RULE 98 - TRUSTEES

I.

TRUST DISCUSSIONS ON CIVIL CODE

Trust Defined

It is a fiduciary relationship concerning property which obliges the person holding

it to deal with the property for the benefit of another. The person holding, in view of
his equitable title , is allowed to exercise certain powers belonging to the owner of
the legal title.

Characteristics
1. Fiduciary relationship;
2. Created by law or agreement;
3. Legal title is held by one, and the equitable or beneficial title to the property is
held by another.
As distinguished from guardianship, the trustee or holder has legal title to the
property which is not present in the latter.

Elements of Trust
1. Parties to the trust; and,
2. Trust property or trust estate, which is the subject matter of the trust.

Parties to a Trust
1. Trustor or settler who establishes the trust
2. Trustee who holds the property in trust for the benefit of another. The
trustee holds legal title.
3. Beneficiary or the cestui que trust the person for whose benefit the trust is
created. He holds the equitable title or beneficial title to the property held for
his benefit by the trustee who holds the legal title. The trustor or settler may
at the same time be the beneficiary

Nature of Ownership of Trustee or Beneficiary: Duplicate Ownership

1. Ownership by two persons at the same time one of them is under an
obligation to use his ownership for the benefit of the other
2. Ownership of trustee, a mere matter of form and nominal

(a) Agent, because of the duty of administering property

(b) In legal theory, not a mere agent but an owner who acts for himself and
transacts in his name.

Trust Property or Trust res

1.
2.
3.
4.

Property actually existing in which the trustor has transferable interest or title
It may be a real or personal property (undivided future or contingent interst)
Cannot be a mere expectancy without right or interest; or
Mere interest in the performance of a contract although such interest is in the
nature of property right

Classification of Trusts
1. Express Trust created by the parties or by intention of the trustor or settler.
a. Which concern real property or interest therein cannot be enforced by
oral evidence, but these may be binding between the parties as in the
statute of frauds. To bind third persons, the same must be registered in
the Registrar of Land Title and Deeds, and for that purpose, it must be
contained in a public instrument, which is a requisite for registration.
b. If the subject matter of the trust is personal property, the same may be
proven by oral evidence.
c. It is created by:
i. Conveyance to the trustee, either
By an act inter vivos; or
By an act mortis causa, as in a will (Lorenzo v. Posadas, 64
Phil. 353)
ii. By admission of the trustee that he holds the property only as a
trustee (Tolentino v. Vitug, 39Phil. 126)
2. Implied Trust created by operation of law.
a. Resulting - one in which the intention to create trust is implied or
presumed in law
b. Constructive one impose by law irrespective of, and even contrary to,
any such intention for the purpose of:
(i)
Promoting justice
(ii)
Frustrating fraud
(iii)
Preventing unjust enrichment
c. Even if it concerns real property or an interest therein, may be proven
by oral evidence.

Capacities of Parties to a Trust

1. Trustor must have capacity to convey property;
2. Trustee must have capacity to hold property and to enter into contracts;
3. Beneficiary must have the capacity to receive gratuitously from the trustor.
If he is incapacitated to be the trustors done, or heir, or legatee, or devisee.
He cannot be a beneficiary of a gratuitous trust.

A trust ordinarily continues even if the trustee declines. The reason for
is that:
1. The court can always appoint a new trustee, unless otherwise provided for in
the trust instrument;
2. A new trustee has to be appointed, otherwise the trust will not exist.

To be effective, the trust must be accepted by the beneficiary, either:

1. Expressly; or
2. Impliedly; or,
3. Presumably, if the grant of the benefit is gratuitous.
EXCEPTION: If there is strong proof that he really did not accept. A mere
presumption cannot replace a fact.
The acceptance need not follow the form of acceptance in donation of real
property. Therefore, even if a real property is the subject of a trust which is
express, the beneficiary need not accept the benefits of the trust thru a public
instrument.

Termination of Trusts
1.
2.
3.
4.
5.
6.
7.
8.

II.

Agreement mutually arrived at;

Fulfillment of any resolutory condition;
Rescission or annulment of trust ( as in other contracts)
Order of the court;
Merger
Accomplishment of the purpose;
Loss of the subject matter of the trust (physical or legal impossibility)
Expiration of the term of the trust.

TRUSTEE ON RULE 98

WHERE TRUSTEE IS APPOINTED

Section 1. Where trustee appointed. A trustee necessary to
carry into effect the provisions of a will on written instrument shall
be appointed by the Court of First Instance in which the will was
allowed, if it be a will allowed in the Philippines, otherwise by the
Court of First Instance of the province in which the property, or some
portion thereof, affected by the trust is situated.

Reason for appointment of trustee:

When a trustee is necessary to carry into effect the provisions of a will or
written instrument.

In what court should the trustee be appointed?

If the will was allowed in the Philippines:
By Regional Trial Court in which the will was allowed or RTC of the place
where the property or portion thereof is located.
If the will allowed without the Philippines
By the Regional Trial Court in which the property, or some portion thereof,
affected by the trust situation.

Who may file petition for appointment of trustee?

The executor or administrator or the person appointed as trustee under the
will or written instrument shall file the petition for the appointment of trustee in
compliance with the wishes of the testator.

Direction of the Court in the appointment of the trustee

The power to appoint a trustee is discretionary with the court before whom
application is made, and the appellate court will decline to interfere except in
cases of clear abuse. Thereafter, upon proper showing that the interests of justice
would be adequately served with the removal of the incumbent trustees, it is
likewise within its discretion to do so and the appellate court will refuse to
interfere in the absence of a showing of grave abuse or whimsical and capricious
exercise of that discretion. 1

Three kinds of Trustees under Rule 98:

1 Tiangco vs. Francisco, 68 Phil. 353

1. Trustee under will under Section 2;

2. Trustee upon written instrument under Section 3;
3. Trustee appointed abroad under Section 4.
Appointment and Powers of Trustee under Will
Section 2. Appointment and powers of trustees under will.
Executor of former trustee need not administer trust. If a testator
has omitted in his will to appoint a trustee in the Philippines, and if
such appointment is necessary to carry into effect the provisions of
the will, the proper Court of First Instance may, after notice to all
persons interested, appoint a trustee who shall have the same
rights, powers, and duties, and in whom the estate shall vest, as if
he had been appointed by the testator. No person succeeding to a
trust as executor or administrator of a former trustee shall be
required to accept such trust.

What is a Trustee under Will?

Based on Our Rules and Jurisprudence
It is trust created in the will although the testator does not name a trustee. It
is by virtue of the provisions of the will that trust is actually created, like by the
provision that certain of the property shall be kept together undisposed during a
fixed period and for a stated purpose. 2
Therefore, in this case the will must not have appointed a trustee or there is
an omission to named the trustee but there is an express intent to create a trust.
There is now a need file a petition in court for the appointment of a trustee.

Who should file a petition?

The administrator or the executor of the will.

What petition be filed?

He should file a petition for the appointment of trustee.

Where should the petition be filed?

The probate court. The probate court will be the one to grant the allowance of
the will if such was allowed in the Philippines. If the will was allowed abroad, the
RTC where the property or portion thereof is located can also appoint a trustee
under will.

2 Lorenzo vs. Posadas, 64 Phil. 353

When is the appointment of trustee under the will be allowed?

The following requisites must be present before the appointment of trustee
under Rule 98 Sec 2 be allowed:
1. The testator has omitted in his will to appoint a trustee in the Philippines;
2. Such appointment is necessary to carry into effect the provisions of the
will;
3. There should notice to all persons interested.

What are the powers of the appointed trustee under this section?
A trustee shall have the same rights, powers, and duties, and in whom the
estate shall vest, as if he had been appointed by the testator.

APPOINTMENT AND POWERS OF TRUSTEE UNDER A WRITTEN INSTRUMENT:

SECTION 3. Appointment and powers of new trustee under written
instrument.When a trustee under a written instrument declines,
resigns, dies, or is removed before the objects of the trust are
accomplished, and no adequate provision is made in such instrument
for supplying the vacancy, the proper Regional Trial Court may, after
due notice to all persons interested, appoint a new trustee to act
alone or jointly with the others, as the case may be. Such new
trustee shall have and exercise the same powers, rights, and duties
as if he had been originally appointed, and the trust estate shall vest
in him in like manner as it had vested or would have vested, in the
trustee in whose place he is substituted; and the court may order
such conveyance to be made by the former trustee or his
representatives, or by the other remaining trustees, as may be
necessary or proper to vest the trust estate in the new trustee,
either alone or jointly with the others.

It could be in a form of inoperative will.

A written instrument through inoperative as a will from want of compliance
with statutory requisitions, may yet operate as a declaration of a trust. But such
writing must state the fiduciary relation and the terms and conditions of the trust
with sufficient certainty and it must be of such nature that the party must have
intended it as a declaration of a trust. 3

The rule: The trust will never fail for want of trustee
Basis:

3 Byers vs. MyAuley, 149 US 608

Under Article 1445 of the New Civil Code, No trust shall fail because the
trustee appointed declines the designation unless the contrary should appear in
the instrument constituting the trust.
The reason for the rule:
1. A court will always appoint a trustee where necessary for the
administration of a trust or to prevent failure of the trust, where the
necessity arises from failure of appointment, from non-acceptance or
disqualifications of a trustee or from other cause, unless otherwise
provided in the trust instrument; or
2. The court will execute the trust by its officers or otherwise effect its
accomplishments, unless otherwise provided in the trust instrument.
Thus, even if the testator omits to appoint a trustee or if he declines, the
court may still appoint a trustee with all the functions and powers as if he had
been appointed by the testator.

Procedure/requisites before the court appoint a new trustee

1. A trustee under a written instrument (1) declines, (2) resigns, (3) dies, or is
(4) removed before the objects of the trust are accomplished, and No
adequate provision is made in such instrument for supplying the vacancy;
2. Petition must be filed in the proper RTC;
3. There must be a due notice to all persons interested;
4. The court will issue a ruling on whether or not to appoint a new trustee to
act alone or jointly with others, as the case may be.
Note: If the written instrument already provides for the substitution of a
trustee, there is no need to petition for the appointment of trustee under
Rule 98.

Powers of new trustee

1. Such new trustee shall have and exercise the same powers, rights,
and duties as if he had been originally appointed; and
2. The trust estate shall vest in him in like manner as it had vested or
would have vested, in the trustee in whose place he is substituted;
and
3. The court may order such conveyance to be made by the former
trustee or his representatives, or by the other remaining trustees,
as may be necessary or proper to vest the trust estate in the new
trustee, either alone or jointly with the others.

TRUSTEE APPOINTED ABROAD:

SECTION 4. Proceedings where trustee- appointed abroad. When
land in the Philippines is held in trust for persons resident here by a
trustee who derives his authority from without the Philippines, such
trustee shall, on petition filed in the Regional Trial Court of the
province where the land is situated, and after due notice to all
persons interested, be ordered to apply to the court for appointment
as trustee; and upon his neglect or refusal to comply with such order,
the court shall declare such trust vacant, and shall appoint a new
trustee in whom the trust estate shall vest in like manner as if he
had been originally appointed by such court.

The circumstance before this section will be applicable

This section is applicable when land in the Philippines is held in trust for
persons resident here by a trustee who derives his authority from without the
Philippines. However, before foreign appointed trustee may exercise as such, he
should first be appointed by a Philippine court though trustor is alive.
This is on the theory that the authority of a trustee does not exceed beyond
jurisdiction of the government granting the same, similar to the rule regarding
guardians and administrators.4

Proceedings where trustee-appointed abroad

When the trustee himself filed the petition
1. The trustee, who is appointed abroad, shall file a petition for appointment
as trustee in the Regional Trial Court of the province where the land is
situated; and
2. Due notice must be sent to all persons interested, be ordered to apply to
the court for appointment as trustee.
When the petition is filed by person other than the trustee himself
1. There must be a petition filed in the Regional Trial Court of the province
where the land is situated;
2. Due notice must be sent to all persons interested;
3. The court will order the trustee, who is appointed abroad, to apply to the
court for appointment as trustee.
Upon his neglect or refusal to comply with such order, the court shall declare
such trust vacant, and shall appoint a new trustee in whom the trust estate shall
vest in like manner as if he had been originally appointed by such court.

4 Tabingan, Monroe. Special Proceedings.2nd Edition.Central Professional Books. 2005

BOND REQUISITE
SECTION
5. Trustee must file bond.Before entering on the
duties of his trust, a trustee shall file with the clerk of the court
having jurisdiction of the trust a bond in the amount fixed by the
judge of said court, payable to the Government of the Philippines
and sufficient and available for the protection of any party in
interest, and a trustee who neglects to file such bond shall be
considered to have declined or resigned the trust; but the court may,
until further order exempt a trustee under a will from giving a bond
when the testator has directed or requested such exemption, and
may so exempt any trustee when all persons beneficially interested
in the trust, being of full age, request the exemption. Such
exemption may be cancelled by the court at any time, and the
trustee required to forthwith file a bond.
General Rule: Trustee must file a bond.
Exceptions:
1. The court may, until further order exempt a trustee under a will from
giving a bond when the testator has directed or requested such
exemption; and
2. The court may also so exempt any trustee when all persons beneficially
interested in the trust, being of full age, request the exemption.
Such exemption may be cancelled by the court at any time, and the
trustee required to forthwith file a bond.
When and Where the trustee shall file the bond
The trustee shall file the bond before entering on the duties of his trust, and
he shall file the bond with the clerk of the court having jurisdiction of the trust.
Amount of the bond and where the bond be payable
The amount of the bond will be fixed by the judge of court having jurisdiction
of the trust, payable to the Government of the Philippines and sufficient and
available for the protection of any party in interest.
Purpose of the bond
The bond is for the protection of any party in interest of the trust.
Effect of failure to file a bond

1. While a trustee is not authorized to administer the trust estate until he has
given the required bond, a trust is not defeated by a failure to give bond.
This bond is intended for the benefit and protection of the beneficiary, and
he alone has the right to complain, and the trustees failure to give bond
may not be made the subject of collateral attack. 5
2. A trustee who neglects to file the bond required by the rule shall be
considered to have declined or resigned.

CONDITIONS OF THE BOND:

SECTION 6. Conditions included in bond.The following conditions
shall be deemed to be a part of the bond whether written therein or
not:
(a) That the trustee will make and return to the court, at such
time as it may order, a true inventory of all the real and personal
estate belonging to him as trustee, which at the time of the making
of such inventory shall have come to his possession or knowledge;
(b)
That he will manage and dispose of all such estate, and
faithfully discharge his trust in relation thereto, according to law and
the will of the testator or the provisions of the instrument or order
under which he is appointed;
(c) That he will render upon oath at least once a year until his
trust is fulfilled, unless he is excused there from in any year by the
court, a true account of the property in his hands and of the
management and disposition thereof, and will render such other
accounts as the court may order;
(d) That at the expiration of his trust he will settle his accounts
in court and pay over and deliver all the estate remaining in his
hands, or due from him on such settlement, to the person or persons
entitled thereto.
But when the trustee is appointed as a successor to a prior
trustee, the court may dispense with the making and return of an
inventory, if one has already been filed, and in such case the
condition of the bond shall be deemed to be altered accordingly.
Conditions of the bond
1. Filing of inventory
The trustee should make and return to the court, at such time as it may
order, a true inventory of all the real and personal estate belonging to him as
trustee which at the time of the making of such inventory shall have come to
his possession or knowledge.

5 Tabingan, Monroe. Special Proceedings.2nd Edition.Central Professional Books. 2005

When however, the trustee is appointed as a successor to a prior trustee,

the court may dispense with the making and return of an inventory, if one has
already been filed, and in such case, the condition of the bond shall be altered
accordingly.
2. Faithful discharge of the trust
It is within the power and duty of a trustee who has accepted an active
trust to collect, take possession of, and keep in his custody the trust property
and assets, and to hold, manage, and apply the same to effect the purposes
and objects of the trust and to make payments and distribution to
beneficiaries in accordance with the terms of the trust. The trustee is
chargeable with the value of the assets lost through a failure in his duty to get
them into his possession. (Herrera)
In the performance of this duty of taking and collection the estate, the
trustee must act with reasonable diligence; unnecessary and unreasonable
delay in securing possession of the trust property is at his personal risk. The
duty to take, collect, hold and manage the trust estate in accordance with the
terms of the trust extends to income and increment of the estate. The trustee
must enforce and collect chooses in action, debts, and demands belonging to
the estate, except where such collection and enforcement will result in a loss
to the estate. (Herrera)
3. Accounting by trustee
That he will render upon oath at least once a year until his trust is fulfilled,
unless he is excused there from in any year by the court, a true account of the
property in his hands and of the management and disposition thereof, and will
render such other accounts as the court may order.
4. Settlement of accounts at the expiration of the trust
At the expiration of his trust he will settle his accounts in court and
pay over and deliver all the estate remaining in his hands, or due from
him on such settlement, to the person or persons entitled thereto.
Administration of Trust
1. Trustee must file a Bond;
2. Trustee cannot acquire the property held in trust, even by prescription as
long as he admits the trust. If he repudiates the trust, and this is made
known to the party involved, then prescription is permitted.
3. Trustee must render a true and clear account;
4. Trustee must make an inventory;
5. 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.

Nature of possession by trustee

For the purpose of prescription, the possession of the property by the trustee
is not an adverse possession, but only a possession in the name and in behalf of
the owner of the same. If the trustee has not repudiated the trust nor claimed any
right to the property entrusted to him, his possession of said property is not for
himself but for the owner and cannot be a ground for prescription, nor can the
trustees heirs make use of this possession to establish the prescription which
they alleged. In such case, the period of prescription in favor of the heirs of the
trustee should be computed from the date of the trustees death.6
A trustee in other words, may acquire the trust estate by prescription provided
there is a repudiation of the trust, such repudiation being open, clear and
unequivocal, known to the cestui que trust.7
Duties of trustee compared to duties of executor or administrator
All of them hold an office of trust, especially when the trustee acts as such
under judicial appointment. However, while the duties of an executor/
administrator are fixed and/ or limited by law, those of an express trust are
usually governed by the intention of the trustor, or the parties, if the trust is
established by contract. Besides the duties of a trustee may cover a wider range
than those of executors or administrators of the estate of a deceased person. 8

APPRAISAL AND COMPENSATION OF TRUSTEE

Section 7. Appraisal. Compensation of trustee. When an
inventory is required to be returned by a trustee, the estate and
effects belonging to the trust shall be appraised and the court may
order one or more inheritance tax appraisers to assist in the
appraisement. The compensation of the trustee shall be fixed by the
court, if it be not determined in the instrument creating the trust.
When appraisal necessary
When an inventory is required to be returned by a trustee, the estate and
effects belonging to the trust shall be appraised and the court may order one or
more inheritance tax appraisers to assist in the appraisement.
Compensation of trustee

6 Tolentino vs. Vitug, 39 Phil 126

7 Salinas vs. Tuazon, 55 Phil 729
8 Tabingan, Monroe. Special Proceedings.2nd Edition.Central Professional Books. 2005

The compensation of the trustee shall be fixed by the court, if it be not

determined in the instrument creating the trust.
Factors affecting trustees compensation
1.
2.
3.
4.

Character and power of the trusteeship

Risk and responsibility
Time
Labor and skill required in the administration of the trust; as well as the
care and management of the estate.9

Compensation of trustee compared to that of executor or administrator

Based on the rules the trustee has more chances of getting better
compensation

REMOVAL OR RESIGNATION OF TRUSTEE

Section 8. Removal or resignation of trustee. The proper Court
of First Instance may, upon petition of the parties beneficially
interested and after due notice to the trustee and hearing, remove a
trustee if such removal appears essential in the interest of the
petitioner. The court may also, after due notice to all persons
interested, remove a trustee who is insane or otherwise incapable of
discharging his trust or evidently unsuitable therefor. A trustee,
whether appointed by the court or under a written instrument, may
resign his trust if it appears to the court proper to allow such
resignation.
Removal of a trustee; How Effected
1. The petition for removal of trustee must be filed by the parties beneficially
interested to the trust;
2. Such petition must be file with the proper RTC;
3. Due notice to all persons interested;
4. There must be a hearing;
5. The court will render a decision and remove the trustee based on any of
the following grounds:

9 Tabingan, Monroe. Special Proceedings.2nd Edition.Central Professional Books. 2005

a.
b.
c.
d.
e.

Insanity;
Incapability of discharging the trust;
Evident unsuitability in discharging the trust;
Death of trustee;
When termination appears to be essential to the interest of the
beneficiaries to the trust

Therefore, the removal or resignation of a trustee is always subject to

court approval.
Illustrative cases for removal of trustee
When a trustee therefore assumes to be holding in his own right, this operates
as a renunciation of the trust and beneficiaries may maintain an action for the
removal of an unfaithful trustee.10
Similarly, where trust property is misapplied by the trustee, the beneficiary
may file a petition for his removal and for the appointment of a new one in his
stead, which will not be interfered with in the absence of capricious exercise of
the courts discretion.11
Resignation of trustee; How effected
A trustee, whether appointed by the court or under a written instrument, may
resign his trust if it appears to the court proper to allow such resignation.
A trustee is at liberty to tender his resignation and apply for his release on the
sole ground of unwillingness to act further in the trust. But the acceptance of the
resignation of a trustee is not a matter of course; due regard must be had for the
interest of the parties to be affected and there must ordinarily be some ground for
discharge other than mere wish of the trustee to be relieved
PROCEEDINGS FOR SALE OR ENCUMBRANCE OF TRUST ESTATE
Section 9. Proceedings for sale or encumbrance of trust estate.
When the sale or encumbrance of any real or personal estate held in
trust is necessary or expedient, the court having jurisdiction of the
trust may, on petition and after due notice and hearing, order such
sale or encumbrance to be made, and the re-investment and
application of the proceeds thereof in such manner as will best effect
the objects of the trust. The petition, notice, hearing, order of sale or
encumbrance, and record of proceedings, shall conform as nearly as
may be to the provisions concerning the sale or encumbrance by
guardians of the property of minors or other wards.

10 Martineza vs. Grano, 42 Phil. 35

11 Tiangco vs. Francisco, 68 Phil. 639

Proceedings for sale or encumbrance of Trust Estate

When the sale or encumbrance of any real or personal estate held in trust is
necessary or expedient, the court having jurisdiction of the trust may:
1. On petition. The grounds for the encumbrance or sale of real property
must be stated in the petition. The rules however did not mention a
particular ground, so it could be specific or general grounds as long as it is
necessary and expedient in the administration of trust.
2. After due notice and hearing
3. Order such sale or encumbrance to be made and the re-investment and
application of the proceeds thereof in such manner as will best effect the
objects of the trust.
The petition, notice, hearing, order of sale or encumbrance, and record of
proceedings, shall conform as nearly as may be to the provisions concerning
the sale or encumbrance by guardians of the property of minors or other
wards.
The law has long been settled that it is the duty of the trustee to collect
and preserve intact the trust property, and that they have no power to change
the character of the rust property, unless it is of perishable or transitory
nature, and then only to convert it into substantial, enduring and revenueproducing investment.12
If a change be deemed necessary, or for the interest of the beneficiary,
the permission or sanction of the court should be obtained. 13
This rule is necessary for the preservation of the fund. The temptations to tamper with the
fund by the trustee is so powerful and too numerous. 14

12 Tabingan, Monroe. Special Proceedings.2nd Edition. Central Professional Books. 2005

13 Ibid
14 Ibid