Court of Turin, May 17, 2021.
ABSTRACT: The trustee (‘fiduciario’) may transfer assets in violation of the fiduciary agreement and the instructions given by the trustor (‘fiduciante’), without affecting the validity of the transfer. Any failure to comply with the obligations assumed by the fiduciario entitles the fiduciante to obtain a judgment that produces the same effects as spontaneous compliance.
The fiduciary agreement
The fiduciary agreement is an atypical agreement that is not expressly regulated by the Italian Civil Code.
Such agreements, however, are allowed pursuant to the negotiating autonomy principle recognized by Art. 1322 of the Italian Civil Code, according to which the parties may conclude agreements that do not belong to the types having a specific discipline, provided that they are aimed at realizing interests worthy of protection according to the Italian legal system.
According to the case law definition[1] the fiduciary agreement allows one party (the ‘trustor’ – fiduciante) to have an asset administered or managed for particular purposes by another party (the ‘trustee’ – fiduciario), transferring the ownership of the asset directly to the trustee or providing him with the funds to purchase it in his own name from a third party, provided that the fiduciario must respect a set of obligations aimed at satisfying the needs of the fiduciante and transfer the asset back to the trustor or a third party designated by the latter.
Through the fiduciary transaction (i) the ownership of the asset is transferred from the fiduciante to the fiduciario that must use the asset for a certain purpose and then transfer it back to the fiduciario or to a third party, or (ii) the asset is directly purchased by the fiduciario but with money provided by the fiduciante to whom, according to the agreement, the asset must be eventually transferred back.
Characteristics of the fiduciary agreement
The fiduciary agreement is very flexible, meaning that it can take on different structures and scopes depending on the specific circumstances.
Italian literature and case law have established different categories of fiduciary agreements based on structure and scope.
With reference to structure, trust can be distinguished into dynamic or static.
A dynamic trust implies an effective transfer, aimed at achieving the fiduciary purpose.
On the contrary, in the static trust there is no transfer, since the fiduciario is already entitled to a specific right that he exercises in his own exclusive interest and that due to the fiduciary agreement he undertakes to exercise in the interest of the fiduciante, in accordance with the provisions of the fiduciary agreement[2].
With regard to the functions and practical purposes that the fiduciary agreement can meet, a distinction is made between trust cum amico (‘with friend’) and trust cum creditore (‘with creditor’).
In the trust cum amico the establishment of the ownership is aimed at permitting the management of the asset in the interest of the fiduciante and in view of a subsequent transfer of the ownership to the same fiduciante or to a third party.
In the trust cum creditore, on the other hand, the fiduciary agreements is entered into between the debtor and the creditor: the fiduciante’s interest is to transfer the ownership of one of his assets to his creditor, the fiduciario, as a guarantee for the credit right, subject to the obligation of the fiduciario to transfer the asset back to the fiduciante, once (and if) the fiduciante have regularly fulfilled his debt.
Therefore, regardless of the types of trust, a fundamental characteristic of the fiduciary agreement is the obligation of the fiduciario to transfer the property back to the fiduciante or a third party designated by the fiduciante.
The judgement of the Court of Turin of May 17, 2021
The case
In its judgement of May 17, 2021, the Court of Turin addressed the issue of the fiduciario’s breach in relation to the validity of the transfer and the obligation to retransfer.
The plaintiffs asked the Court to ascertain the fiduciary nature of the ownership of company shares of their children and, consequently, asked the judge to declare that the plaintiffs were the real owners of the shares.
In particular, the plaintiffs claimed that the ownership was the result of previous fiduciary agreements, respectively, with their son and their daughter and that the transfer of part of her shares made by the daughter (the fiduciario) to her brother would have been made against the will of the parents (both of them as fiduciante).
In order to safeguard their rights, the plaintiffs asked the judge to seize the shares, as a precautionary measure, in accordance with art. 670 of the Italian Civil Procedure Code.
The fiduciario’s breach and the validity of transfer
According to the Court’s view, the circumstance that the transfer of the shares from the daughter to the son took place in breach of a potential fiduciary agreement between the plaintiffs and their daughter would have no relevance for the purposes of the validity of such transfer.
As pointed out by the Court, in fact, as a result of the fiduciary agreement, the fiduciario becomes the actual owner of the asset which, consequently, he can validly dispose of.
The non-fulfilment of the fiduciary agreement, therefore, has no consequences on the contract concluded between the third party and the (non-fulfilling) fiduciario, since the fiduciary agreement – like any contract – only binds the parties and not the third party [3].
Consequently, the Court declared the irrelevance of any breach by the daughter of the fiduciary agreement entered into with her parents for the purposes of the validity of the transfer made in favor of her brother.
Instead, the actual existence and the terms of the fiduciary agreement matter for the assessment of the fiduciario’s breach, also with regard to the fiduciante’s right to compensation for damages.
According to the Court, however, the allegations submitted by the claimants (the family agreement, the young age of the daughter at the time of the assignment of the shares, the need to prevent the parents from appearing as owners of the shares due to the criminal and bankruptcy events involving them), even if considered suitable to bring out the evidence of a fiduciary agreement, would still not be sufficient to provide evidence of the terms of such agreement.
The Court – in relation to the terms of the fiduciary agreement – held the existence of an obligation of the daughter to transfer the shares back to her parents as not proven, in case the latter had requested it or in case the fiduciario had not acted according to the fiduciante’s instructions.
The obligation to retransfer and the applicability of article 2932 of the Italian Civil Code to the fiduciary agreement
Therefore, the Court assessed that the fiduciary agreement in question was lacking in the fundamental characteristic of the fiduciary agreement: the obligation to transfer the asset back to the fiduciante or to a third party designated by the fiduciante.
This obligation, if met, would have permitted application of art. 2932 of the Italian Civil Code.
The remedy provided for by Article 2932 of the Italian Civil Code allows those entitled to the execution of a contract to obtain, in the absence of spontaneous performance by the other party, a judgment that produces the same effects as the unexecuted contract. This remedy applies traditionally in case of non-performance of the preliminary contract, i.e. the contract by which the parties undertake to conclude a subsequent final contract.
According to case law, the specific performance (esecuzione in forma specifica) of the obligation to conclude a contract pursuant to art. 2932 of the Civil Code is applicable not only in the case of a preliminary contract which is not followed by the final one, but also in any other case of obligation to give consent for the transfer or constitution of a right.
Based on this general application, case law, therefore, admits the applicability of the remedy of specific performance to the fiduciary agreement[4].
In the case at hand, therefore, if the fiduciary agreement had provided for the daughter’s obligation to transfer the shares back to her parents, there would have been a breach of contract by the fiduciario and the plaintiffs would have been entitled to request the protection provided for by art. 2932 of the Civil Code in order to obtain a judgment producing the same effects as a spontaneous transfer.
The Court’s decision
The Court of Turin rejected the plaintiffs’ request for precautionary measures as it did not satisfy the requirement of fumus boni iuris.
The Court recalled the case law according to which, the measure referred to in article 670 Italian Civil Procedural Code – according to which the judge may authorize the judicial seizure of assets when their ownership or possession is disputed and it is appropriate to provide for their custody or their temporary management – may be granted only if there is a possibility of acceptance of the claim of those who have requested the precautionary measure (i.e. the fumus boni iuris)[5].
On the basis of this principle, the Court did not grant the precautionary measure since, for the reasons examined, it did not see the (potential) grounds of the plaintiff’s claim regarding the breach of the fiduciary agreement in relation to the transfer of the shares from the daughter to her brother and the consequent effective ownership of the shares.
Conclusions
The obligation to re-transfer the asset is a fundamental feature of the fiduciary agreement.
However, since, as a result of the fiduciary agreement, the fiduciario becomes the actual owner of the asset, they can validly dispose of it.
Consequently, the fiduciario may transfer asset in violation of the fiduciary agreement and of the instructions given by the fiduciante without this affecting the validity of the transfer, since the fiduciary agreement applies only between the fiduciante and the fiduciario and not also vis-à-vis third parties.
However, any failure to comply with the obligations assumed by the fiduciario entitles the fiduciante to obtain a judgment that produces the same effects as spontaneous compliance, given the applicability of the remedy provided by article 2932 of the Italian Civil Code also to the fiduciary agreement. It is therefore essential that such a fiduciary agreement can be proven in Court (for example, by a written agreement).
[1] See Court of Cassation, Joint Sections, March 6, 2020, no. 6459.
[2] See Court of Cassation, Section II, August 7, 1982, no. 4438
[3] According to the provisions of article 1372, paragraph 2, of the Italian Civil Code, “A contract does not produce effect with respect to third parties except in cases provided for by law”.
[4] See Court of Venice, Section I, April 28, 2021, no. 756
[5] See Court of Cassation, Section II, June 23, 1982, no. 3831 and Court of Bari, Section III, November 16, 2014
Photo: Carroll, Lewis & Robinson, Charles. Alice’s Adventures in Wonderland, London: Cassell & Company. – Wikimedia Commons
