liabilities of trustee

In this project we shall be dealing with the different kinds of the liabilities which a trustee exercises. The precise liabilities that a trustee has will be defined by the trust deed and by law. However, a trustee will normally be given the following liabilities:
Execution of trust
Acquaintance of Trust Property
Protection of Title of Trust Property
Not to set up Title adverse to the beneficiary
Take care of the Trust Property
Convert perishable property
Be impartial among the beneficiaries
Protect the trust property from adverse beneficiary
To maintain and keep books and accounts
Investment of Trust money

All the liabilities of a trustee are ‘fiduciary’, which means that they must be exercised as follows:
in the best interests of all the beneficiaries;
only for the benefit of the beneficiaries and not for third parties;
not for the trustees’ benefit, unless specifically authorised;
not to defeat the terms of the trust, but in compliance with them and in consideration of all other relevant circumstances.

Duties and Liabilities of Trustee are given under Indian Trust Act, 1882 from section 11 to 30.

11. Trustee to execute trust-The trustee is bound to fulfil the purpose of the trust, and to obey the directions of the author of the trust given at the time of its creation, except as modified by the consent of all the beneficiaries being competent to contract. Where the beneficiary is incompetent to contract, his consent may, for the purposes of this section, be given by a principal Civil Court of original jurisdiction.
Nothing in this section shall be deemed to require a trustee to obey any direction when to do so would be impracticable, illegal or manifestly injurious to the beneficiaries.
Explanation.-Unless a contrary intention be expressed, the purpose of a trust for the payment of debts shall be deemed to be-
(a)to pay only the debts of the author of the trust existing and recoverable at the date of the instrument of trust, or, when such instrument is a will, at the date of his death, and
(b) in the case of debts not bearing interest, to make such payment without interest.

12. Trustee to inform himself of state of trust-property-A trustee is bound to acquaint himself, as soon as possible, with the nature and circumstances of the trust-property; to obtain, where necessary, a transfer of the trust-property to himself; and (subject to the provisions of the instrument of trust) to get in trust-moneys invested on insufficient or hazardous security.

13. Trustee to protect title to trust-property-A trustee is bound to maintain and defend all such suits, and (subject to the provisions of the instrument of trust) to take such other steps as, regard being had to the nature and amount or value of the trust-property, may be reasonably requisite for the preservation of the trust-property and the assertion or protection of the title thereto.

14. Trustee not to set up title adverse to beneficiary-The trustee must not for himself or another set up or aid any title to the trust-property adverse to the interest of the beneficiary.

15. Care required from trustee-A trustee is bound to deal with the trust-property as carefully as a man of ordinary prudence would deal with such property if it were his own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for the loss, destruction or deterioration of the trust-property.

16. Conversion of perishable property-Where the trust is created for the benefit of several persons in succession, and the trust-property is of a wasting nature or a future or reversionary interest, the trustee is bound, unless an intention to the contrary may be inferred from the instrument of trust, to convert the property of a in to property permanent and immediately profitable character.

17. Trustee to be impartial-Where there are more beneficiaries than one, the trustee is bound to be impartial, and must not execute the trust for the advantage of one at the expense of another. Where the trustee has a discretionary power, nothing in this section shall be deemed to authorize the Court to control the exercise reasonably and in good faith of such discretion.

18. Trustee to prevent waste-Where the trust is created for the benefit of several persons in succession and one of them is in possession of the trust-property, if he commits, or threatens to commit, any act which is destructive or permanently injurious thereto, the trustee is bound to take measures to prevent such act.

19. Accounts and information-A trustee is bound (a) to keep clear and accurate accounts of the trust-property, and (b), at all reasonable times, at the request of the beneficiary, to furnish him with full and accurate information as to the amount and state of the trust-property.

20. Investment of trust-money-Where the trust-property consists of money and cannot be applied immediately or at an early date to the purposes of the trust, the trustee is bound (subject to any direction contained in the instrument of trust) to invest the money on the following securities, and on no others:-
(a) in promissory notes, debentures, stock or other securities [of any State Government or] of the
Central Government or of the United Kingdom of Great Britain and Ireland:
Provided that securities, both the principal whereof and the interest whereon shall have been fully and unconditionally guaranteed by any such Government shall be deemed, for the purposes of this clause, to be securities of such Government;
(b) in bonds, debentures and annuities [charged or secured by the [Parliament of the United Kingdom] [before the fifteenth day of August, 1947] on the revenues of India or of the [Governor-General in Council] or of any Province:
Provided that, after the fifteenth day of February, 1916, no money shall be invested in any such annuity being a terminable annuity unless a sinking fund has been established in connection with such annuity; but nothing in this proviso shall apply to investments made before the date aforesaid;
c) in stock or debentures of, or shares in, Railway or other Companies the interest whereon shall have been guaranteed by the Secretary of State for India in Council [or by the Central Government] [or in debentures of the Bombay [Provincial] Co-operative Bank, Limited, the interest whereon shall have been guaranteed, by the Secretary of State for India in Council] [or the State Government of Bombay];
(d) in debentures or other securities for money issued, under the authority of [any Central Act or Provincial Act or State Act], by or on behalf of any municipal body, port trust or city improvement trust in any Presidency-town, or in Rangoon Town, or by or on behalf of the trustees of the port of Karachi:
Provided that after the 31st day of March, 1948, no money shall be invested in any securities issued by or on behalf of a municipal body, port trust or city improvement trust in Rangoon town, or by or on behalf of the trustees of the port of Karachi.
(e) on a first mortgage of immoveable property situate in [any part of the territories to which this Act extends: Provided that the property is not a leasehold for a term of years and that the value of the property exceeds by one-third, or, if consisting of buildings, exceeds by one-half, the mortgage-money;
(ee) in units issued by the Unit Trust of India under any unit scheme made under section 21 of the Unit Trust of India Act, 1963; or;
(f) on any other security expressly authorized by the instrument of trust [or by the Central Government by notification in the Official Gazette,] or by any rule which the High Court may from time to time prescribe in this behalf:
Provided that, where there is a person competent to contract and entitled in possession to receive the income of the trust-property for his life, or for any greater estate, no investment on any security mentioned or referred to in clauses (d), (e) and (f) shall be made without his consent in writing.

20A. Power to purchase redeemable stock at a premium-(1) A trustee may invest in any of the securities mentioned or referred to in section 20, notwithstanding that the same may be redeemable and that the price exceeds the redemption value:
Provided that a trustee may not purchase at a price exceeding its redemption value any security mentioned or referred to in clauses (c) and (d) of section 20 which is liable to be redeemed within fifteen years of the date of purchase at par or at some other fixed rate, or purchase any such security as is mentioned or referred to in the said clauses 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.
(2) A trustee may retain until redemption any redeemable stock, fund or security which may have been purchased in accordance with this section.

21. Mortgage of land pledged to Government under Act 26 of 1871- Deposit in Government Savings Bank. Nothing in section 20 shall apply to investments made before this Act comes into force, or shall be deemed to preclude an investment on a mortgage of immoveable property already pledged as security for an advance under the Land Improvement Act, 18713*, or, in case the trust-money does not exceed three thousand rupees, a deposit thereof in a Government Savings Bank.

22. Sale by trustee directed to sell within specified time-Where a trustee directed to sell within a specified time extends such time, the burden of proving, as between himself and the beneficiary, that the latter is not prejudiced by the extension lies upon the trustee, unless the extension has been authorized by a principal Civil Court of original jurisdiction.

23. Liability for breach of trust-Where the trustee commits a breach of trust, he is liable to make good the loss which the trust-property or the beneficiary has thereby sustained, unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of the facts of the case and of his rights as against the trustee.
A trustee committing a breach of trust is not liable to pay interest except in the following cases:-
(a) where he has actually received interest:
(b) where the breach consists in unreasonable delay in paying trust-money to the beneficiary:
(c) where the trustee ought to have received interest, but has not done so:
(d) where he may be fairly presumed to have received interest.
He is liable, in case (a), to account for the interest actually received, and, in cases (b), (c) and (d), to account for simple interest at the rate of six per cent. per annum, unless the Court otherwise directs.
(e) where the breach consists in failure to invest trust-money and to accumulate the interest or dividends thereon, he is liable to account for compound interest (with halfyearly rests) at the same rate:
(f) where the breach consists in the employment of trust property or the proceeds thereof in trade or business, he is liable to account, at the option of the beneficiary, either for compound interest (with half-yearly rests) at the same rate, or for the net profits made by such employment.

24. No set-off allowed to trustee- A trustee who is liable for a loss occasioned by a breach of trust in respect of one portion of the trust-property cannot set-off against his liability a gain which has accrued to another portion of the trust-property through another and distinct breach of trust.

25. Non-liability for predecessor’s default- Where a trustee succeeds another, he is not, as such, liable for the acts or defaults of his predecessor.

26. Non-liability for co-trustee’s default- Subject to the provisions of sections 13 and 15, one trustee is not, as such, liable for a breach of trust committed by his co -trustee:
Provided that, in the absence of an express declaration to the contrary in the instrument of trust, a trustee is so liable—
(a) where he has delivered trust-property to his co-trustee without seeing to its proper
(b) where he allows his co-trustee to receive trust-property and fails to make due enquiry as to the co-trustee’s dealings therewith, or allows him to retain it longer than the circumstances of the case reasonably require;
(c) where he becomes aware of a breach of trust committed or intended by his co-trustee, and either actively conceals it or does not within a reasonable time take proper steps to protect the beneficiary’s interest.
Joining in receipt for conformity- A co-trustee who joins in signing a receipt for trust property and proves that he has not received the same is not answerable, by reason of such signature only, for loss or misapplication of the property by his co -trustee.

27. Several liability of co-trustees- Where co-trustees jointly commit a breach of trust, or where one of them by his neglect enables the other to commit a breach of trust, each is liable to the beneficiary for the whole of the loss occasioned by such breach.
Contribution as between co-trustees- But as between the trustees themselves, if one be less guilty than another and has had to refund the loss, the former may compel the latter, or his legal representative to the extent of the assets he has received, to make good such loss; and if all be equally guilty, any one or more of the trustees who has had to refund the loss may compel the others to contribute.
Nothing in this section shall be deemed to authorise a trustee who has been guilty of fraud to institute a suit to compel contribution.

28. Non-liability of trustee paying without notice of transfer by beneficiary-When any beneficiary’s interest becomes vested in another person, and the trustee, not having notice of the vesting, pays or delivers trust-property to the person who would have been entitled thereto in the absence of such vesting, the trustee is not liable for the property so paid or delivered.

29. Liability of trustee where beneficiary’s interest is forfeited to the Government-When the beneficiary’s interest is forfeited or awarded by legal adjudication [to the Government], the trustee is bound to hold the trust-property to the extent of such interest for the benefit of such person in such manner as [the State Government] may direct in this behalf.

30. Indemnity of trustees-Subject to the provisions of the instrument of trust and of sections 23 and 26, trustees shall be respectively chargeable only for such moneys, stocks, funds and securities as they respectively actually receive, and shall not be answerable the one for the other of them, nor for any banker, broker or other person in whose hands any trust property may be placed, nor for the insufficiency or deficiency of any stocks, funds or securities, nor otherwise for involuntary losses.

The Indian Trusts Act, 1882 provides for certain duties/liabilities of a Trustee, we shall see each one of them in brief detail.
Execution of Trust
The trustee is required to actually carry out the purpose of the trust as laid out in the Trust deed. The trustee is also required to follow the directions of the Author of the Trust at the time of creation of the trust. However, the trustee is not required to follow such directions if they are impractical or illegal.

Acquaintance of Trust Property
The trustee is required to know about the details, whereabouts and current condition of the trust property and also to take appropriate measures to secure the trust property.

Protection of Title of Trust Property
The trustee is required to defend all the claims against the title of the Trust property and to take adequate measures to assert and protect the title of the property.

Not to set up Title adverse to the beneficiary
As the trustee is entrusted with the trust property to maintain it for the benefit of the beneficiaries, it is expected and required of the trustee to not set up any title adverse to the beneficiary.
A good example explaining this point would be, suppose the trustee is entrusted with an immovable property and is required to apply the rents and profits of such property for the benefit of the beneficiaries. The trustee is also given the rights to sell such property. 

It is expected of the trustee that the trustee would not sell such property to himself or anyone of his relatives or friends or a person of like nature, as such an action on the Trustee’s part would be adverse to the beneficiaries, and the trust factor upon which the foundation of the trust is built, would cease to exist.

Take care of the Trust Property
The trustee is required to provide adequate safeguard and required to apply such prudence to the trust property, as that of an ordinary man would apply to his own property. 
However, the Act provides that the Trustee would not be responsible for any loss caused to the trust property or the benefits arising thereof, if he had applied such prudence as would an ordinary man would apply to his own property.

Convert perishable property
If the trust property is of such nature, that with time, it would keep on deteriorating and keep losing value, the trustee is required to convert, i.e. sell and convert such property into cash proceeds and apply such proceeds for the benefits of the beneficiaries. This duty is especially required of a trustee when the trust is created for the benefit of several persons in succession.

Be impartial among the beneficiaries
When the trust is created for the benefit of several beneficiaries, the trustee is required to apply the benefits received from the trust property equally among the beneficiaries, without being partial to anyone or any group among the beneficiaries.

Protect the trust property from adverse beneficiary
When there are several beneficiaries of a trust, and one or more of such beneficiaries commit, or threaten to commit an act, which would be adverse to the interest of other beneficiaries and the trust in general, the trustee is required to take measures to stop such act of such beneficiary/beneficiaries.

To maintain and keep books and accounts
The trustee is required to keep a clear and accurate account of the trust property and at all times, provide the same to the beneficiary upon the request of the beneficiary.

Investment of Trust money
The Act specifically provides that when the trust property consists of money, and such money is not required to be immediately applied for the benefit of the beneficiaries, the trustee is required to invest such money in such instruments as provided for in the Act. The Act provides for instruments such as promissory notes and other securities of the Central Government; in stock or debentures of the Railways or other government companies; in Units issued by the unit Trust of India, etc.
Re Hays Settlement Trust states the trustee has a duty to consider from time to time whether or not to exercise a power. It will not be a bona fide exercise of power if the trustee acted:
With improper motive
For irrational or perverse relation; or
Failed to or refused to consider exercise of the power,
a trustee who does not comply with these duties will be liable to the beneficiary to account for any loss occasioned by the misfeasance.

Kirchner v. Muller, an action for personal injuries, one of the defendants was the trustee in control of the property in question. The plaintiff was injured while walking in front of the premises on the sidewalk. The property was described as “owner and controlled” by the defendant, trustee Muller. Thirty eight years before, the then owner had left a palml covering a drain in the sidewalk protrudig over the crub. On the day in question a truck in parking struck the plank which flew up and injured the plaintiff. The truck driver was absolved of negligence and the defendant trustee was held personally liable to the plaintiff for her injuries. Therein the court said:
“As to the plaintiff, whatever was the title or right of the defendant, they had an obligation to her, because as natural persons they were in control of the premises and managed them, and were liable for the negligence on their past. The general rule in most jurisdictions is that where a trustee is sued as a trustee, a judgment may be entered against the defendant individually and the words “as trustee” may be treated as surplusage.

Banking Comm. In Behalf of Citizen’s State Bank v. Marquardt- Though the trustee may be personally liable for waste or fraud, (it would appear that other torts also might here be included by implication) the estate itself is subject to all liabilities arising out of the property held in trust.
The duty of trustee is the liability of trustee whose breach is wind up the trust (Advocate General v. Fatima Sultana)

In Bejdev v. Tribhuwandas it has been said that if any trustee becomes unsuccessful in execution of any trust and does not do any work for the execution of trust, then he will be held responsible for the winding up of the trust and the damage caused to trust.
The trustee has to execute the trust on the terms and conditions, the trustee is not bound to accept its responsibility. Any person may accept or not, this responsibility depends upon his will.

We have discussed different kinds of duties and liabilities which are vested with the trustee. It is said that the relation of Trust is like a glass. Once broken, it is never the same as before. By a prima facie observation of the Indian Trust Act, it can be seen that apart from the legal aspects, the duties and liabilities provided in the Act intend to preserve the delicate relation of trust, so that the trust may be kept, and the intention with which the trust is formed may be fulfilled. Therefore, here we may conclude with the duties and liabilities of a Trustee as provided for in the Indian Trust Act, 1882.

Gandhi B.M., Equity, Trusts and Specific Relief (Eastern Book Company, Reprint 2019)

Aishwarya Says:

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