The custody of trust funds is not property entrusted to the law-agent of the trust, and the immunity conferred upon trustees by a clause of indemnity against loss by the intromissions of their factors or agents does not extend to such a case, the clause only covering acts of factors or agents properly appointed and acting within the legitimate scope of their agency.
In July 1887, on a change of investment, certain trust funds were received by the law-agent and factor of the trust, and remained in his hands pending investment till the following December. On 21st December the trustees became aware that those funds had been placed in bank on deposit-receipt in the agent’s name, and they then instructed the agent to re-deposit it in their name as trustees. Between the 21st December and the 18th June following one of the trustees called repeatedly upon the agent to see that the transfer had been made, but was on each occasion met by the excuse that the agent had sustained an accident and was too ill to attend to business. No communication was made by the trustees to the bank, and on 18th January the agent cashed the receipt and misappropriated the proceeds, Prior to this the trustees had no reason to suspect their agent’s solvency or integrity. They were protected by an indemnity clause in their trust-deed declaring that they were not to be liable for the intromissions of any agent who, in transacting the business of the trust, should receive any part of the trust estate into his hands.
In an action brought by a beneficiary, held ( rev. the judgment of the First Division, diss. Lord Morris) that the trustees were liable for the loss sustained through the agent’s defalcation.
Judges:
Lord Chancellor (Halsbury), Lords Macnaghten, Morris, Shand, Davey, and Lord James of Hereford
Citations:
[1900] UKHL 635, 37 SLR 635
Links:
Jurisdiction:
England and Wales
Trusts
Updated: 06 December 2022; Ref: scu.631498
