TITLE V

TRUSTS (n)
CHAPTER 1
General Provisions
Trust it is the right to the beneficial enjoyment of property, the
legal title to which is vested in another; it is a fiduciary
relationship concerning property which obliges the person
holding it to deal with the property for the benefit of another
Characteristics of a Trust:
1. It is a fiduciary relationship;
2. Created by law or agreement;
3. Where the legal title is held by one, and the equitable
title or beneficial title is held by another.

A co-ownership is a form of trust, with each other being a
trustee for each of the others. (Sotto v. Teves, G.R. No. L-
38010)

A trust is the right, enforceable in equity, to the beneficial
enjoyment of property the legal title to which is in another.
Trust is founded in equity and can never result from acts
violative of law.
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 the beneficiary.
A trustor may at the same time be also the beneficiary.
AGENCY TRUST
Essentially revocable; Essentially obligatory in its
terms and period, and can
only be rescinded based on
breach of trust;
Agent possesses property
under agency for and in the
behalf of the principal;
Trustee takes legal or naked
title of the subject matter of
trust;
Agent must act upon
instructions of the principal;
Trustee acts on his own
business discretion;
Agent enters into contract in
the name of the principal;
Trustee enters into contracts
in his own name;
Agent is generally not liable in
the transactions made in
behalf of the principal;
Trustee may be directly liable
as such.
Elements of trust:
1. The parties to the trust must be present;
2. There must be a trust property or a trust estate or a
subject matter of the trust.

The subject matter of a trust may be any property of value
real, personal, funds or money, or choices in action.
(Called a Trust Property)
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.
A trust will be presumed revocable unless the creator has
expressed a contrary intention in the trust deed.
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.

CHAPTER 2
Express Trusts
Express Trust a trust intentional in fact (Art. 1441)
Article 1443. No express trusts concerning an immovable
or any interest therein may be proved by parol evidence.
(Thus, dapat in writing jud to be enforceable; pero kung
movable property, pwede i-prove by parol evidence.)
The burden of proving the existence of a trust is on the
party alleging its existence. (Ramos v. Ramos, 61 SCRA
284)

Parol evidence to prove express trusts concerning an
immovable or any interest therein may be admitted by
waiver of the opposing party by failure to object the
presentation of 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.
The trustor must be capacitated to convey the property.

The trustee must be capacitated to hold the property and
to enter into contracts.

The beneficiary must be capacitated to receive
gratuitously from the trustor.
Kinds of Express Trust:
1. Charitable trust it is one created for charitable,
educational, social, religious, or scientific purposes or
for the general benefit of humanity;
2. Accumulation trust one that will accumulate income
to be reinvested by the trustee in the trust for the
period of time specified;
3. 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
spindrift;
4. Sprinkling trust one that gives the trustee the right to
determine the income beneficiaries who should
receive income each year and the amount thereof
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 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.
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 the trustee repudiates the trust and this is made known
to the party involved, the trustee may acquire the property
held in trust by prescription. (Bancairen v. Diones, 98 Phil.
122)

Laches does not apply in express trusts because the
beneficiary is entitled to rely upon the fidelity of the
trustee, unless the latter openly repudiates the trust and
the beneficiary is notified thereof.

In the absence of an express stipulation that the trust
estate and not the trustee shall be liable on the contract,
the trustee is liable in its individual capacity. (Tan Senguan
& Co. v. Phil. Trust Co., 58 Phil. 700) [But take note that in
order for a trustee to be liable as such, the trust must be
express.]

In order that a trustee may sue or be sued alone, 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. (PAL v.
Heald Lumber Co., 101 Phil. 1031)
Article 1445. No trust shall fail because the trustee
appointed declines the designation, unless the contrary
should appear in the instrument constituting the trust.
(Reason: The court can appoint another trustee. [Sec. 3, Rule
98, Rules of Court])
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.
Acceptance by the beneficiary 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 beneficiary need not be in a public instrument.
(Cristobal v. Gomez, 50 Phil. 810)
How trusts are ended:
1. Mutual agreement by all the parties;
2. Expiration of the term;
3. Fulfilment of the resolutory condition;
4. Rescission or annulment;
5. Loss of the subject matter of the trust;
6. Order of the court;
7. Merger;
8. Accomplishment of the purpose of the trust.

A testamentary trust for the administration and eventual
sale of certain properties of the testator ends not at the
time the trustees petition for 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)

CHAPTER 3
Implied Trusts
Implied Trusts those which, without being expressed, are
deducible from the nature of the transaction as matters of
intent, or which are superinduced on the transaction by
operation of law, as matters of equity, independently of the
particular intention of the parties
Two kinds of Implied Trust:
1. Resulting trust the law presumes that the parties
intended to create a trust based on the circumstances
and nature of the transaction (So naa gihapoy
intention.) [a trust intentional in law] This kind of trust
is based on the equitable doctrine that valuable
consideration and not legal title determines the
equitable title.
2. Constructive trust one created by law irrespective of
any intention to create a trust for the purpose of
promoting justice, frustrating fraud, or preventing
unjust enrichment. A constructive trust is not a trust in
a technical sense. It is substantially an appropriate
remedy against unjust enrichment.
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.
Distinctions between Express Trusts and Implied Trusts:
1. Express trusts are created by the intention of the
trustor or parties, while implied trusts come into being
by operation of law; (Thus, if the intention to establish
a trust is clear, it is express; if such intention is to be
taken from the circumstances or other matters
indicative of such intent, then it is implied.)
2. An express trust concerning an immovable property
or any interest therein cannot be proved by parol
evidence, while an implied trust concerning an
immovable property or any interest therein may be
proved by parol evidence;
3. In order that laches or acquisitive prescription may
bar an action to enforce an express trust, an express
repudiation made known to the beneficiary is
required, while laches constitutes a bar to actions to
enforce an implied trust even where there is no
repudiation, unless there is concealment of the fact
giving rise to the trust.
GENERAL RULE: Action for reconveyance based on express
trust or resulting implied trust is not subject to prescription.
EXCEPTION: When the trustee repudiates the express trust or
resulting implied trust.
Once a resulting trust is repudiated, it is converted into
constructive trust and is subject to prescription. (Olaco v.
Co Cho Chit, 220 SCRA 656)

The prescriptive period founded on adverse possession
(acquisitive prescription) begins from the notice of the
beneficiary of the repudiation of the trust by the trustee.

In constructive implied trusts, prescription may supervene
even if the trustee does not repudiate the trust because
such trustee does not recognize any trust. Therefore, the
prescriptive period begins from the moment the implied
trust is created by law. (Diaz v. Garricho, 103 Phil 244)
The trustee may claim title by acquisitive prescription where it
appears that:
1. He has performed open and unequivocal acts of
repudiation amounting to an ouster of the beneficiary
or the co-owners;
2. Such positive acts of repudiation have been made
known to the beneficiary or the other co-owners;
3. The evidence thereon should be clear and conclusive
or convincing; and
4. The period fixed by law has prescribed.

It is now well-settled that an action for reconveyance to
enforce an implied trust (constructive) in ones favour
prescribes in ten years. (Amerol v. Bagumbaran, 154
SCRA 396) Generally, the prescriptive period begins from
the moment the law creates the implied trust or the right of
action arises, that is, from the time the true owner
discovers that the legal title over the subject property is
illegally taken away from them, which discovery is deemed
to have taken place upon the registration or date of
issuance of the certificate of title over the property since
such registration or issuance operates as a constructive
notice to the whole world.
It has been held, however, that where the defendant acted
in bad faith in securing title over real property, he is not
entitled to the protection of the law for the law cannot be
used as a shield for frauds and the prescriptive period for
the filing of the action for reconveyance based on implied
trust must be reckoned from the actual discovery of the
fraud, that is, from the time the real owner discovered the
fraudulent registration or issuance.
The prescriptive period does not apply when the person
enforcing the constructive trust is in actual possession of
the property because the action for reconveyance is in
reality an action to quiet title which is imprescriptible.
(Caragay-Layno v. CA, 133 SCRA 718)

Generally, an action for reconveyance of real property
based exclusively on fraud prescribes in four years from
the discovery of fraud; such discovery is deemed to have
taken place upon the issuance of the certificate of title
over the property.

The only limitation upon the right of the beneficiary to
recover title over the 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.
(Bogayos v. Guilao, 64 Phil. 347)

Constructive trusts may be barred by laches if there is
undue neglect or delay on the part of the beneficiary to
assert his right, that if still allowed to do so would be
inequitable and unjust to the defendant.
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. (Resulting Trust)
It would seem that inasmuch as a presumption has been
made by law, the formalities of donation are not required,
for if the formalities are still complied with, there would be
no need for the presumption.
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. (Resulting 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 its is paid. The latter may redeem the property and
compel a conveyance thereof to him. (Constructive Trust)
No fiduciary relationship exists between the trustor and the
trustee in a constructive trust. (Carantes v. CA, 76 SCRA
514)

A trust receipt, as a contract, partakes of the nature of a
conditional sale the importer becoming the absolute owner
of the imported merchandise as soon as he has paid its
price; until the owner or the person who advanced
payment has been paid in full, or if the merchandise has
already been sold, the proceeds turned over to him, the
ownership continues to be vested in such person.
Trust receipt a security transaction intended to aid in
financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire
credit except thru utilization, as collateral, of the merchandise
imported or purchased
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. (Resulting Trust)
If a co-owner or co-heir possesses certain property owned
in common by him and others, he is under the same
situation as a trustee insofar as the shares of the other co-
owners are concerned. (Bargayo v. Camumot, 40 Phil.
857)

The registration of property in the name of one who hold in
a trust character does not extinguish the trust or destroy
the rights of the beneficiary. (Severino v. Severino, 44
Phil. 343)

One who acquires a Torrens Title in his own name to
property which he is administering for himself and his
brother and sisters as heirs from a common ancestor, and
in common descent, may be compelled to surrender to
each of his co-heirs his appropriate share; and a
proceeding for partition is an appropriate remedy by which
to enforce this right. (Castro v. Castro, 57 Phil. 675)
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. (Resulting Trust)
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.
(Resulting Trust) [Naay declaration diri, thus, he could not say
otherwise because of estoppel.]
Article 1453 would apply if the person conveying the
property did not expressly state that he was establishing
the trust. (Cuaycong v. Cuaycong, 21 SCRA 1192)
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. (Constructive Trust)
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. (Constructive Trust)
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. (Constructive
Trust)
Article 1457. An implied trust may be proved by oral
evidence.