22 April 2008

Written authority of a trustee – a mere formality?

In the context of sale agreements for immovable property “formalities”, or statutory requirements, are ubiquitous, yet often overlooked.

One of the primary sources of statutory formalities is the Alienation of Land Act, 1981, from which three formalities can be identified: where a contract for the alienation of land is concluded it must be in writing and signed by the parties; and, if the parties are represented by agents, the latter must act on written authority. Where these formalities are not complied with, the Act provides for a strict and drastic consequence: the alienation will not be of “any force or effect".

Recently, the formality relating to agents was the subject matter of a Supreme Court of Appeal case. In particular the authority of a trustee, acting on the oral authority of his co-trustees came under the spotlight.

In Thorpe v Trittenwein [2006] SCA 30 RSA one trustee (of the three which the trust deed provided for), Thorpe, signed an agreement of sale of immovable property on behalf of a trust (the purchaser), subject to the approval of a township development on the property. By the time this condition was eventually fulfilled, the seller had sold the property to a third party. The trust sought an order declaring the sale to it as valid and enforceable.

The court referred to the nature of trusts, which are not legal personae and have no capacity to act independently of their trustees. The court pointed out that where there is more than one trustee it is trite law that, unless the trust deed provides otherwise, the trustees must act jointly. A trustee may authorise someone else to act on his behalf, including one of the other trustees, provided the trust deed does not prohibit this.

The court found that Thorpe signed the sale agreement as trustee but, as he was but one of three trustees, his co-trustees had either to sign the sale agreement too or give Thorpe written authority to act on their behalf - which neither had done. Thorpe argued that he was orally authorised by the other trustees and that this authorisation was subsequently ratified in writing, thus indicating compliance with the formalities of the Act. The court held that the Act requires written (and not oral) authority at the time the agreement was concluded and that later written authorisation cannot blow life into a contract that was invalid from the start.

This case underlines the importance of compliance with "formalities".

Andrew Heiberg, director and Karin Muller, candidate attorney, Cliffe Dekker Inc.

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