I. INTRODUCTION

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," [FN1] and the codes [FN2] and treatises [FN3] 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." [FN4] 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.

The distinguishing feature of the trust is not the background event, not the transfer of property to the trustee, but the trust deal that defines the powers and responsibilities of the trustee in managing the property. Sometimes the trust deal also confers significant discretion upon the trustee over dispositive provisions, that is, in allocating the beneficial interests among the beneficiaries. The settlor and the trustee may express their deal in detailed terms drafted for the particular trust, or they may be content to adopt the default rules of trust law. Either way, the deal between settlor and trustee is functionally indistinguishable from the modern third-party- beneficiary contract. Trusts are contracts.

Trust without contract. The contractarian account, presupposing a separate trustee, does not embrace the declaration of trust, which is a mode of trust creation that allows the transferor of property simply to declare himself or herself trustee for the transferee. [FN5] This two-party trust lacks a separate trustee. The settlor cannot contract with himself or herself, and accordingly, we see that trust can arise without contract, without the characteristic deal between settlor and third-party trustee. Because the declaration of trust dispenses with what is normally the most desirable attribute of the trust, that is, the ability to *628 have a third party manage the trust property, the declaration of trust plays a relatively peripheral role in modern practice. In order not to interrupt the main theme of this Article, I discuss the declaration of trust in an appendix. I explain that the declaration sometimes serves as a way station to the creation of a true third-party trust, and that in other settings the declaration turns out to be a doctrinal ruse for validating transfers that are not in function trusts.

The contractarian theme. This Article sets forth the grounds for understanding the conventional three-party trust as a prevailingly contractarian institution. More is at stake in this choice between contract and property formulations of the trust than mere labelling. In Part IV of this Article, I explain why the law of fiduciary administration, which is the centerpiece of the modern trust, is overwhelmingly contractarian. Especially in conflict-of-interest cases, greater attention to the contractarian character of the trust would improve outcomes. [FN6]

Sensitivity to the contractarian character of the trust can be traced to Maitland's celebrated lectures on Equity, [FN7] published posthumously in 1909. Even in the late fourteenth century, observed Maitland, when the English Chancellor first began to enforce the trust, the trust "generally ha[d] its origin in something that we can not but call an agreement." [FN8] "[The] trust was originally regarded as an obligation, in point of fact a contract though not usually so called." [FN9] F.H. Lawson, writing in 1953 in one of the central works of modern comparative law, pointed out that "the three- cornered relation of settlor, trustee, and [beneficiary] ... is easily explained in the modern law in terms of a contract for the benefit of a third party." [FN10]

Our black letter law has resisted the insight that trusts are contracts. The second Restatement of 1959, carrying forward the language of the first Restatement of 1935, [FN11] declares: "The creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract." [FN12]

History. There was always a component of contract in the trust relationship, but profound changes in the character and function of the trust from the second half of the nineteenth century onward have intensified the *629 contractarian basis of the trust. The trust originated as a conveyancing device for holding real property, often ancestral land. The modern trust has become a management regime for a portfolio of financial assets.

Function. Part IV of the Article develops the intrinsic functional correspondence between contract and trust. The bedrock elements of contract are consensual formation and consensual terms. Trust displays both. I follow for trust the insights of the law-and-economics literature, which has emphasized the contractarian basis of fiduciary duties in modern corporation law. I concentrate on the two central duties of trust fiduciary law, loyalty and prudence. My theme is that, despite decades of pulpit-thumping rhetoric about the sanctity of fiduciary obligations, fiduciary duties in trust law are unambiguously contractarian. The rules of trust fiduciary law mean to capture the likely understanding of the parties to the trust deal, which is why both the duty of loyalty and the duty of prudence yield to the more particularized intentions that the parties may choose to express or imply in their trust deal. I depict the default regime of trust law as a type of standardized contract, and I point to some instances in which the contractarian perspective should improve outcomes in trust law.

It is not my purpose to fold the law of trusts into the law of contract. Like other legal institutions that have been deeply influenced by modern contractarian analysis, such as the corporation or the marriage, the trust has an institutional integrity and convenience that fully justifies its independence. My purpose is simply to show that contractarian analysis illumines, and at times helps us improve upon, what we do with the trust.