THE COLUMBIA JOURNAL

OF EUROPEAN LAW ONLINE

Comparing American Trust and French Fiducie

Valerio Forti*




I. Introduction

Over the course of the past century, economies have undergone a profound
internationalization phenomenon. Today, it may even be said that in order to attract
foreign capital to a country, or to avoid capital flight, domestic legal orders must adapt to
the requirements of financial markets, which direct their choices utilizing the most
efficient approach. This preference inevitably leads to a globalization of legal
instruments.

The trust is a perfect illustration of this phenomenon. While it is one of the most widely
used legal mechanisms in common law jurisdictions, it is largely ignored in Romano-
Germanic countries.
1
In France, the fiducie only recently emerged from obscurity as a
reaction to the competition the French system was facing from the American commercial
trust.
2
Furthermore, it is precisely the way in which the trust is utilized in United States
business law that has inspired the French law of fiducie.
3


Following several unsuccessful attempts during the first half of the 1990s,
4
the fiducie
was put back on the legislative agenda in 2005. The act that gave birth to the fiducie was
approved on February 19, 2007, establishing a new title in the Civil Code.
5

* Assistant Professor at the University of Poitiers, France.
The legal
1
See Rufford G. Patton, Trust Systems in the Western Hemisphere, 19 TUL. L. REV. 398, 414 (1945); Note,
Common Law Trusts in Civil Law Courts, 67 HARV. L. REV. 1030 (1954); J aro Mayda, "Trusts" and
"Living Law" in Europe, 103 U. PA. L. REV. 1041 (1955); Kevin W. Ryan, The Reception of the Trust, 10
ICLQ 265 (1961); L.A. Wright, Trusts and the Civil LawA Comparative Study, 6W. ONTARIO L. REV.
114 (1967); Maurizio Lupoi, The Civil Law Trust, 32 VAND. J . TRANSNATL L. 967 (1999), available at
http://findarticles.com/p/articles/mi_hb3577/is_4_32/ai_n28745218/?tag=content;col1 (last visited J an. 10,
2011); Marius J . de Waal, In Search of a Model for the Introduction of the Trust into a Civilian Context, 12
STELLENBOSCH L. REV. 63 (2001).
2
CLAUDE WITZ, LA FIDUCIE EN DROIT PRIV FRANAIS 15 (Economica, 1981).
3
See Lindell T. Bates, Common Law Express Trusts in French Law, 40 YALE L. J ., 34 (1930).
4
See generally Phillippe Rmy, National Report for France, in PRINCIPLES OF EUROPEAN TRUST LAW, 131
(David J . Hayton, Sebastianus C.J .J. Kortmann, Hendrik L.E. Verhagen eds., Kluwer Law International,
1999).
5
CODE CIVIL [C.CIV.] Titre XIV De la fiducie (Fr.), available at
http://www.legifrance.gouv.fr/affichCode.do;jsessionid=FBC68F48F6A9BEBA85B0C96661DCE886.tpdj
o13v_3?idSectionTA=LEGISCTA000006118476&cidTexte=LEGITEXT000006070721&dateTexte=2010
1009 (last visited Feb. 11, 2011).
2010 COMPARING AMERICAN TRUST AND FRENCH FIDUCIE 29


provision thereby created refers to the definition of the trust as set out in Article 2 of the
Hague Convention, which was signed on J uly 1, 1985. It aims at creating an instrument
based on the main characteristics of the competing U.S. trust.

A closer look reveals that, in fact, French law had already indirectly allowed mechanisms
similar to the trust.
6
In France, experimentation in this respect took place in the field of
business law. Indeed, French banking and finance law utilized American commercial
trust-inspired instruments before the fiducie appeared in the Civil Code. These
instruments were sometimes described as unnamed fiducies, which, apart from the name,
share all the features of a fiducie.
7


II. The Commercial Trust in the United States

In Anglo-American legal culture, trust law is traditionally considered to be a branch of
the law of gratuitous transfers.
8
However, the main reason why assets are held in trust is
due to business considerations rather than gratuitous transfers.
9


In fact, scholars have argued that the main contribution made by the trust does not lie in
the way in which it formalizes the relationships between the three main parties, that is,
through default contractual rules, but rather in the way in which it orders the relationships
between these entities in addition to the third parties with whom they contract.
10

Indeed,
the trust facilitates the organization of such relationships, which would be difficult to
achieve through contractual means due to prohibitively high transaction costs.
Among the default rules of contracts regarding third parties settled by trust law, those
controlling creditors rights are the most significant. These rules provide a convenient

6
J EAN-PAUL BERAUDO, LES TRUSTS ANGLO-SAXONS ET LE DROIT FRANAIS 8 (LGDJ, 1992).
7
FRANOIS BARRIERE, LA RECEPTION DU TRUST AU TRAVERS DE LA FIDUCIE 193 (Litec, 2004).
8
J ESSE DUKEMINIER, STANLEY M. J OHANSON, WILLS, TRUSTS, AND ESTATES (Aspen Law & Business, 6th
ed. 2000); J OHN RITCHIE ET AL., DECEDENTS' ESTATES AND TRUSTS, CASES AND MATERIALS (University
Casebook Ser., 1995); EUGENE F. SCOLES, EDWARD C. HALBACH J R., PROBLEMS AND MATERIALS ON
DECEDENTS' ESTATES AND TRUSTS (Aspen Publishers, 7th ed. 2006); LAWRENCE W. WAGGONER ET AL.,
FAMILY PROPERTY LAW: CASES AND MATERIALS ON WILLS, TRUSTS AND FUTURE INTERESTS (Foundation
Press, 4th ed. 2006).
9
J ohn H. Langbein, The Secret Life of the Trust: The Trust as an Instrument of Commerce, 107 YALE L. J .
165 (1997), available at
http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1499&context=fss_papers (last visited J an.
10, 2011).
10
Id.; Henry Hansmann, Ugo Mattei, The Functions of Trust Law: A Comparative Legal and Economic
Analysis, 73 N.Y.U. L. REV. 434 (1998), available at
http://works.bepress.com/cgi/viewcontent.cgi?article=1021&context=ugo_mattei (last visited J an. 10,
2011); Steven L. Schwarcz, Commercial Trusts as Business Organizations: Unraveling the Mystery, 58
BUS. L. 559 (2003), available at
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1841&context=faculty_scholarship (last visited
J an. 10, 2011); Steven L. Schwarcz, Commercial Trusts as Business Organizations: an Invitation to
Comparatists, 13 DUKE J . COMP. & INTL L., 321 (2003), available at
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1836&context=faculty_scholarship (last visited
J an. 11, 2011).
30 COLUMBIA J OURNAL OF EUROPEAN LAW ONLINE Vol. 17

forum that enables the participants to segregate a discrete set of assets. The aim in this
respect is not only to have the assets managed separately but also to pledge the assets to
particular creditors.

The critical role played by creditors rights in trust law is epitomized by the modern
commercial usage of the trust in the United States, most notably regarding pension funds,
mutual funds, and securitization.

III. The Unnamed Fiducies in French Banking and Finance Law

Many legal systems are attracted to the American model of business law. As for the
reception of the trust in France, the adoption of this legal device, otherwise unknown in
the domestic legal tradition, has unavoidably led to the creation of subsequent alternative
instruments such as fiduciary alienations and destinations of assets.
11

However, as U.S.
influence has been exerted indirectly, the resulting French instrument has failed to
present a faithful reflection of the original model.
The inequality between the owner and the creditor has led to most cases of the alienation
of unnamed fiduciaries for security purposes to have taken place under the banking and
finance laws. Such measures include various techniques that enable a creditor to secure a
funding process such as the rmr, the report en bourse, the cession dailly, the pension
livre, the prt de titres garanti, the remises en pleine proprit dans les oprations sur
instruments financiers, or, to a lesser extent, the gage-espces. Nevertheless, neither the
practitioners nor the legislature has resorted to the usual techniques of collateral
securities, preferring instead to rely on mechanisms through which the creditor, either of
money or of titles, retains some form of collateral until the debtor has paid it back
entirely.
12


These techniques are clearly distinguished from the trust regarding a crucial point: the
main characteristics of the U.S. trust lie in the segregated destinations of the trustees
wealth and of the transferred assets, respectively.
13
By contrast, the alienation
mechanisms of French banking and finance law do not isolate the transferred assets
within a title that does not belong to the creditor. More precisely, the aim is to allow the
creditor, who temporary holds the assets, the opportunity to utilize these assets as a
guarantee.
14

11
Hubert de Vauplane, La fiducie avant la fiducie : le cas du droit bancaire et financier, 36 J .C.P.E., 8
(2007).
Paradoxically, these cases have often been introduced as examples of trust-
inspired unnamed fiducies, even though the dissemination of the American pattern seems
to have only occurred on the surface.
12
Id.
13
Henry Hansmann, Ugo Mattei, The Functions of Trust Law: A Comparative Legal and Economic
Analysis, 73 N.Y.U. L. REV. 434 (1998), available at
http://works.bepress.com/cgi/viewcontent.cgi?article=1021&context=ugo_mattei (last visited J an. 10,
2011).
14
However, this peculiarity of banking and finance law fiduciary alienation includes an exception when it
comes to the dpts de garantie and the couvertures.
2010 COMPARING AMERICAN TRUST AND FRENCH FIDUCIE 31



The fiducie-gestion is the second type of fiducie technique used in the banking and
finance fields. Mutual funds, as well as fonds commun de titrisation, the special purpose
vehicles for securitization in French law, are the most often quoted examples of this
technique.
15

The transferred credits or assets are separated from the assets of the
shareholders as well as from the wealth of the funds management and from the
organization depositing the assets. The management of the credits or of the transferred
assets, therefore, benefits the shareholders rather than the management.
The way in which American business law utilizes the trust has exerted a strong influence
on French law. Nevertheless, efforts made in order to achieve a similar result in France
have not always been satisfying. Practitioners, thus, have continuously advocated for a
direct implementation of the trust in French domestic law.
16


IV. The Obstacles to the Creation of a Real Trust in French Law

Many have argued that implementing the trust in French Law would be impossible. This
viewpoint has managed to prevail since many of its advocates have had the possibility to
back up their arguments by relying on several bedrocks of the civil law tradition.
17


The main argument against the implementation of the trust would be the absence of the
duality of ownership. The common law rules that give legal ownership to the trustee and
provide equitable ownership to the trust beneficiary dismember the property.
18

Such
partition does not exist in the civil law tradition.
One could argue, however, that the parties themselves could contractually create the
featured rights of the trust. This approach would appear to be less unlikely due to the
numerus clausus rule regarding property rights.
19

This principle would indeed contradict
the conventional creation of the hybrid-featured right particular to the trust. This civil law
principle is explicitly referred to in article 543 of the French Civil Code, which states on
ne peut avoir sur les biens, ou un droit de proprit, ou un simple droit de jouissance, ou
seulement des services fonciers prtendre.
An additional obstacle lies in the fact that to the extent that the trust would enable the
settlor to extract some assets of its patrimoine, its property assets, it would reduce the
general possessory lien of its creditors, which is established by Article 2092 of the Civil
Code.

15
Hubert de Vauplane, supra note 11, at 8.
16
PIERRE GEORGES LEPAULLE, TRAIT THORIQUE ET PRATIQUE DES TRUSTS EN DROIT INTERNE, EN DROIT
FISCAL ET EN DROIT INTERNATIONAL, 299 (1932).
17
See Anne-Marie Toledo-Wolfsohn, Le trust et le droit civil franais, 8 & 9 R.L.D.C. 29 & 24 (2004).
18
Henri Motulsky, De limpossibilit de constituer un trust anglo-saxon sous lempire de la loi franaise,
37 REV. CRIT. D. I. P. 451 (1948); Henri Batiffol, Trusts, the Trust Problem as Seen by a French Lawyer, 33
J . COMP. LEGISL. 18 (1951).
19
J EAN-CHARLES F. DEMOLOMBE, COURS DE CODE NAPOLON 447 (Paris, Auguste Durand & L. Hachette
et Cie 1845).
32 COLUMBIA J OURNAL OF EUROPEAN LAW ONLINE Vol. 17


Moreover, the assets held in trust constitute a patrimoine daffectation, a notion that
would be incompatible with the classic conception of the patrimoine,
20
commonly
attributed to a theory formulated by Aubry and Rau.
21

This theory may be articulated as
consisting of three clauses: (1) each person has a patrimoine; (2) every patrimoine
belongs to someone; and (3) everyone has just one patrimoine. By relying on the trust,
however, the trustee owns, in essence, two patrimoines: his own as well as the patrimoine
comprised of the assets held in trust.
If the various arguments previously surveyed have thwarted the trusts reception, they
nevertheless have not managed to keep the common law pattern from becoming prevalent
in France. Its dissemination has occurred thanks to a competing technique: the fiducie.

V. The Introduction of the Fiducie to the French Civil Code

The Civil Code defines the fiducie as a contract according which a settlor transfers all or
part of its assets, rights or securities to a fiduciary that, in maintaining them separately
from its own patrimoine, acts according to a specific objective for the benefit of its
beneficiaries or the settlor itself.
22


The fiducie amounts to a temporary transfer of ownership: the assets transferred to the
fiduciary are no longer part of the settlors assets. The latter loses any right of ownership
with regard to those assets. The only remaining right is a droit personnel de bonne
excution du contrat de fiducie. a contractual duty set out in the contract itself. The
assets affected to the fiducie enter the fiduciarys patrimoine, in which they will
constitute a distinct pool of assets.

As mentioned, the trusts appeal essentially lies in the fact that the right granted to the
beneficiary enables the guarantee of impermeability of assets thus held. Here, however, is
where the Fiducie Act falls short.
23

20
Contra, RAYMOND SALEILLES, DE LA PERSONNALIT J URIDIQUE : HISTOIRE ET THORIES, 478 (1922). and
3 LON DUGUIT, TRAIT DE DROIT CONSTITUTIONNEL, 309 (Paris, Sirey, 2d ed. 1913).
Article 2025, paragraph 2 of the Civil Code sets out
that holders of credits born out of the conservation or of the management of the fiduciary
assets benefit, in the event of the insufficiency of these assets, from an action against the
settlors assets or, if it is established in the fiducie contract, against the fiduciarys assets.
As a consequence, the fiduciarys patrimoine is not truly impenetrable: a subsidiary
action against another patrimoine could be possible, in principle. Thus, the patrimoine
daffectation logic is compromised. Debts may still be owed by the settlor, regardless of
21
CHARLES AUBRY & FREDERIC C. RAU, COURS DE DROIT CIVIL FRANAIS, DAPRES LA METHODE DE
ZACHARIAE, 333 (Paris, Librairie gnrale, 5th ed. 1917).
22
See CODE CIVIL [C.CIV.] Art. 2011 (Fr.) available at
http://www.legifrance.gouv.fr/affichCodeArticle.do;jsessionid=4090FF54941A1E72857888B3F1B55ADA
.tpdjo13v_3?idArticle=LEGIARTI000006445338&cidTexte=LEGITEXT000006070721&dateTexte=2010
1009 (last visited Feb. 11, 2011).
23
See, e.g., Franois Barrire, La loi instituant la fiducie: entre quilibre et incohrence, 36 J .C.P.E, 13
(2007).
2010 COMPARING AMERICAN TRUST AND FRENCH FIDUCIE 33


whether these debts are the result of another persons action, that is, the fiduciary; from
assets that would not be his property anymore because they would have become the
fiduciarys alone. Additionally, these assets could even revert to a third party beneficiary.

It would be tempting to explain the rule established by fiducie law by arguing that, in
Anglo-American Law, the trustees own assets are at risk if it is found to be liable for
debts born out of the trusts management. But such an attempt would be misleading.
Indeed, in the U.S., States that have implemented this rule allow the trustees benefits,
such as the option to be reimbursed for the assets held in trust or to use them to pay the
creditor, as long as they do exceed the trustees powers.
24
This principle is also embodied
in the Uniform Trust Code, which sets out, in its 10th Article, that a trustees creditors
recover their credits only on the assets of the trust.
25
As such, it appears that the French
fiducie allows for the implementation of a rule to which there is no equivalent in its U.S.
counterpart.
26


VI. Conclusion

In conclusion, in France, the utilization of these fiduciary mechanisms has mainly
interested those engaged in the practice of business law. Consequentially, one must turn
to the commercial trust in order to assess the influence the U.S. pattern has exerted on the
French system in this respect. The reasoning behind this devices appeal does not lie in
the fiduciary duties it imposes, but rather in the destination of the assets it guarantees.
Nevertheless, among the French unnamed fiducies, only some designate a true destination
for the assets. Concerning the fiducie contract of the Civil Code, the destination for the
assets is incomplete. As such, it may be argued that the French pattern is, currently,
merely an unfaithful reproduction of the U.S. pattern.


24
See id.
25
UNIFORM TRUST CODE Section 1003, Damages in absence of breach (U.S.).
26
Franois Barrire, supra note 23.