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Trustee Cannot Be in Conflict With Duty

Trustee Cannot Be in Conflict With Duty

Equity will not allow a person who is in a position of trust to carry out a transaction where there is a conflict between his or her duty and his or her interest.

It is a rule of universal application that no trustee shall be allowed to enter into engagements in which he or she has, or can have, a personal interest, conflicting, or which may possibly conflict, with the interests of those whom he or she is bound by fiduciary duty to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness, or unfairness, of the transaction; it is enough that the interested parties object. It may be that the terms on which a trustee has attempted to deal with the trust estate are as good as could have been obtained from any other quarter or better, but so inflexible is the rule that no inquiry into that matter is permitted. It makes no difference whether the contract refers to real estate, personalty, or mercantile transactions, as the disability arises not from the subject matter of the contract, but from the fiduciary character of the contracting party. Broadly speaking, the reason for the rule is that the trustee should not be placed in a position in which his or her interests are liable to conflict with his or her duty to the cestui que trust. This reason applies equally to a person acting as an agent of the trustee.

For example in Butcher Estate v Hamilton 1997 CarswellBC 1917 (B.C. S.C.) a mother transferred substantial sums of money to her daughter. The transfers were not an  outright gift to the daughter, but were intended to be held in trust by her to use for care of mother and father. The mother and father lacked mental capacity at time of transfers. The daughter breached her  duty as trustee by dealing with funds as though her own.


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