Trustees and the acquisition of property

The question as to whether the trustees of a Trust can validly act on behalf of the Trust before the letters of authority have been issued to them by the Master, is one of interest to both the deeds controller and conveyancers, alike. Section 6 of the Trust Property Control Act, 57 of 1988, is very clear on this issue; it provides:

"Any person whose appointment as Trustee in terms of a Trust instrument, 57 or court order, comes into effect after the commencement of this Act, shall act in that capacity only if authorized thereto in writing by the Master."

At first glance this question should not be a problem because the provisions of section 6 are clear and unambiguous. The words "shall ... only" are indicative of a peremptory prohibition from acting as Trustee until authorized in writing thereto by the Master.

It is the approach of the courts to the application of this provision when dealing with the acquisition of property by the trustee on the Trust's behalf prior to their appointment as such by the Master which brings about uncertainty to registration of such transactions.

In the case of Simplex (Pty)Ltd v Van der Merwe and Others NNO 1996 (1) SA 111, the court had to determine whether an agreement of sale of property concluded by a Trustee before being authorized thereto by the Master, was valid and whether such an agreement could be ratified after the necessary authorization had been obtained.

In applying the provisions of section 6(1) of the Trust Property Control Act, the court found that "the language of the prohibition is peremptory ... indicating an unambiguous prohibition of acting as trustee until authorized thereto in writing by the Master. It is a precondition of a Trustee's right to act as such that he/she be authorized to do so in terms of section 6(1) of the Act".

On the question of whether the agreement could be resuscitated by subsequent ratification, the court applied the well-established principle that, "there can be no ratification of an agreement which a statutory prohibition has rendered ab initio void ..." The result would then be that a contract for the acquisition of property by the trustee before the provisions of section 6(1) have been satisfied, would be null and void ab initio and not ratifiable by the Master or Trustee even after the necessary authorization had been issued to such trustee.

A totally different approach was adopted by the court in the case of Kriel v Terblanche NO en Andere 2002 (6) SA 132 NC. There the court distinguished between two theories of passing ownership, viz: causal theory and abstract theory.

According to the causal theory, there must be a valid (iusta causa) causa for the transfer of ownership to pass to the acquirer, otherwise ownership would not pass to such intended transferee. This has the effect that if the initial agreement was legally defective, all subsequent agreements flowing from that would be void ab initio. The abstract theory on the other hand only requires that the parties be ad idem regarding the passing of ownership even if the causa was legally defective.

The court distinguished between these two theories and determined that because our land registration system is predominantly negative, the abstract theory of the passing of ownership of immovable property is the most appropriate to our land registration law. In effect the theory distinguishes two transactions in the passing of ownership of immovable property viz, the obligation creating agreement, embodying the causa for the passing of ownership, and the real agreement in which the consensus for the transfer of ownership is achieved. This implies that if the obligation creating agreement is legally defective, ownership still passes if the real agreement is valid.

In the circumstances a trustee who concluded a contract of sale of land on behalf of a Trust prior to receiving the letters of authority would be bound thereby if at the time of transfer of such land is effected, such trustee has already been granted the letters of authority by the Master.

The next issue for consideration is the protection granted to third parties who are aggrieved because a trustee did not comply with section 6(1) of the Act.

According to Silberberg and Schoeman in The Law of Property 4th edition (2002), such parties would in terms of the abstract theory have a personal right against the trustee because the real right (i.e. ownership) would have already passed to the acquirer on transfer, despite the deficiency of the underlying contract.

Considering that the causal theory would render the contract null and void for lack of iusta causa in the initial contract, the abstract theory seems more appropriate especially where ownership has already passed to other parties subsequent to the initial defective agreement. In my view therefore and until the Appeal Court brings clarity to this question, the abstract theory of passing of ownership in immovable property is more suitable because of the greater certainty it brings to transactions done by trustees in land registration.

Republished with permission