(a) Meaning and definition – A breach of trust is failing to do what a trust requires a trustee to do. But it is not only by commission of an act that a breach ensues, but also by an omission to do so.
Any act by a trustee in reference to the trust-property in contravention of the duties imposed on him by the trust, or in excess of those duties, and any neglect or omission on his part to fulfil those duties and the concurrence or acquiescence by one of the several trustees in a similar act, neglect or omission on the part of a co-trustee constitutes a breach of trust.
But when (i) the provisions of the trust deed relieve a trustee, or (ii) the statute so relieves him, or (iii) where it is occasioned by necessity, or (iv) authorised, and (v) condoned by beneficiaries, and where (vi) it is due to an innocent mistake, a trustee is relieved from the liability ensuring therefrom.
(b) Section 23 – As laid down by the section, a trustee is liable for breach of trust. Liability presupposes existence of duty and a trustee is under an imperative duty to execute the trust.
A trustee will not incur liability if (i) he was induced by the fraud of the beneficiaries, or (ii) the beneficiaries have concurred therein, or (iii) have subsequently acquiesced therein with full knowledge of their rights and the facts.
Section 23, Illustrations, (a) to (g) explain that (i) where a trustee improperly leaves the trust-property outstanding, which is consequently lost, (ii) where on account of his neglect, sale of a trust-property is unduly delayed and a consequent loss in the form of fall of price ensues,
(iii) where unreasonable delay in investing trust funds invites a loss of interest to trust-property or to the beneficiary, (iv) where a loss results from retaining trust money in trustee’s hands, while they could have been invested in government securities as explained in Section 20, and
(v) where a loss results from his selling of the trust land which he should not have done; in all such cases he is liable for breach of trust.
(c) Measure of liability – The measure of liability for breach is the loss caused to the estate which will have to be paid with interest as explained in Section 23. A causal connection must be established between the act or omission of a trustee and the loss resulted.
(d) No set-off [S. 24] – In case there are more than one transactions and a loss results in one and a gain in another, a trustee cannot be allowed to set-off the loss against the gain obtained and thus cover his neglect or default and get out of the liability. But if gain and loss both are in one and the same transaction it can be adjusted.
(e) Liability for interest [S. 23] – No interest is payable by a trustee except in the following cases-
(i) where he has actually received it;
(ii) where he has delayed payments to the beneficiary;
(iii) where he ought to have received interest, but has not done so;
(iv) where he may be fairly presumed to have received it, e.g., if he has employed trust-property in private trade;
(v) where he fails to invest trust money (a gross misconduct amounting to a direct breach of trust); and
(vi) where he employs the trust-property in trade or business.
For following the trust-property or its proceeds into the hands of a trustee or his legal representatives, there is no bar of the Limitation Act.
(f) Co-Trustees; Liability and non-liability [Ss. 25, 26, 27, 28, 29 and 30] – As provided by Section 26, one trustee is not liable as such for a breach of trust committed by his co-trustee; but this non-liability is there only when he behaves in accordance with the provisions of Section 13 and 15.
If there is no express declaration about such liability in the instrument of trust, a trustee is so liable for his co-trustee’s default in the following cases-
(i) where he delivers property to co-trustee without seeing to its proper application;
(ii) Where he allows his co-trustee to receive the trust-property, but fails to inquire into the dealings made by the co-trustee; or
(iii) where he allows him to retain it for a period longer than required; or
(iv) where he actively conceals or does not take proper steps to protect the property from his co-trustee’s breach of trust, either committed or intended.
Co-trustees jointly committing a breach of trust or enabling one to commit such a breach, make each one liable to the beneficiary for the whole of the loss so occasioned. Each is therefore liable to contribute equally towards the loss.