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TRUSTS
MEMORY AID
ATENEO CENTRAL BAR OPERATIONS 2001

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.
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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.
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TRUSTS
MEMORY AID
ATENEO CENTRAL BAR OPERATIONS 2001

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:
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ATENEO CENTRAL BAR OPERATIONS 2001

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
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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
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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
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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
contra-distinguished 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
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MEMORY AID
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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).
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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
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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 extra-contractual.