In Johnson v North Shore Yacht Works Corp. 2017 BCSC 1229 the court held that a trustee of a trust was personally liable for a contractual debt that was entered into by the trust.
The case concerned responsibility for the costs of repairs carried out to a yacht that was an asset of the Chester Allison Johnson Alter Ego Trust (the “trust”). The plaintiffs are the trustees of that trust.
They claimed that the defendant had undertaken to complete the repairs for a fixed-price amount of $80,000, and claimed damages for wrongful seizure and negligent storage.
The defendant counterclaimed for all of its parts and labour charges and storage costs.
Reasons for Judgment released November 3, 2014, indexed as Johnson v North Shore Yacht Works Corp., 2014 BCSC 2057, awarded net damages of $118,219 plus costs on the counterclaim against the plaintiff trustees.
Information obtained on an examination in aid of execution indicated that substantially all of the assets of the trust had been transferred to its sole beneficiary, and that the trust was insolvent.
The defendant then registered a certificate of judgment against two parcels of land owned in whole or in part by Mr. Johnson,
It is a long-standing principle of trust law that a trustee is personally liable on contracts into which it enters on behalf of the trust. The trustee’s remedy is to seek indemnity from the trust for that liability. The only exception to the trustee being personally liable is where he has specifically contracted to limit his liability to the assets of the trust.
The authorities bear this out: see, for instance, Benett v Wyndham (1862), 4 DeG F & J 259 (CA); Muir v City of Glasgow Bank (1879), 4 App Cas 337 (HL); Davis v Sawkiw (1983), 38 OR (2d) 466 (H Ct J); Pettit, Equity and the Law of Trusts, 12th ed (2012) at pp 413-414; and Underhill and Hayton, Law Relating to Trusts and Trustees, 18th ed (2010), p. 1066, para 81.5.
It is well-understood law that an executor or trustee who makes a contract in relation to his trust is personally liable to the contractor for the price agreed upon.