TRUST ARTICLE 1440
When we talk about trust, there is what we call a Three persons involved in trust:
“FIDUCIARY RELATIONSHIP” that’s why it is termed as a
trust because the legal title of the property is placed in the
name of one person but it is for the benefit of another.
Situation: Children are still minors and they do not have
the capacity yet to administer or manage their properties,
some parents would create a trust by virtue of their last
will and testament. They will state that during the time
of the minority of the children, a person who is
designated to them by a trustee will hold the property in
trust for them. So the trustee will manage the property
but the beneficiary or the income or the proceeds of the
trust is in favor of the real owner of the property who are
the minor children. created by an agreement made by the parties.
In fact, for purposes of taxation, a trust is one of the
taxable entities. That is why for income tax purposes, if you are
to classify income tax payers, we have individuals,
corporations, estates and trust.
So the estate is also a taxable entity because while the
properties are not yet distributed to the heirs and the
properties left behind by the decedent earns income, their
income tax will also be paid out of the income earned out of
the estate. And so, income tax is paid.
In the case of trust, income can also be earned by the
trustor for the trustee for the property that was entitled to him.
And so, the taxable entity there is the TRUST.
Income tax can also be paid. In fact, under the old
law, trust is also entitled to a personal exemption. Which is
also the reason why there can be income tax savings if a trust is
created by the parents in favor of the minor children. Why? If
you are the parent and you hold onto all the properties in your
name. All of these properties earn income. There will only be
one taxable entity which is the parent. Our income tax system
is progressive: the bigger is the income, the higher is the rate.
If you are individual tax paper, you will only enjoy
one personal exemption. Now, if you create a trust which
means to say that you now distribute your properties, let us
say you have 5 children, you create a trust in favor of each of
your five children. Instead of concentrating all the income in
one taxpayer, you will now have 5 more tax payers in addition
to the parent. So you spread now the income of your properties
to the different trusts which are taxable entities. Now how will
you be able to save on taxes there? Each trust is entitled to a
personal exemption.
Whereas, if you are the only taxpayer, you are only
entitled to one personal exemption. And further to that since
now the income has now been spread over the five trust that
are created plus the trustor, there are now 6 income tax payers.
So that will now lower the income tax bracket. So that is also
one way of saving on income taxes in addition to the real
objective of trust which is for the trustee to take charge of the
property for the benefit of the beneficiary.
1. Trustor - a person who establishes the trust.
2. Trustee - on in whom confidence is reposed as regards
property for the benefit of another
3. Beneficiary - a person for whose benefit has been created
In many of the instances here, especially with respect to the
provisions of implied trust, the trustor is at the same time the
beneficiary. So, in that case you only have 2 persons involved.
There are 2 kinds of trust:
EXPRESS TRUST
It is created by the intention of the trustor or the parties. There
was a clear intention on the parties to create a trust. It can be
Art. 1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence.
In the case of an express trust involving an immovable
property, this may not be proved by parol evidence. You can
relate this to unenforceable contracts under the statute of
frauds. The law requires that these contracts have to be put in
writing in order for it to be enforceable. No oral evidence may
be accepted to prove that particular agreement. That rule is
also applicable in proving express trust involving an
immovable property or any interest there in.
So, if you are claiming that this particular parcel of land is held
in trust by X in favor of Y, then the only evidence acceptable to
prove that express trust is a written instrument. If the object is
an immovable property, the law requires that the evidence
acceptable be written evidence.
Art. 1444. No particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly
intended.
How do we know whether a trust has been created? You will
just look into the substance of the agreement. If the agreement
is to the affect that a legal title of a property is placed in one
person for the benefit of another even without using the exact
words trust, trustor, trustee or beneficiary, then a trust is to be
considered to have been created. and for which the provisions
under trust will govern.
Art. 1445. No trust shall fail because the trustee appointed
declines the designation, unless the contrary should appear
in the instrument constituting the trust.
Simply because a person who was claimed as a trustee
declined his appointment or designation as a trustee, it does
not mean that a trust has already failed. Because, what the
trustor will just have to do is to appoint another trustee.
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.
If it is purely gratuitous, no conditions are imposed,
the law presumes that there was an acceptance on the part of
the beneficiary. That is in consonance with human nature. If it
is something that will benefit you, it is unlikely that you will
not accept it. If it is not onerous, it does not impose any burden
on the part of the beneficiary, it is presumed that he accepted
the trust in his favor.
But if is shown that the beneficiary did not accept,
then the person claiming such has the burden of proving that
there was really no acceptance at all.
IMPLIED TRUST
This come into being by operation of law.
Two kinds:
1. Resulting trust - there is an intention on the party or the
persons involved to create that trust but it was not
expressed. Based on the circumstances, there was
really that intention to create that trust.
Example:
There is one provision there that states that in the case where
persons succeed to the estate of another and they are co-heirs.
One has placed the title to the property in the name of only one
of them. Example: there are 2 brothers (A and B) who are the
only heirs to the property of their parents. So when the parents
died, A agreed with B that the title to the property would just
be placed in the name of B. It is clear that the intention there
that A still remains to be the owner of the property. But in the
mean time, it was just placed in the name of brother B. The
trust there was not expressed but it can be claimed that there
was really an intention on the part of A that he remains to be
the owner of the property the legal title was just placed in the
name of B but B is holding the property in trust for A, as far as
the share of A is concerned. Trust can also be claimed from Co-
ownership. The brothers here are an example of co-ownership,
only that it was placed here in the name of one. So there was
really an intention to create a trust although not expressed.
2. Constructive trust - based on the principle: “no one shall
unjustly enrich himself at the expense of another”. It
is based on equity.
Example:
In the case where a property was transferred to the name of X
by mistake. The title to the property was placed in the name of
X when that property should have been given to Y. So what is
the obligation on the part of X? He now becomes a trustee of
that property. He is holding that property in trust for Y who is
the real owner of that property. So based on equity, can Y
demand from X the conveyance of the property to him because
that is the basis of Y’s right to have that property conveyed to
him is implied trust
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.
Articles under implied trust are just examples. It is not
exclusive.
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.
When a property is bought and the title is placed in
place of another, you are the one who provided the purchase
price because under normal situations, if you are the one who
paid for the price and property, then you would but that
property under your name because you are the buyer.
But what happens is, you are the buyer of the
property but you placed the title of the property in the name of
X. Under this provision, there is an impled trust when
property is sold and the legal estate is granted to one property
but the price is paid by another for the purpose of having the
beneficial interest of the property. This means that the person
who provided the money to buy the property is now the
trustor-beneficiary.
The intention there is to just place the title of the
property in the name of X, for example, but the one who
provided the purchase price intended to get back the property.
This is because when he provided that property, his intention
was not to give the property to the person in whose name the
title was placed. If this happens, which is a common situation,
could be a scheme of the parents in relation to estate planning.
There are some parents who, during their lifetime,
would buy a property and place the title of the property in the
name of their children. There are many cases where it is really
clear that the child in whose name the property was placed is
not the real buyer because he/she is incapacitated to do so. So
under this provision, it says that if the situation where it’s the
parents who bought the property and placed the title in the
name of the child whether the child is legitimate or
illegitimate, then it is presumed to be a donation or a gift. A
trust is not created but a donation was made. The word
disputable means there that you can still present evidence to
prove the contrary.
This becomes really relevant in relation to succession.
There will be no problem if the children will be accorded the
same benefit. The problem arises if such a privilege was only
given to a favorite child. Upon the death of the parents, that
child in whose favor, a property was already transferred will
again inherit from the estate. So “doble” na siya. That is why
the children who were not given the same favor will now
question the transaction. The problem there is that if that child
in whose favor the transfer was made, has the capacity to buy
the property, he can now claim that he was the one who paid
for the property. If he can claim this, it will no longer be
considered a donation of the parent. It is all on the matter of
proof.
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.
There is a donation made by a donor in favor of the
donee. If it were really a donation, ownership would have been
transferred to the donee. A donation is a mode of transferring
ownership. So if a donor has transferred property by way of
donation, the donee becomes the owner of the property, and as
owner, he is entitled to enjoy the fruits. In this case of an
implied trust where the donor made a donation to a donee, the
title of the property is transferred to the donee but the donor
maintained or continued to enjoy the use of the property.
Example, you made a donation of a parcel of a land and the
title was transferred to the donee but the donor continued to be
entitled to the use of the property. That is continued as an
implied trust so the intention is for the donor to remain the
owner of the property. This entitles the donor to recover the
property later on.
This is an example of a resulting trust. Clearly, when
the donor made such an arrangement that he will donate the
property to a donee but at the same time he still has to have the
beneficial interest of the property, the intention is not to
transfer total ownership to the other party.
Art. 1450. If the price of a sale of property is loaned or paid
by one person for the benefit of another and the convey- ance
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.
You want to buy a property(automobile) but you
don’t have the funds to pay the price so you borrowed money
from X. X lend you money with a condition that the
registration or the title of the property(automobile) that is
bought out of the money that was loaned will placed in his
name, the creditor until the loan is fully paid. So once the loan
is fully paid. Who is now the real owner? It is the borrower
who is the real owner. It is a contract of loan. This arrangement
is sorted to to ensure the loan.
If the parties, especilally by the creditor, will just
abide by the nature of their arrangement then he would have
transferred the title of the property the moment the loan is
fully paid.
What happens if the creditor claims that he is the
owner and shows that the registration is in his name? what
would be the remedy of the borrower? The borrower can avail
of this provision and show that there was an implied trust.
This way he can recover the property.
The beneficiary is the borrower and the trustee is the
lender or the creditor. The borrower can redeem the property
and allow the conveyance to him.
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.
This is an example of a resulting trust. There was
really an intention on the parties to create a trust. This is the
same with the previous example of 2 heirs.
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.
Remember that a trust is a fiduciary relationship. And
so, if the parties, especially the trustee will live up to his
obligation as a trustee, then there is no problem. You don’t
need these provisions. However, circumstances may arise
where the so-called turstee does not deserve the trust (ouch!).
What is now the legal basis of the beneficiary in recovering the
property? This is why we have a chapter on trust.
Example, A and B are best friends. A is in the Unites States,
working. They want to buy a property to be shared by both.
However, A who is in abroad could not attend to the purchase
of the property and cannot sign papers because he is not
around. By agreement of A and B, A said “So B, since I am not
around, I will just send you the money which is a share in my
purchase of the property. Just put the title in your name since
we are best friends.” There is no problem when A comes back
and would now return the title of the property. They are
supposed to be co-owners of the property. This provision is the
remedy of A if B will claim that he is the full owner of the
property. A will raise that there is an implied trust.
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.
The instrument of the property is placed in the name
of one but the intention is really is for that property be placed
in the name of another.
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.
 This is when a property is just given as a security to a Art. 1457. An implied trust may be proved by oral evidence.
loan. This is similar to the previous example where money was
borrowed to be used to buy the property and placed in the The law here does not differentiate an immovable property or
name of the creditor. a personal property. So if the law does not distinguish, we do
not distinguish. Meaning, it applies to all.
Example: I borrowed from X. X wants a security for the loan.
Whatever is the reason for borrowing the money, unlike the
previous provision where you borrowed money because you
wanted to buy a property. Here, regardless of the reason for
borrowing money. X now is willing to lend you money but he
wants a security for the loan. If the main purpose of the
contract is a real estate mortgage, the land was only given a
security of a loan. Now, the creditor will extend a loan but will
make it appear that the land is already sold to the creditor. So
you execute a deed of absolute sale in favor of the creditor.
You do this because you trust your creditor that he will return
the land when you pay the loan.

If the borrower has now fully paid the loan, he will now ask
the creditor to reconvey the land back to him. If the creditor
refuses to do so, this is the legal basis of an action to recover
the property. There is an implied trust.

Art. 1455. When any trustee, guardian or other person

holding a fiduciary relationship uses trust funds for the pur-
chase 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.

Remember, when a person is deemed as a trustee or guardian,

the concept there is that these are persons who can be trusted.
That they will always have the interest of the beneficiary.
Example, a minor owns properties. The court who will appoint
the guardian will consider who has obtained the best interest
of the child.

In one case, in terms of the proceeds of the insurance where the

child was the beneficiary. It was a case between the mother of
the child or the uncle who should be appointed as a guardian.
Under normal conditions, the mother is considered who has
the best interest of the child unless the mother is really unfit.
(she is a gambler or a drug addict etc.)

What happens if the guardian uses the money belonging to the

trust or to the ward to buy a property and place the title of the
property in his name. This is using the money of the ward or
the beneficiary? The law says that there was a creation of a
trust. This means that the property bought out of the money of
the ward, it belongs to the ward. The ward can now recover
the land. If the guardian refunds the property, it’s no problem.
But if not, the ward can recover.

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.

Example: there was a package delivered to you by mistake

because you have the similar name. It was not intended for
you. The obligation is on your part to return it.