Legal Update - Caution when dealing with Trusts

I thought that I would bring the recent case of Smith v ABSA Bank Limited (A892/2014) [2015] ZAGPPHC 409 to your attention as it yet again demonstrates that extreme caution must be taken when dealing with a Trust.

As you know, business dealings with Trusts are most likely to occur when immovable property is either sold to or purchased from them. The above case confirms the importance of always verifying that the person who signs on behalf of the Trust is actually authorised to do so.

In the above case a Trust concluded an instalment sale agreement with a bank and eventually ended up owing the bank R1 million.   The bank tried to enforce a personal suretyship which it had obtained from the Trust and which was signed by one of the Trustees who had bound herself as surety and co-principal debtor with the Trust.  The High Court however found that this suretyship was as invalid as the instalment sale agreement which the bank had concluded with the Trust as it had only been signed by one Trustee, whereas the Trust Deed required that two trustees or more always sign on its behalf.

It is for this very reason that you should always insist on being furnished with certified copies of :

  1. the letters of authority;
  2. FICA and Identity Documents for each Trustee;
  3. the Trust Deed. 

The above case makes it clear that the Trust will only be bound if :

  1. The Trustees act strictly in accordance with the terms of the Trust Deed and so it is very important to verify that the Trustees have been properly appointed and that the Board of Trustees has been properly constituted.    The Trustees actual capacity to contract will also be determined by the Trust Deed and although many Trust Deeds authorise Trustees to enter into virtually every type of transaction you can think of, some are more restrictive.   It is therefore vital for you to ensure the Trustee has the relevant authority required to validly conclude your particular type of contract.
  2. All the Trustees are actually in place if the Trust Deed specifically requires that a minimum number of Trustees are to be in office at any given time. In the above case, the Trust Deed stipulated that there had to be between 3 and 5 trustees in place at any given time and because the suretyship was only concluded by 1, the Court held it to be invalid. 
  3. The appointed Trustees act jointly (unless the Trust Deed stipulates otherwise);
  4. The Trustee/s are empowered to delegate their authority by the Trust Deed.   If this is ever disputed, you will have to prove that such authority was validly given.

I trust that the above is of assistance to you.

Courtesy: KENNY VERHAGE - Attorney & Conveyancer

CONTACT DETAILS FOR FURTHER INFORMATION:

Kenny Verhage & Associates Attorneys & Conveyancers

Unit 6 Block 6

Holwood Crescent 

Holwood Park

Canegate Road

La Lucia Ridge

Tel: 031-566 2655

Fax: 031 566 4264

E-mail: [email protected]

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