TRUST
-- is a fiduciary relationship by virtue of w/c the trustor reposes to the trustee his
confidence as regards his property for the benefit of his beneficiary. It is a fiduciary
relationship concerning property which obliges the person holding it
to deal with the property for the benefi t 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 of a ‘Trust’
1. It is a fi duciary relationship.
2. Created by law or by agreement.
3. Where the legal title is held by one, and the equitable title or
beneficial title is held by another.
‘Trust’ Distinguished from ‘Guardianship’ or ‘Executorship’
In a trust, the trustee or holder has LEGAL TITLE to
the property; a guardian, administrator, or executor does not
have.
‘Trust’ Distinguished from a ‘Stipulation Pour Autrui’
1. 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.
2. A trust refers to specifi c property; a stipulation pour autrui
refers to specifi c property or to other things.
Co-Ownership as a ‘Trust’
Sotto v. Teves, L-38010, Oct. 31, 1978
A co-ownership is a form of trust, with each co-owner being a
trustee for each of the others.
Art. 1440. A person who establishes a trust is called the
trustor; one in whom confi dence is reposed as regards
property
for the benefi t of another person is known as the trustee;
and the person for whose benefi t the trust has been
created
is referred to as the benefi ciary.
Parties to a ‘Trust’
(a) trustor or settler — he establishes the trust
(b) trustee — holds the property in trust for the benefit of another
(c) benefi ciary or cestui que trust — the person for whose benefit
the trust has been created (NOTE: The trustor may at the same
time be also the beneficiary.)
Elements of a ‘Trust’
(a) Parties to the trust
(b) The trust property or the trust estate or the subject matter
of the trust
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.
Classifi cation of Trusts
(a) Express trust — created by the parties, or by the intention
of the trustor. (Art. 1441).
(b) Implied trust — created by operation of law (“trust by
operation of law”).
[NOTE: There are two kinds of implied trusts:
1) Resulting trust — (also called bare or passive trust)
— Here, there is an intent to create a trust but it is
not effective as an express trust. [Example: Art. 1451,
where a person who inherits property registers the
same in another’s name, whom he does not intend to
have any benefi cial interest therein for he wants this
for himself. (See Severino v. Severino, 44 Phil. 343;
See 65 C.J. 363).]
2) Constructive trust — Here, no intention to create a
trust is present, but a trust is nevertheless created
by law to prevent unjust enrichment or oppression.
[Example: If a person acquires property by mistake,
he is considered by the law as a trustee while he
holds the same. (Art. 1456, Civil Code). (See Ocampo
v. Zaporteza, 53 Phil. 442).]
Art. 1442. The principles of the general law of trusts,
insofar as they are not in confl ict with this Code, the Code
of
Commerce, the Rules of Court and special laws are hereby
adopted.
Suppletory Effect of the General Law of Trusts
The principles of the general law of trusts are merely suppletory.
EXPRESS TRUSTS
Art. 1443. No express trusts concerning an immovable or
any interest therein may be proved by parol(oral) evidence.
Formalities Re Express Trusts
(a) the requirement that the express trust be written is only for
enforceability, not for validity between the parties. Hence,
this Article may by analogy be included under the Statute
of Frauds. (See Gamboa v. Gamboa, 52 Phil. 503).
(b) By implication, for a trust over personal property an oral
agreement is valid and enforceable between the parties.
(c) Regarding third persons, the trust must be: in a public
instrument and REGISTERED in the Registry of Property,
if it concerns REAL PROPERTY.
Distinguished from the Formalities of an Implied Trust
An implied trust (whether real or personal property is
involved) may be proved by oral evidence. (Art. 1457, Civil
Code).
Art. 1444. No particular words are required for the creation
of an express trust, it being suffi cient that a trust is clearly
intended.
How an Express Trust Is Created
(a) By conveyance to the trustee by an act inter vivos or mortis
causa (as in a will).
(b) By admission of the trustee that he holds the property, only
as trustee.
Julio v. Dalandan
L-19012, Oct. 20, 1967
FACTS: The deceased father of the defendants executed
on Sept. 8, 1950 an affi davit attesting to the following
facts:
(a) that he owed someone a sum of money;
(b) that as security thereof, he gave a parcel of land to the
creditor;
(c) that in view of his failure to pay the debt, the mortgage
was foreclosed;
(d) that he felt bound by such foreclosure;
(e) that he therefore promises to replace said land by another
lot or farm of approximately the same area on the condition
that his children should not be forced to give the harvest,
and on the further condition that substitution should not
be required immediately.
This promise was accepted by the creditor.
The present case was instituted by the creditor to declare
him owner of the land, and to fi x the period for the delivery of
the land to him. A motion to dismiss was fi led on the ground of
prescription, more than 10 years having elapsed.
ISSUE: Has the action by the creditor prescribed?
HELD: No, the action has not prescribed.
(a) In the fi rst place, the case involves an express trust. Under
Art. 1444 of the Civil Code, no particular words are needed
for the creation of an express trust. In this case the naked
ownership of the land passed to the creditor, while the
usufruct remained with the children of the deceased affi -
ant for an undetermined period of time. The children are
deemed to have held the land as trustees of the creditor.
In view of the creation of the express trust, it is clear that
no period of prescription is involved, the recovery being
imprescriptible.
(b) In the second place, assuming that there is no trust involved
in this case, the period of prescription is, under the facts,
a term of 30 years.
Clear Intent
There must be a CLEAR INTENTION to create a trust.
(Thus, no particular or technical words are required.)
Capacity
(a) The trustor must be capacitated to convey property. [Hence,
it has been held that a minor cannot create an express or
conventional trust of any kind. (Gayondato v. Treasurer,
49 Phil. 244). However, a joint owner of a thing may be a
trustor and the other a trustee of one’s share. (Lavadi v.
De Mendoza, 72 Phil. 186).]
(b) The trustee must be capacitated to hold property and to
enter into contracts.
(c) The benefi ciary must be capacitated to receive gratuitously
from the trustor. (Therefore, if he is incapacitated to be
the trustor’s donee, heir or legatee, or devisee, he cannot
become a benefi ciary of a gratuitous trust.)
Administration of the Trust
(a) The trustee must fi le a bond. (Sec. 5, Rule 98, Rules of
Court).
(b) The trustee must make an inventory of the real and
personal property in trust. (Sec. 6[a], Rule 98, Rules of
Court).
(c) 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. (Sec. 6[b], Rules 98,
Rules of Court).

(d) The trustee must render a true and clear account. (Sec.
6[c], Rule 98, Rules of Court).
(e) 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). (See Bancairen v. Diones, 98 Phil.
122).
[NOTE: In Escobar v. Locsin, 74 Phil. 86, the Court
had occasion to rule that a trust is sacred and inviolable,
and the courts should therefore shield fi duciary relations
against every manner of chicanery.]
QUERY: May a trustee of a trust estate be personally
liable? HELD: 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. (Tan
Senguan & Co. v. Phil. Trust Co., 58 Phil. 700).
QUERY: When may a trustee sue as such? HELD:
Before a trustee may sue or be sued alone as such, 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. (Philippine Air
Lines, Inc. v. Heald Lumber Co., L-11479, Aug. 1957).
Art. 1445. No trust shall fail because the trustee appointed
declines the designation, unless the contrary should appear
in the instrument constituting the trust.
Effect if Trustee Declines
The trust ordinarily continues even if the trustee declines.
Reason — the court will appoint a new trustee, unless otherwise
provided for in the trust instrument. (Sec. 3, Rule 98, Rules of
Court). A new trustee has to be appointed, otherwise the trust
will not exist. (65 C.J. 233).
[NOTE: As between the mother and the uncle of a minor,
the former ought to be preferred as trustee of the proceeds of an
insurance policy of the deceased father in the absence of evidence
that would reveal the incompetence of the mother.
Art. 1446. Acceptance by the benefi ciary is necessary.
Nevertheless, if the trust imposes no onerous condition
upon
the benefi ciary, his acceptance shall be presumed, if there
is
no proof to the contrary.
Necessity of Acceptance by the Benefi ciary
For the trust to be effective, the benefi ciary must accept:
(a) expressly,
(b) or impliedly,
(c) or presumably.
When Acceptance Is Presumed
If the granting of benefi t is PURELY GRATUITOUS (no
onerous condition), the acceptance by the benefi ciary is presumed.
Exception: If there is proof that he really did NOT accept.
[NOTE: Acceptance by the benefi ciary of a gratuitous trust
is NOT subject to the rules for the formalities of donations.
Therefore, even if real property is involved, acceptance by the
benefi ciary need not be in a public instrument. (Cristobal v.
Gomez, 50 Phil. 810). Here, the court held that mere acquiescence
in the formation of the trust, and acceptance under the second
paragraph of Art. 1311 (regarding a stipulation pour autrui) are
suffi cient.]
How Express Trusts Are ENDED
(a) Mutual agreement by all the parties
(b) Expiration of the term
(c) Fulfi llment of the resolutory condition
(d) Rescission or annulment (as in other contracts)
(e) Loss of subject matter of the trust (physical loss or legal
impossibility)
(f) Order of the court (as when the purpose of the trust is being
frustrated)
(g) Merger
(h) Accomplishment of the purpose of the trust
[NOTE: A testamentary trust for the administration
and eventual sale of certain properties of the testator
ends not at the time the trustee’s petition for the sale of
the property is approved by the court, but at the time said
sale is actually made and the proceeds thereof distributed
to the proper recipients. (Trusteeship of Estate of Benigno
Diaz, L-1011, Aug. 31, 1960).]
IMPLIED TRUSTS
The doctrine of implied trust is founded on equity. The
principle is applied in the American legal system to numerous
cases where an injustice would result if the legal estate or
title were to prevail over the equitable right of the benefi ciary.
(Com. Report, p. 60). Even though there has been no fraud or
immorality involved, still there is a mutual antagonism between
the trustee and the benefi ciary. (65 C.J. 222). Fair dealing demands
the establishment of the relation. (Dixon v. Dixon, 124
A. 198).
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.
Express Trust; Prescription (1997)
On 01 January 1980, Redentor and Remedies entered into an
agreement by virtue of which the former was to register a
parcel of land in the name of Remedies under the explicit
covenant to reconvey the land to Remigio, son of Redentor,
upon the son's graduation from college. In 1981, the land
was registered in the name of Remedies.
Redentor died a year later or in 1982. In March 1983, Remigio
graduated from college. In February 1992, Remigio
accidentally found a copy of the document so constituting
Remedies as the trustee of the land. In May 1994, Remigio
filed a case against Remedies for the reconveyance of the land
to him. Remedies, in her answer, averred that the action
already prescribed. How should the matter be decided?
SUGGESTED ANSWER:
The matter should be decided in favor of Remigio (trustee) 1. Juana has the right of action
to recover (a) her one-half
because the action has not prescribed. The case at bar
involves an express trust which does not prescribe as long as
they have not been repudiated by the trustee (Diaz vs.
Gorricho. 103 Phil, 261).
Implied Trust (1998)
Juan and his sister Juana inherited from their mother two
parcels of farmland with exactly the same areas. For
convenience, the Torrens certificates of title covering both
lots were placed in Juan's name alone. In 1996, Juan sold to
an innocent purchaser one parcel in its entirety without the
knowledge and consent of Juana, and wrongfully kept for
himself the entire price paid.
1. What rights of action, if any, does Juana have against
and/or the buyer? |3%]
2. Since the two lots have the same area, suppose Juana
flies a complaint to have herself declared sole owner of the
entire remaining second lot, contending that her brother had
forfeited his share thereof by wrongfully disposing of her
undivided share in the first lot. Will the suit prosper? [2%]
SUGGESTED ANSWER:
1. When, for convenience, the Torrens title to the two parcels
of land were placed in Joan's name alone, there was created
an implied trust (a resulting trust) for the benefit of Juana
with Juan as trustee of one-half undivided or ideal portion of
each of the two lots. Therefore, Juana can file an action for
damages against Joan for having fraudulently sold one of the
two parcels which he partly held in trust for Juana's benefit.
Juana may claim actual or compensatory damage for the loss
of her share in the land; moral damages for the mental
anguish, anxiety, moral shock and wounded feelings she had
suffered; exemplary damage by way of example for the
common good, and attorney's fees.
Juana has no cause of action against the buyer who acquired
the land for value and in good faith, relying on the transfer
certificate of title showing that Juan is the registered owner
of the land.
ANOTHER ANSWER:
1. Under Article 476 of the Civil Code, Juana can file an
action for quieting of title as there is a cloud in the title to the
subject real property. Second, Juana can also file an action for
damages against Juan, because the settled rule is that the
proper recourse of the true owner of the property who was
prejudiced and fraudulently dispossessed of the same is to
bring an action for damages against those who caused or
employed the same. Third, since Juana had the right to her
share in the property by way of inheritance, she can demand
the partition of the thing owned in common, under Article
494 of the Civil Code, and ask that the title to the remaining
property be declared as exclusively hers.
However, since the farmland was sold to an innocent purchaser
for value, then Juana has no cause of action against the buyer
consistent with the established rule that the rights of an innocent
purchaser for value must be respected and protected
notwithstanding the fraud employed by the seller in securing his
title. (Eduarte vs. CA, 253 SCRA 391)
ADDITIONAL ANSWER:
share in the proceeds of the sale with legal interest thereof,
and (b) such damages as she may be able to prove as having
been suffered by her, which may include actual or
compensatory damages as well as moral and exemplary
damages due to the breach of trust and bad faith (Imperial
vs. CA, 259 SCRA 65). Of course, if the buyer knew of the
co-ownership over the lot he was buying, Juana can seek (c)
reconvenyance of her one-half share instead but she must
implead the buyer as co-defendant and allege his bad faith in
purchasing the entire lot. Finally, consistent with the ruling in
Imperial us. CA. Juana may seek instead (d) a declaration that
she is now the sole owner of the entire remaining lot on the
theory that Juan has forfeited his one-half share therein.
ADDITIONAL ANSWER:
1. Juana can file an action for damages against Juan for having
fraudulently sold one of the two parcels which he partly held
in trust for Juana's benefit. Juana may claim actual or
compensatory damage for the loss of her share in the land;
moral damages for the mental anguish, anxiety, moral shock
and wounded feelings she had suffered; exemplary damage by
way of example for the common good, and attorney's fees.
Juana has no cause of action against the buyer who acquired
the land for value and in good faith, relying on the transfer
certificate showing that Juan is the registered owner of the
land.
SUGGESTED ANSWER:
2. Juana's suit to have herself declared as sole owner of the
entire remaining area will not prosper because while Juan's
act in selling the other lot was wrongful. It did not have the
legal effect of forfeiting his share in the remaining lot.
However, Juana can file an action against Juan for partition
or termination of the co-ownership with a prayer that the lot
sold be adjudicated to Juan, and the remaining lot be
adjudicated and reconveyed to her.
ANOTHER ANSWER:
2. The suit will prosper, applying the ruling in Imperial vs.
CA cited above. Both law and equity authorize such a result,
said the Supreme Court.
Strictly speaking, Juana's contention that her brother had
forfeited his share in the second lot is incorrect. Even if the
two lots have the same area, it does not follow that they have
the same value. Since the sale of the first lot on the Torrens
title in the name of Juan was valid, all that Juana may recover
is the value of her undivided interest therein, plus damages.
In addition, she can ask for partition or reconveyance of her
undivided interest in the second lot, without prejudice to any
agreement between them that in lieu of the payment of the
value of Juana's share in the first lot and damages, the second
lot be reconveyed to her.
ALTERNATIVE ANSWER:
2. The suit will not prosper, since Juan's wrongful act of
pocketing the entire proceeds of the sale of the first lot is not
a ground for divesting him of his rights as a co-owner of the
second lot. Indeed, such wrongdoing by Juan does not
constitute, for the benefit of Juana, any of the modes of
acquiring ownership under Art. 712, Civil Code.
Trust; Implied Resulting Trust (1995)
In 1960, Maureen purchased two lots in a plush subdivision
registering Lot 1 in her name and Lot 2 in the name of her
brother Walter with the latter's consent. The idea was to
circumvent a subdivision policy against the acquisition of
more than one lot by one buyer. Maureen constructed a house
on Lot 1 with an extension on Lot 2 to serve as a guest house.
In 1987, Walter who had suffered serious business losses
demanded that Maureen remove the extension house since
the lot on which the extension was built was his property. In
1992, Maureen sued for the reconveyance to her of Lot 2
asserting that a resulting trust was created when she had the
lot registered in Walter's name even if she paid the purchase
price. Walter opposed the suit arguing that assuming the
existence of a resulting trust the action of Maureen has already
prescribed since ten years have already elapsed from the
registration of the title in his name. Decide. Discuss fully.
SUGGESTED ANSWER:
This is a case of an implied resulting trust. If Walter claims to
have acquired ownership of the land by prescription or if he
anchors his defense on extinctive prescription, the ten year
period must be reckoned from 1987 when he demanded that
Maureen remove the extension house on Lot No. 2 because
such demand amounts to an express repudiation of the trust
and it was made known to Maureen. The action for
reconveyance filed in 1992 is not yet barred by prescription.
(Spouses Huang v. Court of Appeals, Sept. 13, 1994).
Mr. A, a businessman, put several real estate properties under the name of his eldest son
X because at that time, X was the only one of legal age among his four children. He told
his son he was to hold those assets for his siblings until they become adults themselves.
X then got married. After 5 years, Mr. A asked X to transfer the titles over three
properties
to his three siblings, leaving two properties for himself. To A’s surprise, X said that he
13
can no longer be made to transfer the properties to his siblings because more than 5
years have passed since the titles were registered in his name. Do you agree? Explain. (
4%)
SUGGESTED ANSWER:
No, the transfer of the properties in the name of X was without cause or consideration
and it was made for the purpose of holding these properties in trust for the siblings of X.
If the transfer was by virtue of a sale, the same is void for lack of cause or consideration.
Hence, the action to declare the sale void is imprescriptible. (Article Heirs of Ureta vs.
Ureta September 14, 2011- G.R. No. 165748 September 14, 2011
ALTERNATIVE ANSWER:
No, I do not agree. A trust was created in favor of the siblings of X when their father A
transferred the titles in his name. The facts are clear that X was to hold these assets for
his siblings until they reach the age of majority. An action to recover property based on
an implied trust prescribes in ten years from the time the title was issued in favor of the
trustee. In the case presented, only five years had lapsed from the issuance of the title
hence, the action has not yet prescribed.