CONTRACTING BY AND WITH A TRUST
Chapter 7: Contracting by and with a Trust
This chapter provides a comprehensive overview of the legal considerations involved when trustees enter contracts on behalf of a trust. Key sections include:
7.1 Introduction
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Trustees must follow all legal formalities to ensure contracts are valid and binding.
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Trustees act as principals, not agents of the trust or its beneficiaries.
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Trust estates lack legal personality and are managed solely through trustees per the trust deed.
7.2 Authority and Capacity
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Trustees need both authority and capacity to act. This requires:1. Written authorization from the Master of the High Court (per Section 6 of the Trust Property Control Act).2. Joint action unless explicitly permitted otherwise by the trust deed.3. Adherence to provisions in the trust deed defining powers and limits.
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Trustees acting outside these provisions may render contracts void.
7.3 Authority of a Trustee
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Trustees’ authority to act on behalf of the trust may be:1. Express: Explicitly granted by the trust deed.2. Implied: Derived from their role and responsibilities.3. Ostensible (Apparent): Based on the appearance of authority as perceived by third parties.
Key Scenarios:
1. When a Trust Deed Prohibits Delegation:
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Trustees must act jointly, and the trust cannot be bound by unauthorized actions.2. When a Trust Deed is Silent:
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Trustees may delegate specific tasks, provided their joint decision supports such delegation.3. Ratification of Unauthorized Actions:
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Trustees can retrospectively validate unauthorized actions unless prohibited by law or the trust deed.
7.4 Capacity to Act
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Trustees lack capacity if:
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They act outside the trust deed’s powers.
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The required minimum number of trustees is not in place.
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Actions contradict the trust’s objectives.
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For example, using trust assets as surety for one beneficiary’s debt without express permission undermines the trust’s purpose and is void.
7.5 Third-Party Considerations
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Third parties contracting with trusts must:
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Verify trustees’ written authorization.
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Ensure the trust deed allows the proposed transaction.
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Confirm compliance with minimum trustee requirements.
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Reliance on the Turquand Rule (used for companies) is limited for trusts.
7.6 Checklist for Third Parties
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Obtain and review a certified copy of the trust deed.
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Verify trustee authorization documents.
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Check for compliance with the trust deed’s terms on the number and powers of trustees.