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TRUST LAW

A. Definition - 1440
Article 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 5the beneficiary.
TRUST the fiduciary relationship between one person having an equitable
ownership in property and another owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties
and exercise of certain powers by the latter for the benefit of the former.
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A legal arrangement whereby a person transfers his legal title to property to


another to be administered by the latter for the benefit of a third party.

Implies confidence in a relationship


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TRUST implies such confidence in a relationship intentionally created,


involving a trustee, a beneficiary, and a trust property and not one involving
merely personal duties, imposing equitable duties upon the trustee with
respect to the property to deal with it for the benefit of the beneficiary.

Trust cannot be established in violation of law.


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Trust is founded in equity and can never result from acts violative of law.
Thus, no trust can result from a contract of partnership formed for an illegal
purpose. Since the contract is null and void, no rights and obligations can
arise therefrom.

Concept of trust
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It is a fiduciary relationship created by agreement or by law where the trustor


of the property has the equitable title while the legal title is vested in another
(trustee). The trustee holds the property for the benefit of another
(beneficiary) who could be the trustor himself or a third person.

PERSON INVOLVED IN THE CREATION OF TRUST


1. Trustor the person who intentionally creates or establishes the trust. He
transfers legal ownership of property or assets to a person for the benefit of a
third party, who owns the equitable title.
2. Trustee the person who takes and holds the legal title to the property in
trust and manages it solely for the benefit of another, with certain powers
and subject to certain duties. The trustee may be a natural person or a legal
entity; and
3. Beneficiary or cestui que trust 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 is the recipient of the trust. The beneficiary may also
be a natural person or a legal entity. The trust may provide for more than one
beneficiary.

Trustor may establish a trust with him as a trustee or trustor. He cannot,


however, be the sole trustee and the sole beneficiary of a single trust. In such
case, both the legal and equitable titles to the trust property would merged in
the trustee and he would hold the property free of any trust.

ESSENTIAL ELEMENTS OF TRUST


(1) a settlor or trust creator; (2) settlor's intent to create a trust; (3) trust property;
(4) trustee who owns legal title; and (5) beneficiaries who own equitable title (i.e.,
the right to enjoy the property).
TRUST as distinguished from other relations
TRUST VS. BAILMENT
TRUST
BAILMENT
A delivery of property in trust It is the characteristic of a bailment that
necessarily involves a transfer of legal the bailee has possession of, without
title, or at least a separation of legal title to, the property subject to the
equitable interest and legal title, with bailment.
the legal title in the trustee.
Both the trustee and the bailee control property which is not beneficially their
own. Moreover, neither is an insurer of the property. A trustee will not be liable to
compensate for loss of trust without proof of breach of trust and a bailee will not
be liable for loss or damage unless the bailment contract states otherwise. A
bailee, like a beneficiary, can trace the bailed property or its proceeds into the
hands of third parties.
TRUST VS. DONATION
TRUST
An existing legal relationship and
involves the separation of legal and
equitable title

DONATION
Is a transfer of property as well as the
disposition of both legal and equitable
ownership except in cases of gifts in
trust.
The done must comply with the legal
requirements in accepting donations

It 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 second
paragraph of Art. 1311
Both in donation and trust, acceptance of the donee and beneficiary is necessary
or essential. However, in donation, acceptance must be made in the public
instrument executing such donation or in a separate public instrument where in
trust, acceptance shall be presumed if it imposes no onerous condition upon the

beneficiary.
TRUST
Always
involves
an
ownership,
embracing a set of rights and duties
fiduciary in character which may be
created by a declaration without a
consideration

CONTRACT
A legal obligation based on an
undertaking
supported
by
a
consideration, which obligation may or
may not be fiduciary in character.

TRUST

DEBT
Right of the Third Person
The beneficiary of a trust has a A creditor has merely a personal claim
beneficial interest in the trust property.
against the debtor.
Existence of Fiduciary Relationship
There is a fiduciary relationship There is no beneficiary relationship
between a trustee and a beneficiary.
between a debtor and a creditor.
TRUST
AGENCY
Both trust and agency are fiduciary in nature. As regards the essence of the
matter, a trustee is not an owner at all, but sort of an agent, upon whim the law
has conferred the power and imposed the duty of administering the property of
another person. But in legal theory, however, the trustee is not a mere agent but
an owner.
Title to trust must be vested in a An agency relationship can be created
trustee
without vesting any property in the
agent.
A trustee who makes a contract in the An agent creates a contract on behalf of
administration of the trusts contracts as the principal, he himself is not a part to
principal having legal title on the the contract with another party.
property
If a trustee dies, the trust is not The relationship of principal and agent
terminated but a new trustee is terminates on the death of either.
appointed.
TRUST PROPERTY
The property so held is referred as the trust property of trust res which is the
subject matter of the trust.
It must consist of property actually in existence in which the trustor has a
transferable interest or title although it may, as a rule, be any kind of transferrable
property either realty or personalty. But it cannot be mere expectancy without right
or interest or a mere interest is in the nature of a property right.

The trust property is owned by two persons at the same time, the relation between
the two owners being such that one of them is under an obligation to use his
ownership for the benefit of the other.
The ownership of the trustee is a mere matter form rather substance, and nominal
rather than real. The trustee is not a mere agent, but an owner.
NOTES: A trust is not void for indefiniteness if by its terms the whole property will go
to the beneficiaries who are underdetermined 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 even be in the existence at the time of its
creation.

ARTICLE 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.
CLASSIFICATION OF TRUST
As to effectivity from the viewpoint of whether they become effective after
death of the trustor or during his life, they may be either:
(a) Testamentary Trust one which is to take effect upon the trustors death. It is
usually included as part of the will and does not have a separate trust deed.
(b) Living trust or inter vivos trust one established effective during the owners
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.
As to creation from the viewpoint of the creative force bringing them into
existence, it may be either:
1. EXPRESS TRUST created by the intention of the trustor or of the parties. It is
created by the direct and positive acts of the parties, by some writing, deed,
will or by words, either expressly or impliedly evincing an intention to create
a trust
ELEMENTS:
a. A competent trustor and trustee;
b. An ascertainable trust res; and
c. Sufficiently certain beneficiaries.
2. IMPLIED TRUST one which comes into being by operation of law. This may
either be:
a. Resulting trust one which the intention to create a trust is presumed by
law to exist from the transaction and facts of the case.
b. Constructive trust one imposed by law irrespective of and even contrary
to the intention of the parties. It is designed to promote justice frustrate
fraud and prevent unjust enrichment.
EXPRESS TRUST VS. IMPLIED TRUST

Express

Implied

As to creation
Created by the intention of the parties
Come into being by operation of law.
As to proof of trust
An express trust over an immovable An implied trust over an immovable or
property or any interest therein cannot any interest therein may be proved by
be proved by parole evidence
oral evidence.
As to prescription
Action must be made within 10 years In resulting trust, action must be made
from the knowledge of the repudiation, within 10 years from knowledge of
otherwise prescribed.
repudiation, otherwise prescribed.
In constructive trust, it must be 10
years from the date of registration.
As to applicability of the Doctrine of Laches
An express repudiation made known to In constructive trust, even if there is no
the beneficiary is necessary in order repudiation, laches may bar an action
that laches or acquisitive prescription to enforce an implied trust.
may bar an action to enforce an Exception, if there is concealment.
express trust
ARTICLE 1442. The principles of the general law of trusts, insofar as they
are not in conflict with this Code, the Code of Commerce, the Rules of
Court and special laws are hereby adopted.

Express Trusts those trust voluntarily and 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.
PROOF OF TRUST:
General rule: trust whether express or implied may be proved by parol evidence.
EXCEPTION: ARTICLE 1443. No express trusts concerning an immovable or
any interest therein may be proved by parol evidence.
ARTICLE 1444. No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly intended.

May be waived, either by failure to interpose timely objections against the


presentation of oral evidence not admissible under the law or by crossexamining the adverse party and his witness along the prohibited lines.
An express trust over personal property or any interest therein, an implied
trust, whether the property subject to the trust is real or personal, may be
proved by oral evidence.
The creation of an express cannot be assumed from loose and vague
declarations or circumstances capable of other interpretations.

Consideration is not required to establish a trust.

KINDS OF TRUST
1. Living trust or Inter vivos trust - one established effective during the
owners 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.
2. Testamentary Trust one which is to take effect upon the trustors death. It
is usually included as part of the will and does not have a separate trust
deed.
3. Charitable trust one designed for the benefit of a segment of the public
or of the public in general. It is one created for charitable, educational, social,
religious, or scientific purpose, or for the general benefit of humanity.
4. Spendthrift trust one established when the beneficiary need to be
protected, because of his inexperience or immaturity from his imprudent
spending habits or simply because the beneficiary is spendthrift. Income will
be paid to the beneficiary only when actually necessary. Under some
circumstances, the trustee will pay directly to the creditor for obligations of
the beneficiary.
5. Totten trust - one party (the settlor or "grantor" of the trust) places money
in a bank account or security with instructions that upon the settlor's death,
whatever is in that account will pass to a named beneficiary. (The name is
derived from Matter of Totten, 179 N.Y. 112 (1904), the case decided by the
New York Court of Appeals which established the legality of this practice.)
Other Kinds:
1. Accumulation trust one that will accumulate income to be reinvested by
the trustee in the trust for the period of time specified.
2. Sprinkling trust one that gives the trustee the right to determine the
income of the beneficiaries who would receive income each year and the
amount thereof.
ARTICLE 1445. No trust shall fail because the trustee appointed declines
the designation, unless the contrary should appear in the instrument
constituting the trust.
ARTICLE 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.
NECESSITY OF ACCEPTANCE FOR THE CREATION AND VALIDITY OF A TRUST
RELATIONSHIP
1. Acceptance of a trustee
a. NOT NECESSARY to its existence and validity since if he declines, the court
will appoint a trustee to fill the office that he declines. EXCEPTION: if the
trustee declines, the trust is ineffective if the trustor expressly provides
that he would not entrust such to any other.

b. But a trustees acceptance of an express trust is necessary to charge him


with the office of the trustee and the administration of the trust and to
vest the legal title to him.
c. 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.
2. Acceptance of the beneficiary
a. ESSENTIAL to the creation and validity of a trust. However, such
acceptance is presumed if there is no proof to the contrary and the trust
does not impose any onerous condition upon the beneficiary.
b. Even if real property is involved, the acceptance need not be in a public
instrument.
EXTINGUISHMENT OF EXPRESS TRUST
1.
2.
3.
4.
5.
6.
7.
8.

Accomplishment of the purpose of the trust


Expiration of the agreed term
Mutual agreement of all the parties
Exercise of power to terminate (Annulment or rescission of trust)
Happening of the resolutory condition, if one had been imposed.
Total loss of the object of trust
Decision of court declaring the trust terminated
Merger of rights of the trustor and the trustee, as when the trustor waived his
rights in favor of the trustee or vice versa
9. Prescription.
REQUISITES OF EXPRESS TRUST TO CLAIM PRESCRIPTION
1. He has performed OPEN and UNEQUIVOCAL acts of repudiation
2. Such positive acts of repudiation have been made known to the benficiary or
the cestui que trust
3. The evidence thereon should be clear and convincing and
4. The period fixed by law has been expired for 10 years from the time that the
repudiation is made known to the beneficiary in cases of express trust or
resulting trust while 10 years from the time a constructive trust arises.
Note: reckoning point is repudiation of the trust by the trust by the trustee
because from that moment his possession becomes adverse which gives rise to
a cause of action.
TRUST PURSUIT RULE
Equity will pursue property that is wrongfully converted by the fiduciary, or
otherwise compel restitution to the beneficiary. A trust will follow the property
through all changes in its state and form, provided its product or proceeds are
capable of identification.

CHAPTER 3
Implied Trusts those which, without being express, are deducible from the nature
of the transaction as matters of intention, or which are superinduced on the
transaction by operation of law as matters of equity, independently of the particular
intention of the parties.
While implied trust may be proved by parol evidence, the evidence must be
TRUSTWORTHY and RECEIVED by the courts with extreme caution, and should not
be made to rest on loose, equivocal or indefinite declarations. The proof should be
as fully convincing as if the acts giving rise to the trust obligation are proven by
authentic document.
ARTICLE 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.
KINDS OF IMPLIED TRUST
1. Resulting a trust which is raised or created by the act or construction of
law. It is a trust 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.
2. Constructive trust raised by construction of law or arising by operation by
law. It is a trust not created by any words, either expressly or impliedly,
evincing a direct intention to create a trust by the construction of equity in
order to satisfy the demands of justice and prevent unjust enrichment. It does
not arise by agreement or intention but by operation of law against one who,
by fraud, duress, or abuse of confidence obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold.
Resulting

Constructive
create trust
The trust is created irrespective of or
even contrary to the intentions of the
parties to promote justice, frustrate
fraud and to prevent unjust enrichment.
Prescriptive period
The 10 year prescriptive period shall The 10 year prescriptive period shall be
be counted from the time repudiation is counted from the time that the
made known to the beneficiary.
constructive trust arises, i.e. from the
date of registration.
Examples
Articles 1448, 1449, 1451, 1452, 1453
1450, 1454, 1455, 1456
Intention to
The intent of the parties to create a
trust is presumed or implied by law
from the nature of their transaction

RESULTING TRUST
ARTICLE 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. aisa dc
ARTICLE 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.
ARTICLE 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.
ARTICLE 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.
ARTICLE 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.

CONSTRUCTIVE TRUST
ARTICLE 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 it is paid. The latter may redeem the property and compel a
conveyance thereof to him.
ARTICLE 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.
ARTICLE 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.
ARTICLE 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.

PROOF OF IMPLIED TRUST


ARTICLE 1457. An implied trust may be proved by oral evidence.

REQUISITES BEFORE PERIOD OF PRESCRIPTION MAY START IN REGARD TO


AN ACTION BASED ON AN IMPLIED TRUST
1. Trustee has performed unequivocal acts of repudiation amounting to an
ouster of the cestui que trust.
2. Such positive acts of repudiation have been made know to the cestui que
trust;
3. Evidence thereon must be clear and positive.

The 4 year prescriptive period under Art. 1391 applies only if fraud does not give
rise to an implied trust, and the action is to annul a voidable contract under Art.
1390.

An action for reconveyance of a parcel of land based on an implied or constructive


trust prescribes in ten years, the point of reference being the date of registration of
the deed or the date of the issuance of the certificate of the deed or the date of the
issuance of the certificate of title over the property. Since such issuance operates as
a constructive notice to the whole world, the discovery of fraud is deemed to have
taken place at that time. But, this rule only applies only when the plaintiff or person
enforcing trust is not in possession of the property, the right to seek reconveyance,
which in effect seeks to quiet title to property, does not prescribe.

NOTE: Discovery of fraud must be deemed to have taken place from the issuance of
the certificate of title because registration of real property is considered a
constructive notice to all person and it shall be counted from the time of such
registering, filing or entering.