Business dealings with trusts

In Smith versus ABSA Bank Limited (A892/2014) [2015] ZAGPPHC 409 the bank tried to enforce a trustee’s personal suretyship after a trust concluded installment sale agreements with the bank. Owed R1m by the trust, the bank tried to enforce a personal suretyship signed by one of the trustees in which she had bound herself as surety and co-principal debtor with the trust.

The High Court however found that the suretyship was invalid because the installment sale agreements were invalid. They had only been signed by one trustee, whereas the trust deed required a unanimous decision by two trustees.

Business dealings with trusts are common and more likely to happen when selling a property to, or buying a property from, a trust. The following documents regarding the trust should be checked:

1. Letters of Authority: The Master of the High Court must authorise the trustees to act.

2. Identity Documents: Keep copies of all signing trustees’ I.D.s to avoid any dispute as to identity.

3. The trust deed: The trust will only be bound by what the trustees do if their appointment and actions comply strictly with the trust deed’s requirements, such as:

3.1 Appointment of trustees: Check that the Board of Trustees has been properly constituted.

3.2 Capacity to contract: Make sure the trustees have authority for your particular type of contract.

3.3 Minimum number of trustees: If the deed requires a minimum number of trustees to be in office, they must all be in place for the trust to have any capacity at all.

3.4 Number of trustees required to act jointly: Unless the trust deed provides to the contrary, trustees must always act jointly.

3.5 Delegation of authority: Trust deeds may empower the trustees to authorise one or more of them to sign certain documents, request written proof of this upfront.

4. All the other little requirements and formalities: Always check the full trust deed for any other applicable requirements.

Link to full judgement: http://www.saflii.org/za/cases/ZAGPPHC/2015/486.html

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