The curators of the multi-million-rand Emma Smith Educational Fund at the University of KwaZulu-Natal brought the appeal after the high court ruled against them.
The university had sought an order that would delete the words "European", "British" and "or Dutch South African" from the trust that was established according to the will of the late KwaZulu-Natal industrialist Sir Charles George Smith, who died in 1941.
The trust holds that "European girls born of British South African or Dutch South African parents who have been resident in Durban for a period of at least three years immediately preceding the grant", could benefit from the fund.
On Monday, the university, which manages the fund, submitted the phrase "born of British South African or Dutch South African parents" had ceased to have meaning in present-day South Africa.
The words served to undermine the broader charitable purpose which Sir Charles sought to achieve, which was to help poor girls who would otherwise be unable to continue their studies.
"The purpose of the bequest was to oversee disadvantages confronting poor women in obtaining tertiary education," according to court papers submitted by the university.
The university also submitted the words "European", "British" and "or Dutch South African" should be struck from the terms governing the fund as they constitute racial discrimination.
The University of KwaZulu-Natal submitted it was no longer practical to carry out Sir Charles' charitable purpose in the way he had stipulated.
The university's lawyer D Stewart told a panel of five judges that Sir Charles could not have foreseen how South Africa would change.
"(The will) did not foresee that racial exclusion terms would be a problem. (An) embarrassment for the university."
The curators submitted to the SCA that the object of interpreting any bequest was to give effect to the testator's wishes.
"The selection of recipients is a matter of freedom of testation."
The two lawyers appointed as curators further submitted there were still enough applicants falling within the categories selected by Sir Charles for his objectives to be achieved.
If the university found it embarrassing to refuse to help non-white girls, it should ask the court to appoint other trustees.
The curators told the judges to keep in mind that if potential testators got the impression their intended benefits could be interfered with, they would shy away from leaving money for the benefit of others.
"This would clearly be against the public interest."
It was further submitted that the measuring of freedom of testation against unfair discrimination in the Bill of Rights would have serious implications for this "charitable instrument".
Judgment was reserved.