Contracting with a trust

If you buy a property in the name of a company, the offer to purchase can state that Joe Bloggs acts in his capacity as an agent of a company to be formed. This is perfectly valid in that the company can subsequently ratify the offer.

This is not the case with trusts. The following principals apply:

·         All contracts must be concluded with an already-established trust;

·         All (or in the case of some trusts, a majority of) trustees must consent in writing to the contract before entering into contracts on behalf of a trust. If there is no prior written authority (usually in the form of a resolution), the contract will be void;

·         A void contract cannot be rectified by ratification (i.e. the remaining trustees can’t approve, and thereby resurrect, a void contract after it has been signed).

This was confirmed by our Supreme Court of Appeal in the case of Thorpe and Others v Trittenwein and Another 2007 (2) SA 172 (SCA). In this case one trustee (who was also the founder and a beneficiary of a trust) signed a sale agreement for the purchase of land without the prior written authority of the other trustees. The other trustees subsequently ratified the first trustee’s act but the Court held that this was not possible and the seller was free to sell to someone else.

Trustees can only exercise a power if that power is given to them in the trust deed. If, for example, the trust deed doesn’t give the trustees the power to buy and sell property, a unanimous resolution of trustees to do so doesn’t cure this defect and the agreement will still be void.

So, if you are about to enter into a contract with a trust, make sure that the trust deed gives the trustees the authority to contract with you, satisfy yourself that the trustees are who they claim to be (see latest Letters of Authority for the trust) and ensure that an appropriate resolution is in place, signed by all the trustees.