Re Whiteley. Whiteley v Learoyd
| Jurisdiction | UK Non-devolved |
| Year | 1885 |
| Court | House of Lords |
| Date | 1885 |
Trustee - Investment - Real Securities Mortgage of Trade Premises - Brickfield - Valuation of Trade Premises - Interest.
Trustees invested trust money on the security of a 5 per cent. mortgage of a freehold brickfield, with buildings, machinery and plant affixed to the soil, being advised by competent valuers that the property was a good security for the amount invested. The valuers' report was in fact based upon a valuation of more than double the amount invested and upon the supposition that the concern was going, but the report did not state this, nor distinguish between the value of the land and that of the buildings, machinery, &c. The trustees acted bonâ fide but acted upon the report without making any further inquiries. The security having failed:—
Held, affirming the decision of the Court of Appeal (
APPEAL from a decision of the Court of AppealF1.
The facts are fully set out in the report of the decision of Bacon V.C.F2. Briefly they were as follows:—
Benjamin Whiteley by his will in 1874 appointed the appellants, Learoyd an accountant, and Carter a schoolmaster, executors and trustees, and directed them to invest £5000 and pay the income to the respondent Elizabeth Whiteley during her life and after her death to hold the £5000 or the investments in trust for her children. The investment clause contained a power to invest “in or upon real securities in England or Wales.” The testator died in 1876 and his will was proved by the appellants.
In January 1878 the appellants invested £3000, part of the £5000, together with £500 from another source, upon a 5 per cent. mortgage by Messrs. Barstow & Hartley of a freehold brickfield containing about ten acres with the buildings, machinery, brick and pipe kilns affixed to the soil, situate near Pontefract, Yorkshire, where the mortgagors then carried on their business of sanitary tube and fire-clay manufacturers. Before lending the money the appellants employed Messrs. Utley and Gray, local valuers of experience, to survey on their behalf The valuers' report, made in October 1877, after describing the situation, works, machinery &c. and business then carried on, said “we are aware there should be a large margin in brickworks as the material is constantly being worked out, but having carefully considered this we think the land, premises and freehold fixtures form a good security for £3500.” The report then stated that the mortgagors intended to lay out about £1700 in buildings and other improvements and added, “when these things are carried out the security would certainly be as good for £4500 as it is now for £3500.”
The mortgagors paid the interest regularly till August 1884 when they failed, and the business ceased. In January 1884 they tried to sell the property by auction but failed, it being bought in at £3300. The respondents, Elizabeth Whiteley and her children, having brought an action against the appellants seeking to make them liable for an improper and unauthorized investment, at the trial before Bacon V.C. evidence was given for the plaintiffs by valuers who saw it in 1885, that the property was in 1878 probably worth about £2300, taken not as a going concern, and about £3200 as a going concern. For the defendants Mr. Utley who made the report in 1877 testified that he had then valued it for the purposes of the security at £7200 as a going concern, the land being valued at £2000; and his evidence was supported by other valuers.
Bacon V.C. held the trustees liable to make good the £3000 with interest at 4 per cent. from August 1884F3, and this decision was affirmed by the Court of Appeal (Cotton, Lindley and Lopes L.JJ.)F4.
July 1, 5, 7. Sir Horace Davey Q.C. and W. Baker for the appellants:—
The ordinary rule as to investments — not an absolute one but such as the Courts will in the absence of special circumstances act on — is that trustees should not lend more than two-thirds of the value on freehold land, and one-half on land and buildings used in trade. The evidence establishes (and the courts below so thought) that £7200 was the fair value of the property at the time of the investment. Was that a proper security, seeing that a trade was carried on? The rule of one-half allows for the fact of trade. If besides the margin of one-half a deduction is to be made for the value of the trade machinery, plant &c. the allowance is made twice over. That is the fallacy of the judgments below. Trustees are not expected to possess professional skill or knowledge: Speight v. GauntF5, per Jessel M.R. and the House of Lords. It is said that a trustee must exercise that prudence and care which a reasonably prudent and careful man would exercise in the management of his own affairs. Not a very satisfactory rule; a man is entitled to be imprudent in his own affairs. The only rule really is what the Courts think a prudent trustee ought to do. If he chooses reasonably proper professional agents and honestly acts on their advice he is not liable: Ex parte BelchierF6. Rowland v. WitherdenF7 and Bostock v. FloyerF8 do not contradict the principle contended for. Stickney v. SewellF9, Stretton v. AshmallF10, and In re OliveF11 are illustrations of the rule of practice as to an ordinary prudent man, where the trustees were held liable. So is Oxley v. ScarthF12 where they were exonerated. Lewin on Trusts (ed. 1885) p. 325 says that trustees would not in general be justified in lending so much as one-half on buildings used in trade, but the authorities cited do not bear out that...
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