practice deck Flashcards
Fred and James are trustees for Alice and Ben. There are no clauses in the trust instrument relevant to this question. Fred wishes to purchase some land from the trust.
Which ONE of the following statements is CORRECT?
A. Trustees can never buy property from the trust due to the conflict of interest.
B. There is nothing to stop Fred buying the land from the trust if he buys it at auction because he will pay a fair price.
C. An unauthorised sale to Fred would be voidable by the beneficiaries within a reasonable time.
D. A sale of the land to Fred with James’ agreement could not be challenged.
The answer is C.
Without authorisation, the sale of trust property to one of the trustees gives rise to a conflict of interest (the trustee acting as both seller and buyer in the transaction). Under the ‘self-dealing rule’, the beneficiaries can set the transaction aside if they wish to do so, provided they do so within a reasonable time.
A is not correct because trustees can buy land from the trust if there is a clause permitting them to do so in the trust instrument, the court consents, or all the beneficiaries are sui juris and agree with knowledge of all the material facts.
B is not correct because, on the face of it, any sale to a trustee, regardless of the circumstances of the sale, is a breach of their fiduciary duty because there is a conflict of interest, and the principle of strict liability arises. It will not matter that the trustee pays a fair price for the property, or if the sale takes place at an auction.
D is not correct because the agreement of the other trustee(s) does not validate the sale.
