Legal Articles

Business dealings with Trusts

The recent case of Smith v ABSA Bank Limited yet again demonstrates the extreme caution that must be taken when dealing with a Trust.

Business dealings with Trusts are most likely to occur when immovable property is sold or purchased by the Trust. 

The above case once again confirms the importance of always verifying that the person who signs on behalf of the Trust is actually authorised to do so.

In the Smith-case the Trust concluded an instalment sale agreement with ABSA and ended up owing them R1 million. 

ABSA then tried to enforce a personal Suretyship 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 invalid as the instalment sale agreement which the bank had concluded with the Trust was only signed by the one Trustee, whereas the Trust Deed required that two Trustees or more had to sign on behalf of the Trust.

Trust documentation required

It is for this reason that one should always insist on certified copies of:

1)    Latest Letters of authority
2)    FICA documents for each and every Trustee
3)    The Trust Deed

The Smith-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. 

It is of great importance to verify that the Trustees have been properly constituted. It is vital to ensure that the Trustees have the relevant authority required to validly conclude the particular type of contract.

2)    All the Trustees are actually in place if the Trust Deed 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 five trustees and because the Suretyship was concluded by 1, the Court held it to be invalid.

3)    The appointed Trustees act jointly (unless the Trust Deed stipulates otherwise).

4)    The Trustees 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.

Van Deventer and Van Deventer Incorporated - for Trusts 

Van Deventer and Van Deventer Incorporated attorneys are well equipped to provide expert legal advice when you are dealing with a Trust. And are also able to assist Trusts in their business dealings.

Link to more information on Trusts

Contact us for assistance at any time.