What to do when the trustee claims he is not authorised

“My beach house is for sale. A few weeks ago, I received an offer from a trustee on behalf of a property investment trust. I accepted the offer and the deed of sale was sent to the transferring attorneys. They have now called me and indicated that the investment trust claims that the trustee was not authorised to make the offer and that the trust is accordingly not bound thereto. Can the trustee and trust just evade responsibility like this?”

The authority of a trustee to act on behalf of a trust is confirmed by the letters of authority issued to a trustee by the Master of the High Court. The power of the trustee to act is derived generally from the Trust Property Control Act 57 of 1988 and specifically from the trust deed of the trust, which has been registered with the Master. 

A trust deed will usually set out the identity of the trustees as well as their powers, duties and functions, including specifying what may and may not be done by the trustee(s). In addition, it would be expected that the trust deed also set out the formalities to be complied with by trustees when they act on behalf of the trust. An overarching responsibility of the trustees is to act only within the scope of the general or specific objectives of the trust.

When it comes to a commercial transaction such as the purchase of property as in your case, it must firstly be determined, whether the trust deed allows such transactions. If it does, then it must be determined what the formalities are for the taking of decisions in respect of such transactions and whether decisions taken have met the required formalities in order to be valid.

The consequence of decisions taken contrary to the objectives of the trust or without complying with the right formalities, is potential invalidity of the decision. In your situation, if certain formalities such as a specific resolution by the trustees authorising a specific trustee to make the offer was required and not done, then potentially the trust could not be bound by the offer made by the trustee. 

This does not mean that the trustee that claimed to have been authorised, can get away scot-free. You could sue the trustee personally for damages arising from the trustee’s misrepresentation or breach of warranty, if he warranted in the sale agreement that he had the necessary authority.

Given the complexity and the necessity to carefully evaluate the claim of the trust that the necessary authority did not exist, it is our recommendation that you consult with your attorney to review the trust deed and advise you on your remedies and recourse against the trust and/or trustee.

April 6, 2018
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