TRUSTS

CONCEPT Trusts distinguished from other relations

- A trust is the fiduciary relationship between one person having an - What distinguishes a trust from other legal relations is the separation of
equitable ownership in property and another owning the legal title to the legal title and the equitable ownership of the subject property
such property, the equitable ownership of the former entitling him to between two or more people.
the performance of certain duties and the exercise of certain powers by 1.
the latter for the benefit of the former. TRUST BAILMENT
- It is a legal arrangement whereby a person transfers his legal title to delivery of property in trust it is a characteristic of a bailment
property to another to be administered by the latter for the benefit of a necessarily that the bailee has possession
third party. involves a transfer of legal title, or of, without legal title to, the
- Trust implies confidence in a relationship. at least a separation of equitable property subject to the bailment.
interest and legal title, with the
Equity Essence of Implied Trusts legal title in the trustee
- Express trusts are founded on the intention of the trustor or the
intentions of the parties to the trust which bring about the application of 2.
pples applicable to contractual relationship TRUST DONATION
- Implied trusts are created by operation of law based on equity pples A trust is an existing legal a gift
- Nonetheless, both types of trusts are deemed to be vested with relationship and is a transfer of property and except
equitable considerations involves the separation of legal and in the case of a gift in trust,
equitable title, involves a disposition of both legal
Nature of trusts and equitable ownership.
- Trusts do not create separate juridical entities 3.
- The essence of what constitutes a trust is the recognition that the TRUST CONTRACT
trustee holds directly legal or naked title to the trust properties A trust always involves an a contract is a legal obligation
- Trust is anchored on splitting the naked title and beneficial title ownership, based on an undertaking
- The essence of trust is that the fiduciary relationship or the embracing a set of rights and supported by a consideration,
enforcement of equity pples is built upon property relations duties fiduciary in character which obligation may or may not
- There is no real trust relationship based only on the meeting of which may be created by a be fiduciary in character.
the minds unless and until title to the res is transferred to him declaration without a
either of 3 ways: consideration,
a) When only naked title is given to him – express trust 4.
b) When full title has been registered in his name, but with TRUST DEBT
a clear undertaking to hold it for the benefit of another
The beneficiary of a trust has a a creditor has merely a personal
person beneficial interest claim
c) When full title to the property has been acquired by a in the trust property, against the debtor
person under circumstances that the law or equity
imposes upon him the obligation to convey it to another
person – constructive trust
here is a fiduciary relation between there is no such relation between a
a trustee and a beneficiary debtor and creditor.
a trust refers to a duty to deal with debt implies merely an obligation
a specific property for the benefit to pay a certain sum of money
of another.
KINDS OF TRUSTS
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.
I. As to creation
A. EXPRESS TRUST – which is created by the intention of the trustor
or of the parties
- It is the product of contractual intents; they are essentially
creatures of contract law and therefore are animated by the
agreed intentions of the parties under the freedom to contract
doctrine
B. IMPLIED TRUST- which comes into being by operation of law
- Jurisprudence has distinguished between two types of implied
Trusts namely
(a) Resulting Trust (one in which the intention to create a trust is
implied or presumed in law) and
(b) Constructive Trusts (one imposed by law irrespective of, and
even contrary to, any such intention for the purpose of
promoting justice, frustrating fraud, or preventing unjust
enrichment.)
* The difference in legal effects between an express trust an implied
trust was that the former is not susceptible to charges of
prescription or laches whereas in the latter it is possible that the COA
may be extinguished by prescription or laches
* One other distinction between express trust and implied trust is
that express trusts over an immovable property cannot be enforced
by parol evidence, but must be properly supported by a written
instrument, whereas implied trusts regardless of the nature of the
trust property, may always be enforced even when constituted orally
Implied trusts are not covered by statute of frauds
II. As to effectivity
A. testamentary trust - one which is to take effect upon the trustor’s
death. It is usually included as part of the will and does not have a
separate trust deed
B. trust inter vivos (sometimes called “living trust”) - one established
effective during the owner’s life. The grantor executes a “trust
deed,’’ and once the trust is created, legal title to the trust property
passes to the named trustee with duty to administer the property for
the benefit of the beneficiary.
III. As to Revocability
A. Revocable trust- one which can be revoked or cancelled by the
trustor or another individual given the power;
B. Irrevocable trust- one which may not be terminated during the
specified term of the trust
*Whether a trust is revocable or irrevocable depends on the wordings or
language used in the creation of the trust. It will be presumed revocable
unless the creator has expressed a contrary intention in the trust deed.
EXPRESS TRUST
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.
Parties to an express trust
(1) trustor (creator/settlor/grantor) - the person who intentionally
creates or establishes the trust. He transfers legal ownership of property
to a person for the benefit of a third party, who owns the equitable little;
(2) trustee or the person who takes and holds the legal title to the
property in trust solely for the benefit of another, with certain powers
and subject to certain duties;
(3) beneficiary or cestui que trust or the person who has the equitable
title or interest in the property and enjoys the benefit of the
administration of the trust by the trustee. He may be a natural person or
a legal entity.
The trust may provide for more than one beneficiary.
Trust property
- The juridical concept of a trust arises from or is the result of a fiduciary
relation between the trustee who holds legal title and the cestui que
trust who has the equitable title as regards certain property.
(1) SM of a trust may be any property of value — real, personal, funds or
money, or choses in action
- The property so held is referred to as the “trust property” or “trust res.”
“Corpus’’ and “principal’’ are names also used for the trust property.
(2) The trust res must consist of property actually in existence in which
the trustor has a transferable interest or
- But a trust res cannot be a mere expectancy without right or interest or
a mere interest in the performance of a contract although such interest
is in the nature of a property right.
Nature of ownership of trustee and beneficiary
- Ownership by two persons at the same time.
— The trust property is owned by two persons at the same time,
the relation between the two owners being such that trustee
with legal title under an obligation to use his ownership for the
benefit of the other. The beneficiary has the beneficial
ownership
- The Trustee’s ownership, therefore, is a mere matter of form rather
than of substance, and nominal rather than real.
- a trustee is not an owner at all, but a sort of an agent, upon
whom the law has conferred the power and imposed the duty of
administering the property of another person
- In legal theory, however, the trustee is not a mere agent but an
owner.
- The interests of the beneficiary in the trust can, in general, be reached
by his creditors, and he can sell or otherwise dispose of them. The
beneficiary can transfer only the interests he holds — the equitable title.
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 the law of
trusts because it lacks juristic personality.
(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. Besides, the duties of trustees may cover a much wider
range than those of executors or administrators of the estate of
deceased persons.
Necessity of existence of beneficiary
- A trust is not void for indefiniteness if by its terms the whole property
will go to the beneficiary or beneficiaries who is/are undetermined but
will be determined at the termination of the trust, at the latest.
- It is not necessary to the creation of a trust that the cestui que trust be
named or identified or even be in existence at the time of its creation;
and this is especially so in regard to charitable trust.
- The trustor can simply specify as the beneficaries a class of persons
(e.g., “my minor children,’’) who are readily identifiable.
Essential Characteristics of express trust
1) It is a relationship
2) It is a relationship of fiduciary character
3) It is a relationship with respect to the property not one involving
merely personal duties
4) It involves the existence of equitable duties imposed upon the
holder of the title to 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
- These characteristics also apply to resulting trust but not to
constructive trust since the trustee in constructive trust actually owes
no fiduciary duty

Express Trusts are essentially Contractual in Nature
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.
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
- Art. 1445 can only mean two things
a) No contractual relationship has been established yet
because the actual transfer of naked title to the trustee
has not been effected yet
b) Trust could not be said to fail because its final
establishment may still be effected by another person
who accepts the trust and to whom the legal title to the
corpus may be instituted
- 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 (Art. 1145.), 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.
- Furthermore, renunciation of a trust after its acceptance can only be by
resignation or retirement with court approval or at least, with agreement
of beneficiaries and on satisfaction of all legal liabilities growing out of
the acceptance of the trust.
Acceptance of trust by the beneficiary
- Acceptance of or assent to the trust by the beneficiary is essential to
the creation and validity of a trust.
- The trust being beneficial to the beneficiary, his acceptance is
presumed if there is no proof to the contrary.
- However, if the trust imposes some onerous condition, acceptance
must be shown. Such acceptance may be express or implied.
- It must be noted that when the beneficiary is constituted other than
the trustor then the trust actually provides for stipulation pour autri
- When the designated beneficiary expressly refuses to accept the
benefits of the trust, the trust ceases to have an objective. But since the
naked title remains with the trustee, his obligation is to comply with the
instructions of the trustor
- A designation of a beneficiary which does not impose onerous
condition partakes essentially of a gift or donation and is governed by
the Law on Donation which makes the disposition a solemn contract
-However, non-compliance with the solemnities required for
donation in the realm of trust does not render the trust void
since under Art. 1444 “No particular words are required for the
creation of an express trust it being sufficient that the trust is
clearly intended
Essential Elements of Express Trust
(1) A competent trustor and trustee;
(2) An ascertainable trust res; and
(3) Sufficiently certain beneficiaries.
- The trustee must also have some power of administration other than a
mere duty to perform a contract although the contract is for some third-
party beneficiary.
-A declaration of terms is essential and these must be stated with
reasonable certainty in order that the trustee may administer, and that
the court, if called upon so to do, may enforce the trust.
- Since the trustee takes title to property and administers it, it follows
that he must be capable of owning property.
- Consideration, is not required to establish a trust.
Essential Characteristics of express trust as contractual relationship
1) Nominate and Ppal
- It having been given a particular name and not needing another
contract to be valid
 - Many of the obligations and duties of the trustee prevail on the
basis of equity and not necessarily upon the contractual
intentions of the parties
2) Unilateral
- It is only the trustee who assumes obligations to carry on the
trust for the benefit of the beneficiary
3) Primarily Gratuitous
- Generally a trust relationship imposes no obligation or burden
upon the beneficiary
4) Real
5) Preparatory
- Because it is not constituted for its own sake in that the trust is
essentially the medium established by the trustor to allow full
authority and discretion on the part of the trustee to enter into
various juridical acts on the corpus
6) Fiduciary
- The trustee is one in whom confidence is reposed as regards
property for the benefit of another person
- express trust creates a fiduciary obligation in the trustee by
virtue of his having assumed naked title
Acquisitive Prescription on the corpus unavailing to the trustee
- One of the consequences of the fiduciary relationship existing in a trust
relationship is the inability of the trustee to invoke the statute of
limitations or prescription against the beneficiary.
RULES OF ENFORCEABILITY OF EXPRESS TRUST
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.
Evidence to prove express trust
- Burden of proof.
— The general rule is that the burden of proving the existence of
a trust is on the party alleging its existence; and to discharge this
burden, it is generally required that his proof be clear and
satisfactory and convincing.
- Trust concerns immovable therein.
— By virtue of Article 1443, a writing is necessary to prove an
express trust concerning an immovable or any interest therein. -
The writing is required by said article not for validity but for
purposes of proof.
- To affect third persons, a trust concerning an immovable or any
interest therein must be embodied in a public instrument and
registered in the Registry of Property.
- Failure to object to parol evidence.
— Like the defense of the Statute of Frauds, the defense that
express trusts cannot be proved by parol evidence may be
waived, either by failure to interpose timely objections against
the presentation of oral evidence not admissible under the law or by
cross-examining the adverse party and his witnesses along the
prohibited lines.
Creation of an express trust
- Express trusts are those trusts intentionally created by direct and
positive act of the trustor, by some writing, deed, will, or oral declaration
evincing an intention to create the trust.
- No particular words are required or essential for the creation of an
express trust, it being sufficient that a trust is clearly intended.
- Art. 1444 provides that an express trust will never be presumed to exist
-Express trust must be proven by clear, satisfactory and
convincing evidence
Essence of the Relationship between trustor and Trustee Prior to the
conveyance of the Rest to the trustee
- The transfer of the legal title over the property to the trustee is
necessary in order that a contract of express trust is constituted
- Before the delivery of the naked title there is no valid contract of trust
but only nominate contract of do ut facia, that is, the trustor has
contractually bound himself to deliver and transfer title over the trust
property to the trustee (real obligation to give) and the trustee has
bound himself to accept delivery and manage the property (personal
obligation to do)
Express Trusts over immovables must be in writing
- read p. 295-299 Villanueva
 another person (borne out by principal to represent him and his
DISTINGUISHING EXPRESS TRUSTS FROM SIMILAR ARRANGEMNETS property relation) interest in dealings with 3rd parties
1. There is a duty of loyalty (to the Agents acts based on the
TRUST USUFRUCT best interest of beneficiary) but he instruction of the ppal (duty of
It is the trustee who actively Usufructuary enjoys the property is not bound by the duty of obedience)
manages and administers the of another and it is he who directly obedience for he has been given
property and the beneficiary is a possesses and enjoys the fruits and the title; not bound by the
passive receiver of the fruits and benefits of the property. Also the instructions of the beneficiary
benefits arising from the property Usufructuary is the one who is Revocable not at the will of the Revocable at will
obliged to preserve the form and trustor or beneficiary but only
substance of the property and based on a breach of trust (breach
preserve the property (Bonus Pater of the duty of loyalty and diligence)
familias)
2. KINDS OF EXPRESS TRUST
TRUST LEASE 1. Contractual Trust READ p. 306-307 Villanueva
Full beneficial ownership over the What is given to the lessess is the 2. Inter Vivos Trust – in the form of donation
property is for the account of the enjoyment of the possession and 3. Testamentary Trust-
beneficiary and what is assumed use of the property 4. Eleemosynary/ Charitable Trusts- one designed for the benefit
by the trustee is the obligation to of a segment of the public or of the public in general.
manage the trust property 5. Publicly- Regulated Trust – where the State provides the vehicle
by which institutions are allowed to administer large funds for
the benefit of the public (SSS, GSIS)
Permanent in nature For a limited period CAPACITIES, RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES TO
THE EXPRESS TRUST
1. TRUSTOR
3. - The trustor as the creator of the trust disposes of his full
TRUST SALE ownership of the designated properties in favor of the trustee
Express trust is not perfected by Perfected by mere consent who assumes legal title and beneficiary to whom beneficial title
mere consent but requires the shall pertain
actual delivery of the naked title - Trustor must have the legal capacity to convey trust property
Trustee gets only the naked title Buyer gets the full ownership 2. TRUSTEE
Preparatory Entered into for its own end - The trustee is the party primarily bound in whom confidence is
4. reposed as regards property for the benefit of another person
TRUST AGENCY - He is bound by the fiduciary duties of diligence and loyalty
The relationship is fiduciary Fiduciary relationship is strictly - Trustee must also have the legal capacity to accept the trust
because the trustee holds title to based on personal level; that he - Trustee does not become personally liable to his separate
the property for the benefit of has been commissioned by the properties outside the trust properties for contracts and
transactions arising from the trust and entered into in his official
capacity as trustee
- The trustee becomes personally liable when he acts
with fraud or gross negligence as to all persons who
suffer damage by reason of such act
- Trustee is entitled to compensation for management of the
trust estate (it must be reasonable depending on the
circumstances or it shall be fixed by the court that appointed him
[R.98 S.7])
- Resignation/Removal of Trustee- The proper RTC may upon
petition of the parties beneficially interested remove a trustee if
such removal appears essential to the interest of the petitioners
- Obligations of the trustee
a) Contractually stated duties and obligations of the
Trustee
- An express trust constituted under a trust arrangement
normally provides for the powers and functions of the
trustee and provide for the parameters of his obligation
as well
b) Common law duties of the trustee
- A trustee is expected to carry out the trust using the
diligence of good father of a family
- he is also liable for gross negligence committed even
when it is in the pursuit of the trust arrangement; for
negligence which causes damage to another person
- Trustee is expected to be loyal to the affairs and
interest of the beneficiary (it includes duty to account to
the beneficiary)
- Deliver the property to the beneficiary when it is time
to do so free from all liens and encumbrances
c) Trustee is prohibited from donating the trust property
d) Trustee cannot use funds of the trust to acquire property
for himself
e) Duties and responsibilities of the Trustee under the ROC
i. Before entering on the duties of his trust,
trustee shall file a bond with the court
conditioned upon compliance with his duties
ii. To make and return to the court, at such time it
may order, a true inventory of all the personal
and real estate
iii. To manage and dispose of all such estate
iv. To render upon oath at least once a year a true
account of the property in his hands unless he is
excused therefrom
v. Upon the expiration of his trust, he will settle his
accounts in court and pay over and deliver all
the estate remaining in his hands
3. BENEFICIARY
- Beneficiary is the passive recipient of the benefits flowing from
the trust
- beneficiary need not have legal capacity
HOW EXPRESS TRUST EXTINGUISHED OR TERMINATED
a) Destruction of the Corpus
- The proprietary basis no longer exists to warrant any legal
relationship between the parties
b) Revocation by the Trustor
c) Achievement of the objective or happening of the condition
provided for in the trust arrangement
d) Death or legal incapacity of the trustee
- Unless otherwise expressly stipulated in the trust instrument,
the death, civil interdiction, insanity or insolvency of the trustee
does not necessarily terminate the trust because a new trustee
will be appointed
e) Confusion or merger of legal title and beneficial title in the same
person
- When the trustee of an existing trust becomes the beneficiary
thereof, the trust relation is ipso jure extinguished
f) Breach of trust
- When a trustee breaches his duty of loyalty
When trustee may sue or be sued alone
- In order that a trustee may sue or be sued alone, it is essential that his
trust be express, that is, a trust created by the direct and positive acts of
the parties, by some writing, deed, or will or by proceedings in court.