DEFINITION OF TRUST

Trust is the legal relationship between one person having an equitable ow

nership in property and another person owning the legal title to such property,
the equitable ownership of the former entitling him to the performance of certai
n duties and the exercise of certain powers by the latter.
It is a right, enforceable in equity, to the beneficial enjoyment of prop
erty 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 perso
nal 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 relations
hip.
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 th
e bailee has possession of, without legal title to the property subject to the b
ailment.
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 equitab
le 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 havi
ng formally accepted the benefit of the trust in a public document, upon mere ac
quiescence in the formation of the trust and acceptance under the second paragra
ph of Article 1311 of the Civil Code.
DISTINGUISHED FROM CONTRACT
A trust always involves an ownership, embracing a set of rights and dutie
s fiduciary in character which may be created by a declaration without considera
tion, 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 gu
ardian, 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-represe
ntative 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 f
or 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 propert
y, 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 th
e property and enjoys the benefit of the administration of the trust by the trus
tee
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, a
lthough 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 b
eneficiaries 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, whe
reas 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 trusto
r 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 i
ntention to create it by the one having legal and equitable dominion over the pr
operty made subject to it;
2. Implied trust which comes into existence either through implication of an int
ention to create a trust as a matter of law or through the imposition of the tru
st 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 di
sposition of property under circumstances which raise an inference that he does
not intend that the person taking or holding the property should have the benefi
cial interest in the property; is founded on the presumed intention of the parti
es; OR
b. A constructive trust which is imposed where a person holding title to propert
y 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 influe
nce, mistake, or through breach of a fiduciary duty, or through the wrongful dis
position of another s 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 g
eneral rule the former s 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 o
uster 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 i
ncluded under the Statute of Frauds;
2. By implication, for a trust over personal property, and oral agreement is val
id and enforceable between the parties;
3. Regarding third persons, the trust must be in public instrument registered in
the Registry of Property if it concerns real property.
CREATION
1. By conveyance to the trustee by an act inter vivos or mortis causa
2. By admission of the trustee that he holds the property only as a trustee
? There must be a clear intent to create a trust. Thus, no particular or
technical words are required.
CAPACITY
1. The trustor must be capacitated to convey property
2. The trustee must be capacitated to hold property and to enter into contract
3. The beneficiary must be capacitated to receive gratuitously from the trustor
ADMINISTRATION OF THE TRUST
1. The trustee must file a bond
2. The trustee must make an inventory of the real and personal property in trust
3. The trustee must manage and dispose of the estate and faithfully discharge hi
s trust in relation thereto according to law or according to the terms of the tr
ust 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 l
iable 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 nece
ssary 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. U
nless a contrary intention appears in the instrument constituting the trust, dec
lination 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 o
r retirement with court approval, with agreement of beneficiaries, and on satisf
action of all legal liabilities growing out of the acceptance of the trust. Whe
n a person administering property in the character of a trustee inconsistently a
ssumes to be holding in his own right, this operates as renunciation of the trus
t and the beneficiaries of the property are entitled to maintain an action to de
clare 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 (n
o 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 be
neficiary 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 th
e transaction by operation of law, is matters of equity, independently of the pa
rticular intention of the parties. The doctrine of implied trusts is founded up
on equity. As such, trust can never result from acts violative of the law.
KINDS
1. Resulting trust a trust whish is raised or created by the act or construction
of law, or in its more restricted sense, it is raised by implication of law and
presumed always to have been contemplated by the parties, the intention as to w
hich 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 restricte
d sense and as contra-distinguished from a resulting trust, it is a trust not cr
eated by words, expressly or impliedly evincing a direct intention to create a t
rust by the construction of equity in order to satisfy the demands of justice; i
t does not arise by agreement or intention but by operation of law
DISTINCTION BETWEEN EXPRESS AND IMPLIED TRUSTS
Express by
Implied
Created Trust
the intention (through direct
and positive
Comes into being
acts)byofoperation
the parties
of law
independent of the particular intention
of the be
Cannot parties
proved by parol evidence when it concerns an immovable or any interest
Can
therein
be proved by oral evidence when it concerns an immovable or any interest the
In order that laches or acquisitive prescription may bar an action to enforce it
rein
, an express
Laches constitutes
repudiation
a bar to
madeactions
known to enforce
the beneficiary
it, unless
is there
required
is concealment o
f 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 pro
perty committed to his management or custody at least while he does not openly r
epudiate the trust and makes such repudiation known to the beneficiary
4. Trustee may claim title by prescription founded on adverse possession where i
t appears that:
a. He has performed open and unequivocal acts of repudiation amounting to an ous
ter of the cestui que trust
b. Such positive acts of repudiation have been made known to the cestui que trus
t
c. The evidence thereon should be clear and conclusive; and
d. The period fixed by law has prescribed (the period commences to run from and
after said repudiation and the knowledge thereof by the cestui que trust.
By third persons:
Though the statute of limitations does not run between trustee cestui que
trust as long as the trust relation subsists, it does not run between the trust
and third persons. Thus, a third person who holds actual, open, public, and co
ntinuous 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 impli
ed trust in one s favor prescribed in ten (10) years from the time the right of ac
tion
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 constructiv
e trust resulting from its fraudulent registration in the name of another (see A
rticle 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 instrum
ent and/or issuance of the new certificate of title by virtue thereof. The issu
ance of said certificate of title constitutes constructive notice to the public.
In another case, however, where the ownership of the land was sold ficti
tiously to avoid a foreclosure of mortgage, it was ruled that the ten-year presc
riptive 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 t
he cestui que trust was charged with the knowledge of the settlement of the mort
gage obligation, the attainment of the purpose for which the trust was created.
But if the legitimate owner of the subject property, which was fraudulently reg
istered in the name of another, had always been in possession thereof, the const
ructive notice rule cannot be applied. The action for reconveyance is in realit
y an action to quiet title; therefore, the action is imprescriptible.
3. But where the rights of the beneficiary are recognized by the trustee, the te
n-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 su
it against the beneficiary, or when he registers the deed of assignment of prope
rty 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 pres
cription 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 l
aw creates a constructive trust in favor of the defrauded party. (See Article 14
56).
5. The latter is granted the right to recover the property fraudulently register
ed within a period of ten years. In the computation of time necessary for presc
ription, the present possessor may complete the period necessary for prescriptio
n 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 1950 s 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 t
he 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 th
e trustee fraudulently and successfully conceals the facts giving rise to the tr
ust.
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 de
laying the action to recover his property. It is his fault if he delays. The d
octrine 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 c
omes 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 con
sideration comes, and such proof may be by parol evidence. The trust results on
ly in favor of one advancing the consideration, and not in favor of one for whos
e 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 l
egitimate or illegitimate child of the payor. The reason is there is a presumpt
ion 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 immed
iately 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 s
ome proper security. But trustees must not make investment of funds in their ow
n 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 pers
on, 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.
??
??
??
??