Legal Updates

A trust agreement for the holding of shares will be enforced unless there is an oral agreement turning it to an ostensible agreement

October 20, 2021

Two French businessmen, one of whom migrated to Israel and the other to Dubai, signed an agreement under which one will hold shares in a chain of companies for the purpose of holding a Portugese hotel in trust for the other. After the ownership of the hotel was transferred to a third party in breach of the trust, the trustee contended that the agreement was never a trust agreement but an agreement to sell shares that was not ultimately consummated.

The Court held that a valid trust agreement had been signed between the parties and that the sale of ownership of the hotel constituted a breach of that agreement. An ostensible contract is a contract regarding which there is a deliberate discrepancy between the parties' intentions and the language of the contract. This discrepancy is usually intended to achieve a particular purpose and the condition is that there is indeed a covert agreement between the parties on such purpose. In fact, in order to show that an agreement was signed only ostensibly, it must be shown that there is an oral agreement between the parties which contradict the written contract. There is no impediment to giving effect to an oral agreement that contradicts what is stated in the contract, for example in cases where there are agreements later to the contract or in cases where an interpretation of the contract is required. Here, it the contract was not merely an ostensible agreement as there was no other agreement between the parties regarding the sale of shares and because it is clear from the circumstances that the intention of the parties was to create a trust in accordance with the language of the contract. As such, once a trust agreement between the parties was executed, the sale of the hotel, contrary to the beneficiary's interest, constitutes a breach of the trust.