V.

Trusts
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.

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.

CHARACTERISTICS OF TRUST 1. 2. 3. 4. It is a relationship; It is a relationship of fiduciary character; It is a relationship with respect to property, not one involving merely personal duties; 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; It arises as a result of a manifestation of intention to create the relationship.

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.

5.

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

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. b.

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 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.

PARTIES TO A TRUST 1. 2. Trustor or the person who creates or established the trust; 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; 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

3.

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. CLASSIFICATION OF TRUST From the viewpoint of whether it becomes effective after the death of the trustor or during his life: 1. 2. 1. Testamentary trust Trust inter vivos (sometimes called living trusts) 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; 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

VALDEZ VS. OLARGA 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. 2. 3. That the trustee has performed unequivocal acts of repudiation amounting to ouster of the cestui que trust; That such positive acts of repudiation have been made known to the cestui que trust; and That the evidence thereon should be clear and conclusive.

From the viewpoint of the creative force bringing it into existence:

EXPRESS TRUSTS REQUISITES There must be: 1. 2. A competent trustor and trustee, An ascertainable trust res, and

2.

3.

Sufficiently certain beneficiaries 4. 5.

law or according to the terms of the trust instrument as long as they are legal and possible The trustee must render a true and clear account 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)

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; By implication, for a trust over personal property, and oral agreement is valid and enforceable between the parties; Regarding third persons, the trust must be in public instrument registered in the Registry of Property if it concerns real property.

2. 3.

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

CREATION 1. 2. By conveyance to the trustee by an act inter vivos or mortis causa 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. 2. 3. The trustor must be capacitated to convey property The trustee must be capacitated to hold property and to enter into contract The beneficiary must be capacitated to receive gratuitously from the trustor

ADMINISTRATION OF THE TRUST 1. 2. 3. The trustee must file a bond The trustee must make an inventory of the real and personal property in trust The trustee must manage and dispose of the estate and faithfully discharge his trust in relation thereto according to

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.

IMPLIED TRUSTS 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. DISTINCTION BETWEEN EXPRESS AND IMPLIED TRUSTS Express Trust Created by the intention (through direct and positive acts) of the parties Implied Trust Comes into being by operation of law independent of the particular intention 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 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

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. 2. 3. 4. 5. 6. 7. 8. Mutual agreement of all the parties Expiration of the term Fulfillment of the resolutory condition Rescission or annulment Physical loss or legal impossibility of the subject matter of the trust Order of the court Merger 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.

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 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

Trustor: debtor/lendee, Trustee: Lender, Beneficiary: debtor/ lendee 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 its is paid. The latter may redeem the property and compel a conveyance thereof to him. d. Succession to an heir but put in name of another. Trustor: heir, Trustee: Beneficiary: heir whose name is in legal title,

Examples of 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. a. Property paid for by another party to have a beneficial interest Trustor: Payor, Trustee: Holder of legal estate, Beneficiary: payor 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. b. Donation where donee has to have no or mere partial beneficial interest. Trustor: donor, Trustee: donee, Beneficiary: donor 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. c. Security of debt to pay price of sale: property acquired by loan in name of creditor

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. e. Multiple purchasers, but in name of only one Trustor: non-nominate purchaser, Trustee: purchaser insofar as the others share, Beneficiary: non-nominate purchaser nominate

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. f. Grant in reliance of declaration to be a mere holder or conduit for grantor or third person Trustor: grantor, Trustee: declarer of intention to hold it for 3rd person, Beneficiary: grantor or 3rd party 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.

g. Absolute conveyance to creditor for security of an obligation; reconveyance upon fulfillment Trustor: debtor, trustee: creditor, beneficiary: 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. h. Objects acquired or conveyed by use of trust funds, Trustor: Owner of trust fund, Trustee: trustee of trust funds or 3rd person receiver of conveyance, Beneficiary: Owner of trust fund 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. i. Acquisition by mistake or fraud Trustor: conveyor, Trustee: acquirer by mistake or fraud, Beneficiary: conveyor 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. 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

No prescription shall run in favor of a co-owner against his coowners or co-heirs as long as he expressly or impliedly recognizes the co-ownership 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 Trustee may claim title by prescription founded on adverse possession where it appears that: He has performed open and unequivocal acts of repudiation amounting to an ouster of the cestui que trust Such positive acts of repudiation have been made known to the cestui que trust The evidence thereon should be clear and conclusive; and 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 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

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. Were 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.

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). 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. 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.

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.

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 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. When an actual contrary intention is proved.

into two. In 1960, the other heirs of the father applied for reconveyance on the ground of implied trust. Held: Constructive or implied trusts maybe barred by statute of limitations unlike expressed ones. Their action has both prescribed and laches has already set in. Prescription of ten years for constructive or implied prescription runs from date of constructive notice to the world, i.e. from issuance of new certificate of title. N.B. In the former, there is an open, continuous, and uninterrupted possession. In the latter there is none of such, but an admission of non ownership or ownership by another. Caragay-Layno v. CA Claimant whose property has been wrongfully registered in the name of another, but which has not passed to a third party, can properly seek reconveyance. Action to quiet title or render it undisputable is imprescriptible since such property has been in claimants open possession. The difference between an expressed and implied trust is not just limited to form with the former written and the other is not. Their difference extends to the relationship between the trustor and the trustee. In implied trusts, agreement between them is not essential. All that is necessary is for the circumstances surrounding each situation be present, and then such would be deemed a trust. The same must be the reason they also call such as constructive trusts.

Articles 1448, 1449, 1451 and 1453 are resulting trusts. Articles 1450, 1454, 1455 and 1456 are constructive trusts. Article 1455 o 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. 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.

Article 1456 o

Fabian v. Fabian Four children inherited a land from their father who died in 1928. Through fraudulent means, a daughter and a niece was able to secure titles to the land in 1937. By 1945, they subdivided the lot