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NOTE: The cestui que trust need not be named at the time the
trust is created. It is enough that the cestui que trust is sufficiently
Title V. - TRUSTS (n) certain or identifiable (Pineda, 2006).

CHAPTER 1
Trust v. Contract
GENERAL PROVISIONS
Trust Contract
always involves ownership, a legal obligation based on an
Art. 1440. A person who establishes a trust is called the trustor; embracing a set of rights and undertaking supported by a
one in whom confidence is reposed as regards property for the duties fiduciary in character, consideration by which
benefit of another person is known as the trustee; and the person which may be created by a obligation may or may not be
for whose benefit the trust has been created is referred to as the declaration WITHOUT a fiduciary in character.
beneficiary. consideration.

Trust v. Sale
Trust
Trust Sale
 A fiduciary relationship between one person having an An express trust is not seller obliges himself to
equitable ownership in a property and another owning perfected by mere consent, transfer ownership and
the legal title to such property, the equitable ownership but requires the actual deliver possession to the
of the former entitling him to the performance of certain delivery of the naked or legal buyer.
duties and the exercise of certain powers by the latter for title to the trustee for the
the benefit of the former. relationship to legally arise.
Trustee in an express trust Buyer takes full ownership of
Concept of trust (fideicommisso) only takes naked or legal title the subject matter for his sole
and for the benefit of another benefit.
 It is a fiduciary relationship created by agreement or by law
person, the beneficiary.
where the trustor of the property has the equitable title
Constituted merely as a Entered into for its own end,
while the legal title is vested in another (trustee). preparatory agreement, a the acquiring of title of the
Equitable title - refers to the enjoyment of the property. medium by which the trustee subject matter by the buyer
Equitable title is the benefits the buyer will get to use and is expected to pursue other
juridical acts for the benefit of
enjoy when he or she becomes the legal owner. Equitable
the beneficiary.
ownership is not “true ownership.”
 Trust is founded in equity and can never result from acts
Trust v. Lease
violative of law.
 Thus, no trust can result from a contract of Trust Lease
partnership formed for an illegal purpose. Naked title is transferred to Lessor retains naked title.
the trustee; full beneficial
Trustee is not an agent of the trust estate ownership is for the account
of the beneficiary.
 But he acts for himself in the administration of the trust
Essence of the contract is for Essence of the contract is the
estate, although subject to the terms of the trust and the law
the trustee to manage the enjoyment of the possession
of trusts. trust property as the legal title and use of the leased property
holder for benefit or interest
Exception: A trustee has been regarded as an agent of the of the beneficiary.
beneficiaries of the trust at least for certain purposes, such Benefits enjoyed by the Benefits enjoyed by the lessee
as for the purpose of imputing to the beneficiaries of the beneficiary are usually are only for a limited
trust notice given to the trustee. permanent nature. contracted period.

Parties in a trust:
Trust v. Donation
1. Trustor who establishes the trust
2. Trustee (fiduciary), the one in whom the confidence is Trust Donation
reposed as regards the property for the benefit of An existing legal relationship, There is a transfer of property
another person which involves the separation as well as the the disposition
3. Beneficiary (cestui que trust) is the person for whose of legal and equitable title of both legal and equitable
benefit the trust has been created (Pineda, 2006) ownership except in cases of
gifts in trust.

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The beneficiary of a trust may The donee must comply with Trustor as trustee or beneficiary
demand performance of the the legal requirements in
obligation without having accepting donations.  trustor may establish a trust with him, as the trustee or the
formally accepted the benefit beneficiary. He cannot, however, be the sole trustee and
of the trust in public the sole beneficiary of a single trust.
document, upon mere
Trust Property
acquiescence in the formation
of the trust and acceptance  subject matter of trust
 may be any property of value – real, personal, funds or
Trust v. Debt money, or choses in action.
 Must be existing. It must consist of property actually in
Trust Debt existence in which the trustor has a transferable interest
The beneficiary of a trust has A creditor has merely a or title although it may, as a rule, be any kind of
a beneficial interest in the personal claim against the transferable property either realty or personalty including
trust property debtor undivided, future, or contingent interest
There fiduciary relationship No fiduciary relationship
therein.
 But trust res cannot be a mere expectancy without right or
Trust v. Stipulation Pour Atrui interest or a mere interest in the performance of a contract
although such interest is in the nature of a property right.
Trust SPA
It can arise either by virtue of It can arise only by virtue of a Ownership by two persons at the same time
a contract or by legal contract and never by
provision operation of law  The trust property is owned by two persons at the same
Always a specific property, Could either be a specific time, the relation between the two owners being such that
whether real or personal, property or other things. one of them with legal title under an obligation to use his
including an undivided ownership for the benefit of the other.
interest therein as in co-
Ownership of trustee, a mere matter of form
ownership or choses in action
Either express or implied Always express and must be  His ownership, therefore, is a mere matter of form rather
accepted by the third person than of substance, and nominal rather than real. If we have
to regard the essence of the matter, a trustee is not an owner
Stipulation Pour Autrui.: a contract or provision in a contract at all, but a sort of an agent, upon whom the law has
that confers a benefit on a third-party beneficiary conferred the power and imposed the duty of administering
the property of another person
(1) there is a stipulation in favor of a third person;
(2) the stipulation is a part, not the whole, of the contract; Trustee, not mere agent
(3) the contracting parties clearly and deliberately  He is a person to whom the property of someone else is
conferred a favor to the third person the favor is not an fictitiously attributed by the law, to the extent that the rights
incidental benefit; and powers thus vested in a nominal owner shall be used by
(4) the favor is unconditional and uncompensated; him on behalf of the real owner.
(5) the third person communicated his or her acceptance of
the favor before its revocation; and Character of office of trustee.
(6) the contracting parties do not represent, or are not 1. As principal
authorized by, the third party.  trustee is not an agent of the trust estate or of the cestui que
trust, but he acts for HIMSELF in the administration of the
Trust v. Trust Receipt trust estate, although subject to the terms of the trust and
the law of trusts.
Trust Trust Receipt  He cannot act as an agent of the trust estate for the reason
The right to the beneficial A commercial document that it lacks juristic personality.
enjoyment of a property but which is connected to the 2. As agent
the legal title to which is importation of goods through
 trustee has been regarded as an agent of beneficiaries of the
vested in another letters of credit.
trust at least for certain purposes, such as for the purpose
Fiduciary enjoyment of a Involves a security
property transaction intended to aid in of imputing to the beneficiaries of the trust notice given to
financing importers and retail the trustee
dealers who not have 3. As fiduciary
sufficient funds or resources  trustee, like an executor or administrator, holds an office of
to finance the iportation trust. The duties of the latter are, however, fixed and/or
limited by law, whereas those of trustee of an express trust

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are, usually, governed by the intention of the trustor or of As to proof needed when immovable or interest therein is
the parties, if established by contract. involved
Cannot be proved by parol May be proved by oral
evidence evidence
Art. 1441. Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties. Implied Prescription
trusts come into being by operation of law. Property cannot be acquired Property can be acquired by
by prescription because the prescription (Pineda, 2006)
possession of the trustee is not
Classification of Trust adverse
1. As to Creation
a. Express trust - one which can come into existence
only by the execution of an intention to create it by Art. 1442. The principles of the general law of trusts, insofar as
the trustor or the parties; or they are not in conflict with this Code, the Code of Commerce, the
Rules of Court and special laws are hereby adopted.
Elements: (CoRB)
1. Competent trustor and trustee
2. Ascertainable trust Res
3. Sufficiently certain beneficiaries
CHAPTER 2
b. Implied trust – by operation of law
i. Resulting trust – one in which the EXPRESS TRUSTS
intention to create a trust is implied or
presumed in law
ii. Constructive trust – one imposed by law Art. 1443. No express trusts concerning an immovable or any
irrespective of, and even contrary to, any interest therein may be proved by parol evidence.
such intention for the purpose of
promoting justice, frustrating fraud, or
preventing unjust enrichment. Burden of proof

Note: Consideration is NOT required.  The proof must be clear and satisfactory and convincing.

2. As to Effectivity The Parol evidence rule

a. Testamentary trust - one which is to take effect  forbids any addition to or contradiction of the terms of a
upon the trustor’s death. written instrument by testimony or other evidence
b. trust inter vivos (sometimes called “living trust”) or purporting to show that, at or before the execution of the
one established effective during the owner’s life. parties' written agreement, other or different terms were
3. As to revocability agreed upon by the parties, varying the purport of the
a. Revocable written contract
b. Irrevocable
Failure to object to parol evidence
Presumption: revocable unless contrary appears
 the defense that express trusts cannot be proved by parol
Express Trust Implied Trust evidence may be waived, either by failure to interpose
As to Creation timely objections against the presentation of oral evidence
One created by the express One which is not created not admissible under the law or by cross-examining the
agreement of the parties, or expressly by the parties or by adverse party and his witnesses along the prohibited lines
by the trustor, but by operation
 To affect third persons, a trust concerning an immovable or
the intention of the trustor of
law, there being a law creating any interest therein must be embodied in a public
it instrument and registered in the Registry of Property
As to manner of creation  An express trust over personal property or any interest
Created by the direct and the It is merely deducible from therein, and an implied trust, whether the property subject
positive acts of the parties, by the to the trust is real or personal, may be proved by oral
some writing, deed or by nature of the transaction evidence.
words, either expressly or
impliedly, evincing an Kinds of Express Trust (CASS)
intention to create a trust 1) Charitable trust or 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
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purposes, or for the general benefit of humanity. A private Renunciation of a trust after its acceptance
trust is not for the good of the public in general or society as a
 Can only be by resignation or retirement with court
whole;
approval or at least, with agreement of beneficiaries and on
2) Accumulation trust or one that will accumulate income to be
satisfaction of all legal liabilities growing out of the
reinvested by the trustee in the trust for the period of time
acceptance of the trust.
specified;
3) Spendthrift trust or one established when the beneficiary
need to be protected, because of his inexperience or
Art. 1446. Acceptance by the beneficiary is necessary.
immaturity from his imprudent spending habits or simply
Nevertheless, if the trust imposes no onerous condition upon the
because the beneficiary is spendrift. Income will be paid to the
beneficiary, his acceptance shall be presumed, if there is no proof
beneficiary only when actually necessary. Under some
to the contrary.
circumstances, the trustee will pay directly the creditor for
obligations of the beneficiary; and
4) Sprinkling trust or one that gives the trustee the right to
NO ACCEPTANCE, NO TRUST CREATED: It is essential that the
determine the income beneficiaries who should receive
beneficiary accepts the trust. However, the acceptance in trust
income each year and the amount thereof. Income that is not
does not have follow the stringent requisites of acceptance of a
distributed in any given year is added to the corpus, as in an
donation—as this is not so provided. Even if the real property is
accumulation trust. It is a discretionary trust if it gives the
involved. Need not be in public instrument
trustee the discretion to pay or not to pay the income or
principal. When Acceptance Is Presumed
 If the granting of benefit is PURELY GRATUITOUS (no
onerous condition), the acceptance by the beneficiary is
Art. 1444. No particular words are required for the creation of an
presumed.
express trust, it being sufficient that a trust is clearly intended.

Exception: If there is proof that he really did NOT accept.

How an express trust is created?
1. By conveyance to the trustee by an act inter vivos or How Express Trusts Are ENDED (THE-MAD2-BRAMP)
mortis causa
1. Total loss of the object of trust
2. By admission of the trustee that he holds the property,
2. Happening of the resolutory condition, if one had been
only as trustee
imposed
When trustee may sue or be sued alone. 3. Expiration of agreed term
4. Mutual agreement of ALL parties
 In order that a trustee may sue or be sued alone, It is
5. Annulment or rescission of the trust
essential that his trust be an express trust
6. Decision of court declaring the trust terminated
7. Death or legal incapacity of the trustee when the trustor
intended no other person to administer the trust.
Art. 1445. No trust shall fail because the trustee appointed
8. Breach of trust
declines the designation, unless the contrary should appear in the
9. Revocation by the trustor when such power is reserved
instrument constituting the trust.
10. Merger of the rights of the trustor and the trustee
11. Accomplishment of the purpose of trust
12. Prescription
Effect if Trustee Declines
NOTE: A testamentary trust for the administration and eventual
 The trust ordinarily continues even if the trustee declines.
sale of certain properties of the testator ends not at the time the
 Reason — the court will appoint a new trustee, unless
trustee’s petition for the sale of the property is approved by the
otherwise provided for in the trust instrument.
court, but at the time said sale is actually made and the
 If there is no substitute, and the trustor did not provide that
proceeds thereof distributed to the proper recipients.
the trust will be rendered ineffective in case of the death,
resignation, removal or refusal of the designated trustee to
assume the responsibility, the court will appoint a new
trustee
Preference in the designation of trustee by the court:
 Between the mother and the uncle, the former is preferred
to the trustee of the proceeds of the insurance policy in the
absence of any showing that the former is incompetent
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CHAPTER 3
IMPLIED TRUSTS
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.
What is an implied trust?
 those which, without being express, 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.
 Not created voluntarily, but imposed by law or inferred
from the conduct of dealings of the parties
Kinds of Implied Trust
1. Resulting Trust –
 broadly defined as a trust which is raised or created by the
act or construction of law
 In its more restricted sense, 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.
 based on the equitable doctrine that valuable consideration
and not legal title determines the equitable title or interest
2. Constructive trust
 trust not created by any words, either expressly or
impliedly, evincing a direct intention to create a trust but by
the construction of equity in order to satisfy the demands
of justice and prevent unjust enrichment.
 If a person obtains legal title to property by fraud or
concealment, courts of equity will impress upon the title a
so called constructive trust in favor of the defrauded party.’’
 Not a trust in technical sense.
Enumeration of cases of implied trust not exclusive
 intended to be illustrative of situations in which implied
trust is needed in order to correct a wrong or prevent an
unjust enrichment.
May an implied trust be converted into an express trust?
 Yes, if the implied trustee recognizes the right of the owner
over the property
Acquisitive prescription as a mode of acquiring ownership:
GR: A trustee cannot acquire by prescription the ownership of
property entrusted to him
XPN: Provided the ff. requisites are present: (PACK)
1. The 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 known
to the ceatui que trust
3. The evidence thereon is clear and conclusive
4. The adverse possession of the trustee together with
other elements of prescription, must be at least 10 years
in the concept of an owner. It begins to run from the time
the beneficiary, or trustor gained knowledge of the
repudiation by the trustee
Acts which were held insufficient to constitute Repudiation:
1. A mere silent possession without acts amounting to ouster
2. Mere receipt of rents and profits by the trustee and the
building
3. Declaration of the property in the trustee’s name for
taxation purposes does not constitute acts of repudiation
Prescriptibility of action for reconveyance based on implied
trust
 Period of prescription - It is now well-settled that an action
for reconveyance to enforce an implied trust in one’s favor
prescribes in ten (10) years
 If based exclusively on fraud – four years from
discovery
 Where person claiming to be owner in actual possession of
property - The prescriptive rule applies only when the
plaintiff or the person enforcing the trust is not in
possession of the contested property
 When prescriptive period begins to run - The ten-year period
of prescription of an action for reconveyance of property
(real or personal) based on an implied trust starts from the
moment the law creates the trust (when the cause of action
arises) because the so-called trustee does not recognize any
trust, and has no intention to hold for the beneficiary
Reconveyance - available in case of registration of property
procured by fraud, thereby creating a constructive trust
between the parties
Where property in possession of third person
 The only limitation upon the right of the benefi ciary 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.
Laches in action to enforce a trust.
1. In case of express trusts - A cestui que trust is entitled
to rely upon the fidelity of the trustee. Laches applies
from the time the trustee openly denies or repudiates the
trust and the beneficiary is notified thereof, or is
otherwise plainly put on guard against the trustee. (54
Am. Jur. 558-559.) The repudiation of the trust must be
clearly proved by the trustee.
2. In case of implied trusts - It is well-established in
American law of trusts (expressly made applicable by
Art. 1442.) that implied trusts, as distinguished from
express trusts, may be barred not only by prescription
but also by laches.
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PRESCRIPTION LACHES
Effect of delay Fact of delay
Matter of time Question of inequity of
permitting a claim to be
enforced, this inequity being
founded on some change in the
condition of the property or
the relation of the parties
Statutory Not statutory
Applies at law Applies at equity
Based on a fixed time Not fixed time
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.
Sale to a party but price paid by another
 General rule. — A resulting trust arises in favor of a person
from whom a consideration comes for a conveyance of
property, whether realty or personalty, to another. The
presumption is that he who pays for a thing intends a
beneficial interest therein. (purchase money resulting
trust)
 Exceptions. — However, no trust is implied if the person to
whom the legal estate is conveyed is a child, legitimate or
illegitimate, of the payor, because it is presumed that a gift
or donation was intended in favor of the child. This
presumption of a gift is rebuttable by proof of a contrary
intention, and on such rebuttal, a resulting trust arises
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.
EXAMPLE:
Property is donated by A to B but only the legal title is transmitted
to B, the beneficial ownership of the whole property or a part
thereof being vested in C. Here, a trust is established by implication
of law with B as the trustee and C, the beneficiary.
Art. 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.
Purchase with borrowed funds
Trust in favor of lender - The general rule is that the use of
borrowed money in making a purchase does not raise a resulting
trust in favor of the lender, even where the money is loaned to
enable the borrower to purchase the property in question and the
borrower promises, but fails, to execute a mortgage on the
property after it is purchased to secure the loan. Nor does the use
of money given to one for the purchase of property raise a
resulting trust on the property in favor of the donor.
Trust in favor of borrower - When money is borrowed to purchase
property, and the conveyance is made, not to the borrower, but to
the lender who takes title to the property in his own name in order
to secure the loan, a resulting trust in the property, binding the
lender or payor (trustee) in favor of the borrower
(beneficiary), arises.
 An agreement between the parties whereby the property
purchased shall be considered sold to the trustee in case the
beneficiary fails to reimburse him is tantamount to a
pactum commissorium, which is expressly prohibited by
Article 2088 of the Civil Code for in such case there would
be automatic appropriation of the property by the trustee in
the event of failure of the beneficiary to pay the loan
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.
Legal title to land inherited by heir placed in name of another
 Where a person who has acquired land by inheritance
causes the legal title to be placed in the name of another, a
resulting trust is presumed in law in favor of the true owner,
the heir.
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.
Legal title to property purchased taken in one co-owner
Ex.
Uy Aloc v. Cho Jan Jing
19 Phil. 202
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FACTS: Some Chinese merchants bought a lot with a house on it so
that the same could be used as their clubhouse. The property was
registered under the name of only one of them. The registered
owner leased the property, collected rents therefor, and when
asked for an accounting, refused to so account on the ground that
he was the owner thereof.
HELD: He is a mere trustee, and is therefore obliged to render
proper accounting. The beneficiaries are all the members of the
club.
Presumption That Shares Are Equal
 The shares or interest of co-owners are presumed to be
equal.
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.
 trust established by virtue of this article is based on the
promise or representation of the grantee to hold the
property conveyed for, or transfer it to another or the
grantor. The grantee is estopped from asserting
ownership in himself by denying his representation as
against the person for whose benefit the implied trust is
created.
Example: Jose bought from Pedro a parcel of land and it was
conveyed to him (Jose) on Jose’s statement or declaration that he
would hold it in behalf of Carlos. Here, Jose is merely the trustee,
while Carlos is the beneficiary.
Art. 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.
Purchase of property with use of trust funds
 Resulting trust
 an agent is bound to return to the principal the property
acquired with the funds and at the instance of the principal.
He holds the property in trust for his employer or principal
who can bring an action to compel a conveyance to him
subject to the rights of an innocent purchaser for value.
This article applies to
1. any trustee
2. guardian
3. or other person holding a fiduciary relationship (Art.
1455) (like an agent; therefore, the acquisitions of the
agent inure to the benefit of his principal).
Example
An agent using his principal’s money purchases land in his own
name. He also registers it under his name. Here, he will be
considered only a trustee, and the principal is the beneficiary. The
principal can bring an action for conveyance of the property to
himself, so long as the rights of innocent third persons are not
adversely affected.

Art. 1456. If property is acquired through mistake or fraud, the

person obtaining it is, by force of law, considered a trustee of an
Art. 1454. If an absolute conveyance of property is made in order
implied trust for the benefit of the person from whom the property
to secure the performance of an obligation of the grantor toward
comes.
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  Constructive trust
may demand the reconveyance of the property to him.
Example:
 Ordinarily, the creditor will require the execution by the
Bella was given a car by Mina although it should have been given
debtor of a mortgage (see Art. 2124.) or a pledge (see Art.
to Erlinda. Bella is considered as merely the trustee of the car for
2093.) as security for the fulfillment of the latter’s
the benefit of Erlinda.
obligation. In this case, the mortgagee or pledgee does not
become a trustee. But if an absolute conveyance of property
is made instead in order to guarantee the performance of an
Art. 1457. An implied trust may be proved by oral evidence.
obligation of the grantor toward the grantee, an implied
trust is created by operation of law for the benefit of the
grantor.
Example:
Marlene was indebted to Susan. For the sole purpose of
guaranteeing her debt, Marlene sold her parcel of land to Susan.
Here, a trust has been created. If Marlene pays her debt when it
becomes due, Marlene may demand the resale of the property to
her.