The first (Koekemoer), second and third respondents are the trustees of the Supedre Trust (the Trust), which was set up by the second respondent. In terms of the trust deed the trustees are empowered, in the performance of their obligations qua trustees, to conserve or increase the value of the Trust, to borrow money under any conditions and against any security and, in doing so, to encumber any assets of the Trust. However, the trustees are not entitled to use or dispose of any capital or income of the Trust to their own advantage or for the benefit of their estates unless they are also beneficiaries of the Trust, in which event the consent of all the other trustees must be obtained.

The third respondent is the son of the second respondent and husband of the first respondent. The appellant bank (the bank) advanced two home loans to the Trust. The first loan was secured by a first mortgage bond over the Trust's fixed property and the second by a continuing covering bond over the property. It is common cause that the money in each case was on-lent by the Trust to the third respondent, who applied most of it in his own business ventures. The third respondent was not a beneficiary of the Trust.

Later the appellant (Standard Bank of South Africa Ltd) instituted action in a Local Division against the respondents in their capacities as trustees of a trust for the repayment of the loans together with interest, and for an order declaring the trust's fixed property executable.

The respondents denied liability and pleaded that the trustees had entered into loan agreements with the bank and bonded the property in the bona fide but mistaken belief that they could lend the money advanced to the trust to the third respondent, who was not a beneficiary of the trust. This act had, however, been prohibited by the trust deed and it was accordingly pleaded that the loan agreements were ultra vires and unenforceable.

The respondents submitted that the bank, which had knowledge of the purpose of the loans, should have been more circumspect. It was argued that in the circumstances, the bank should have enquired as to whether the trustees had been empowered to lend the money to the third respondent. As the bank had the trust deed in its possession, it was argued further that it had been in the position to facilitate such enquiry and that the failure to do so rendered the agreements unenforceable.

The Court held that it was clear that the bank had no intention to advance money to the third respondent. The party with which the bank had concluded the loan agreements was the Trust as represented by the trustees. The third respondent's instructions to the bank to transfer funds from the trust's home loan account to the current account of the third respondent were given by the third respondent is his capacity as a duly authorised trustee representing the Trust, and could not have been resisted by the bank. Once the bank had granted the loans and credited the trust's home loan account, it was not entitled to control the application of the funds by the Trust.

The Court held further that part of the bank's business was to lend money to clients. What would have been of interest would have been whether the trustees had had the authority to borrow money and encumber trust property in the process. If satisfied on that score, the bank would have been under no obligation to protect the beneficiaries. There had, accordingly, been no obligation on the bank to study the trust deed any further to ascertain whether the trustees had or did not have the power to on-lend the money to the third respondent. The fact that the trust deed had been in the possession of the bank and had provided it with the means to acquire the necessary knowledge did not justify a finding that it had actual or constructive knowledge of the prohibition. To render the agreements unenforceable, at least actual knowledge by the bank of the prohibition would have to be established.

The Court ordered that the first, second and third respondents, in their capacity as trustees of the Supedre Trust, are to repay to the appellant the money claimed, together with interest and declared the immovable property encumbered by the bonds, executable.

(Jaco Bekker)