Legal and Economic Considerations on the Efficacy of the Civil Law Fiduciary System Compared to the Common Law Trust under the Debates on the Dual Property System

Abstract

Fiduciary is a better alternative than real securities in many respects. However, it has critical legal and economic disadvantages that cause inefficient consequences. Drawbacks of fiduciary outweigh its advantages compared to Common Law Trust. Since, Trust is based on a distinction of legal ownership and equity ownership which is compatible with the distinction of legal rights and economic rights in the economic theory of property rights. This compatibility between Trust and economic theory makes the Trust economically efficient. On the other hand, the economic rights and legal rights distinction is an unfamiliar issue to the civil law of property system. The civil law of property system covers limited real rights in accordance with the principle of numerus clausus that historically includes legal ownership as legal rights and to repudiate economic rights. In this paper, we analyse how to eliminate legal and economic drawbacks of fiduciary in order to make it as efficient as Trust in the light of transaction cost theorem. The dual property system in the Trust and economic theory should not be totally injected into the civil law of property system. However, the dual property system or a system may have legal consequences as quasi-dual property systems might be injected into a specific field like fiduciary transactions in civil law based capital markets. This argument has been legalized under the EC/2002/47 Financial Collateral Directive and Article 47 of the new Turkish Capital Markets Act.