The Functions Of Trust Law: A Comparative Legal And Economic Analysis

This Article analyzes the functions served by the law of trusts and asks, first, whether the basic tools of contract and agency law could fulfill the same functions and, second, whether trust law provides benefits that are not provided by the law of corporations. The analysis is motivated in part by the increasing interest in the trust -- a familiar feature of common-law jurisdictions -- in a number of civil law countries, and in part by the important role that trusts, such as pension funds and mutual funds, have come to play in capital markets. The article concludes that the important contribution of trust law lies not in its well-recognized role of ordering, via default rules of contract, the relationships among the principal parties to the trust. Rather, the principal benefit of trust law lies in its ordering of relationships between those parties and third parties with whom they deal, relationships that cannot easily be rearranged by contract. Most conspicuously in this respect, trust law allows the parties to the trust to partition off a discrete set of assets for separate treatment in relationships formed with creditors. The essential role of the trust, therefore, is to perform a property law-like, rather than a contract law-like, function. The article also notes the increasing convergence of trust law and corporate law, and asks whether the roles performed by these two legal forms could just as well be served by a single form.