The Contractarian Basis of the Law of Trusts

By Langbein, John H. | The Yale Law Journal, December 1995 | Go to article overview
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The Contractarian Basis of the Law of Trusts

Langbein, John H., The Yale Law Journal


I. Introduction 627

II. From Conveyance to Management: The Historical

Transformation of The Trust 632

A. The Early Trust as a Means of Conveyance 632

B. Why Early Trust Law De-emphasized Contract 634

1. Failings of Covenant 634

2. Hostility to Assignment 635

3. The Role of Procedure 635

4. Tracking the Common Law Estates 636

5. Testamentary Trusts 636

C. The Appearance of the Management Trust 637

1. Financial Assets 638

2. Institutional Trusteeship 638

3. Safeguard: From Disempowerment to

Fiduciary Obligation 640

III. Probing the Objections to Contractarian Analysis of the

Modern Trust 643

A. Third-Party-Beneficiary Contracts 646

B. Implications of Equitable Tracing 647

C. The Effect of Fusion on Trust Enforcement 648

IV. The Functional Correspondence of Trust and Contract 650

A. Converging Trends in Contract and Trust Law 652

1. Specific Performance 653

2. Relational Contracting 653

3. Good Faith 654

B. Trust Fiduciary Law 655

1. The Duties of Loyalty and Prudence 655

2. The Contractarian Basis of Fiduciary Law 657

C. Trust as a Standardized Contract 660

1. Management Regime 660

2. Regime for Multiple and Successive Interests 661

3. Procedural Regime 662

4. Statutory Trusts 663

D. Altering Outcomes 663

1. Standing: Settlor Enforcement 664

2. Embedded Conflicts of Interest 665

E. Trustee Insolvency 667

V. Lessons from nontrust Legal Systems 669

VI. Conclusion 671

Appendix: The Declaration of Trust 672

A. The Declaration of Trust as Nonprobate Will 673

B. The Declaration of Trust as Curative for Failed

Inter Vivos Gift 673

C. The Declaration of Trust as Conduit to Three-party Trust 674


We are accustomed to think of the trust as a branch of property law. The Restatement (Second) of Trusts defines the trust as a "fiduciary relationship with respect to property,"(1) and the codes(2) and treatises(3) say similar things. This way of speaking about the trust omits an important dimension.

The contractarian claim. In truth, the trust is a deal, a bargain about how the trust assets are to be managed and distributed. To be sure, the trust originates exactly where convention says it does, with property. The Restatement says, "A trust cannot be created unless there is trust property."(4) The owner, called the settlor, transfers the trust property to an intermediary, the trustee, to hold it for the beneficiaries. We treat the trustee as the new owner for the purpose of managing the property, while the trust deal strips the trustee of the benefits of ownership.

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