Legal Origins and the Efficiency Dilemma by Garoupa Nuno Gómez Ligüerre Carlos Mélon Lela

Author:Garoupa, Nuno,Gómez Ligüerre, Carlos,Mélon, Lela
Language: eng
Format: epub
ISBN: 9781315311197
Publisher: Taylor & Francis (CAM)

Contrasting common and civil law: the role of trusts and mixed legal jurisdictions

Trusts are traditional common law devices, economically significant due to their role in the common law world: large sums of assets are carried and used through them all over the world. At this point they are chosen for a deeper analysis as such with the intent to use this particular economic relevant example to prove that the lack of this institution in civil law systems does not influence the efficiency of division of legal interest over the same assets in those jurisdictions.

Details in the regulation of trusts change among common law jurisdictions, but all of them recognize some kind of trust. Probably, one of the most wide and inclusive contemporary definition of the trust is that provided by the §2 of the Restatement (Third) of the Law: Trusts, published by the American Law Institute in 2003:

A trust, as the term is used in this Restatement, when not qualified by the word ‘resulting’ or ‘constructive’, is a fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee.

The definition contains the main features of the trust. In its basic structure, the trust is based on a fiduciary relationship according to which one person (the trustee) holds legal title to certain assets for the benefit of another person (the beneficiary). Once the trust is settled, the settlor cannot be considered the owner of the assets put into the trust. The property becomes an autonomous set of assets, managed by the trustee in benefit of the beneficiaries of the trust. The assets constitute a separate fund and are not a part of the trustee's own estate. The trust lacks legal personality, though is entitled to act and to enter into legal relationships.

The Restatement also refers to the main kinds of trusts. Section 2 of the Restatement, quoted above, defines the so called ‘express trust’. It is the trust agreed by the settlor, who nominates the trustee and designates the beneficiaries and the requirements under which they can get the benefits. The express trust has a contractual origin. Since the beneficiaries are not necessarily part in such a contract, express trusts have been usually presented as an exception of the doctrine of privity of contracts.141

‘Resulting’ and ‘constructive’ trusts are the two additional versions of the phenomenon. Both are ordered by statute or by court under different circumstances. The former can be a product of gifts made under some conditions or payments made for benefitting a third person. The latter resembles de civil law idea of the ‘quasi contracts’, and it is the answer to situations like those than the French Civil Code, among others civil law codifications, identify as ‘paiement de l’indú’. Situations in which someone has been benefitted by mistake and becomes obliged to redress the situation or to give back what has unduly received.

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