Ehrlich v Rand Cold Storage & Supply Co Ltd [1911] ZATPD 33 (27 March 1911)

Insolvency - Assignment for Benefit of Creditors Carrying on Debtor's Business - Liabilities of Creditors

Liabilitises of Trustees at Common Law

J., in business as a butcher, being in embarrassed circumstances, by deed assigned to trustees all his assets, upon trust, to carry on the business until J.'s debts had been paid. The deed was made for the benefit of J.'s creditors who together with J. and the trustees were parties thereto. The deed provided that the mere assignment should not discharge the debtor; that the trustees should be guided by instructions given by the majority in value of creditors, at meetings of creditors called at the discretion of the trustees; but that the trustees should have absolute power to manage the business, to employ persons, to sell and dispose of the property assigned, in manner considered advisable by them, and to cancel the assignment and thereby absolve the creditors. The deed gave no power to the creditors to appoint new trustees. The trustees did carry on the business and, in the course of it, employed as a driver T., who, it was alleged, in the course of his employment caused damages to the plaintiff by negligent driving.

Held, that the deed had not constituted the creditors partners in the said business or principals of the trustees and, consequently, that they were not liable personally for the said damages.

At common law trustees by duly exercising their powers do not render themselves liable personally to third persons. Obligations thereby incurred are liabilities of the trust estate and may be enforced by suing the trustees in their representative capacity. If trustees act wrongly they may render themselves liable personally, but, to support a claim against them, an allegation of misconduct must be pleaded.
[Standard Bank vs Jacobson, 16 S.C. 352, observations in, dissented form.]