University of Virginia Library

At the request of the Rector, I am submitting herewith a statement upon the
subject of the authority, duties, and liabilities of the Board of Visitors in connection
with investment of funds belonging to the University, primary consideration being given to
the question of whether the Board of Visitors shall be confined in making investments of
University funds to so-called "lawful investments" or whether, in the exercise of a sound
discretion, the Board may, without liability to its members, place the funds of the
University in securities not included within the list of such "lawful investments" as
defined by Section 5431 of the Code of Virginia.

FIRST

AUTHORITY OF THE BOARD OF VISITORS

Section 806 of our Code provides, among other things, that the University of
Virginia shall be continued and the Visitors thereof shall be and remain a corporation
under the style of- "The Rector and Visitors of the University of Virginia", and among
other powers shall have the "power to accept, execute and administer any trust in which
it may have an interest under the terms of the instrument creating the trust".

A careful search of our Code sections and Acts of Assembly has failed to
disclose any specific limitation upon the foregoing broad grant of powers in the execution
of trusts by the Board of Visitors. I am of opinion, therefore, that the Visitors of the
University do not stand upon ground differing in any way from that occupied by any other
trustee or fiduciary, and therefore in the management of all trusts committed to their
care for the benefit of the University of Virginia, the Visitors are subject only to the
principles of law applicable to fiduciaries generally.

SECOND

DUTIES OF THE BOARD IN MAKING INVESTMENTS

If I am correct in the foregoing conclusion, the statement of your duties
becomes little more than an expression of elementary principles-

A trustee should exercise common skill, common prudence, and common caution; he
must represent and protect the interest of all beneficiaries impartially, he must act
honestly and in utmost good faith. A trustee must exercise sound judgement and prudence
and due diligence, or that care and diligence which an ordinarily prudent man would exercise
in the management of his own affairs. However, a trustee is not an insurer of the trust
property or of results, and when it is shown that a trustee has been faithful and diligent,
the Court will view his acts with liberality and indulgence and will not hold him responsible
for more mistakes or errors of judgement, or for losses not attributable to lack of
fidelity. (65 C. J., 648.

Section 5431 of the Code of Virginia authorizes fiduciaries to make investments
in the securities enumerated or of the class or classes defined therein. The language of
this statute is permissive. Fiduciaries may invest in these securities but this statute
does not in any way exclude the right of the fiduciary to invest in other securities when
in so doing he exercises a sound discretion.

Pre-eminent knowledge and uncommon foresight are not required of a trustee, but
all that is required is that he should act in good faith and with the same care and diligence
that a prudent man is accustomed to exercise in the management of his own affairs. To require
more than this of a Trustee would be to deter man of integrity from taking upon themselves an
office so necessary in the concerns of life from fear of anxiety, trouble and risk involved.
(Elliott v. Carter, 9 Gratt. 541, Davis v. Harman 121 Gratt. 194; Cogbill v. Boyd, 77 Va. 450).

It is well settled that it is the duty of a trustee to preserve and protect the trust
property for the benefit of the beneficiaries. Nothing more is required of a trustee than
that he should act in good faith and with the same prudence and discretion that a prudent man
exercises in his own affairs. (Shepherd v. Darling 120 Va. 586; Winder v. Nock 104 Va. 759;
Halstead's Ex'rs. v. Ingram, 163 Va. 229.

THIRD

LIABILITIES OF THE BOARD

There is, of course, no question of liability where funds are placed only in "lawful
investments" within the terms of the permissive statute above referred to. There are
authorities in some of the jurisdictions which hold that where a trustee does not take advantage
of the permissive statute, he will be held responsible for loss, but the great weight of
authority, and certainly the practice in Virginia has been to regard these statutes simply as
permissive and not as exclusive statutes. (1 Perry on Trusts, Sec. 459, Harrison on Wills and
Administration, Pr. 381.) If, as stated above, the whole duty of a trustee is to exercise care
and diligence, as expressed under the second heading above, then it follows as a corollary to
said duty that liability will result where there is a failure to exercise such good faith,
sound discretion, common prudence, and care.

Now, therefore, be it RESOLVED that said report be filed, approved and
recorded, and that the Finance Committee of this Board is authorized to invest,
collect and reinvest the endowment funds under control of this Board in its careful and
prudent discretion without limitation as to the persons who may be consulted as to
such investments, and, in accordance with the advice of legal counsel, that Code Section
5431 as to restrictions as to legal investments are permissive rather than mandatory,
provided that no investment shall be made in common stocks except with the approval
first obtained of this Board.