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DEFINITION OF TRUST

Trust is the legal relationship between one person having an equitable ownership in property and
another person owning the legal title to such property, the equitable ownership of the former entitling him to
the performance of certain duties and the exercise of certain powers by the latter.
It is a right, enforceable in equity, to the beneficial enjoyment of property the legal title to which is in
another. As it is founded in equity, it can never result from act violative of law.
CHARACTERISTICS OF TRUST
1. It is a relationship;
2. It is a relationship of fiduciary character;
3. It is a relationship with respect to property, not one involving merely personal duties;
4. It involves the existence of equitable duties, imposed upon the holder of the title of the property to
deal with it for the benefit of another;
5. It arises as a result of a manifestation of intention to create the relationship.
DISTINGUISHED FROM BAILMENT
A delivery of property in trust necessarily involves a transfer of legal title, or at least a separation of
equitable interest and legal title, with the legal title in the trustee, whereas it is a characteristic of a bailment
that the bailee has possession of, without legal title to the property subject to the bailment.
DISTINGUISHED FROM DONATION
A trust is an existing legal relationship and involves the separation of legal and equitable title, whereas
a gift is a transfer of property and, except in the case of a gift in trust, involves a disposition of both legal and
equitable ownership.
A trust constituted between two contracting parties for the benefit of a third person is not subject to the
rules governing donations of real property. The beneficiary of a trust may demand performance of the
obligation without having formally accepted the benefit of the trust in a public document, upon mere
acquiescence in the formation of the trust and acceptance under the second paragraph of Article 1311 of the
Civil Code.
DISTINGUISHED FROM CONTRACT
A trust always involves an ownership, embracing a set of rights and duties fiduciary in character which
may be created by a declaration without consideration, whereas a contract is a legal obligation based on an
undertaking supported by a consideration, which obligation may or may not be fiduciary in character.
DISTINGUISHED FROM GUARDIANSHIP OR EXECUTORSHIP
In trust, the trustee or holder has the legal title to the property; a guardian, administrator, or executor
does not have legal title to the property.
DISTINGUISHED FROM STIPULATION POUR AUTRUI
A trust may exist because of a legal provision or because of an agreement; a stipulation pour autrui
can arise only in the case of contracts.
A trust refers to specific property; a stipulation pour autrui refers to specific property or to other things.
DISTINGUISHED FROM AGENCY
A trust and an agency are distinguishable on the basis of the non-representative role of the trustee
and the representative role of the agent.

CO-OWNERSHIP AS A TRUST
A co-ownership is a form of a trust, with each co-owner being a trustee for each of the others.
PARTIES TO A TRUST
1. Trustor or the person who creates or established the trust;
2. Trustee or the person who takes and holds the legal tile to the trust property, for the benefit of another,
with certain powers and subject to certain duties;
3. Beneficiary or cestui que trust or the person has an equitable interest in the property and enjoys the
benefit of the administration of the trust by the trustee
CHARACTER OF OFFICE OF TRUSTEE
1. As principal The trustee is not an agent of the trust estate or of the cestui que trust, but he acts for
himself in the administration of the trust estate, although subject to the terms of the trust and law of
trusts.
2. As agent In some cases, however, a trustee has been regarded as an agent of beneficiaries of the
trust at least for certain purposes, such as for the purpose of imputing to the beneficiaries of the trust
notice given to the trustee.
3. As fiduciary A trustee, like an executor or administrator, holds an office of trust. The duties of the
latter are, however, fixed and/or limited by law, whereas those of trustee of an express trust are
usually governed by the intention of the trustor or of the parties, if established by contract.
CLASSIFICATION OF TRUST
From the viewpoint of whether it becomes effective after the death of the trustor or during his life:
1. Testamentary trust
2. Trust inter vivos (sometimes called living trusts)
From the viewpoint of the creative force bringing it into existence:
1. Express trust which can come into existence only by the manifestation of an intention to create it by
the one having legal and equitable dominion over the property made subject to it;
2. Implied trust which comes into existence either through implication of an intention to create a trust
as a matter of law or through the imposition of the trust irrespective of and even contrary to any such
intention; it may either be:
a. A resulting trust which arises where a person makes or causes to be made a disposition of
property under circumstances which raise an inference that he does not intend that the person
taking or holding the property should have the beneficial interest in the property; is founded on
the presumed intention of the parties; OR
b. A constructive trust which is imposed where a person holding title to property is subject to an
equitable duty to convey it to another on the ground that he would be unjustly enriched if he
were permitted to retain it; the duty to convey the property arises because it was acquired
through fraud, duress, undue influence, mistake, or through breach of a fiduciary duty, or
through the wrongful disposition of anothers property.

VALDEZ VS. OLARGA (51 SCRA 71)


It has been held in numerous decisions involving fiduciary relations such as those occupied by a
trustee with respect to the cestui que trust that as a general rule the formers possession is not adverse and
therefore cannot ripen into a title by prescription. Thus, adverse possession in such a case requires the
concurrence of the following circumstances:
1. That the trustee has performed unequivocal acts of repudiation amounting to ouster of the cestui que
trust;
2. That such positive acts of repudiation have been made known to the cestui que trust; and
3. That the evidence thereon should be clear and conclusive.
EXPRESS TRUSTS
REQUISITES
There must be:
1. A competent trustor and trustee,
2. An ascertainable trust res, and
3. Sufficiently certain beneficiaries
Therefore:
1. The requirement that the express trust be written is only for enforceability, not for validity between the
parties; hence, Article 1443 may, by analogy, be included under the Statute of Frauds;
2. By implication, for a trust over personal property, and oral agreement is valid and enforceable
between the parties;
3. Regarding third persons, the trust must be in public instrument registered in the Registry of Property if
it concerns real property.
CREATION
1. By conveyance to the trustee by an act inter vivos or mortis causa
2. By admission of the trustee that he holds the property only as a trustee
There must be a clear intent to create a trust. Thus, no particular or technical words are required.
CAPACITY
1. The trustor must be capacitated to convey property
2. The trustee must be capacitated to hold property and to enter into contract
3. The beneficiary must be capacitated to receive gratuitously from the trustor
ADMINISTRATION OF THE TRUST
1. The trustee must file a bond
2. The trustee must make an inventory of the real and personal property in trust
3. The trustee must manage and dispose of the estate and faithfully discharge his trust in relation
thereto according to law or according to the terms of the trust instrument as long as they are legal and
possible
4. The trustee must render a true and clear account
5. The trustee cannot acquire the property held in trust by prescription as long as the trust is admitted (if
he repudiates and this is made known to the party involved, prescription is permitted)
Q: MAY A TRUSTEE OF A TRUST ESTATE BE PERSONALLY LIABLE ?

A: In the absence of an express stipulation in a contract entered into by a trustee for a corporation that the
trust estate and not the trustee should be liable on the contract; the trustee is liable in its individual
capacity.
Q: WHEN MAY A TRUSTEE SUE AS SUCH?
A: Before a trustee may sue or be sued alone as such, it is essential that his trust be express.
ACCEPTANCE, DECLINATION, OR RENUNCIATION BY THE TRUSTEE
In the case of an express trust, acceptance of trust by a trustee is necessary to charge him with the
office of the trustee and the administration of the trust and to vest the legal title in him. However, his
acceptance of the trust is not necessary to its existence and validity, since if he declines the trust, the courts
will appoint a trustee to fill the office that he declines.
One designated or appointed as trustee may decline the responsibility and thereby be free from any
legal or equitable duty or liability in the matter. Unless a contrary intention appears in the instrument
constituting the trust, declination or refusal or disqualification of a trustee does not operate to defeat or void
the trust, nor does it operate to vest legal as well as equitable title in the beneficiary.
Renunciation of a trust after its acceptance can only be by resignation or retirement with court
approval, with agreement of beneficiaries, and on satisfaction of all legal liabilities growing out of the
acceptance of the trust. When a person administering property in the character of a trustee inconsistently
assumes to be holding in his own right, this operates as renunciation of the trust and the beneficiaries of the
property are entitled to maintain an action to declare their right and remove the unfaithful trustee.
ACCEPTANCE OF TRUST BY THE BENEFICIARY
This is essential to the creation and validity of a trust.
Acceptance is presumed if the granting of benefit is purely gratuitous (no onerous condition) EXCEPT
if there is proof that he really did not accept.
Acceptance by the beneficiary of a gratuitous trust is not subject to the rules for the formalities of
donations.
TERMINATION
1. Mutual agreement of all the parties
2. Expiration of the term
3. Fulfillment of the resolutory condition
4. Rescission or annulment
5. Physical loss or legal impossibility of the subject matter of the trust
6. Order of the court
7. Merger
8. Accomplishment of the purpose of the trust
EFFECT OF LACHES
Cestui que trust is entitled to rely upon the fidelity of the trustee. Laches applies from the trustee
openly denies or repudiates the trust and the beneficiary is notified thereof, or is otherwise plainly put on
guard against the trustee. On the other hand, when it does not appear when the trustee repudiated
existence of the fiduciary relation, the same shall be taken to have been made only upon the filing of his
answer to the complaint.
IMPLIED TRUST

CONCEPT
Implied trusts are those which, without being expressed, are deducible from the nature of the transactions as
matter of intent, or which are super induced on the transaction by operation of law, is matters of equity,
independently of the particular intention of the parties. The doctrine of implied trusts is founded upon equity.
As such, trust can never result from acts violative of the law.
KINDS
1. Resulting trust a trust whish is raised or created by the act or construction of law, or in its more restricted
sense, it is raised by implication of law and presumed always to have been contemplated by the parties,
the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or
instrument of conveyance.
Examples are those found in Articles 1448 to 1455 of the NCC
2. Constructive trust a trust raised by construction of law; in a more restricted sense and as contradistinguished from a resulting trust, it is a trust not created by words, expressly or impliedly evincing a
direct intention to create a trust by the construction of equity in order to satisfy the demands of justice; it
does not arise by agreement or intention but by operation of law
DISTINCTION BETWEEN EXPRESS AND IMPLIED TRUSTS
Express Trust
Created by the intention (through direct
and positive acts) of the parties
Cannot be proved by parol evidence when it
concerns an immovable or any interest
therein
In order that laches or acquisitive
prescription may bar an action to enforce it,
an express repudiation made known to the
beneficiary is required

Implied Trust
Comes into being by operation of law
independent of the particular intention
of the parties
Can be proved by oral evidence when
it concerns an immovable or any
interest therein
Laches constitutes a bar to actions to
enforce it, unless there is concealment
of the fact giving rise to the trust

Q: WHEN IS AN IMPLIED TRUST CONVERTED TO EXPRESS TRUST ?


A: An implied trust may be converted to an express trust by the recognition by the implied trustee of the right
to the property of the owner.
ACQUISITION OF PROPERTY THROUGH PRESCRIPTION
By trustee:
1. The possession of a trustee is in law possession of the cestui que trust and, therefore, it cannot be a
good ground for title by prescription
2. No prescription shall run in favor of a co-owner against his co-owners or co-heirs as long as he
expressly or impliedly recognizes the co-ownership
3. Express trusts disable the trustee from acquiring for his own benefit the property committed to his
management or custody at least while he does not openly repudiate the trust and makes such
repudiation known to the beneficiary
4. Trustee may claim title by prescription founded on adverse possession where it appears that:
a. He has performed open and unequivocal acts of repudiation amounting to an ouster of the
cestui que trust
b. Such positive acts of repudiation have been made known to the cestui que trust
c. The evidence thereon should be clear and conclusive; and

d. The period fixed by law has prescribed (the period commences to run from and after said
repudiation and the knowledge thereof by the cestui que trust.
By third persons:
Though the statute of limitations does not run between trustee cestui que trust as long as the trust
relation subsists, it does not run between the trust and third persons. Thus, a third person who holds actual,
open, public, and continuous possession of a land adversely to the trust, acquires title to the land by
prescription as against such trust.
PRESCRIPTIBILITY OF ACTION FOR RECONVEYANCE BASED ON IMPLIED TRUST
1. An action for reconveyance of property (real or personal) to enforce an implied trust in ones favor
prescribed in ten (10) years from the time the right of action
2. Accrues (the action being based upon an obligation created by law), that is, from the moment the law
creates the trust because the so-called trustee does not recognize any trust and has no intention to
hold for the beneficiary.
Some doctrines:
Where the action for conveyance of real property is based on constructive trust resulting
from its fraudulent registration in the name of another (see Article 1456), the action may be filed
from the discovery of the fraud or notice thereof, which is deemed to have taken place from the
inscription of the instrument and/or issuance of the new certificate of title by virtue thereof. The
issuance of said certificate of title constitutes constructive notice to the public.
In another case, however, where the ownership of the land was sold fictitiously to avoid a
foreclosure of mortgage, it was ruled that the ten-year prescriptive period should be counted not
from the registration of the simulated sale, but from the date of recording of the release of the
mortgage, on which date the cestui que trust was charged with the knowledge of the settlement of
the mortgage obligation, the attainment of the purpose for which the trust was created. But if the
legitimate owner of the subject property, which was fraudulently registered in the name of another,
had always been in possession thereof, the constructive notice rule cannot be applied. The action
for reconveyance is in reality an action to quiet title; therefore, the action is imprescriptible.
3. But where the rights of the beneficiary are recognized by the trustee, the ten-year prescriptive period
commences to run from the time the trustee begins to assert his title or to hold adversely, as when the
trustee files an ejectment suit against the beneficiary, or when he registers the deed of assignment of
property to him and secures the cancellation of the certificate of title in the name of the former owner
and the issuance of new certificate of title in his own name, or when he sells portions of the property.
Continuous recognition of a resulting trust precludes any defense of prescription or laches in a
suit to declare and enforce the trust.
4. When a person through fraud succeeds in registering a land in his name, the law creates a
constructive trust in favor of the defrauded party. (See Article 1456).
5. The latter is granted the right to recover the property fraudulently registered within a period of ten
years. In the computation of time necessary for prescription, the present possessor may complete the
period necessary for prescription by tacking his possession to that of his grantor. This rule, however,
applies only where there is privity between successive possessors.
But according to Paras, citing two 1950s cases, the action should be filed within four (4) years
from the discovery of the fraud.
6. The only limitation upon the right of the beneficiary to recover title over the property held in trust is that
the same must not have been transferred to an innocent purchaser for value in which event, his
remedy is to ask for damages.
EFFECT OF LACHES

Implied trust may be barred not only by prescription but also by laches. Laches constitutes a defense
to a suit to declare and enforce an implied trust, and for the purpose of the rule, express repudiation is not
required, unless the trustee fraudulently and successfully conceals the facts giving rise to the trust.
Inasmuch as the trustee in an implied trust does not recognize any trust and has no intent to hold for
the beneficiary, the latter is not justified in delaying the action to recover his property. It is his fault if he
delays. The doctrine of laches, however, is less strictly applied between near relatives than when the parties
are strangers to each other.
GENERAL RULE UNDER ARTICLE 1448
A resulting trust arises in favor of a person from whom a consideration comes for a reconveyance of
property (real or personal) to another, but the trust is rebuttable by proof of a contrary intention of the persons
from whom the consideration comes, and such proof may be by parol evidence. The trust results only in
favor of one advancing the consideration, and not in favor of one for whose benefit the purchase may have
been made.
EXCEPTIONS
1. No trust is implied if the person to whom the legal estate is conveyed is a legitimate or illegitimate
child of the payor. The reason is there is a presumption that a gift or donation was intended in favor of
the child.
2. When an actual contrary intention is proved.
Articles 1448, 1449, 1451 and 1453 are resulting trusts.
Articles 1450, 1454, 1455 and 1456 are constructive trusts.
Article 1455
The general rule is that where trust money cannot be applied either immediately or within a short
time to the purpose of the trust, it is the duty of the trustee to make the fund productive to the beneficiary
by investment of it in some proper security. But trustees must not make investment of funds in their own
names but always indicate that they are made in trust capacities.
This article applies to any trustee, guardian, or other person holding a fiduciary relationship.
Article 1456
The mistake referred to in this article is a mistake made by a third person, not that made by a party
to the contract. For if made by a party, no trust is created. Similarly, the fraud referred to is extracontractual.

Title V. - TRUSTS (n)


CHAPTER 1
GENERAL PROVISIONS
Art. 1440. A person who establishes a trust is called the
trustor; one in whom confidence is reposed as regards
property for the benefit of another person is known as
the trustee; and the person for whose benefit the trust
has been created is referred to as the beneficiary.
Art. 1441. Trusts are either express or implied. Express
trusts are created by the intention of the trustor or of the
parties. Implied trusts come into being by operation of
law.
Art. 1442. The principles of the general law of trusts,
insofar as they are not in conflict with this Code, the
Code of Commerce, the Rules of Court and special laws
are hereby adopted.
CHAPTER 2
EXPRESS TRUSTS
Art. 1443. No express trusts concerning an immovable
or any interest therein may be proved by parol evidence.
Art. 1444. No particular words are required for the
creation of an express trust, it being sufficient that a
trust is clearly intended.
Art. 1445. No trust shall fail because the trustee
appointed declines the designation, unless the contrary
should appear in the instrument constituting the trust.
Art. 1446. Acceptance by the beneficiary is necessary.
Nevertheless, if the trust imposes no onerous condition
upon the beneficiary, his acceptance shall be presumed,
if there is no proof to the contrary.
CHAPTER 3
IMPLIED TRUSTS
Art. 1447. The enumeration of the following cases of
implied trust does not exclude others established by the
general law of trust, but the limitation laid down in Article
1442 shall be applicable.
Art. 1448. There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is paid by another for the purpose of having the
beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary.
However, if the person to whom the title is conveyed is a
child, legitimate or illegitimate, of the one paying the
price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the
child.

Art. 1449. There is also an implied trust when a donation


is made to a person but it appears that although the
legal estate is transmitted to the donee, he nevertheless
is either to have no beneficial interest or only a part
thereof.
Art. 1450. If the price of a sale of property is loaned or
paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the
payment of the debt, a trust arises by operation of law in
favor of the person to whom the money is loaned or for
whom it is paid. The latter may redeem the property and
compel a conveyance thereof to him.
Art. 1451. When land passes by succession to any
person and he causes the legal title to be put in the
name of another, a trust is established by implication of
law for the benefit of the true owner.
Art. 1452. If two or more persons agree to purchase
property and by common consent the legal title is taken
in the name of one of them for the benefit of all, a trust
is created by force of law in favor of the others in
proportion to the interest of each.
Art. 1453. When property is conveyed to a person in
reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied
trust in favor of the person whose benefit is
contemplated.
Art. 1454. If an absolute conveyance of property is
made in order to secure the performance of an
obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes
due, he may demand the reconveyance of the property
to him.
Art. 1455. When any trustee, guardian or other person
holding a fiduciary relationship uses trust funds for the
purchase of property and causes the conveyance to be
made to him or to a third person, a trust is established
by operation of law in favor of the person to whom the
funds belong.
Art. 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of
the person from whom the property comes.
Art. 1457. An implied trust may be proved by oral
evidence.