested on preservation of . , . . 84 ft TUT. Secxtbhies : Authorized as an investment by statute , , . . 90 As to investments on, by corporations, &c. . . . . 105 In Ireland, as to lending on .. .. ,, .. 121 liOng terms of years are . . . , , , . . 15, 16, 155 Power to invest on, does not justify equitable mort- gage . . . . . . . . . . . . . . 158 Interim investment of money in Court upon . . . . 231 Beasons : Against lending on second mortgages . . . . . . 168 Beceiveb: Trustee appointed.. .. .. .. ,. ., 178 Re-htvestmknt : Trustees should insist on, when fund inadequately secured . . . . . . . . . . . . . . 134 Remaindeeman : night of , to immediate payment .. .. .,117 Tenant for life not to be favoured at expense of 133, 163 Is entitled to share of extra profit of annual income from unconverted property . . . . . . . . 89 E.E1CDIIEBATI0N : Not allowed to trustees 178 Kenewable Leasehoujs : Trustees of, may renew . . . . . . . . 16 — 18 Retention : Of testator's India and Bank Stock 97 Unnecessary, of trust funds in hands of trustees 180 et seq. Etjle: As to trustee's conduct in investing . , . . . . 29 conversion . . . . . . . . . • . . 88 Of Supreme Court, November, 1888 . . . . 91, 221 258 INDEX. Rules : paob NoW regulating procedure on applications by trustees • for advice ■■ .. .. .. .. .•• ..79 Regulating procedure on inTCstments by the Court . . 232 Russian Bonds : Executor held justified in retaining 102 Sale : Absence of power of, in mortgage, no breach of trust 116 Scotland : Quare, -whetliei trustee should lend money on real estate in . . . . . . . . . . • ■ • • 105 Second Moethaoe : Trustees must not lend on , . . . . . . . 157 Seevioe : Of petition or summons under Lord St. Leonards* Act 81 Of originatiug summons by trustee . . . . . . 84 Of petition to convert Consols into other securities . . 223 Settled Estates Act, 1877 : As to investment of money in Court under . . . . 229 Settled Land Act : Investment of fund under provisions of . .99, 100, 230 Shakes : Of a company, precautions to be taken before in- vesting on ' . , , . , , . , . . , , ISl In name of one trustee, not a proper investment . . 139 Specific bequest of, that can only stand in one name . , 139 Shabeeoldebs : Trustees are, under Companies Act, when . , . . 152 SOLICTTOB : may act as agent of trustee to receive money . . . . 2 Solioitoe-Tettstee : Absconding, co-trustees held liable for . . . . 129 Liability of partners of, for moneys in cofiers of firm 186 SoLiaioES : Trustee should not generally pay moneys to, for in- vestment . . . . . . . , , . , , 37, 38 Busiaess, choice of a valuer is not . . . , , . 58 INDEX. 259 SouciTOBS {contintied) : faqe Neglect of, liability of trustees for . . . . 109 et aeg. Payment of fund to, to invest on mortgage, trustee liable for loss ..■ .. 130 Trustees sbould not employ borrower's .. 132 Trust funds in coffers of , liability of firm .. 186 Ordered to pay trust-moneys into Court .. 200 Held to be constructive trustees .. 216 But not where they do only legal work , . .. 217 South: Sea Stock : T-nvestmeTit in , , . . .. 146 Statutes : 4 & 5 Will. 4, p. 29 ... 121, 226 8 & 9 Yict. 0.18 (Lands Clauses Act) . . 227, 231 10 & 11 Vict. 0.46 .. 122 22 & 23 Vict. c. 36 (Lord St. Leonards' Act) , . 97, 103 B. 30 .. 78 o. 31 27,39 8.32 90,92,96,98,122 0. 39 91, 225 23 & 24 Vict. 0. 38 (Law Prop. Amend. Act) . . 82 , 97, 105 s. 9 .. 80 s. 10 93, 103, 222 s. 11 93,96, 105, 221 s. 12 .. 91 c. 145 .. 17 25 & 26 Vict. c. 89 (Companies Act), s. 30 . . ■ . . 152 27 & 28 Vict. u. 114 (Improvement of Land Act), 8. 60 128 s. 61 129 30 & 31 Vict. c. 132, s. 1 . . ..... .. 91, 92, 225 s. 2 100 31&32Vict.c. 109, 8. 9 101 32 & 33 Vict. u. 62 (Debtors Act), s. 4, sub-sect. 3 . . . . 204—208 33 & 34 Vict. c. 34 105 s. 2 106 • 8.3 106 34Vict. u. 27 101,126 34 &3&Viot. c. 47, s. 13 100 36 & 37 Vict. c. 66 (Judicature Act) 83 Si 100 81 260 INDEX. Stattjtes {continued) : paob 37 & 38 Vict. c. 78 (Vendor and Purchaser Act) . . 9 38 & 39 "Vict. c. 83, a. 27 101 40 & 41 Vict. 0. 18, 8. 36 229 0. 59, 8.12 153 41 & 42 Vict. 0. 54, s. 1 206—208 42 & 43 Vict. 0. 60 . . 92 0. ccvi, 8. 37 100 43&44 Viot.0.8 101 44 & 45 Vict. 0. 41 (Conveyancing Act) .. 2,9,11 s. 65 156 45 & 46 Vict. c. 38 (Settled Land Act) 99 8.21 99,100,230 B. 32 229—231 s. 64 17 0. 39, s. 11 156 c. 75 (Married Women's Property Act) 11 46 & 47 Vict. -0. 52 (Bankruptcy Act, 1883) . . . . 14 51 Vict. 0.2 ..• 93,227 61 & 52 Vict. c. 59 (Trustee Act, 1888) ..let seg., 56 et seq., 109, 114, 146, 165, 167, 189 Stook: Bank of England, an authorized investment , , . . 90 Ireland, an authorized investment , . . . 90 East India, an authorized investment . , . . , . 90 includes " old " East India . . . . 91 later, included in sect. 32 of Lord St. Leonards' Act . . . , . . . . 91 Converted hy virtue of National Debt Act, 1888, how to he invested . . . . . . . . . . . . 93 Of Indian railway, when investment on annuities created by 42 & 43 Viot. c. ccvi, allowed .. ..100 Unnecessary sale of, option of beneficiaries in case of 181 SlOOK-MOETOAQEB : Loans upon, not justified by power to vary securities 161 Stbanoees : Held responsible as constructive trustees . . 209 et seq. StJB-MOBTQA.OES : . Whether investment on, allowable . , . . . . 160 Summons : For advice under Lord St. Leonards' Act . . . . 78 service of . . . . . . . . . . 81 costs of t . . 83 INDEX. 261 StmuONS {eoniinued) : faqe Originating, by trustee . . . . . . . . . . 84 service of . . . . . . . . . . 84 SUBBENBEB : Trustees lending on copyholds should procure , , 105 SUETKTOB OB VaLTJEE : Trustee should act on report of . . . . . . . . 6 Tempoeaet : Deposit of trust funds at bank, when allowable . . 183 Investment in improvement of land in Ireland . . 122 Tenaito fob LrPE : • Interest allowed to, where fund has been employed by trustee in his own trade . . . . . . . . 178 Not to be favoured at expense of remaindermen 133, 163 Where he can insist on an investment on leaseholds . . 156 Teems of Teaes : Xiong, are real securities . . . , . . . . . . 155 Testatoe's:. India and Bank Stock, retention of . . . . . . 97 Mortgages, appropriation of , by trustees .. ..118 Loan on personal security will not justify similar loan by trustees . , . . . . . . . . . . 144 Title: Trustee may accept shorter,, than purchaser entitled to require . . . . . . . . . . . . . . 7 Mortgagor's, . should be attended to by trustee- mortgagee. . .. .. .. .. ,. .. 109 Teele-deeds : Trustees should not advance on deposit of . . . . 158 Teade : Investment of fund in trustee's own . . . . 1S6 et seq. Advancement on security of .. .. 73 • Buildings, advance upon. . .. .. ,. ,,114 Tbadee-teusteb : Keeping trust funds at his banker's, treated as using them in his trade , . . . , . , . , , 177 TsAMWATS Act, 1870 : Investment ofmoney in Court under 232 Teansfee : ■ From Consols to East India Stock 97 Trust ; ■Breach- of, at instigation of beneficiary ,, , ,, 10 11, 12 .. 12 16, 17, 18 19 ei seq. .. 32 262 INDEX, Teust Estate : page Trustees may. make no profit out of . . . . 166 et teg. Tettst Fuhiis : Should not be subjected to control of one trustee . . 138 In bands of defendant not a trustee, when ordered into Court 216,218 Te-dstee Act, 1888 1 etaeq,. Tbtistee Reliep Act : Investment of money in Court under . . . . . . 232 Teustees : May appoint solioitor to receive money . . . . 2 Indemnity to, for breach of trust . . . . . . 10 May insure against loss by fire . . May plead Statutes of Limitation Of renewable leaseholds may renew Conduct expected of, in investing When allowed to act by other hands Not called on to guarantee solvency of agent, when . . 38 I'Hmd facie liable for fund till invested . . . , , . 39 When ordinary course of business open to . . . . 43 Must not expose trust property to unusual risks . . 43 Xiending on mortgage, must not employ mortgagor's valuer , . . . . , . . . . . , . . 6 Should exercise discretion in choice of agent . , . . S8 • apply to judge for advice . . . . . . . . 78 '' take out originating sixmmons . . , . . . 84 Eight of, to take counsel's opinion . . . . . , 85 How far protected by acting under counsel's opinion 85, 86 Must not allow trust fund to lie idle . . , . . . 87 Duties of, as • to investment, whether original, or after-appointed , , , . , , . . . . , . 88 Consequence to, of failure to convert . . . . . . 89 Entitled to invest on real securities . . . . . . 90 May invest on securities adopted by the Court, when . 93 Investments open to, other than real securities 100 et seg. May lend on mortgages of freeholds and copyholds in . England and Wales 95 Duties of, lending on mortgage , , . . . . 106 et teg. And see Duties, liability of, fot neglect of their solicitor , . 109 et seg. .May appropriate testator's mortgages, when . . . . 118 INDEX. 263 TEUSTKEa {eontinueH) : page Must not lend to one of themselves .. ,. ..123 .. 126 .. 131 .. 132 .. 133 As to aidvanoes on railway mortgages by. For purchase . . . . . . . . Should not employ borrower's solicitor Should not favour tenant for life Kecouped out of interest of tenant for life, when . . 133 Should not subject fund to control of one of them- selves ..■ .. .. .. .. .. .. 138 Not justified in lending on personal security because testator did so . . , . . . . . . . . . . 144 When liable on bankruptey of husband . . . . 144 Should investigate constitution of company before in- vesting in shares ., .. .. .. .. 151 Shareholders under Companies Act . . . . . . 152 Must not lend on second mortgage . , ... . . 157 equitable mortgage . . . . . . 158 contributory mortgage .. ..159 Whether justified in lending on sub-mortgages . . 160 Not justified in lending on stock-mortgages .-. . . 161 May not profit by their office . , . . ., 16G et seq. Trader-, keeping trust funds at their bankers, treated as employing them in their trade .. .. ..177 Liable for funds unnecessarily left on deposit with bankers, who fail .. .. .. .. .. 184 Strangers held responsible as constructive . . 209 et seq. Effect of decree on discretion of, as to investment . . 233 When allowed to retain unauthorized investments . . 234 TeUSTEES foe CHAErrABIiB PUEPOSES : As to investmente on real securities by.. .. ..105 Tdenpike Bonds : Not real securities . . .. .. '. . .. .. 124 How far trustees justified in investing upon . . . . 125 " TWO-THIEDS " IRXTLE : Trustees may lend two equal third parts of value . . 6, 61, 63, 114 Tmi'd-trp: Trust moneys on advance on mortgage, improper . . 116 Unatjthoeizeij Investments : When trustees allowed to retain 234 264 INDEX. United Kinqdoji : paqe Heal securitieB in any part of the, an authoiized in- vestment 90, 104 United States op Ameeioa : Where investment authorized in funds of, what in- cluded .. .. •• 102 Unnecessaet Sale of Stock : Option of cestuis que tnist in case of . , . . . . 181 Unnecessaet Retention of Funds bt Tettstees: Option of beneficiaries in case of . . ■ . . . 180 Unneoessaey deposit of funds at haniers, vrho fail : Trustees held responsible . . . . . . . . 188 Unsound Mind : Consent of married ■woman of, to investments, dis- pensed with . , . . . . . . . . , , 82 Valuation : Duties of trustees lending, as to . . . . 106 et aeq. Value: Trustees must act on proper report as to . , . . 6 Valuee : ■ Mortgagee-trustees must not employ mortgagor's . . 6 Trustees should select their own . . . . 58, 109 Vaet : Power to, usually carried by power to invest . . . . 87 conditions annexed to, should be strictly observed .. .. .. .. .. 136 ViOTOEiA Bonds : . When executor justified in retaining . . . . . . 102 Wastino Pbopeett : Eule as to conversion of . . . . . . . . . . 88 Teaes : Long terms of, are real securities , , , . . , 156 lOHDON : PBIHTID BT 0. ». EOWOBTH, OBBAT HEW BTBBET, PKTTEB IiAKE. ( 265 ) APPENDIX. THE TEUST INVESTMENT ACT, 1889. Text of the Statute with. Notes and Eef erences. 52 & 53 Vict. c. 32. j^n Act to amend the Law relating to the Investment of Trust Funds. [12th August, 1889.] Be it enacted by the Queen's most excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows : — 1. This Act may be cited as "The Trust Invest- Short title. ment Act, 1889." 2. This Act shall not extend to Scotland. Extent of Act. 3. It shall be lawful for a trustee, unless ex- Authorized pressly forbiddeii by the instrument (if any) ^''^'*°'*"*'- creating the trust, to invest any trust funds in his hands iu manner following, that is to say : — (a) In any of the Parliamentary Stocks or G. : N 266 APPENDIX. Putlic Funds or Government Securities of the United Kingdom : (b) On real or heritatle securities in Ghreat Britaia or Ireland : (c) In the stock of the Bank of England or the Bank of Ireland : (d) In India Three-and-a-half per Cent. Stock and India Three per Cent. Stock, or in any other capital stock which may at any time hereafter he issued by the Secretary of State in Council of India, under the authority of Act of Parliament, and charged on the revenues of India : (e) In any securities the interest of which is or shall be guaranteed by Parliament : (f) In consolidated stock created by the Metro- politan Board of Works, or which may at any time hereafter be created by the London County Council, or in debenture stock created by the Receiver for the Metropolitan Police District : (g) In the Debenture or Eentcharge or Guaran- teed or Preference Stock of any railway company in Great Britain or Ireland in- corporated by special Act of Parliament, and having during each of the ten years last past before the date of investment paid a dividend at the rate of not less than three per centum per annum on its Ordinary Stock: THE TRUST INVESTMENT ACT, 1889. 267 (h) In the stock of any railway or canal com- pany in Great Britain or Ireland whose undertaking is leased in perpetuity, or for a term of not less than two himdred years at a fixed rental to any such railway company as is mentioned in suh- section (g), either alone or jointly with any other railway company : * (i) In the Dehenture Stock of any railway com- pany in India, the interest on which is paid or guaranteed by the Secretary of State in Council of India : (j) In the " B " Annuities of the Eastern Bengal, the East Indian, and the Sciode, Punjaub and Delhi Railways, and any like annuities which may at any time hereafter be created on the purchase of any other railway by the Secretary of State in Council of India, and charged on the revenues of India, and which may be authorized by Act of Parliament to be accepted by trustees in Heu of any stock held by them ia the pur- chased railway : (k) In the stock of any railway company in India upon which a fixed or minimum dividend in sterling is paid or guaranteed by the Secretary of State in Council of India: (1) In the Debenture or Ghiaranteed or Prefer- ence Stock of any company in Great Britain n2 268 APPENDIX. or Ireland, established for the supply of water for profit, and incorporated by special Act of Parliament or by Eoyal .Charter, and having during each of the ten years last past before the date of investment paid a dividend of not less than five pounds per . centum on its Ordinary Stock : (m) In nominal or inscribed stock issued, or to be issued, by the corporation of any muni- cipal borough, having according to the returns of the last census prior to the date of investment a population exceeding fifty thousand, or by any county council, under the authority of any Act of Parliament or Provisional Order : (n) In nominal or inscribed stock issued, or to be issued, by any Commissioners incorpo- rated by Act of Parliament, for the purpose of supplying water, and having a compul- sory power of levying rates over an area having, according to the returns of the last census prior to the date of investment, a population exceeding fifty thousand, pro- vided that during each of the ten years last past before the date of investment the rates levied by such Commissioners shall not have exceeded eighty per centum of the amount authorized by law to be levied : (o) In any of the stocks, funds, or securities, for the time being authorized for the investment THE TRUST INVESTMENT ACT, 1889.- 269 of casli Tinder the control or subject to the order of the Court : And also from time to time to vary any such invest- ment. As to the effect of the absence of restrictive words "Tjnless expressly forbidden," &c. (as in the repealed 11th section of lie Act 23 & 24 Vict. c. 38), see ante, p. 96. (b) The words "real or Heritable securities in G-reat Britain or Ireland," are very comprehensive. The re- pealed section (32) of the Act 22 & 23 Vict. c. 35, was limited to real securities in. any part of the United King- dom ; but the repealed Act 4 & 5 Will. 4, c. 29, enabled trustees who were authorized to lend on real securities in England, Wales, or Great Britain, to lend on real securities in Ireland. The word "heritable" seems to apply peculiarly to Scotland : see Be Miles' Will, ante, p. 105. (e) This is a re-enactment of sect. 2 of the repealed Act 30 & 31 Vict. c. 132. (f) This extends the provision of sect. 13 (repealed) of the Act 34 & 35 Vict. c. 47. (g) This is somewhat more stringent than the corre- sponding provision relatiag to the investment of cash under the control of the Court {ante, p. 95). In the pre- sent case the company must be incorporated by special Act, and the dividend paid on Ordinary Stock must have been " not less than 3 per cent per annum." (h) This is new, and considerably enlarges the power of investment given to trustees by sub-section (g). (i) The clause as to the investment of cash under the control of the Court ia Indian guaranteed railway stocks and shares {ante, p. 95), provides that such stock or shares shall not be liable to be redeemed within a period of fifteen years from the date of investment; but see sect. 4 (2) of the new Act, post, p. 270. (j) See sects. 17 and 25 of the Act 48 & 49 Vict. o. 25. n3 270 APPENDIX. (1) This is new, and not available for the investment of cash under the control of the Court. (m) See the provision in sect. 4, suh-seot. (2), post, as to this investment.. (n) This also is a new provision. (o) This includes "stocks of Colonial Governments' guaranteed by the Imperial Q-ovemment " ; and ' ' nominal debentures or nominal debenture stock under the Local Loans Act, 1815," not liable to be redeemed within fifteen years from the date of investment. Purchase at a 4. — (1.) It shall be lawful for a trustee under premium of _ redeemahle tne powers of this Act to invest m any of the " °° ^' stocks, funds, shares, or securities, mentioned or referred to in section three of this Act, notwith- standing that the same may be redeemable, and that the price exceeds the redemption value. (2.) Provided that it shall not be lawful for a trustee tmder the powers of this Act to purchase at a price exceeding its redemption value, any stock mentioned or referred to in sub-sections (g), (i), (k), (1), and (m), which is liable to be redeemed within fifteen years of the date of purchase at par or at some other fixed rate, or to purchase any such stock as is mentioned or referred to in the sub-sections aforesaid, which is liable to be redeemed at par or at some other fixed rate, at a price exceeding fifteen per centum above par or such other fixed rate. (3.) It shall be lawful for a trustee to retain until redemption any redeemable stock, fund, or THE TRUST INVESTMENT ACT, 1889. 271 security, which may have been puxohased in accordance with the powers of this Act. This section, to some extent, disposes ol the question suggested ante, p. 222, as to whether an obligation is im- posed on trustees to prevent a loss to capital by providing for a redemption at par where the purchase price exceeds the redemption value. 5. Every power conferred by this Act shall be Discretion of exercised accordiag to the discretion of the trustee, *^'"*«^8- but subject to any consent required by the instru- ment (if any) creating the trust with respect to the investment of the trust funds. 6. This Act shall apply as well to trusts created Application before as to trusts created after the passing of this Act, and the powers hereby conferred shall be in addition to the powers conferred by the instrument, if any, creating the trust. It is to be observed that the Act is retrospective ; and the last provision of this section seems to meet the deci- sion in He Warde's Settlement, ante, p. 90. 2 J. & H. 191. 7. Where the council of any county or borough investments or any urban or rural sanitary authority are f„jXby kcal authorized , or required to invest any money for authorities. the purpose of a loans fund or a sinking fund, any enactment relating to such investment shall be modified so far as to allow such money to be in- 272 APPENDIX. vested in any of tlie stocks, funds, shares, or secu- rities in which trustees are authorized by this Act to invest, except that such council or authority shall not by virtue of this section invest in any stocks, funds, shares, or securities issued or created by themselves, nor in real or heritable securities. Provided that it shall not be lawful for any such council or authority to retain any securities which are liable to be redeemed at a fixed time at par or at any other fixed rate and are at a price exceed- ing their redemption value, unless more than fifteen years will elapse before the time fixed for redemp- tion. Tliis section was added to the Act after it had been read a third time in the House of Commons. It appears to he an useful extension of the provisions of the Act. It ■will be observed that two investments are not open to local authorities — (1) stocks, funds, shares, and Beourities issued or created by themselves; (2) real or heritable securities. The words in the proviso at the end of the section, "unless more than fifteen years will elapse before the time fixed for redemption," seem likely to occasion some difficulty. Is it intended that the instant the period is less than fifteen years the authority is bound to realize ? Eepeal of g. The enactments specified in the schedule to enactmentsin ,, .,, ,, ■,-,,■, . , schedule. this Act are hereby repealed to the extent m the third column of that schedule mentioned, but with- 6ut prejudice to the validity of any act done under any enactment so repealed. THE TEUST INVESTMENT ACT, 1889. 273 9. For the purposes of this Act the following Interpreta- terms have the meanings hereinafter respectively assigned to them, that is to say : — The expression "trustee" shall include an exe- cutor or administrator and a trustee whose trust arises by construction or implication of law as well as an express trustee. The expression "stOtek" shall include fully paid-up shares. The expression "instrument" shall include a Private Act of Parliament. The expression "the court" shall mean (except as to Irish trusts) the High Court of Justice in England, and as to Irish trusts, the High Court of Justice in Ireland. " Stock," it is to te observed, is to include " shares," ■with the stipulation that they must be " fully paid-up " : see ante, p. 222. [Schedule. 274 APPENDIX. Section 8. SCHEDULE. Enactments Eepbaied. SesBion and Chapter. Title. Extent of Bepeal. 4&5WiU.4, 0.29. An Act for facilitating tie loan of money upon . landed securities in Ire- land. The whole Act. 22 & 23 Vict. c. 35. An Act to further amend tte law of property and to relieve trustees. Section thirty-two. 23 & 24 Vict, c. 38. An Act to further amend the law of property. Section eleven. 30&31Yiot. c. 132. An Act to remove doubts as to the power of trus- tees, executors, and ad- minisU'ators to invest trust ftinds in certain securities, and to de- clare and amend the law relating to such invest- ments. The whole Act. 34&35Vict. c. 47. The Metropolitan Board of Works (Loans) Act, 1871. Section thirteen. THE TRUST INVESTMENT ACT, 1889. 275 The following passages in the body of this Work are affected by the Trust Investment Act, 1889:— Page 90. The section (32) of 22 & 23 Vict. c. 35, liere set out is now repealed by the Trust Investment Act, 1889, but its provisions are re-enacted by the new Act. The last provision in section 6 of the new Act seems to meet the decision in Be Wardens Settlement. 2 J. &H. 191 91. It wiU be remembered that the new Act repeals the whole of 30 & 31 Vict. c. 132. 92. Section 32 of 22 & 23 Vict. c. 35, is repealed, as above mentioned; but see sect. 3, sub-sect, (d) of the new Act. 93. Section 11 of 23 & 24 Vict. c. 38, is repealed by the new Act; but see sect. 3, sub-sect, (o) of the new Act, where the quaUflcation " having power, &c." (which occurs in the repealed section), is absent. 96. Section 11 of the Act 23 & 24 Vict. c. 38, is repealed as above mentioned. 98. Section 5 of the new Act deals with the question of consent, referred to in the last paragraph on this 100. The whole of the Act 30 & 31 Vict. c. 132, is re- pealed ; but sect. 2 is re-enacted in sect. 3, sub- sect, (e) of the new Act. Section 13 of 34 & 35 Vict. c. 47, is repealed ; but see sect. 3, sub-sect, (f) of the new Act. 104. The 32nd section of the Act 22 & 23 Vict. c. 36, is repealed, as mentioned above. 103. Section 11 of 23 & 24 Vict. c. 38, is repealed, as mentioned above. 276 APPENDIX. Page 121, 122. The Act 4 & 5 Will. 4, c. 29, is repealed, aa mentioned above. 127, 128. As pointed out above, sect. 3, sub-sect, (g) of the new Act adds the condition tkat the dividend paid must have been not less than 3 per cent, per annum on the Ordinary Stock. 221. The section (11) of the Act 23 & 24 Vict. o. 38, here referred to, is repealed, as mentioned above. 222. As to purchase at a premium of redeemable stock, see sect. 4 of the new Act and the note to that section. 226. The Act 4 & 5 Will. 4, c. 29, is now repealed, as mentioned above. FBINTED BY 0. F. BOWOBTH, OXBA.T NEW BIBBET, FBTTEB I.AIIE. June, 1889. -A. O.A.TJLLOa-"CrE OP LAW WORKS FUBIiXSHEB BY STEVENS AND SONS, LIMITED, 119 & 120, CHANCERY LANE, LONDON, {And at 14, £eU Yard, Lincoln's Inn). TelegrapMe Address— " BHODBONS, London." A Catalogue of Modern Law Works (1889), together tcit/i a complete Chronological List of all the English, Irish, and Scotch Reports, Abbreviations used in reference to Law Reports and Text Books, and an Index of Subjects. Bemy 8w. {100 pages), cloth lettered. \^In preparation. Acts of Parliament. — Public and Local Acts from an early date may be had of the Publishers of this Catalogue, tvho have also on sale the largest collection of Private Acts, relating to Estates, Enclosures, Railways, Roads, §-c., 8(c. ACCOUNT STAMP DUTY.— Gosset.— ri. Hew and exhaustive Index. By John Cobeie Caetee, and J. S. Sakdaes, Esqrs., Barristers-at-Law. Royal 12mo. 1886. 11. Is. " An admirable storehouse of information." — Law Journal, •* A very satisfactory treatise on election law .... his chapters on election expenses and illegal practices are well arranged, and tersely expressed. The com- pleteness and general character of the book as regards the old law are too well known to need description." — Solicitors* Journal. ELECTRIC LIGHTING. —Bazalgette and Humphreys,— rw< "Local and Municipal Grovemment." Cunynghame's Treatise on the Law of Electric Lighting, with the Acts of Parliament, and Rules and Orders of the Board of Trade, a Model Pro-risional Order, and a set of Forms, to which is added a Description of the Principal Apparatus used in Electric Lighting, with Illustrations. By Hbnbt CTOntHQKAJiB, Barrister-at-Law. Royal 8vo. 1883. 12«. 6d. EQUITY, and Vide CHANCERY. Chitty's Index.— r»n'Tn to do ; how he does it: and what consequences ensue. The result is to make the whole treatise satisfactorily dear and easy to apprehend. If the index is good— as it appears to be— practitioners will probably find thd'book a thoroughly useful one." — Law Quarterly. Seviem, October, 1888. EXECUTORS.^IVIacasltie's Treatise on the Law of Executors and Administrators, and of the Administration of the Estates of Deceased Persons. "With an Appendix of Statutes and Forms. By S. C. MiOABKiE, Esq., Barrister-at-La-w. 8to. 1881. 10s. Gel. Williams'. Law of Executors and Administrators, — ^Eighth Edition. By BoiiAiO) VAuaHAir WniiAns and Waltee Vatjghan WiuaAMS. Esqrs., Barristers-at-Law. 2 vols. Royal 8vo. 1879. 3/. 16s. EXTRADITION, — Kirchner's L'Extradition. — EeoueilRenf ermant in Extenso tous les Traites oonolus jusqu'au ler Janvier, 1883, entre les Nations civilisees, et donnant la solution precise des difficultes qui penvent surgir dans leur application. Avec une Preface de Me Geoeqbs Laohaud, Avocat a la Cour d'Appel de Paris. Puhhe sons les auspices de M. C. E. Hotaed ViNOEaiT, Directeur des AfiEaires CrimineUes de la Police Metropolitaine de Londres. Par F. J. KiBOENEE, Attache a la Direction des Affaires CrimineUes. In 1 Tol. (1150 pp.). Eoyal 8vo. 1883. 21. 2s. FACTORS ACTS,— Boyd and Pearson's Factors Acts (1823 to 1877), With an Introduction and Explanatory Notes. By Huqh Eenwick Botd and Abthde Beilby Peabson, Barristers-at-Law. Koyal 12mo. 1884. 6s. FACTORY ACTS.— Notcutt's Law relating to Factories and Work- shops. Second Edition. 12mo. 1879. 9s. FARM, LAW OF.— Dixon's Law of the Farm,— A Digest of Oases connected with the Law of the Farm, and including the Agricultural Customs of England and Wales. Foiirth Edition. By Henet Pbekins, Esq., Barrister-at-Law. 8vo. 1879. 1?. 6». « It is impossible not to be struck with the extraordinary research that must have been used in the compilation of such a book as this." — Law Journal. FIXTURES.— Amos and Ferard on the Law of Fixtures and other Property partaking hoth of a Heal and Personal Nature. Third Edition. Revised and adapted to the present state of the Law by O. A. Feeabd and W. Hcwland Robeets, Esqrs., Barristers-at-Law. DemySvo. 1883. 18«. " An accurate and well written woik."—Satiirdat/ Semew. FORMS,— Allen,— Fi,Esqrs.,Barristers-at-Law. Royal 12mo. 1888. 1?. 4s. "Practitioners who used Bullen and Leake before the Judicature Acts will feel at home with this edition, and young practitioners should make themselves at home with it."— Law J owmal, Dec. 15, 1888. " The editors have, however, wisely, we think, endeavoured to supply the necessary deficiencies of Part I. by devoting a first chapter to pleading in general, which includes //he 1883 Bules applicable to statements of claim. The four subsequent chapters, ex- tending over some eighty-five pages, deal respectively with statements of defence and subsequent pleadings, counter-claims, third party, and proceedings in lieu of de- murrer. ' These five chapters give an admirable general view of the present system of pleading ... A very large number of precedents are collected together, and the notes are full and clear."— £oio Tima, July 21, 1888. POISONS. — Reports of Trials for Murder by Poisoning; by Prussio Acid, Strychnia, Antimony, Arsenic and Aconitine; including the trials of Tawell, W. Palmer, Dove, Madeline Smith, Dr. Pritchard, Smethurst, and Dr. Lamson. With Chemical Introductions and Notes. JBy Gr. Latham Beowne, Esq., Barrister- at-Law, and C. G. Stewaet, Senior Assistant in the Laboratory of St. Thomas's Hospital, &c. Demy 8vo. 1883. 12s. U. *«• All standard £aw WorTwme heigt in Stock, in law ealf and other findings. 54 STEVENS AOTJ. SONS, LI MITED, POWERS,— Farwell on .Powers.~A Concise Treatise on Powers. By Geoeoe FiKWELt, Esq., Barrister-at-Law. 8vo. 1874. 11. Is. PRINTERS, PUBLISHERS, &c.— Powell's Laws specially affect- ing Printers, Publishers and Newspaper Proprietors, By Aethtjk Pq-wekl, Esq., Ban-ister-at-Law. Second Issue, comprising . several additional subjects ; including the Law of Libel Amendment Act. Demy Svo. 1889. 4s. PROBATE,— Browne's Probate Practice: A Treatise on the Prin- ciples and Practice of the Court of Probate, in Contentious and Non- Contentious Business. Eevised, enlarged, and adapted to the Practice of the High Court of Justice in Probate business. By L. D. Powi,ES, Barriater-at-Law. Including Practical Directions to Solicitors for Prqceedings in the Kegistry. By T. "W. H. Oaxley, of the Principal Registry, Somerset House. 8vo. 1881. 11. 10s. PUBLIC HEALTH,— Bazalgette and Humphreys.— F»