Learoyd v Whiteley

In my opinion a trustee is not bound to have special knowledge. Where there is any special knowledge required, he may, and ought to consult those who could advise him from their special knowledge,—lawyers in the case of legal matters, and experts as to the value of property where there is any question as to the value of property. But I cannot accede to the view which Mr. Hemming pressed upon us so very much, that you must consider whether the trustee is or is not possessed of special skill and ability. If he likes to undertake the duty of a trustee (although I am not for my part at all inclined to bear hardly on a trustee who acts honestly) he must be dealt with as an ordinary man of ordinary intelligence. Having said that, let us look at what was done by the trustees as regards the investment on the brick-field.

Such being the principle, we have to apply it to this case, and to consider the two investments which the trustees made. One observation applies to both of them, viz., that the trustees acted bonâ fide, and obtained and acted on the advice of a solicitor and valuer who were apparently competent men in their respective professions. It was contended on behalf of the trustees that this circumstance alone was enough to exonerate the trustees from liability. But this contention goes too far. If it were to prevail the Court would in effect decide that trustees could delegate their trust to any competent persons, and so terminate their own responsibility. This, however, trustees cannot do. They may and must seek advice on matters they do not themselves understand; but in acting on advice given to them they must act with that prudence which I have already endeavoured to describe.

Now as regards the investment of the £3000 on the brickfield, I cannot bring myself to say that the security was one which a prudent man, investing money with a view to preserve it for the benefit of others as well as of himself, would have lent money upon. As an abstract proposition I am not prepared to say that a freehold brick-field cannot be a real security within the meaning of the power. It would clearly be a real security within the power if the value of the land, apart from the particular trade carried on upon it, was sufficient to secure the sum advanced. But where, as here, the value of the land, apart from the particular trade of brick-making carried on upon it, is nothing like the sum advanced, the whole aspect of the case changes. The value of such a brickfield as a security for money lent on it in excess of the value of the land as land, depends on the trade of brick-making, and on the probability of a purchaser being found to buy and work the brick-field in the event of the mortgage money being called in. This depends on the state of the brick-making trade, and on the profits which can be made by selling bricks made in the field in question. Moreover a lender of money on such a security must exercise unusual vigilance in seeing that he does not allow the money to remain uncalled in longer than is safe. A security of so hazardous a nature as this, though in one sense and to some extent a real security, is not a proper security for trust money; it is not in truth a real security for any sum beyond the value of the land as land. The security for more than this value is the solvency of the borrower, and the trade carried on by him. No prudent man investing money for the benefit of himself and others, would, in my opinion, have invested so large a sum as £3000 upon so hazardous a security as this brick-field, even after receiving Mr. Utley's report. In my opinion, therefore, the Vice-Chancellor was right in holding the trustees responsible for the loss sustained by this investment.

As regards the investment of £2000 on the four freehold houses in Earl Street, Lower Broughton, I am not prepared to say that an ordinary prudent man investing money for the benefit of others, as well as of himself, would not have advanced £2000 on the security of these houses. The security in this case was ordinary house property. There was nothing exceptional or unusually hazardous in it. The rental exceeded the interest on the sum advanced. A building society had advanced more than £2000 upon the houses, and an apparently competent valuer, consulted by the trustees, expressed his opinion to be that the houses were good security for £2000. An ordinary prudent man having no special knowledge of the value of house property, might well act on this advice, and see no reason for distrusting it. Moreover, a further advance was obtained on these same houses from another quarter, and when put up for sale more than £2000 was bid for them. The sum bid was not enough to cover principal, interest, and costs, and was not therefore accepted. Under these circumstances, although the result has been unfortunate, I do not think it is made out that the trustees took less care than they ought when they made the investment. No other want of diligence was proved. As regards this investment, therefore, I also agree with the Vice-Chancellor.

Whilst on the one hand the Court ought not to encourage laxity and want of care, on the other hand the Court ought not to prevent people from becoming trustees by converting honest trustees into insurers of the moneys committed to their care. I have endeavoured to avoid both errors.

I agree with Lord Justice Cotton on the point as to interest on the £3000 raised by Mr. Hemming . The tenant for life cannot be made to refund the interest paid to her, or to recoup the trustees the difference between 5 per cent. and 4 per cent.

In my judgment, therefore, both appeals ought to be dismissed.