Commercial Trusts as Business Organizations: An Invitation to Comparatists

I. INTRODUCTION Traditionally restricted to gratuitous transactions, (1) trusts are increasingly employed as business organizations in a wide range of commercial and financial transactions in the United States. (2) They are commonly used, for example, in asset securitization transactions, (3) have become a primary tool for investing pension moneys, (4) and are the preferred form for structuring mutual funds. (5) There is, however, relatively little scholarly or systematic understanding of these commercial uses of trusts ("commercial trusts"). (6) Outside the United States, parties similarly engage in securitization deals, invest in pension and mutual funds, and enter into other commercial and financial transactions that, in the United States, would use the trust form. (7) The question thus arises: would commercial trusts also be useful in those non-U.S. transactions? The answer is complicated not only by the poor general understanding of commercial (as opposed to gratuitous) trusts but also by the fact that, in many non-U.S. jurisdictions other than the United Kingdom and other Commonwealth nations, trust law itself is relatively nascent. (8) It is nonetheless important to at least begin to answer this question. The trust form is increasingly being scrutinized, and trusts or variations on the trust form are beginning to be embraced worldwide. Certain civil law and mixed-law jurisdictions, for example, already have adopted the trust form. (9) Other civil law jurisdictions are starting to "adopt trust-like institutions," (10) and "important efforts are underway to promote recognition by nontrust jurisdictions of trusts formed in other countries." (11) One civil law scholar even claims that "the trust belongs to the civil law, whence it was imported in England during the formative period of the Chancellor's jurisdiction over trusts." (12) In this scholar's view, the belief that trusts are inconsistent with civil law (13) reflects the failure of common and civil law scholars to seriously address the basis of trust law: The mere fact that trusts exist in civil law countries should prove the point that there is no basic incompatibility with civil law structures. Why, then, is the opposite view held so unanimously? The simple answer is that common law scholars have not attempted a comparative study of the civil law institutions, while civil law scholars have not attempted a comparative study of trusts. (14) Some civil law countries also have been moving legislatively to clarify that trusts are consistent with their law. It has been reported, for example, that "every European country has enacted legislation" shielding trust property from claims against mutual-fund and investment-firm intermediaries that operate as portfolio managers. (15) Japan and Korea have adopted similar laws. (16) Traditionally, however, comparative literature on trust law appears to have focused almost exclusively on gratuitous trusts. (17) This is not surprising; the gratuitous trust is the historical prototype, and even the use of trusts for commercial purposes in the United States is fairly recent. (18) Nevertheless, given their increasing dominance, the existence of commercial trusts should be taken into account for a fuller, and thus more accurate, picture. This essay is a preliminary step in examining whether commercial trusts might be useful in non-U.S. transactions. (19) It proceeds by redacting to fundamental principles, shorn of any uniquely U.S.-specific considerations,--and thereby making accessible to foreign lawyers as well as comparative-law scholars--the analytical framework for commercial trusts that I constructed in a separate article. (19) That framework differentiates commercial from gratuitous trusts, and also addresses such basic questions as whether commercial trusts are a better form of business organization than corporations and whether existing trust law is adequate to govern commercial trusts. …