Liabilities of Trustee

Liabilities of Trustee

1. Liability for breach of trust (Section.23)

Breach of trust means a breach of any duty imposed on a trustee, by any law for the time being in force. It includes the violation of any direction given in the trust-deed. The trustee is liable to make good the loss sustained by the beneficiary or the trust property, due to breach committed by the trustee.

This is subject to certain exceptions:

1. Fraud by beneficiary or notification by him of a breach with full knowledge thereof.

2. Trustee is liable to pay interest, in the following:

a) When he has actually received interest, but has not accounted for.

b) where he ought to have received, but has failed to collect,

c) where he causes unreasonable delay in paying to the beneficiary.

d) the rates of interest must be as per the trusts Act. He must pay actual interest received in (a) and pay simple interest in (b) & (c) above. But he must pay compound interest if a breach committed by him in not investing in the moneys as per the Trust Act or in not using in trade or business as required under the trust deed.

2.    No set off:

A trustee is not allowed to make a set-off of a loss against a gain he may have made with the use of trust property.

3. Not liable to predecessor’s default:

A trustee is not liable for the defaults committed by his predecessor. He is liable only for his default or breach of trust.

4.    Not liable for Co-trustee’s defaults:

The general rule is that a co-trustee is not liable for the acts of the other trustees. This is subject to exceptions:

  1. failing to observe the proper application of trust property, by other trustees,
  2. failure to make enquires duly or
  3. concealing the breach of failure to take steps to protect the beneficiary’s interest.

Hence, the trustee is liable, in these cases for the acts of the co-trustees.

5.    Several Liabilities & Contribution:

The trustees are jointly and severally liable for the breaches committed by them. They must make good the loss. Each trustee has a right contribution from others. However, a trustee who commits a fraud is barred from instituting a suit for contribution.

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