This case is an appeal from the decision that was made by the Gauteng Division of the High Court, Pretoria. The question in this appeal is whether a duly registered trust can be named a party to a contract, concluded by the sole trustee on its behalf. If not, then the Respondent, Gerhardus Joshua Swanepoel NO, insists that he is not bound by two transactions.
The Appellant in this matter is Standard Bank of South Africa Ltd. On 3 November 2011, a contract was concluded between the Appellant and the Respondent, acting on behalf of the trust. The Respondent, acting as a trustee for the trust, opened a business banking account with the Appellant in 2008. The Appellant undertook to lend and advance moneys from time to time on the overdraft facility granted.
The Respondent, in his personal capacity, had in 2009 signed a deed of suretyship guaranteeing the trust’s obligations to the Appellant. This meant that liability for the loan taken in 2011 would have been covered. The trust failed to repay the loan capital and interest, and, subsequently was overdrawn on the business account. The Appellant accordingly instituted action against the Respondent, in his capacity as the sole trustee of the trust and against him personally as surety.
The Respondent excepted to the particulars of claim, that the loan agreement entered into was meant to be between the trust and the Appellant. The Respondent argued that a trust is not a legal person, and lacked contractual capacity. This meant that the contract purported to be between the trust and the Appellant was invalid. Accordingly, no valid cause of action against the Respondent in his capacity as trustee existed, therefore, his accessory obligation as surety was also unenforceable.
The court went on to consider the case of Braun v Blann, where a trust was referred to as a ‘legal institution sui generis’. A trust is a legal entity although it does not have a legal personality. The Trust Property Control Act 57 of 1988 defines a trust as ‘the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed’ to a trustee or to beneficiaries designated in the trust instrument.
In the case of Sapirstein & others v Anglo African Co (SA) Ltd, it was affirmed that where a litigation is against a trust, it is crucial for trustees in their legal capacity as trustees to be cited, however, it should be determinable as to who the principle debtor, creditor and surety is.
The court a quo made reference to Land and Agricultural Bank of South Africa Ltd v Parker & others, where the court held that a trust does not have a legal personality and, in the absence of the authorisation of the trustees, as required by the deed of trust, cannot be bound by a contract. By this, the court concluded that there was no way that the trust could have entered into a contract with the Appellant.
The appeal court, however, disagrees with this conclusion and mentions the case of Thorpe & others v Trittenwein & another which states that trustees should act jointly in order to bind a trust, unless otherwise permitted by a trust deed.
The court therefore held that a valid cause of action existed. Accordingly, the appeal is upheld with costs.
Despite the fact that a trust does not have legal personality, that does not render a contract entered into with it invalid.
Written by Jayna Hira and supervised by Jenna Bentel, 08 October 2018