Acquisition of property by a fiduciary of his principal is governed by two rules.Discuss

Topics: Fiduciary, Trust law, Trustee Pages: 6 (2079 words) Published: April 2, 2014
 BACHELOR OF LAWS DEGREE
TRUST LAW

DATE OF SUBMISSION: 25/11/2013
QUESTION: Acquisition of property by a fiduciary of his principal is governed by two rules..discuss

INTRODUCTION
“A fiduciary is a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and cador which it requires” (blacklaws dictionary). Lord Millet in Bristol and West Building Society V Mothew1 stated that a fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Duties of a fiduciary

Bristol & West BS v Mothew, per Millett LJ:
The distinguishing obligation of the fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary. The duty is comprised of the following sub rules: Must act in good faith

must not profit from the trust

Must not place himself in position where duty and interest no conflict

May not act for own/third party benefit without informed consent of principal

Must prove any transaction with principal was fair and full disclosure When a duty of care is imposed, equity requires an arguably stricter standard of behavior that that of a common law tortuous duty of care. He is required to be loyal at all times and to act for the sole benefit of the sole benefit of the beneficiary. The basic general rule governing fiduciaries is that a person in a fiduciary position is not allowed to put himself in a position where his interests and duty conflict (no conflict rule). The rule was laid down in the case of Keech V Sanford2.in the above case, a lease was renewed in the name of the trustee for, for the trustees own benefit, despite the fact that the lessor had refused to renew the lease in favor of the trust. The Courts held that the trustee should not hold the property in trust for the beneficiary even though his interest at the time he acquired the property did not conflict with his duty as the trustee According to the principle in Bray V Ford3, trustees and fiduciaries generally cannot retain any unauthorized profits generated through their connection to the trust. Any proceeds from such are considered to be held on trust for the beneficiaries. However in the case of Swain V the Law Society4, Sphenson L.J regarded the profit rule as one aspect of the wider conflict rule. This includes circumstances where a reasonable person looking at the circumstances can conclude a possibility of conflict. The self dealing rule and the fair dealing rules governs the acquisition of property by the The two rules were set out in the case of Tito V Waddel5, Megary stated that: The self dealing rule provides that if a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito justitae, however fair the transaction. On the other hand, the fair dealing rule provides that if a trustee a purchases the beneficial interest of the beneficiary, the transaction is not voidable ex debito justitae, but can be set aside by the beneficiary unless the trustee can show that: I. He has taken no advantage of his position.

II. He has made full disclosure to the beneficiary
III. The transaction is fair and honest.
The rules are further discussed as below:
SELF DEALING RULE
Sale of the trustees property is one of the simplest instances when a trustee or an agent can breach the duty vested on him by the principal with property to be sold by him, he sells it to himself. No matter how fair the price is, the sale is voidable. The principal may set aside the transaction may set aside the transaction if the price goes below the...

Bibliography: blacklaws dictionary.
Edelman.J. (2013). understanding the self dealing rule in equity.
mohammed, r. (2010). unlocking trust 3th edition. hodder education.
Penner.J. (2010). THE LAW OF TRUST 7th edition. london: oxford university press.
scott, A. (1949, december). Retrieved from california law review: http://www.jstor.org/stable/3477686
The cambridge law journals. (2006, june 29). application of the rule in keech v sanford. Retrieved 11 2013, 21, from the cambridge law journals: http://dx.doi.org/10.1017
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