LECTURE NOTES ON TRUST

Atty. Marietta P. Turingan

TRUST

A. DEFINITION:

1. Trust is defined in jurisprudence as the legal relationship between

one person having an equitable ownership in property (cestui que
trust) and another person owning the legal title to such property
(trustee), the equitable ownership of the former entitling him to the
performance of certain duties and exercise of certain powers by the
latter.” (Morales v. Court of Appeals, G.R. No. 117228, June 19, 1997).

2. Trust is the right to the beneficial enjoyment of property, the legal

title to which is vested in another. It is a fiduciary relationship that
obliges the trustee to deal with the property for the benefit of the
beneficiary. (Heirs of Tranquilino Labiste v. Heirs of Jose Labiste)

B. KINDS OF TRUSTS

1. Express Trust
2. Implied Trust – divided into
(a) Resulting Trust
(b) Constructive Trust

C. EXPRESS TRUST

1. Parties to an Express Trust: (Art. 1440)

(a.) Trustor – the person who establishes a trust
(b) Trustee – the person in whom the confidence is reposed as
regards the property (trust estate) for the benefit of another
person
(c). Beneficiary– the person for whose benefit the trust has been
created. Also called “cestui que trust”.
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2. Nature and Form of Express Trust:

(a). No particular form is required to establish an express trust

as long as the intention to create one is clearly shown. But if
the trust property is an immovable or any interest therein,
the express trust must be in writing, otherwise, it cannot be
proved by parol evidence and cannot be enforced. (Art.
1443, 1444)

(b). An express trust involving immovable property or any

interest therein is covered by the Statute of Frauds.

3. How an Express Trust is Created:

(a) Express trust is the product of contractual intent of the

parties to establish a trust and may be created by:
(1) their direct and positive acts; or
(2) by some writing, or deed, or will. or
(3) by words either expressly or impliedly evincing an
intention to create a trust (Ramos v. Ramos).

(b) There is a contract that creates the fiduciary relationship

between the trustee and the beneficiary with regard to the
property.

(c) Through this contract, the trustor conveys the naked or

legal title to a property to another person (trustee) who
takes the title thereto under a fiduciary obligation to
administer, manage, and dispose of the property for the
benefit of another (beneficiary) who holds the beneficial or
equitable title.

(d) A clear intention to create a trust must be shown; and the

proof of fiduciary relationship must be clear and convincing.
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4. Elements of an Express Trust: The following must be proved:

(1) A competent trustor or settlor who executes the instrument
creating the trust; (trustor has legal capacity)
(2) A competent trustee, who is the person expressly designated
to carry out the trust; (trustee has legal capacity)
(3) The trust res, consisting of duly identified and definite real
properties; [the trust res may be money, personal or real
property, or choses in action ;
(4) The cestui que trust, or beneficiaries whose identity must be
clear or sufficiently certain, even if they are still not in esse at
the time the trust is created in its favor(Government v.
Abadilla);
(5) There must be a present and complete disposition of the trust
property, notwithstanding that the enjoyment of the
beneficiary will take place in the future;
(6) The purpose be an active one to prevent the trust from being
executed into a legal estate or interest, and one that is not in
contravention of some prohibition of statute or rule of public
policy.
(7) Declaration of terms defining Trustee’s duties and powers
with reasonable certainty, to enable Trustee to administer
the Trust and the court, if called upon to do so, may enforce it.

If any one of these elements is missing, there is no express

trust. (Goyanko v. UCPB)

5. Legal capacity of the Parties in an Express Trust

(a) Among the elements of an express trust are a competent

Trustor and a competent Trustee.

(b) The Beneficiary need not have legal capacity or their

existence still not in esse, at the time the Trust is created
in their favor, as long as their identity are clear or
sufficiently certain.
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6. Acceptance of the Trust by the Trustee

The Trust is the product of contractual intent of the parties to

create it, so necessarily, the Trustee is required to accept the
trust.

Once the trust is created, the trust shall not fail because the
Trustee declines the Trust. (Art. 1445). The Rules of Court
provide for the substitution of the Trustee, if the Trust Agreement
does not do so.

Exceptions: Tolentino (1991) discussed under Termination

of Express Trust

7. Acceptance of Trust by the Beneficiary

The acceptance by the Beneficiary is necessary but if the

trust imposes no onerous condition upon the beneficiary, his
acceptance shall be presumed, if there is no proof to the contrary.

If the Beneficiary expressly refuses or declines to accept the

trust, the purpose of the trust is rendered ineffective and no Trust
is created.

8. Termination of Express Trusts

(1) Accomplishment of the purpose of the trust
(2) Expiration of agreed term
(3) Mutual agreement of all parties (Trustor, Trustee, and
Beneficiary).
(4) Revocation by the Trustor - A voluntary trust is irrevocable
unless the right to revoke is reserved
(5) Happening of resolutory condition, if one had been imposed
(6) Annulment or rescission of the trust
(7) Total loss of the object of the trust (real or personal
property, choses in action)
(8) Merger of the rights of Trustee and Beneficiary in one
person
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(9) Removal of Trustee for breach of trust

(10) Prescription, when there is an unequivocal act of repudiation
amounting to ouster of beneficiary, or by acquisitive
prescription through continuous, open, public, adverse, and
peaceful possession of the property in the concept of an
owner
(11) Death, resignation or legal incapacity of Trustee

a) A trust terminates upon the death of the trustee where

the trust is personal to the trustee in the sense that the
trustor intended no other person to administer it.

b) Tolentino (1991) states that the Trust also terminates if

the Trustee resigns or is legally incapacitated to continue
as such, if the Trustor intended no other person to
administer it.

D. IMPLIED TRUSTS

1. How created:

(a) Implied trusts are those which, without being expressed, are:
(1) deducible from the nature of the transaction as matters of
intent ( resulting trust) or,
(2) independently of the particular intention of the parties, as
being superinduced on the transaction by operation of law,
basically by reason of equity (constructive trust) (Canezo
v. Rojas citing Vda. De Esconde v. CA)

(b) Implied trusts arise by operation of law, either (1) through

implication of an intention to create a trust as a matter of law
(resulting trust). or (2) through the imposition of the trust
irrespective of, and even contrary to, any such intention.
(constructive trust)
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2. How implied trusts may be proved:

(a) An implied trust may be proved by oral evidence. (Art. 1457)

(b) Where a trust is to be established by oral proof, the testimony
supporting it must be sufficiently strong to prove the right of the
alleged beneficiary with as much certainty as if a document
proving the trust were shown.
(c) Such oral proof must be trustworthy and should not be made to
rest on loose, equivocal or indefinite declarations.

3. Examples of Resulting Trust (PNB v. CA)

(a) Art. 1448 – purchase money resulting trust

The property is put in the name of one party but the price is
paid by another, for the purpose of having beneficial interest in
the property. The person to whom the legal title to the property is
conveyed is the Trustee and the person that supplied the purchase
price is the Beneficiary.

Exceptions:

1) If the person to whom legal title to the property is

conveyed is the child of the purchaser, a disputable
presumption arises that the property was donated to
the child.
2) The purchase is made in violation of an existing statute,
and in evasion of its express provision, no trust can
result in favor of the party who is guilty of the fraud.

(b)Art. 1449 –The property is donated to a person but donee has

no beneficial interest in the donated property or has only a part
thereof because donor reserves the usufruct to himself or gives
only a part thereof to the donee.
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Illustration:

1) A donated land to B but B has no beneficial interest in

the land (usufruct was reserved by A). There is a
resulting trust in favor of A. B is trustee while A is the
Beneficiary.

2) A donated land to B, but B’s interest in the property is

only ¼; B is trustee of the ¾ or a resulting trust exists
in favor of A with regards to ¾ of the property.

(c) Art. 1450 - A person buys property on behalf of another

(debtor) using his own funds, and legal title to the property is put
in the name of the person who supplied the funds to secure the
payment of the debt.

The person who supplied the funds is the Trustee and the
person for whom the property was bought is the Beneficiary. It is
only after the Beneficiary reimburses the Trustee of the purchase
price may the former compel the latter to convey the property to
him.

Illustration:

Alex wants to buy a parcel of land in Pasig. He does

not have the money to buy it. Bradley supplies the
purchase price and as security for the payment of the
debt, title to the property is conveyed to Bradley, the
lender. Bradley is the Trustee and Alex is the
beneficiary. Alex can compel Bradley to convey the
property to him after he has fully reimbursed the latter
for the purchase price.

(d)Art. 1451 – When property is inherited in common by several

heirs and the title to the inheritance is put in the name of only one
heir or property inherited by one heir is registered in the name of
another heir. In both cases, the registration of title in favor of the
co-heir is with the consent of the true owner.
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A resulting trust is created in favor of the true owner. The

heir whose name appears in the title is the Trustee and the true
owner is the Beneficiary.

Art. 1451 does not apply to unregistered land where no

title has been issued in name of co-owners.

(e)Art. 1452 - Two or more persons agree to purchase property

and by common consent, the legal title is put in the name of only
one of them for the benefit of all, a trust results in favor of the co-
owners in proportion to the interest of each.

Two requisites should concur before a trust under Art. 1452

is created:

(a) That two or more persons agree to purchase a property,

and
(b) That they consent that one should take the title in his
name for everyone’s benefit.

(f) Art. 1453 – When property is conveyed to a person under an

agreement to hold if for, or convey it to, another person or the
grantor, a trust results in favor of the person for whose benefit the
property was intended.

The person to whom legal title to the property was

conveyed is the Trustee and the person for whose benefit it was
intended is the Beneficiary.

(g)Art. 1454- - When a grantor conveys his property to the

grantee to secure the performance of an obligation of the grantor
toward the grantee, a trust in favor of the grantor is created by
law. The grantor is the Beneficiary while the grantee is the
Trustee.
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When the grantor performs the obligation when due, he

may demand the reconveyance of the property to him.

Illustration:

X transfers his property to Y as security for his debt

to Y. A resulting trust is created with X as the beneficiary
and Y as the Trustee. When X pays the debt in full, he
may demand that Y reconvey the property to him.

(h) Art. 1455 – When a trustee, guardian, or other person

holding a fiduciary relationship uses trust funds to purchase
property that he then registers in his name or in the name of a
third person, a trust is created in favor of the person to whom the
funds belong.

3. Example of Constructive Trust (PNB v. CA) – Art. 1456

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.

It is immaterial whether the mistake was made by the

grantor or the grantee (PNB v. CA)

Unlike an express trust or resulting trust, a constructive

trust does not emanate from, or generate a fiduciary relation.

In an express trust or resulting trust, the beneficiary and

the trustee are linked by confidential or fiduciary relations; while
in a constructive trust, there is neither a promise nor any
fiduciary relation to speak of, and the so-called trustee neither
accepts any trust nor intends holding the property for the
beneficiary.
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E. PRESCRIPTION - TERMINATION OF EXPRESS AND IMPLIED

TRUSTS

1. Prescription for actions involving express trusts and resulting

trusts

A. Action involving Express Trusts is imprescriptible

Reason for imprescriptibility: The possession of a trustee is

not adverse. Not being adverse, he does not acquire by prescription,
the property held in “a continuing and subsisting” trust.

B. The rule on imprescriptibility may apply to resulting trusts

as long as the trustee has not repudiated the trust.

Action may be barred by acquisitive prescription if trustee

repudiates the trust.

Repudiation must have the following elements:

(1) The trustee has performed unequivocal acts of repudiation

amounting to an ouster of the cestui que trust (Benificiary);
(2) Such positive acts of repudiation have been made known to
the cestui que trust (Beneficiary); and,
(3) The evidence thereon is clear and conclusive.

C. Prescriptive Period if there is repudiation:

Period provided under Art. 1144 (1)

Art. 1144. The following actions must be brought within ten
(10) years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.

Prescriptive Period - Ten years counted from the time the act
of repudiation is made known to the Beneficiary.
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2. Prescription for actions involving constructive trusts

Prescriptive Period: Art. 1144 (2) - Ten years from the

creation of the constructive trust

Repudiation is not a condition precedent for the running of

the prescriptive period. (Buan vda. De Esconde v. CA)

In a constructive trust, there is neither a promise nor any

fiduciary relation to speak of and the so-called trustee neither
accepts any trust nor intends holding the property for the
beneficiary. The relation of trustee and cestui que trust
(Beneficiary) does not in fact exist, and the holding of a
constructive trust is for the trustee himself, and therefore, at all
times adverse.

The right of the Beneficiary is to enforce the Trust during

the prescriptive period against the so-called Trustee whose only
duty in turn is to surrender the trust property to the Beneficiary.

F. LACHES - as applied to Implied Trusts

While prescription is concerned with the fact of delay, laches

deals with the effect of unreasonable delay.

It is a well settled rule now that an action to enforce an implied

trust, whether resulting or constructive, may be barred not only by
prescription but also by laches (PNB v. CA).

Laches, being rooted in equity, is not always to be applied strictly

in a way that would obliterate an otherwise valid claim especially
between blood relatives; the fact that the parties are connected by blood
or marriage tend to excuse an otherwise unreasonable delay.