Can a Trust Enter Into a Contract?

At one of my recent Toronto seminars, a participant mentioned something about how a trust cannot enter into a contract. So I followed up by asking Amy Morris Hess about this. She teaches at the University of Tennessee College of Law and is a prominent authority on trusts and estates. (She’s the successor author of the leading treatise in trust and estates law, Bogert Trusts and Trustees.) Here’s what she said:

A trust is not a legal person, as a corporation is, and therefore it cannot be party to a contract or sign a contract. The trustee is the proper signatory. A trustee can and, indeed, should sign in his fiduciary capacity—not as an individual—and under modern law is not personally liable on a contract made in a fiduciary capacity unless he exceeded his authority.

One refinement, though: I am talking about private express trusts, that is, the kind of trusts that families use for wealth management. Various kinds of business trusts, such as land trusts and pension trusts, are often treated more like corporations than trusts for various legal purposes. It is possible that those types of trusts may have the capacity to enter into a contract. Those trusts are outside my area of expertise, so I cannot give a definitive answer as to those.

You can find on EDGAR examples of contacts with a trust included as a party. Two examples:

THIS OPERATING EXPENSES LIMITATION AND SECURITY AGREEMENT (the “Agreement”) is effective as of the 11th day of November, 2014, by and between NORTHERN LIGHTS FUND TRUST, a Delaware statutory trust (the “Trust”), on behalf of Anchor Tactical Municipal Fund (the “Fund”) a series of the Trust, and the Advisor of the Fund, Genesis Capital, LLC (the “Advisor”).

THIS TRUST SALE AGREEMENT is made as of December 17, 2014 between ALLY AUTO ASSETS LLC, a Delaware limited liability company (the “Depositor”), and ALLY AUTO RECEIVABLES TRUST 2014-3, a Delaware statutory trust (the “Issuing Entity”).

Is this a mistake, or are these trusts of a sort that can enter into contracts?

Here’s an example of an introductory clause that omits the trust and instead names the trustee:

AMENDED AND RESTATED TRUST AGREEMENT, dated as of ________, 20__ (this “Agreement”), between FORD CREDIT AUTO LEASE TWO LLC, a Delaware limited liability company, as Depositor, and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as trustee under this Agreement, to establish Ford Credit Auto Lease Trust 20__-_.

I might be inclined to introduce the “to establish [Trust]” concept in the recitals. Any views?

In a quick search on Westlaw, I was unable to find any sign people get into fights over including a trust, and not the trustee, as a party to a contract. If you know of any such disputes, I’d be pleased to hear about them.

And how does this play out internationally?

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.