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

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  • Henry B. Hansmann

    ()
    (School of Law)

  • Ugo A. Mattei

    ()
    (University of California, Hastings College of the Law)

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    Abstract

    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.

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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm102.

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    Date of creation: 09 Oct 1998
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    Handle: RePEc:ysm:somwrk:ysm102

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    Web page: http://icf.som.yale.edu/
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    Cited by:
    1. John Armour & Michael J Whincop, 2005. "The Proprietary Foundations of Corporate Law," ESRC Centre for Business Research - Working Papers wp299, ESRC Centre for Business Research.
    2. Gary Gorton & Andrew Metrick, 2012. "Securitization," NBER Working Papers 18611, National Bureau of Economic Research, Inc.
    3. Montagne, Sabine, 2009. "Analyse Economique du Droit versus Institutionnalisme. Une comparaison "en situation"," Economics Papers from University Paris Dauphine 123456789/1477, Paris Dauphine University.

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