Custodian: Definition, Example and Related Terms
What is a Custodian ?
The role of a custodian in a commercial contract varies depending on the type of contract and the assets involved. For example, in the case of a contract for the sale of a business, the custodian could be in charge of holding the funds paid by the buyer until all conditions of the sale have been met. In the case of a contract for the provision of services, the custodian could be responsible for holding and protecting confidential information that one party has shared with the other.
It's important to note that the custodian does not own the assets they are protecting. Their role is strictly to safeguard and manage those assets, in accordance with the terms of the contract in which they are named as custodian. The custodian's responsibilities may include collecting income from the assets, handling tax documentation related to the assets, and carrying out any transactions involving the assets as directed by the owner or as specified in the contract.
A good custodian is trustworthy, reliable, and has the necessary skills and resources to protect and manage the assets they are responsible for. Choosing the right custodian is a crucial decision in many commercial contracts, as the security and management of assets can significantly impact the success of a contract.
Scenario Description A company is entering into a contract with a software development agency. The company will be sharing sensitive information with the agency. In this scenario, the company could appoint a custodian for the sensitive information. This custodian would be responsible for keeping the information secure, controlling who has access to it, and ensuring it is only used as outlined in the contract. A business owner is selling their business and the buyer has paid a deposit. The rest of the payment will be made once certain conditions are met. In this case, a custodian could be appointed to hold the deposit. The custodian would keep the funds safe and only release them to the seller once the agreed conditions have been met. If the conditions are not met, the custodian would return the funds to the buyer.