THE TRUST UNDER THE NEW CIVIL CODE.
The trust has been regulated for the first time in Romanian law, by Title IV of Book III "About assets" of the new Civil Code.
Originally, the trust is a legal operation inspired from the trust institution of the Anglo-Saxon law.
Extended from the UK and US to many countries with common law tradition in the twentieth century and after its implementation in several Latin American countries, the trust was the object, in 1985, of a convention of private international law signed in Hague, which provided the recognition of trusts established under the law that authorized them. Unilaterally, a common law institution could, thus penetrate countries of civil law, thing which is banned in international conventions. The Convention evoked the possibility for citizens of a civil law country to form trusts, "domestic" or "internal", subjected to foreign laws. However, few states of continental law ratified it (Italy in 1990, Netherlands in 1995, Luxembourg in 2004, Switzerland in 2007); nevertheless, the Convention instigated to the takeover of the legal institution in the new statutes (Uliescu, 2012: 38-40).
The first step was taken in the law of the Canadian state, Quebec. The state was already familiar with the trust by will, by donation or under warranty title since the nineteenth century (Uliescu, 2012: 39).
The trust institution is part of the equity subsystem of law, which comprises a set of rules emerged in the Anglo-Saxon law from the need to reduce the stiffness of the common-law system. Thus, through the trust, the so-called settlor, who is the owner of an asset, transfers the property of that asset to a person or more, called trustee (s), with the intention that the asset is held in trust for the benefit of another person, called beneficiary. It is not necessary that the settlor, the trustee and the beneficiary are different individuals. The settlor can validly establish a trust where he declares himself trustee to the benefit of one or more beneficiaries, as he himself may be one of the beneficiaries. After the transfer of the right, the trustee is recognized by the common law as holder of the property right, and by the equity as holder of the so-called "legal title", which gives him a specific and very strictly regulated role concerning the fiduciary duties required by the property management, only in the beneficiaries' interest. Beneficiaries are the holders of the so-called "equitable title" which entitles them to benefit from the administration of the property by the trustee, to their benefit (Baias et al, 2012: 822).
Referring to our law, article 31 paragraph 3 NCC provides that appropriation patrimonies are fiduciary patrimonies, constituted under the provisions of Title IV of Book III, affected to the practice of an authorized profession, as well as other patrimonies determined by law.
Article 773 defines the trust as the legal operation whereby one or more settlors transfer real rights, claim rights, guarantee or other property rights or a set of such rights, present or future, to one or more trustees who exercise them with a specific purpose for the benefit of one or more beneficiaries. These rights establish an autonomous patrimonial fund, distinct from other rights and obligations from the patrimony of the trustees.
Therefore, the trust is a real application of the patrimony divisibility. In the division or appropriation process, the holder's will is essential. Therefore, a patrimony of appropriation cannot arise in the absence of a will manifestation from its owner. The division of the heritage into patrimonial funds is achieved through their affectation to a particular purpose. In other words, each patrimonial fund can be seen as a miniature patrimony assigned to a specific purpose, which confers it a special legal regime. Thus, the purpose becomes the central element of all goods that are being constituted in a universality. It must be strong enough to draw around it positive and negative values that contribute to its achievement. Since appropriation, heritages exist only insofar as recognized by law, the aim of the holder must be one legally accepted, able to lead to the birth of such heritage. The legislator's will is not sufficient to set affectation patrimonies; that will should be also joined by the stated purpose of its holder (Sferdian, 2012: 47-48).
The persons engaged in the legal operation of the trust are the settlor, i.e. the holder of the right, the trustee, who acquires rights and exercise them and the beneficiary, being the one to the benefit of whom the trustee is exercising rights. There may be more settlors, more trustees or more beneficiaries.
The object of the trust is formed of the transfer of real rights, obligations, guarantees, or any other rights or a set of such rights. The rights transferred can be present or future.
Although the legal provision of article 773 NCC refers only to the transfer of real rights and claim rights, it is obvious that when discussing about transfer of rights, the transfer of things upon which these rights are incumbent must be taken into consideration (Boroi et al, 2013: 163).
As for the main real rights, several rights can form the object of the trust, such as: the ownership, the superficies right, the right of usufruct, the easement right, indicating, however, for the latter right, that only together with the dominant fund. The right of use and habitation cannot be transferred through fiduciary operation, as they cannot be transferred, such regulations being contained in article 752 Civil Code: "The right of use or habitation cannot be transferred, and the object covered by these rights cannot be rented or, where appropriate, leased."
The trustee has the attributes of an owner: possession, use, disposal, and he can absolutely dispose of goods transferred; his right is limited by the scope of the trust and its duration, not exceeding 33 years from the date of conclusion. In exercising these attributes, the trustee must prove himself worthy of the trust that the settlor gave him, so that he will have to give to the property right, a use that is in accordance with the purpose for which he received the property. In other words, the trust means transforming the property into a simple tool for achieving an objective. Therefore, the doctrine has considered two practical consequences, namely: the trust--administration and the trust--warranty (Ungureanu and Munteanu, 2008: 299-300).
In the case of the first form, the settlor can entrust to a third party that he trusts, his company, his portfolio of transferable securities, etc., in order to be managed by the trustee and with the duty for the latter to deliver the fruits and to hand over the property at the expiry of a period, to the settlor himself or to a beneficiary designated by him; the trustee transformed into owner would have the widest powers of management. In the case of the second version, the trust allows the debtor to hand over to the creditor, an asset or an amount of assets for him to transfer if the first pays his debt. The creditor transformed into owner would immediately dispose of the action for recovery; but even if he can perform certain acts, he will not be able, however, to do that for his own satisfaction (Ungureanu and Munteanu, 2008: 300).
As it results from the text of article 773 NCC, guarantees are forming the object of the trust, such as the Fiduccia, the mortgage, the pledge.
However, according to article 775 NCC, regardless of its object, the trust cannot be the means by which an indirect liberality can be achieved to the benefit of the beneficiary; otherwise, the trust contract becomes null and void.
Regarding the purpose of the trust, the exercise of rights by the trustee shall be done only in favor of the beneficiary, even when he is the settlor. Rights transferred in this way to the trustee maintain a distinct, autonomous character from the rest of his patrimonial rights and obligations.
2. Sources of the Trust
According to article 774, the trust is established by law or by contract concluded in original. From this provision, it follows that the trust cannot emerge from will or legal decision. Paragraph 1 of the same article provides that the trust should also be express.
If the trust is constituted by contract, it presents several legal features such as (Boroi et al, 2013: 165):
* It is a solemn contract, concluded in original (ad validitatem) and its non-compliance is sanctioned by absolute nullity;
* It is an intuituu personae contract, since its conclusion is based on qualities or professional training of the trustee;
* It is a mutually binding contract;
* It is a contract for valuable consideration or free of charge;
* It is a commutative contract, but it is also admitted that in some cases, the fiduciary contract can become random, when its duration, not exceeding 33 years, depends on a future and uncertain event, such as the life duration of the beneficiary;
* It is a contract for transferring rights;
Under para. 2 of article 774 NCC, the provisions of the new Civil Code relating to trust represent the common law in the matter and the law, under which the trust is established, is completed by those provisions of common law, as long as it does not include opposite provisions.
3. Parties of the Trust Agreement
Under article 776 NCC, the contracting parties are the settlor and the trustee. Paragraph 1 of this article provides that any natural or legal person can be settlor in the trust agreement. Paragraph 2 of article 776 NCC provides that trustees can be only credit institutions, investment and investment management companies, investment services companies, insurance and reinsurance companies legally established, and according to paragraph 3, trustees can be also the public notaries and lawyers, regardless of the practicing form of their profession.
Article 777 NCC provides that beneficiary of the trust can be the settlor, the trustee or a third person. If the beneficiary is a third person, he/she is not party to the trust agreement, and in this situation, legal provisions on the stipulation to other agreement are applied.
The settlor and the trustee must have full legal capacity. In the case of the minor or of the person placed under judicial interdiction, the trust agreement can be concluded by the guardian only with the approval of the family council and the authorization of the guardianship court, under the penalty of abatement. However, under article 144 para. 4 NCC, the guardian can conclude trust agreements without the approval of the family council and without the authorization of the guardianship court, for goods subject to destruction, deterioration, alteration or impairment, as well as for those that became useless for the minor.
Under article 778 NCC, in the absence of a contrary stipulation, the settlor can at any time, appoint a third party to represent his interests under the contract and to exercise his rights arising from the trust agreement.
As for the identity of the beneficiary, if he has not been identified at the inception of the trust agreement, under article 779 section e) NCC, the agreement must contain clauses for his further identification. If the beneficiary is settlor or trustee in the same contract, that is, naturally, known from the beginning.
Like in the situation of the settlor and the trustee, the beneficiary must have full legal capacity, given that according to article 788 para. 1 NCC, if the trustee does not fulfil his obligations or jeopardizes the interests which were entrusted to him, the beneficiary can request the court to replace the trustee, and according to article 789 para 2 NCC, after the acceptance by the beneficiary, the contract cannot be modified or revoked by the parties or unilaterally denounced by the settlor without the consent of the beneficiary or, in his absence, with authorization from the court.
The right exercised in favor of the applicant is affected by a precedent condition consisting in accepting the trust by the third beneficiary. Under paragraph 1 of article 789 NCC, as long as the beneficiary has not accepted it, the settlor can terminate the trust agreement unilaterally.
4. Content of the Trust Agreement
Article 779 NCC contains the provision under which the trust agreement must provide, under the penalty of absolute nullity:
a) Real rights, claim rights, warranties and any other transferred property rights;
b) The transfer duration, which cannot exceed 33 years from the date of its conclusion;
c) The identity of the settlor or settlors;
d) the identity of the trustee or trustees;
e) The identity of the beneficiary or beneficiaries or at least rules for determining them;
f) The purpose of the trust and the scope of administration and disposition prerogatives of the trustee or the trustees.
5. The Trustee's Obligations
In addition to other obligations he may receive under the document setting up the trust, the trustee has two formal obligations expressly provided by the new Civil Code, namely: the obligation of tax registration of the trust agreement (article 780 NCC) and the obligation to give account (article 783 NCC).
Thus, according to article 780 NCC, under the penalty of absolute nullity, the fiduciary contract and its amendments must be registered at the request of the trustee, within one month from the date of their conclusion, to the fiscal body competent in managing the amounts owed by the trustee to the consolidated budget of state. When the fiduciary patrimonial fund includes real estate rights, they are registered, as provided by law, under the same penalty, to the specialized department of the local public authority responsible for managing amounts owed to local budgets of the administrative-territorial areas where the property is, and the land registry provisions remain applicable.
If the designation of the beneficiary is subsequent, this must be done under the same sanction, by a written instrument registered under the same conditions.
If for transferring these rights, it is necessary to fulfil special formal requirements, a separate document in compliance with legal requirements will be concluded. In these cases, the lack of tax registration involves administrative sanctions provided by law.
With regard to the trustee's obligation to give account, according to article 783 NCC, the trust agreement should include the conditions under which the settlor settles accounts with the trustee on the accomplishment of his obligations. In addition, the trustee must be accountable, at intervals specified in the contract of trust, towards the beneficiary and the settlor's representative, at their request.
As stated above, if the trustee does not fulfil his obligations or jeopardizes the interests, which were entrusted to him, the settlor, his representative or the beneficiary can request in court the legal replacement of the trustee.
6. Liability and Replacement of the Trustee
According to article NCC 787 for damage caused by conservation or administration acts of the fiduciary patrimony, the trustee responds only with the other rights contained in his patrimony. In other words, the trustee responds with his own assets only for damage caused by acts of conservation or administration.
Concerning the administration documents of the trustee, article 795 provides that a person empowered with simple administration is required to draw all documents necessary for the preservation of his/her assets, as well as useful documents to be used for their usual purpose, and article 800 provides that a person empowered with full administration is required to preserve and profitably exploit the assets, increase or carry affectation of the patrimonial fund, to the extent that it is in the interest of the beneficiary.
Regarding the damage caused by stipulation documents, provisions of article 786 NCC shall be applied so that assets of the fiduciary patrimony can be pursued under the law, by the holders of claims arising in connection with those goods or by those creditors of the settlor who have a real guarantee on his assets and the enforceability of which is acquired under the law, prior to establishing the trust. The right of pursuit can be also exercised by other creditors of the settlor, but only under the final decision admitting the action through which the fiduciary contract was abolished or became inapplicable, under any circumstances, with retroactive effect.
Paragraph 2 of article 786 NCC provides that the holders of claims arising in connection with goods of the fiduciary patrimony can pursue only those goods, unless the obligation of the trustee and / or the settlor to be responsible for a part or for all liabilities of the trust was set by agreement of trust. In that case, the assets of the fiduciary patrimony will be pursued first and then, if necessary, the property of the trustee and / or settlor within the trust and in the order stipulated in the trust agreement.
As stated above, in the case of the trustee who does not fulfil his obligations or jeopardizes the interests, which were entrusted to him, the settlor, his representative or the beneficiary can request the court to replace the trustee.
Pending the replacement demand, the settlor, his representative or, in their absence, the beneficiary will appoint a provisional administrator of the fiduciary patrimony. If the settlor, his representative or the beneficiary appoints simultaneously a provisional administrator, the appointment by the settlor or his legal representative shall prevail.
The mandate of the provisional administrator ceases at the moment of the trustee's replacement or at the moment of the definitive rejection of the request for replacement. The settlement concerning the demand for replacement of the trustee is performed immediately and with priority. The appointment of the new trustee and of the provisional administrator can be ordered by the court, but only with their consent. If the court appoints a new trustee, he shall have all rights and obligations stipulated in the trust agreement.
The settlor, his representative, the new trustee or the provisional administrator can register this amendment to the trust, properly applying the provisions of article 780 (tax registration) and article 781 (opposability of the trust). The replacement of the trustee occurs only after that registration.
7. Cessation of the Trust Agreement
According to article 790 NCC, the trust agreement ceases:
* At its deadline;
* By achieving its purpose when the cessation happens before the deadline;
* If all beneficiaries give up the trust, and the contract has not specified how the trust relationship would continue in such a situation. Waiver declarations are subject to the same registration formalities as the fiduciary contract. The cessation occurs when finishing registration formalities for the last waiver declaration;
* When ordering the opening of insolvency proceedings against the trustee or when, according to the law, reorganization effects of the legal person appear.
Under article 789 NCC, as long as the beneficiary has not accepted it, the settlor can terminate the trust agreement unilaterally.
The trust agreement may cease also by the death or ending of the trustee's existence as the trust contract is an intuituu personae contract.
Losing the quality of lawyer or public notary or the suspension from those professions while fulfilling the quality of trustee, leads to the cessation of the fiduciary contract (Baias et al, 2012: 835).
As for effects of the trust, article 791 NCC contains provisions under which, when the trust agreement ceases, the fiduciary patrimony existing at that time is transferred to the beneficiary, and in his absence, to the settlor. However, merging the fiduciary patrimony with the beneficiary or settlor's patrimony will only occur after the payment of fiduciary debts.
Baias, Fl., Chelaru, E., Constantinovici, R., and Macovei, I. (2012), The New Civil Code. Commentary on articles (Article 1-2664), Bucharest: C. H. Beck Publishing House.
Boroi, G. Anghelescu, C. A., and Nazat, B. (2013), Course of Civil law. Main real rights under the new Civil Code, Bucharest: Hamangiu Publishing House.
Sferdian, I. (2012), "The individual professional patrimony affected to the practice of a liberal profession in the regulation of the Civil Code," The Journal of Law, 7: 40-57.
Uliescu, M. (2012), The new Civil Code. Studies and commentaries. Volume I. Book I and Book II (Article 1-534), Bucharest: Universul Juridic Publishing House.
Ungureanu, O., and Munteanu, C. (2008), Treaty of civil law. Goods. Main real rights, Bucharest: Hamangiu Publishing House.
LILIANA MARILENA LAZAR
Spiru Haret University
|Printer friendly Cite/link Email Feedback|
|Author:||Lazar, Liliana Marilena|
|Publication:||Contemporary Readings in Law and Social Justice|
|Date:||Jul 1, 2017|
|Previous Article:||PARTICULARITIES OF CONTRACTOR AGREEMENT IN CIVIL CODE REGULATION.|
|Next Article:||A CRITICAL ASSESSMENT OF THE INCAPACITIES OF EXERCISE AND THEIR SANCTIONS.|