Power of investment

a power to vary investments.

India 3 per Cent. Stock.

India 3 per Cent. Stock.

Indian Guaranteed Railway Stocks or Shares, provided that in each case such stock or shares shall not be liable to be redeemed within a period of fifteen years from the date of invest

ment.

Stocks of colonial governments guaranteed by the Imperial Government.

Mortgages of freehold and copyhold estates respectively in England and Wales.

Metropolitan Consolidated Stock £3 10s. per Cent.

£3 per Cent. Metropolitan Consolidated Stock.

Debenture, preference, guaranteed, or rentcharge stock 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 shall not be liable to be redeemed within a period of fifteen years from the date of investment.

A power to invest trust moneys in one or more of carries with it several specified modes of investment includes (it is apprehended) a power to vary the investments, and under such a power the trustees may sell out stock and invest the proceeds in any security authorized by law for trust funds (e); but in a case where a sum of Bank Annuities was settled without any express power to change the investment, it was held that no change could be made under the statutory power (f).

Provisions of

The Trustee Act, 1888 (g), contains the following to investments provisions as to investments by trustees:

Act of 1888 as

by trustees.

Loans by trustees.

Sect. 4.-(1.) No trustee lending money upon the security of any property shall be chargeable with breach of trust by reason only of the proportion borne by 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

(e) Re Clergy Orphan Corporation, L. R. 18 Eq. 280.

(f) Re Ward, 2 J. & H. 191. (g) 51 & 52 Vict. c. 59.

that in making such loan the trustee was acting upon a report as to the value of the property made by a person whom the trustee reasonably believed to be an able practical surveyor or valuer, instructed and employed independently of any owner of the property, 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 property of any tenure, whether agricultural or house or other property, on which the trustee can lawfully lend.

(2.) No trustee lending money upon the security of any leasehold property shall be chargeable with breach of trust only the ground that in making such loan he dispensed, either wholly or partially, with the production or investigation of the lessor's title.

upon

(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 purchaser is, in the absence of a special contract, entitled 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 existing securities

as well as to new securities, and investments made as well before 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.

Sect. 5.-(1.) Where a trustee shall have improperly advanced trust money on a mortgage security 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 security shall be deemed an authorized investment for such less sum, and the trustee shall only be liable to make good the sum advanced in excess thereof with interest.

Liability for of improper

loss by reason

investments.

Investments on mortgage of long terms.

Trustees may waive the

power of sale

(2.) This section shall apply to investments made as well before 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.

Sect. 9. A power to invest trust money in real securities shall authorize and shall be deemed to have always authorized an investment upon mortgage of property held for an unexpired term of not less than two hundred years and not subject 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 nonpayment of rent.

Although a power of sale was usually inserted in mortgages, before that power was conferred by statute in a mortgage. it was not a breach of trust to accept the security without it (c), and it is apprehended that a trustee would be justified, if acting bona fide, in negativing the application of the statutory power.

Trustee may not invest on

In the absence of an express power, it is a breach a contributory of trust to invest on a contributory mortgage (d).

mortgage.

Lending on personal security.

Whether trustee may purchase redeemable

above par.

Trustees cannot lend on personal security under a power to invest the trust funds at their discretion (e), or under a direction to lay out "on such good security as the trustees can procure and may think safe" (f). As a general rule, a trustee should not purchase stock shortly redeemable at a price above par, even stock at price though the stock is one coming within the range of investments authorized by the deed or by statute, because such an investment involves a diminution of capital, and is therefore primâ facie detrimental to the persons entitled in remainder. But there may be circumstances in which the increase of the father's income is for the benefit of the children, even though their ultimate share in the principal is thereby reduced; and if a trustee, in the exercise of his discretion, chooses to make such an investment, the Court will presume, in the absence of evidence to the contrary, that he has

(c) Farrar v. Barraclough, 2 Sm. & Gif. 231.

(d) Webb v. Jonas, 39 C. D. 660.

(e) Pocock v. Reddington, 5 Ves.

794.

(f) Wilkes v. Steward, Coop. 6.

acted bona fide and with a due regard to the interest of all parties, and will uphold it (g).

liability of

trustees in case of loss of

trust fund.

If a trustee improperly retains money uninvested, Extent of or for want of due care allows it to be lost, he is chargeable with the sum so retained or lost, with interest thereon at four per cent.; and if he has improperly lent or used the trust money in trade, the cestuis que trust have the option to charge him either with the profits actually made or with interest at 5 per cent., that being the ordinary rate of interest paid on capital in trade (h).

executors

of income of

property

Where personal property is bequeathed upon trust where for A. for life, with remainders over, and the trustee neglect to or executor, instead of converting it where he ought so convert, excess to do, permits a portion to remain outstanding on an unconverted unauthorized investment, producing a large annual in- beyond 3 per come which the tenant for life receives, the trustee cent. is capital. will be compelled to account to the remainderman, not only for the principal money, but also for the excess of income paid to the tenant for life beyond the income which would have been received by him if there had been a conversion and investment in three per cent. consols at the end of a year from the testator's death; in other words, the excess of income will be treated as capital (). But it has been held that Terms, if this principle is not to be extended to the case of trustees make a trustee making an unauthorized investment by which investment. the tenant for life receives a larger income. Thus, where trustees without authority lent trust moneys at interest at 5 per cent., it was held that the tenant for life was entitled to the whole interest, and that the remainderman had no right to insist that any part of such interest formed capital. The Master of the Rolls observed, that when trustees or executors commit a breach of trust by lending the money on some un

(g) Hume v. Richardson, 4 D. F. & J. 29.

(h) Robinson v. Robinson, 1 D. M. & G. 255, 257.

(i) Dimes v. Scott, 4 Russ. 195; Brown v. Gellatly, L. R. 2 Ch. 751. See also Howe v. Lord Dartmouth, 7 Ves. 137; Mills v. Mills, 7 Sim.

unauthorized

Difference between trustees

authorized or required to invest with consent.

Trustee may insure buildings.

Extent of trustee's liability for

authorized investment, they have discharged their liability in favour of the cestuis que trust in remainder, when they have made good the capital and any increase which that capital may have received (k).

If trustees are authorized to invest or change the investment with the consent of the tenant for life, neither party can be compelled to acquiesce in the desire of the other, but the voluntary concurrence of both parties is requisite to a valid exercise of the power (1). But in a case where the trustees were authorized and required to change the investments at the request of the tenant for life, the Court compelled the trustees to comply with the request of the tenant for life, that the existing securities should be changed (m).

By the Trustee Act, 1888, a trustee is authorized to insure against loss or damage by fire any building or other insurable property to any amount (including the amount of any insurance already on foot) not exceeding three equal fourth parts of the full value of such building 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 obtaining the consent of any person who may be entitled wholly or partly to such income. But this power does not apply to any building or property which a trustee is bound forthwith to convey absolutely to any cestui que trust upon being requested so to do (n). And by the same Act a trustee is authorized to renew leases for years or for lives (0).

A trustee is bound to conduct the business of the trust in the same manner as an ordinary prudent man fraud of agent, of business, regardful of the future pecuniary interests of those having claims upon him, would conduct his own, and beyond this he is not liable. He may employ solicitors, brokers, and other agents to do that

(k) Stroud v. Gwyer, 28 Beav. 130, 141. But see Baynard v. Woolley, 20 Beav. 583.

(1) Lee v. Young, 2 Y. & C. 532.

(m) Beauclerk v. Ashburnham, 8 Beav. 322. And see, accordingly, Cadogan v. Essex, 2 Drew. 227. (n) Sect. 7. (0) Sect. 10.