England and Wales Court of Appeal (Civil Division) Decisions

BACON, V.C. :-

Of all the cases in which the Court is engaged, in none can there be more difficulty or delicacy than in such a case as the one before me presents. A heavy loss has been sustained, and the question by whom the loss is to be borne is the question I have to decide. The facts of the case cannot be said to be in dispute: there is only one thing in dispute which is wholly unimportant, viz.. whether Mr. Gaunt was induced to employ Cooke ,the broker, either at the request or with the sanction of the Whether that was so or not is a matter of no kind of importance. If he yielded to their request, it leaves the case exactly where it was; if he did not do so then there is no foundation for it. [His Lordship after stating the facts; the instructions for investment given by Gaunt to Cooke ; the inference drawn from the "bought-note" by the witnesses, that it imported the fact that Cooke had in pursuance of his instructions gone to the several corporations and contracted with each of them for the sums therein mentioned; Gaunt's frequent applications for the securities, and Cooke's answer that it took some time to prepare the securities, but that they were in course of preparation, proceeded:-]

Can it be said with the slightest hope of success after that that Mr. Gaunt did not know or believe at least that his money had gone to the three corporations? No reason was suggested to him why he had not the securities except that it took some time to prepare them. Whatever, therefore, be the defects in the scrap of paper (the bought-note), this I take to be clear on the contents of the paper and the statement of witnesses - that on the 24th of February, Cooke presented himself to Mr. Gaunt , and said: "I have brought for you £15,000 worth of this stock. Time will be required before the securities can be handed over to you, but in the meantime hand me £15,000." Thereupon, without more (and there is no more in the case than what I have stated), Mr. Gaunt sends Cooke to the accountant, Mr. Musgrave, who upon production of that paper (which he thought contained instructions enough for him) draws three cheques for the sum total mentioned in the paper, and gives them to Cooke to take back to Gaunt ,which Cooke does, and Gaunt signs those cheques which Cooke afterwards makes available for his own purposes. He gets the money, in short he steals it, and makes away with it, and being bankrupt within a month after that time, disappears immediately afterwards, and neither Cooke nor the £15,000 are available. The £15,000 certainly is not in existence. Upon these facts I am asked by the Plaintiffs to say, as against Gaunt , that he has neglected his duty as trustee. Whether or not any moral blame could be assigned to him, he had the care and custody of the £15,000 for the widow and children. He has neglected his duty, and it is his neglect of duty which has caused the £15,000 to be lost. That it is lost is beyond question, as I have said. The simple question remains: Who is to bear the loss? The are not to blame. Nobody has said that they have done anything, or have said anything. Even if they did favour the appointment of Cooke as broker, Gaunt was the sole actor in this transaction. I wish it to be understood that though I come to a conclusion adverse to Gaunt I see nothing in any part of the evidence which should induce me to think that he has acted culpably otherwise than as far as his negligence goes. That Gaunt was full of friendly and kindly intentions towards the family of the testator I have no doubt, and that he did his best to promote their interests preceding the 24th of February I have no doubt. Most perfectly honest intentions alone regulated his conduct. I take this early opportunity of saying that, because I think that in justice to Mr. Gaunt it ought to be said and borne in mind. But that does not help me to the solution of this question in the slightest degree. It becomes now, after the facts I have stated, a question of law only. The law on the subject is, and has been for centuries, too clear to admit of the possibility of doubt, and neither under Lord St. Leonards' Act, nor in any of the cases in which the Court has found excuses for trustees, and on some occasions has been able to relieve them from the burden sought to be cast upon them, has the Court lost sight of the plain principle that a trustee who takes another man's money into his hands is bound, whatever other duties he may have to discharge, to take care that that money shall be preserved, and not to deal with it or to do anything with it which a prudent and reasonable man would not do with his own money. That is the rule which is properly to be applied to this and to all such like cases.

Now when I come to apply that rule to this case can I or anybody else say that a trustee with £15,000 of other people's money in his hands should have parted with it to Cooke upon that scrap of paper? Certainly not. The paper, upon the face of it, as a witness has said, as to Mr. Gaunt , meant" your money is to go to the corporations," and Cooke in answer to inquiries said in effect, "You are to have security for it, but it will take time to prepare the security - you must have a receipt, certificate, scrip, or something of the kind." Mr. Gaunt as a man of business accepts the excuse from Cooke , of whom he knew nothing except that he was a stockbroker carrying on business in succession to his father, and that nobody had said anything against his character. Nobody had said up to that time anything against his character; but to give him credit for £15,000 was a totally different thing. That is what Mr. Gaunt in an evil hour permitted himself to do. I say he is fixed with knowledge that Cooke's pretended dealings had been with the corporations, he is fixed with knowledge that the money was to go to the corporations, and he draws a cheque in favour of Cooke . Why? It was not Cooke's money. There was no deduction to be made for Cooke's commission, even if that could be an excuse. There was no earthly reason (and I have heard none suggested) when Cooke came and said to Gaunt , "I have bought for you £15,000 worth in three different lots - give me a cheque to pay for them," why Gaunt should not have drawn the cheque in favour of the corporations that had sold him the stocks. Why should he have drawn the cheque in favour of Cooke ? Not even the notion of commission comes in, because it is quite consistent with such a scrap of paper that Cooke should have obeyed the suggestions of Mr. Gaunt , who said, "I will not have anything to do with any commission," and the evidence is this, that the corporations were in the habit of paying commission, varying according to the circumstances, to bankers, brokers, solicitors, and other agents who came to them to invest their moneys. The case goes no further. It stops there with the 24th of February. No suggestion has been made except this, that certain stockbrokers have been called - two gentlemen of great eminence, one in London and one in the country, who both say, "It is our custom when we buy for clients to take a cheque in order that we may pay the vendor of the stock." That may be the custom with men of their character and credit, and that may be the set custom for anything I know, but it is not a lawful custom as applicable to the state of facts which I have just been describing. If they do that, well and good; but that is their affair. I cannot adopt it as a rule of law establishing a custom that if a man employs a broker and takes from him a sale-note he is thereupon at liberty to pay to that broker the price of the thing bought. Consider what a field that would open to frauds of the most flagrant character. After what I have thought it just to say of Mr. Gaunt it will not be supposed that I am comparing such a case as I suggest with the case before me; but if it is competent for a trustee to give a cheque to a broker and thereupon acquit himself of the discharge of his duty as a trustee if the broker has not bought (and in this case Cooke had not bought, or if he bought he did not fulfil the contract), what is to prevent a broker and a trustee dividing in whatever proportions might be convenient to them the results of such a transaction. If I were to hold that this payment by Mr. Gaunt to Cooke absolved Mr. Gaunt from the rule of law and from the duty which trustees are under faithfully to discharge the trust, such consequences might ensue. I repeat I do not assimilate that to this case, nor say it has any reference to it, except that it affords me an opportunity of saying that the rule of law not only is unquestionable, but that it is founded on absolute and distinct truth and justice, and to relax it in the slightest degree might give occasion to the committal of fraud such as might easily be imagined, for trustees have been known to exist who would not hesitate to misappropriate trust funds, and it is not impossible that brokers might be found, such as Cooke for example, who would assist in the spoliation of a trust fund. I say that only with reference to the rule of law, and not as having any application to this case. Upon the facts of this case as I find them, if Mr. Gaunt had exercised the ordinary precaution which a man takes in dealing with his own property he would not have entrusted Cooke with £15,000 of the trust money. Having done so, and the loss of that money having been sustained, there is nobody who is bound to make good that loss but Mr. Gaunt , and I am therefore bound, though very reluctantly and with great pain to myself - if I have a right to say so, for I ought not to feel pain as I have only to administer the law - to say under pressure of the law that Mr. Gaunt is compellable by law to, and I must make a decree that he shall, make good the £15,275 (within six months) with interest at 4 per cent. and costs up to and including the hearing.

F. G. A. W.

JESSEL, M.R. :-

This is an appeal from the decision of Vice-Chancellor Bacon finding the Defendant, Mr. Gaunt , who was a trustee, liable to make good some £15,000 which has been lost through the failure of the stockbroker employed by him to make investments on account of the trust.

The questions which we have to decide are important not only on account of the amount in dispute, but also on account of the principles which ought to govern the Court in deciding points of this nature.

In the first place, I think we ought to consider what is the liability of a trustee who undertakes an office which requires him to make an investment on behalf of his cestui que trust. It seems to me that on general principles a trustee ought to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee. In other words, a trustee is not bound because he is a trustee to conduct business in other than the ordinary and usual way in which similar business is conducted by mankind in transactions of their own. It never could be reasonable to make a trustee adopt further and better precautions than an ordinary prudent man of business would adopt, or to conduct the business in any other way. If it were otherwise, no one would be a trustee at all. He is not paid for it. He says, "I take all reasonable precautions and all the precautions which are deemed reasonable by prudent men of business, and beyond that I am not required to go." Now what are the usual precautions taken by men of business when they make an investment? If the investment is an investment made on the through a stockbroker, the ordinary course of business is for the investor to select a stockbroker in good credit and in a good position, having regard to the sum to be invested, and to direct him to make the investment - that is, to purchase on the Stock Exchange of a jobber or another broker the investment required. In the ordinary course, all that the broker can do is to enter into a contract - usually it is for the next account-day. Of course you may, by special bargain, make it for cash or for any other day, but the ordinary course is for the next account-day. Before the account-day arrives the purchasing stockbroker requests his principal to pay him the money, because on the account day he is himself liable to pay over the money to the vendor, whether a jobber or broker, and therefore he must have it ready for the account-day, and according to the usual course of business he sends a copy of the purchasing note to the principal stating when the money is required to be paid, and he obtains the money from him a day or two before the account-day. When he gets it he pays it over, if it is a single transaction, to the vendor, and if it is one of a number of transactions he makes out an account with his vendor and pays over or receives from him the balance on the transactions. It by no means follows, therefore, that he pays over to the vendor the sum received, indeed there may be a number of transactions, and if the balance is the other way, then he has to receive money on the account, but he must in any case have the money in order to keep himself out of cash advances. It is after payment, and very often a considerable time after payment, that is several days, that he gets the securities perfected. If they are shares or stock in a company, or railway or other company, it may be a considerable time before the transfers are lodged at the office, and it is not until the matter is ready for completion that he gets the transfer and the certificates. But in all cases, except in the case of consols and a few other such stocks, there is some interval between the payment of the purchase-money and the obtaining of the security, or of the investment purchased.

If, therefore, a trustee has made a proper selection of a broker, and has paid him the money on the bought-note, and, by reason of the default of the broker the money is lost, it does not appear to me in that case that the trustee can be liable. Indeed it was not argued in this Court that he would be liable, and I have said what I have said upon the subject more on account of an observation reported to have been made by Vice-Chancellor Bacon in the Court below, than because of any argument that was addressed to us upon the point.

Having said what I have said on the general principle, I think it right to call attention to the authorities upon the subject, in order to shew that I have given the fair result of the authorities as they stand. There is, in the first instance, the case of Ex parte Belchier⁽¹⁾. It was before Lord Hardwicke , and it is the leading case upon the subject. There it was the assignee of a bankrupt, but the same principle applies to the assignee of a bankrupt as to a trustee. A large quantity of tobacco belonged to a bankrupt, and the assignee employed a broker to sell it, the money was paid to the broker, and ten days afterwards he died insolvent. The commissioners fixed the assignee with the loss. He appealed to Lord Hardwicke , and it was proved that it was the common practice to sell mercantile goods by auction, and to employ a broker, and for him to receive the money. That was the ordinary course of business. It would be the same thing if a trustee sold goods by auction, the auctioneer would receive the money, and as regards certain transactions an auctioneer is called a broker. Lord Hardwicke says: "If Mrs. Parsons is chargeable in this case, no man in his senses would act as assignee under commission of a bankrupt. This Court has laid down a rule with regard to the transactions of assignees, and more so of trustees, so as not to

(1)     Amb. 218.


strike a terror into mankind acting for the benefit of others, and not for their own." He says, "not to strike a terror into mankind" - it is rather rhetorical, but he means not to discourage respectable people from accepting the office of trustee. Then he says: "Courts of law, and equity too, are more strict as to executors and administrators." I must say I do not concur with this observation. I think in modern times the Courts have not distinguished between assignees, executors, and trustees, but they have put them all together and considered that they are all liable under the same principles, but that is only a bye point. Then Lord Hardwicke goes on to say: "But where trustees act by other hands, either from necessity or conformably to the common usage of mankind, they are not answerable for losses." That of course means where they act by other hands and properly choose the hand by which they act. Now what is meant by "either by necessity or conformably to the common usage of mankind"? It means where in the ordinary course of business transactions an agent is employed. A gentlemen, for instance, who has rents to collect as a rule employs a rent collector. He might go round himself and collect them, but he does not do so. It is the common usage of mankind in such a case to employ an agent to do it. So a man who buys stock on the Stock Exchange employs a stockbroker, and there it is absolutely necessary for him to do so; he cannot buy himself, but even if he could it is usual to employ a stockbroker. Then Lord Hardwicke goes on: "Secondly - Moral necessity, from the usage of mankind. If a trustee acts as prudently for the trust as for herself and according to the usage of business. If a trustee appoints rents to be paid to a banker at that time in credit, and the banker afterwards breaks, the trustee is not answerable. So in the employment of stewards and agents; the receiver of Lord Plymouth's estate took bills in the country, of persons who at the time were reputed to be of credit and substance in order to return the rents to London . The bills were protested and the money lost, and yet the steward was excused. None of these cases are on account of necessity, but because the persons acted in the usual method of business." Then he answers a little further down the objection that Mrs. Parsons herself might have received the money. The answer is that it is not usual to receive the money oneself. Then he says: "A question frequently happens by reason of bankruptcy as to goods, which are shipped but not imported, to whom they belong. In those cases this Court generally orders the goods to be sold and the money paid into the bank, for the benefit of the parties who shall be entitled in the event. But yet the broker is the hand to receive the money first." Then there was an objection that "she might have taken security, but to do that on every occasion would tend greatly to the hindrance of business." That seems to me to go the whole length we are required to go here and to establish the general principle.

The case which I shall next refer to is the case of Bacon v. Bacon⁽¹⁾, and is a decision of Lord Loughborough . There an executor was sought to be charged for lending money to his coexecutor to pay debts. The fact of the man being co-executor was not considered to be material. The question was whether it was a reasonable thing to leave the money in the hands of the co-executor to pay the debts. Lord Loughborough said this⁽²⁾:"Supposing Kirby had not been co-executor, but that the executor living in London , and receiving money of the testator's, had remitted it to the attorney of the testator to pay the debts, could he have been liable? "That is he had to send it up from the country to pay the debts in London , and he must send it to somebody. " Kirby was in no insolvent circumstances. He was a man in business at Ipswich ; had been the attorney of the testator (I take him no higher than that); was acquainted with all his affairs; had his accounts in his hands, and the first payment was three weeks after his death. In the ordinary management of executor how was he to pay the funeral expenses and the number of small debts appearing upon the books of the testator without sending the money? The payment is made by the defendant only because he happened to have money of the testator in his hands at the time. If the business was transacted in the ordinary manner, unless there was some circumstance to awaken suspicion, surely the allowance is fair. Suppose he had paid the money into the hands of his own clerk, and the clerk had run away. Kirby could not prove the will. Supposing he had, what

(1)     5 Ves. 331.
(2)     5 Ves. 334.


would have been the difference? The mention of him in the will adds to the confidence the testator may be supposed to have in him as an attorney of credit in the town. By proving he would not have been more worthy of trust than by the nomination the testator had made of him as executor. It would have been only a difference of character, but would not invest him with more authority." In other words, Lord Loughborough's view was this, that where you must necessarily employ an agent, or where you might reasonably in the ordinary course of business employ an agent, and you use due diligence in the selection of your agent, you are not liable for the consequences. You have only conducted the business in the way an ordinary prudent man of business would have done.

The next decision I shall refer to is the decision of a late Lord Chancellor (Lord Redesdale ) in the case of Joy v. Campbell⁽¹⁾.He first of all says that if the executors join in a receipt without necessity they are both liable, and then he says, "But this does not apply to what is done in the discharge of a necessary duty of the executor; for example, an executor living in London is to pay debts in Suffolk, and remits money to his co-executor to pay these debts, he is considered to do this of necessity. He could not transact business without trusting some persons, and it would be impossible for him to discharge his duty if he is made responsible where he remitted to a person to whom he would have given credit, and would in his own business have remitted money in the same way. It would be the same were one executor in India and another in England , the assets being in India , but to be applied in England ;there the co-executor is appointed for the purpose of carrying on such transaction; and the executor is not responsible, for he must remit to somebody, and he cannot be wrong if he remits to the person in whom the testator himself reposed confidence." That is a mere question of selecting an agent. Of course although the testator reposed confidence in him something else might happen afterwards, the man might become insolvent, or the like, it does not mean that, but it is an additional reason that a man who was in good credit at the time was actually named as executor by the testator.

(1)     1 Sch. & Lef. 328, 341.


There is only one other case that I will refer to, and that is the case of Clough v. Bond⁽¹⁾. There Lord Cottenham after speaking of the nature of the loss and remarking that a trustee is not liable for loss occasioned by an authorized investment, goes on to say: "So when the loss arises from the dishonesty or failure of any one to whom the possession of part of the estate has been entrusted. Necessity, which includes the regular course of business in administering the property, will in equity exonerate the personal representative. But if, without such necessity, he be instrumental in giving to the person failing possession of any part of the property he will be liable, although the person possessing it be a co-executor or co-administrator." The value of that statement of the law is that he says, "Necessity, which includes the regular course of business in administering the property," interpreting the word as being nothing more and nothing less than the regular course of business. It appears to me, therefore, that it is clear and settled law, and Mr. Millar was quite right in not contesting it, notwithstanding the remarks which had fallen, I think from the learned Judge in the Court below as to this part of the case, that if it was an ordinary purchase on the a trustee could not be liable for the failure of the broker provided that the broker was in good credit at the time and there was no circumstance to excite suspicion brought to his knowledge which ought to induce him to distrust the broker.

I now come to the point upon which the case was decided and on which it was argued before us. I must say as I read the pleadings that the law is stated in conformity with that which I have been laying down. The accusation against the trustee is one of negligence. It is called "gross negligence," that does not matter, negligence is the charge made against the trustee, and the question is whether he has been guilty of negligence. Now where you have, as you have in this case, an innocent man - that is innocent at any rate as to any moral guilt - who was sincerely anxious to do his best for the trust fund, and as to whom, as was stated by the Vice-Chancellor in the Court below, there was really nothing that he could be reproached with unless it were carelessness, I think the Court is bound to look carefully at the pleadings

(1)     3 My. & Cr. 490, 497.


to see what he is charged with, and not to allow the charge to be extended beyond the pleadings. I shall not decide the case upon that ground, because, as will be seen presently, even if I had thought the Plaintiffs were at liberty to go beyond the pleadings, I should come to the same conclusion as I have upon the pleadings.

Now the Vice-Chancellor said this about Mr. Gaunt , in which I think he was fully justified, and I merely quote it to shew that my view of these cases against trustees is rather corroborated by the observations which I am about to read. My view has always been this, that where you have an honest trustee fairly anxious to perform his duty and to do as he thinks best for the estate, you are not to strain the law against him to make him liable for doing that which he has done and which he believes is right in the execution of his duty, without you have a plain case made against him. In other words, you are not to exercise your ingenuity, which it appears to me the Vice-Chancellor has done, for the purpose of finding reasons for fixing a trustee with liability; but you are rather to avoid all such hypercriticism of documents and acts and to give the trustee the benefit of any doubt or ambiguity which may appear in any document, so as to relieve him from the liability with which it is sought to fix him.

I think it is the duty of the Court in these cases where there is a question of nicety as to construction or otherwise to lean to the side of the honest trustee, and not to be anxious to find fine and extraordinary reasons for fixing him with any liability upon the contract. You are to endeavour as far as possible, having regard to the whole transaction, to avoid making an honest man who is not paid for the performance of an unthankful office liable for the failure of other people from whom he receives no benefit. I think that is the view which has been taken by modern Judges, and some of the older cases in which a different view has been taken would now be repudiated with indignation. It appears to me that the Vice-Chancellor has adopted an entirely different view. I think he has inferred that which is not fairly to be inferred in this case; and even if he were right it could only be inferred by taking one of two views, and we ought not to take the adverse view if the other view, being equally as good, can be adopted.

Now the way in which it is put by the statement of claim is this. It appears that there was a broker of the name of Cooke ,who was a young man who had come into his father's business, who had also been a stock and share broker at Bradford in a considerable way of business. Young Cooke had not been very long in business, but for upwards of three years he was a man of good credit and large business at Bradford . There is another circumstance about his position which I must mention, although I do not think it would exonerate the trustee - the family for whom Mr. Gaunt was trustee were some people of the name of Speight ,and the Speights were friends of Cooke , and one of the Speights ,the son, naturally asked Mr. Gaunt to employ Cooke . It does not matter much, because if Mr. Cooke was not in good credit Mr. Gaunt ought not to have complied with the request, and therefore it does not really from a moral point of view affect the transaction; Mr. Gaunt would be liable if he had employed an improper broker, although he had done so by the wish of the Speight family. However, it is a remarkable circumstance that Mr. Gaunt did not employ his own ordinary broker, but did at the request of the Speight family employ this gentleman, who was, as I have said before, as far as was known, a fit person for Mr. Gaunt to employ; he was employed to sell the property, the proceeds of which were to be afterwards reinvested, and he did sell, as I gather, some £13,000, and paid the money into the bankers; so far it was all right. Then they had a sum of upwards of £15,000 to invest, and the question was how it was to be invested.

The matter was considered by Mr. Gaunt , and he thought the best way of investing it was to invest it in three sums of £5000 each in the purchase of corporation bonds, as we generally call them, debentures, or debenture stock, as they are called in the documents. It seems that they had £6000 invested in Bradford debenture bonds or debentures, and therefore he would not have any more of Bradford securities, and he suggested it would be well to divide them into three, and to make the remaining investments in Huddersfield , Leeds , and Halifax , being large towns, and in good credit, and there was no objection whatever to the securities selected. Whether they were debentures or debenture stock is not material - they were very good securities - and indeed Mr. Gaunt says he does not know whether they were debentures or debenture stock, but they were bonds of these corporations. Then how was he to get them? We read from the statement of claim that there are two ways of getting them, one way is going to the corporation, and asking them to take a loan, and to issue debentures or debenture stock, if they have power to issue debenture stock, and on this occasion it appears to be the practice (I am taking it from the statement of claim), that if a person employed a solicitor or broker, the solicitor's commission or the broker's commission is paid by the corporation. They find it to their advantage to do so, and they do it; but of course it may happen that you can buy these securities on the Stock Exchange ,for the lenders may die, or the lenders may want the money before the debentures are repayable, or if it is debenture stock, it would not be repayable at all, and upon those occasions they would sell their securities on the Stock Exchange . It appears from the statement of claim that occasionally these securities do come on the Stock Exchange , and are bought there. That is stated at page 5 of the statement of claim, where it is said "debentures are occasionally and debenture stocks are frequently the subjects of purchase and sale, and in such cases a broker is usually employed." Of course it may happen, and it did happen, as we find by the evidence, that in the case of a large town like Leeds ,the quantity of debentures or debenture stock being very great, there is a regular market for them, and you can always buy them, but in the case of Huddersfield and Halifax , being smaller towns, that is not so, and there appears to be no regular market for them. If you want them at all as a general rule you must go to the corporation to get them, although there may be some for sale privately. That being the position of things, Mr. Gaunt instructs Cooke to procure these three sums of £5000 each, he did not tell him how to get them, he told him to procure them. Mr. Cooke on the 24th of February brought a document, which has been the subject of a great deal of comment, to Mr. Gaunt , and that is the only allegation in the statement of claim. There is no allegation in the statement of claim, although it has been argued, that Mr. Gaunt ought not to have employed a broker. I dismiss that argument at once. It is quite plain that he was entitled to employ a broker in the ordinary course of business, whether the purchase was on the Stock Exchange , or whether the securities were to be obtained from the corporation. The advertisements not only authorized the employment of a broker, but offered to pay the brokerage, and there was no occasion for a gentleman who was a trustee to do that himself which might properly in the ordinary course of business be done by another, and especially where the cost of employing that other would not fall on the trust estate. I think, therefore, that he was entitled to employ a broker even if he could have obtained the securities from the corporations direct. But there is no allegation in the statement of claim that he ought not to have employed a broker. It only states the fact of this bought-note, it being received by him on the 24th of February, 1881. Now it was alleged in the argument both here and in the Court below, and the allegation was adapted by the Vice-Chancellor in his judgment, that the receipt of this bought-note informed Mr. Gaunt that the stocks in question were to be obtained direct from the corporations. There was some evidence before the Vice-Chancellor to lead to that conclusion. There was the evidence of experts who gave it as their opinion that there was an omission in the bought-note which ought to have aroused suspicion. Now I must say that there is no allegation in the statement of claim that Mr. Gaunt knew that these securities were to be obtained direct from the corporations, the only allegation being that he received the bought-note, and the true interpretation of that bought-note was not such as to give him information as to buying the stocks of the corporations. In my opinion it was not regular or proper to go into evidence against him to shew that he knew it, there being no allegation of knowledge except that to be derived from the interpretation of the bought-note; but Mr. Gaunt says he did not know it, and in my opinion on the balance of testimony it is not proved that he did know it. Therefore if there had been that allegation I should have held it not proved.

I now come to the bought-note itself, and I will make one observation, although it is not strictly in the statement of claim. It appears in evidence that Mr. Gaunt had made an agreement that he was to have a net price - that he was not to pay any commission to the broker, but the broker was to get it from the other side, he was to have a net price, and it appears in the evidence that that is a very common course in country cases, because people in the country do not like an indefinite charge even of a small amount, they bargain for a net price, and that explains what appears in the bought-note.

The next thing I have to consider is the meaning of the bought-note. I do not rely on the expression "bought note," as used in the statement of claim. You do not call a thing a bought-note which is an expression of a contract or loan made by a corporation. But apart from that, let us see what it is.

[His Lordship read the bought-note as stated above, and continued:- ] I must say it being for the Court to construe that instrument, to my mind it would convey but one impression, namely, that the broker had bought these things for the purchaser on the Bradford Exchange, subject to the rules of the With the greatest possible respect to the Vice-Chancellor, it appears to me that that only can be its meaning. "We have this day bought for you as per your order, subject to the rules of the London Stock Exchange ." I have looked with some curiosity at the evidence to see how it was possible to arrive at any other conclusion as to the meaning of the document. When we come to look at the evidence, we find there are experts who say it does not mean what it says, "bought," but it does mean "agreed to lend to these corporations;" that first of all there is no account-day named. That is true, although it is bought for the account, it does not name the day, and, no doubt as a general rule, the date is named. But we must recollect it is not a document issued by third persons; it is a document issued by the broker, and it appears in the evidence of Mr. Gaunt that he was told that the pay-day, which was the material point, was the next day, so that the only materiality was that the broker who brought him the note did not fill up the 25th of February in the note itself, but he told him that he wanted the money on the next day. I cannot conceive that that makes any difference as to the construction of the document. The omission to put in the account-day no doubt was an omission which would apparently have been noticed by some persons, but if the man who brings it says, "I want the money to-morrow" (for that is what the evidence comes to), it is really nothing more than this, that he did not put it into the note itself, because he gave the information personally.

Then there is another witness who says, "I see no commission, and if a broker had bought on the Stock Exchange he would have charged his commission." The answer is, so he would if it had not been to buy net; because on the face of it it is net. He makes a special bargain that he is to make a net price at the time, and therefore he would add his commission to the stocks at such a price in order to make the amount up. That gets rid of any notion that the document tells you he had not bought it. It cannot be said for a moment that you can control the plain language of the document by any such outside things as those. The experts say that the word "bought" has a technical meaning, and does not mean "bought," and this is a case in which they from their expert knowledge would come to a conclusion that there was a mistake in the language of the note, that the word "bought" should not have been "bought" but should have been some other word. It does appear to me that there is no evidence which is admissible to contradict the plain construction of the document itself, and the meaning of the document is a statement by the broker to the principal that he had bought these debenture stocks. Now, if that were so what is a trustee to do? It is suggested that he might have inquired whether the broker had actually bought them. Of whom was he to inquire? Is it tolerable that a man should so far be bound to suspect his own broker as that he should be compelled to go on the Stock Exchange to find out from whom his broker had purchased, and then to inquire of him? Would it not be that the trustee would be informed by his broker, "You treat me like a thief, I will have nothing more to do with you?" It is quite plain that no man in the ordinary course of business ever does anything of the kind. He may or may not know the name of the stockbroker from whom the security has been purchased. He must trust his broker for bringing him a genuine contract. It is not for him to go on the Stock Exchange and inquire whether his own broker has sent him in a fictitious note or not. It is quite out of the question that he is to be liable for not inquiring whether there was or was not a genuine contract. He must rely in the ordinary course of business on the statement of his broker, and pay the money to him on that statement. Well, that being so, I cannot see any ground whatever for saying that Mr. Gaunt was guilty of negligence.

Then there is this allegation in the statement of claim, that no bonds or debentures were given by Mr. Cooke . Of course there were not. Then it goes on to say that no such securities as debenture stocks of Huddersfield and Halifax exist. Does that matter? I think not. It is quite true the representation was that there were such, and I think that that is the fair reading of it. But supposing it were so, Mr. Gaunt did not know it - perhaps he did not know the difference between debentures and debenture stock; he instructed Mr. Cooke to procure not debentures or debenture stock, but corporation securities, and he left to Mr. Cooke , of course, to ascertain what they were, but if Mr. Cooke represented to him that he bought debenture stock how was he to find out that these particular corporations had no power to issue it, or that one of the corporations had power and the other had no power. How is a man to find out whether a railway company or a corporation or any other company has debenture stock except by instructing his broker or some other agent to inquire? I repeat therefore, that when Mr. Cooke told him that he had bought debenture stock he would make no further inquiry as to whether such things existed or not - he would assume in the ordinary course of business that the securities did exist, and if he were entitled to trust his broker in the ordinary course of business he was entitled to trust him to the extent of that representation. It appears to me, therefore, that the fact of the non-existence of some of the securities has no bearing upon the question.

Then, that being so, we come to consider the further allegation in the statement of claim, "Even if the pretended purchase by the said R. E. Cooke had been real and bonâ fide there would not have been any necessity for the Defendant Gaunt to part with the purchase-money of the debenture stocks or any part of it on the 24th of February, 1881, or in fact at any time, without receiving in exchange proper transfers of the stocks purchased or certificates of the ownership thereof. On a purchase of stock, and particularly on a purchase of the magnitude and character represented to have been made by the said bought-note, it is unusual and unnecessary to pay for the stock on the day of the date of such bought-note, or until the purchase is ready for completion." It was said that it was the duty of Mr. Gaunt to pay the money direct to the bankers of the corporation, or at all events to make the cheque payable to the order of the corporation. If it is to be assumed against him that he knew the stocks were to be acquired from the corporations direct, I do not say whether or not he ought to have paid the broker. I reserve my opinion upon that question. If it were not so, if he had neither notice nor knowledge that the stocks were to be procured otherwise than on the Stock Exchange ,then I think the argument that he might have paid it through the bankers falls to the ground. In the first place, as I said before, the usual custom is to pay your broker, and in the next place it by no means follows that the money would ever have reached the vendor; and, indeed, in the case where the purchase is in London ,I suppose it would go to a London broker, so that I cannot see either according to the ordinary course of business or according to any possible mode of conducting business you could pay otherwise. It seems to me, therefore, that if you once arrive at the conclusion that Mr. Gaunt was uninformed by the bought-note that the purchase had been made in that way, there was no obligation on him to make any further inquiry. He trusted his broker, and he was not bound to ask the broker whether he had written a falsehood, whether he had really entered into a contract or not. The man told him in writing that he had, and he was entitled to trust him; and, as it seems to me, there was no obligation on him to make any further inquiry.

For these reasons it appears to me that the decision of the Court below ought not to be affirmed.

I will only now quote two paragraphs from the judgment, because I think it right to say that I think that the error which I conceive the Vice-Chancellor to have fallen into very plainly appears from those passages. He says, "A trustee who takes another man's money into his hands is bound, whatever other duties he may have to discharge, to take care that that money shall be preserved, and not to deal with it or to do anything with it which a prudent and reasonable man would not do with his own money." That is a very clear statement of the law, and I have no fault to find with it. "That is the rule which is properly to be applied to this and to all such like cases. Now when I come to apply that rule to this case, can I or anybody else say that a trustee with £15,000 of other people's money in his hands should have parted with it to Cooke upon that scrap of paper?" Whether it is £15,000 or 15,000 pence, it makes no difference if the man is in a position to be trusted with the money. The Vice-Chancellor says, "Certainly not. The paper upon the face of it, as a witness has said, as to Mr. Gaunt meant, 'Your money is to go to the corporations."' If that were right very different considerations would arise as to the mode of paying the money. That is the key to the judgment, that Mr. Gaunt was told by that paper that the money was to go to the corporations. I have already given my reasons for stating that to my mind it is plain the paper told him nothing of the kind. It told him, on the contrary, that the stock was bought on the Bradford Exchange. Then the Vice-Chancellor says, "No suggestion has been made except this, that certain stockbrokers have been called - two gentlemen of great eminence, one in London and one in the country, - who both say, 'It is our custom when we buy for clients to take a cheque in order that we may pay the vendor of the stock.' That may be the custom with men of their character and credit, and that may be the set custom for anything I know; but it is not a lawful custom as applicable to the state of facts I have just been describing." I have said all I have to say upon that. I do not think that that is the true version of it. I cannot understand why it should not be a lawful custom to give the money to your broker to pay for the stock, which you cannot get without the money. I cannot help thinking that there was some little misapprehension in the mind of the Vice-Chancellor, or in the mind of the counsel who supported that argument, as to the expression used. There is nothing unlawful of unreasonable in it. You cannot get the stock on the Stock Exchange without dealing with a broker. Then the Vice-Chancellor says, "I cannot adopt it as a rule of law establishing a custom that if a man employs a broker and takes from him a sale-note, he is thereupon at liberty to pay to that broker the price of the thing bought." It appears to me that the law is exactly the other way. Where it is the ordinary course of business it is lawful for a trustee to pursue that course which he would pursue in investing his own money.

There is only one other remark I have to make upon the case, and that is this. There is an allegation in the statement of claim, and there was some slight argument addressed upon it, that the broker having failed on the 28th of March, Mr. Gaunt should have done something in the interval to get the money back. There is really no evidence that if after the money was paid Mr. Gaunt had asked for security he would have got it; and, indeed, I am quite satisfied that he could not have got the money if he had brought an action or taken any proceedings at all. The only suggestion is that some other creditor who pressed Mr. Cooke got a sum of £3000 out of him. Mr. Gaunt had no reason to suspect Cooke's honesty, and if he had asked him for security or brought an action, as I have said before, there is no evidence that he would have got the money; but there is the most cogent evidence, to my mind, that he could not have got it, because the money was paid away immediately, most improperly, by Mr. Cooke in the satisfaction of his own debts. He was in that state of hopeless insolvency that no action or proceeding in bankruptcy could have resulted in any benefit, and I do not see that there is any case made against Mr. Gaunt for negligence, or that he had sufficient knowledge of Mr. Cooke's improper dealing to have induced him to take such proceedings, even if they would have resulted, which I am of opinion they would not, in getting the money back.

Therefore the appeal will be allowed. Mr. Gaunt will have his costs both here and below.

LINDLEY, L.J. :-

This case appears to me to be one of very great importance not only to Mr. Gaunt and the cestuis que trust, but also to trustees in general who have to invest money or who do invest money through brokers.

The first observation to be made is that this is a case in which the trustee is not even accused of having acted in any way with a view to his own benefit, or otherwise than with perfect bona fides and honesty, a remark which of course is important, because one approaches such a case in a different state of mind from that with which one would approach a case if one were dealing with a dishonest trustee.

The next remark is that the trust for investment was so worded that nobody pretends that the investment of the trust property in debentures or in debenture stock of these corporations was not within the investment clause. It is not suggested that it would be a breach of trust on the part of the trustee in this case to invest the trust money in that kind of securities in which he directed the broker to invest it.

Now what the trustee did in this case was this. Some of the trust moneys to the extent of £13,000 had been paid over, and in that transaction Mr. Cooke I understand, had been employed. He was the family broker. He was not the broker whom Mr. Gaunt generally employed in his own business, but he was a person recommended by the family. I do not attach much importance to that, but it is a circumstance which should, I think, be mentioned. Mr. Cooke at the time was a broker in good repute. He was a person to whom an ordinary prudent man desiring to employ a broker in Bradford would have recourse. Then Mr. Gaunt , being desirous of investing £15,000 in debentures or securities of these corporations, intrusts Mr. Cooke to make the investment.

The first point that occurs to my mind is this, Was it proper for the trustee to employ Mr. Cooke in the transaction at all? because if it was not I take it that the trustee must be responsible for the consequences. A trustee has no business to cast upon brokers or solicitors or anybody else the duty of performing those trusts and exercising that judgment and discretion which he is bound to perform and exercise himself On the other hand, a trustee is not bound to do everything himself. A trustee is entitled to employ brokers and solicitors to do that which in the ordinary course of business other people would employ brokers and solicitors to do.

The real importance of this case is, that it lies between these two propositions - that a trustee cannot delegate his trust, and that, on the other hand, he is entitled to employ persons to do that which an ordinary man of business would employ an agent to do. Now, looking at the matter fairly and properly as a business man would look at it, can it be said to be an improper thing on the part of a trustee who is desirous of investing £15,000 in this class of securities to go to a broker? That he might have acted otherwise is plain enough; but was it a reasonable and proper thing not to apply to the secretaries or treasurers of these corporations, but to employ a broker for that purpose? So far as the evidence goes, it appears to me that on the balance of the evidence it is impossible to say that this was an improper step for a trustee to take. Although business men can do these things for themselves, unless we can go the length of saying that the employment of Mr. Cooke was an improper delegation of the trust or an improper employment, it will follow that it was not an unreasonable thing or a breach of trust to employ a broker to do this kind of work; and the conclusion that I have arrived at on that point is that we cannot say the trustee, acting honestly, was not entitled to employ a broker to do this kind of business.

Then the next thing is, what did Mr. Gaunt employ Mr. Cooke to do? He employed him to invest this money in these securities. He did not tell him or suggest to him how it had better be done, he did not know, and I do not think he was bound to ascertain, whether these securities were in the market in the ordinary commercial sense, or where Mr. Cooke was to get them from; he left that to Mr. Cooke's discretion, and I think he was not guilty of negligence in so doing. Mr. Cooke told him he would get them for him. There had been apparently some discussion as to the class of bonds, Mr. Gaunt preferring to have Halifax bonds, and although Mr. Cooke said there would be some difficulty about Halifax bonds, the result is that he comes to Mr. Gaunt and says that he has got them, that is, that he has got £5000 Halifax corporation debenture stock. I do not attach much importance to the distinction pointed out between debentures and debenture stock. The substance of the thing is that what was wanted was securities of these corporations, whether debentures or debenture stock. Nothing turns upon that so far as I can see. Mr. Gaunt would have been satisfied with either, and either would be within the trust.

I now come to the bought note, which is a very important document, and I confess I cannot look at it from the same point of view as Vice-Chancellor Bacon did. The bought note is a printed form, filled up, of course, with a pen. Judging from the words of the document, and from the appearance of it, and bringing to bear upon it the knowledge which every one has of the ordinary transactions of business, I confess this document would have completely misled me. I could not possibly, looking at it with the utmost care and vigilance, such as an ordinary man would exercise, extract from this document the slightest information or notice that this was a purchase other than in the ordinary course of business upon the Stock Exchange . If it would mislead a person like myself, why should it not mislead others? I am quite aware that experts have been called who say that, to their experienced eyes, there are signs on this document which indicate, to them at any rate, irregularities; but the question is not whether experts like brokers or those who are accustomed to deal in these things see irregularities; the question is, whether these signs of irregularity are such as would attract the attention of an ordinary prudent man of business.

There is no irregularity of that sort at all in it that I can discern. It is a question of fact, and not a question of law, whether upon the face of this document there are or are not such signs of impropriety as to excite the suspicion of anybody. Nobody suggests any, except that the experts say there are signs which would put them on inquiry.

Now the signs which are visible to them are apparently these: first of all, the absence of the name. of the selling broker, of which I do not think much; and, secondly, the fact that there is nothing charged for stamps or commission, and no date for the settlement of the account. The absence of a charge for commission is explained by the fact that in the commission column, the word "commission" being in print, under it is written "nett," that is to say that the purchase was to be for a nett price. Then it is said that the word "account" being printed, it ought to have been followed by a date, and that a broker would look with suspicion on a document with the word "account" in it not followed by the date. I do not pretend to say that there are not signs of suspicion to the eyes of a broker, but we are not looking at it with the eyes of a broker. We are looking at this document with the eyes of ordinary men of business, and there is no evidence to show that there is anything which would lead an ordinary man of business to suppose there was anything wrong. I am not able to come to the conclusion that Mr. Gaunt was put on inquiry, or ought to have been put on inquiry, as a reasonable and cautious man. If anything was calculated to lull suspicion in his mind, this document was, in my opinion, calculated to do so. That he was deceived is plain enough upon the evidence, but I cannot see that blame is to be imputed to him for not suspecting that there was something wrong. Upon this point, and it is a question of fact not of law, I differ from the Vice-Chancellor, who seems to have been more impressed than I am with the evidence of the experts, and to have looked at this paper with the eyes of an expert, and too little with the eyes of an ordinary man of business.

Now, assuming that the trustee was justified in employing Mr. Cooke , and assuming that he was not negligent in not having his suspicions aroused when this document was brought to him, the next question is, was he acting improperly in paying the purchase-money to the broker? That is to say, ought he, as a prudent man of business, to have paid it to somebody else, namely, to the principals from whom the broker ought to have got, but did not get, these securities, whether upon the Stock Exchange or otherwise? If the trustee had notice, and really did know that these things had not been bought on the Stock Exchange , it is quite possible that he ought so to have paid it. I say nothing about that. It might be that in that case the trustee would be bound to see further into the application of the money; but, misled as he was, and entitled as he was to treat these things as bought by the broker in the ordinary way of his business as a broker on the Stock Exchange , it appears to me that it is perfectly impossible to hold that he was bound to see to the application of the money, in the sense that he was bound to pay the persons with whom the broker negotiated the purchase. We know the way in which business is done through brokers in buying ordinary stock.

If a broker buys £10,000 of stock there are sometimes half a dozen people from whom he gets the stock. It is not in the ordinary course of business for a buyer, whether a trustee or not, to pay to persons from whom the broker has bought; he pays the broker. He is entitled to do that by the ordinary course of business. I do not myself understand that there is any evidence that, in point of fact, a trustee or any other person employing a broker to buy could do it in any other way. As a matter of business I believe he could not. At all events, the evidence is conclusive that the ordinary practice in employing a broker on such occasions is to send a cheque to the broker. There was, therefore, no negligence in Mr. Gaunt doing so; there was no impropriety or breach of trust in his conduct up to this point.

Then if we look a little farther, we shall see how the matter was done. Mr. Gaunt did not find out, nor could he by reasonable diligence have found out anything which would lead him to stop his own cheques. If anything could be brought home to him to shew that he was negligent in not stopping his cheques the case would have been quite different; but there was nothing to justify him in doing so, there was nothing sufficient to excite his suspicion.

Then it is said that there was negligence in not getting the securities. If the ordinary course of business had been that the securities should be exchanged for the cheques, of course it would be different; but that is not the ordinary course of business. You pay the broker and he gets you the securities. He sees to all that. That is the ordinary course of business. It is very true that the broker did not fail for three weeks or a month afterwards, but so far as the evidence goes it seems to me clear to demonstration that no discovery Mr. Gaunt could have made after the cheques were cashed could have saved the property. If he was not negligent in not looking after the matter during the month, I do not see that the lapse of time or the so called negligence caused the loss. The loss was anterior to that negligence, if negligence there were. I have made these observations in consequence of the passage that has been read from the judgment of the late Lord Hatherley in Mendes v. Guedalla⁽¹⁾. I have looked

(1)     2 J. & . H. 259.


at the case since it was cited, and it appears to me, having regard to the facts which were before the Court, that the passage which was read does not go to the length contended for, so far as I can understand it. In that case there was negligence in not looking after the securities, the negligence was long continued, and but for that negligence and if inquiry had been made the securities might have been got back. The charge there was that the trustees trusted the agent for several years, and that they put the securities in a box and never asked anything about them. There is no doubt that in that case there was not only negligence, but the evidence was such as to shew that but for the negligence the loss would not have been incurred. As to Mr. Gaunt not asking for and not getting these securities, the time was short, and the misappropriation of the fund had taken place, and I am satisfied myself that the loss would have been sustained all the same if he had asked for them. In other words the cause of the loss was not the want of inquiry by Mr. Gaunt , but the fraud which was practised upon him.

Now I do not propose to go through the authorities, but I will advert to two cases, because they have been brought to the attention of the Court and they require notice. One is Bostock v. Floyer⁽¹⁾, in which Lord Romilly held that a man was responsible for the sum of £400 which he had given to his solicitor to invest. The solicitor had pretended to invest it on a mortgage of some copy holds, but he had not done so, and the money was lost, and the trustee was held responsible. As I understand it the of the case was this, that it was not the ordinary course of business for a trustee to place money in the hands of a solicitor to invest. It was not a specific investment, it was handed to the solicitor, and in that point of view the case is intelligible enough upon the ground that it was not right for the trustee to hand over the money to the solicitor for the purpose of investment. The other case was Hopgood v. Parkin⁽²⁾, cited by Mr. Millar. That case certainly goes much further than I should have thought right; but in the result the case was appealed. An infant was concerned, and the Court of Appeal sanctioned a compromise on behalf of the infant.

(1)     Law Rep. 1 Eq. 26.
(2)     Law Rep. 11 Eq. 74.


I wish most emphatically to say that if trustees are justified by the ordinary course of business in employing agents, and they do employ agents in good repute and whose fitness they have no reason to doubt, and employ those agents to do that which is in the ordinary course of their business, I protest against the notion that the trustees guarantee the solvency or honesty of the agents employed. Such a doctrine would make it impossible for any man to have anything to do with a trust. I differ from the Vice-Chancellor upon the question of fact: the principles of law, which he stated in the first part of his judgment are entirely sound, but I differ from the conclusion at which he arrived on the bought-note, and so differing from him I cannot agree with the judgment which he pronounced.

BOWEN, L.J. :-

This is a case of the greatest possible importance, and I think it right, therefore, to add my own expression of opinion to the judgments which have been already given, not merely because of the importance of the case, but because during a portion of the arguments I certainly did not feel quite so clear as the rest of the Court appeared to do - not as to the law, which has throughout been admitted on all sides to be open to no doubt, but as to the correct inference from one particular point to be drawn by the tribunal that has to decide the case. However, I have come to a decided opinion about the matter, and as I have done so I think it is as well that I should express fully what that opinion is.

Now, with regard to the law it is clear that a trustee is only bound to conduct the business of the trust in such a way as an ordinary prudent man of business would conduct his own. I agree with what was said by the Master of the Rolls in the opening part of his judgment, and the cases which he has cited seem to me to be conclusive upon the point. The truth is that the law upon the subject is clear, because it is based upon common sense. A trustee cannot, as everybody admits, delegate his trust. If confidence has been reposed in him by a dead man he cannot throw upon the shoulders of somebody else that which has been placed upon his own shoulders. On the other hand, in the administration of a trust a trustee cannot do everything himself - he must to a certain extent make use of the arms, legs, eyes, and hands of other persons, and the limit within which it seems to me he is confined has been described throughout, both in the cases which have been referred to and the judgments which have preceded me, to be this - that a trustee may follow the ordinary course of business, provided he runs no needless risk in doing so. That is in substance what was laid down in the case before Lord Hardwicke of Ex parte Belchier⁽¹⁾. Lord Hardwicke's view, putting aside peculiarities of language, is based upon reason and common sense. In other words a trustee may not employ an agent where he should do the work himself; but he may employ an agent where there is a moral necessity, adopting the form of expression used in that case, that he should use the instrumentality of others, that is to say, he may use others if it is in the ordinary course of business to use others, and if he runs no needless risk in doing so. A similar sort of test is applied every day by commercial men in the business world to transactions which are carried on through agents. A contract of agency, a contract which a man makes with his agent when he commits anything to his hands is to a certain extent a personal one, and to the extent to which it is a personal one it cannot be delegated; but everybody knows that nothing is more common - nothing is more certain than that a large portion of commercial business is performed through sub-agents. It is entrusted to the hands of an agent, not to do it himself, but to get it done, and in that class of cases, provided the agent chooses carefully the sub-agent, he really discharges the functions he is employed to discharge, and the proposition as to trustees or agents, that they cannot delegate, means this simply - that a man employed to do a thing himself has not the right to get somebody else to do it, but when he is employed to get it done through others he may do so. Now, applying that sort of reasoning to the present case, I begin with this, that a trustee who employs a broker to buy in the ordinary course of business on the Stock Exchange is justified in employing and in paying money to the broker whom he has employed. I fail to see what a trustee could be expected to do different. When the time comes for the completion of the purchase, the broker wants

(1)     Amb. 218.


the money, and the payment to the broker is therefore one of the means of effectuating the completion of the purchase. It is wanted for that purpose. There is a moral necessity for it.

Now what are the facts of this case, and is there any ground for saying that a distinction ought to be made between this case and such an ordinary case as I have described? left certain trust funds by his will and the trustees had power to invest them in corporation securities. It was determined after due consultation that such investment should be made. Now these corporation securities are securities which may be in the nature of debentures or in the nature of debenture stock. They may be, and in the first instance of course must be, created by the act of the corporation - whether purchase is the exact definition of the transaction or not I pass over for the moment - but the person who wishes to obtain the corporation's securities may either get them from the corporation direct, provided they are issuing them, or he may get them by purchase from some other person. It appears in the case of these corporation securities with which we have been dealing, that some of them were, and some of them were not, upon the Stock Exchange . One can understand without much consideration how that might be the case. Corporations differ in the magnitude of their resources, and some corporation stocks are sold usually upon the Exchange and some only occasionally, and in the case of certain of these securities with which we have been dealing it is clear that they were not in the market in the ordinary way, but in one way or the other everybody who wishes to purchase corporation stocks or corporation securities, whether they be the security of corporations whose stock is not in the market or the reverse, is entitled to look to his broker as the person through whom to get them. In the first place, you can only find out whether they are in the market or not by asking the broker - at least that is the natural course to pursue; and, in the second place, if he can get them in the market it is much more for the client's interest to do so, because he would probably get them cheaper there than if he got them direct from the corporation. Therefore it would be perfectly wise and sensible for anybody, and therefore for a trustee, to go to his broker to see if he could get the securities upon the Stock

Exchange instead of purchasing them from the corporation, for even those which are not upon the market as an ordinary matter would occasionally find their way into the market in the case of the death of or transfer by the original purchaser. It seems to me, therefore that Mr. Gaunt was perfectly justified as a man of sense in going to his broker and telling him, "Get the securities on the market or off the market as you find it best." That is exactly what the evidence shews Mr. Gaunt did.

The first question argued in the case was whether Mr. Gaunt was entitled to employ a broker at all. I answer the question affirmatively in favour of Mr. Gaunt . I think it was a sensible thing for Mr. Gaunt to employ a broker. As to the choice of a broker I need not say anything. Enough has been said about that. But that does not exhaust of course the points we have to decide. Assuming that Mr. Gaunt was right in employing a broker was he right in paying over so large a sum as £15,000 to him? Now a payment of that sort would be wise or unwise, I should say, according to whether there existed or did not exist a reasonable necessity for it, having regard to the ordinary course of business. If it was a transaction on the Stock Exchange ,as I have said, and the money was wanted to complete the transaction, I think the trustee, Mr. Gaunt , would have been justified in paying it to his broker. If the purchase of the broker was made direct from the corporation I am by no means so clear, and I feel even more doubts, if I may say so, than my brothers who have preceded me on that point. If there had been no practical necessity for paying the broker it would be a large sum to pay him, and I cannot myself see that it is made out that such a course would be conformable to the ordinary usage of mankind in the sense in which those words are used by Lord Hardwicke and in other cases. I should feel the greatest doubt whether Mr. Gaunt would be justified in paying a broker on the market if the broker made the purchase direct from the corporation, and that was understood to be the bargain. But the question whether the payment was right or wrong depending on the nature of the transaction, how was Mr. Gaunt to know the nature of the transaction? He could only find it out from the broker himself. He could not walk into the market and ask the persons with whom Mr. Cooke might be supposed to be dealing whether it was true or not that Mr. Cooke had made a bargain with them, nor could he be expected to write to the corporation in the first instance to know whether he was justified in trusting his own broker. Of course he was justified in trusting his own broker on that point just as much as on the other points which have been discussed. I do not see what he could have done otherwise. If that is so the question we have to answer in this case is narrowed. It really resolves itself into this, was Mr. Gaunt informed by the broker in effect that the transaction which had been completed was a transaction of purchase and sale upon the Stock Exchange in such a way that Mr. Gaunt was justified in believing it? Now the oral evidence in the case certainly does not shew that Mr. Gaunt had any reason to doubt that this was an ordinary Stock Exchange transaction. But I do not myself rest very much upon the oral evidence, for Mr. Gaunt was the only person called on this question, and it may not be right to adopt the account he has given in his own favour of the conversation as minutely as if it were the language of a marriage settlement. But at any rate I see nothing in that evidence, and I have looked most carefully into it, to help the Plaintiffs. There is nothing in it to shew that Mr. Gaunt was informed that this was a purchase direct from the corporation.

Then I come to the document which is the only document in the case, upon the construction of which, and upon the true inference to be drawn from which, it seems to me, we are obliged to part company with the Vice-Chancellor. I agree with the Master of the Rolls and Lord Justice Lindley that the cardinal hinge of the judgment of the Court below is the view taken by the Vice-Chancellor that this document would have told a reasonable person that the purchase was direct from the corporation. Now the Master of the Rolls says we must lean to the side of an honest trustee. I will pass away from that without expressing any opinion upon it. It does not seem to me when we have facts from which an inference can be drawn, that it becomes necessary to consider the question where the onus of proof lies. We have this document, and I think that any reasonable person to whom it was presented would believe that the broker had effected the transaction upon the Stock Exchange .Every business man knows that it is common, or not as uncommon as it should be, for persons who are engaged in commerce continually to use a form which is designed for one thing to communicate notice of or even to effectuate another. I remember myself a case in which the whole of the difficulty, in a very important matter, arose from a circumstance of this sort. There was a sale of munitions of war to a foreign government, and it had been drawn up and effected, so to speak, by an instrument which was a form used for the sale of oils in the Levant. The difficulty arose from applying a form which was applicable to the sale of oils in the Levant to the sale of munitions of war. The true question is what Mr. Gaunt would reasonably believe when this was presented without any further explanation than the explanation which the document itself supplies, taken with the information also conveyed to him that the money was wanted for the payment of the broker. It is said there is upon the face of the document no charge for commission, and no charge for transfer stamps. The answer to that seems to me to be decisive, that the instructions were to purchase net. Then it is said that no date is filled in. One would expect unquestionably that the date would be filled in, and that information would be given in the ordinary way whether it was a transaction for cash or for the next account. But then admitting that, as I do to the full, and thinking, as I do, that the document may be in that respect irregular, we must not be deceived by terms. What do we mean by saying that the document is irregular in that way? The document is not something which a broker transmits as a voucher for his own assertion, any irregularity in which ought to excite just suspicion, it is an irregularity which does not point to anything irregular in the transaction itself. It is only an irregularity in the way in which the broker communicates the transaction. It is therefore an irregularity which the broker can cure himself by a word. It seems to be no more an irregularity than if the broker had forgotten to date his letter, but supplied by word of mouth the missing date. There is therefore nothing on the document to suggest, as it appears to me, that this was other than a purchase on the Stock Exchange . If the document were ambiguous and left that in doubt, I am not at all sure I should be satisfied with the trustee for not going further and asking about it; as it was a large sum of money, I think it would have been prudent for him if he did not get the information from his broker to have asked his broker what the transaction was. But it seems to me that the document is not ambiguous, and that is the answer to the Vice-Chancellor's judgment in the Court below, and the answer to the hesitation which I felt during a considerable part of the argument. In the first place the document begins, "We have this day bought for you," and in the second place it continues, "We have bought for you subject to the rules of the London Stock Exchange ," and I think when a document was presented, which began in that way and which contained nothing upon the face of it to awaken suspicion, he was justified in paying over the sum of money. Whether I should have done it, or whether the Master of the Rolls would have done it, or whether Lord Justice Lindley would have done it, is hardly the test, because we lawyers become suspicious after hearing cases of this sort. The true test is whether a reasonable man of business would do it. I think that ninety-nine trustees out of a hundred would have done it.

With regard to what has been said as to the cases of Bostock v. Floyer⁽¹⁾ and Hopgood v. Parkin⁽²⁾, referred to by Lord Justice Lindley, I entirely agree with him, and also with what has been said by the Master of the Rolls as to the subsequent alleged default in not requiring an explanation from Mr. Cooke of the delay which occurred after the money had once been paid.

(1)     Law Rep. 1 Eq. 26.
(2)     Law Rep. 11 Eq. 74.


M. W.

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