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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.

however. Trustor may establish a trust with him as a trustee or trustor. (2) settlor's intent to create a trust. in donation. The done must comply with the legal requirements in accepting donations It is not subject to the rules governing donations of real property. the legal title in the trustee. the right to enjoy the property). like a beneficiary. However. 1311 Both in donation and trust. (3) trust property. 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. without title. acceptance shall be presumed if it imposes no onerous condition upon the .e. A bailee. Moreover. 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 property subject to the equitable interest and legal title. ESSENTIAL ELEMENTS OF TRUST (1) a settlor or trust creator. acceptance must be made in the public instrument executing such donation or in a separate public instrument where in trust. (4) trustee who owns legal title. In such case. neither is an insurer of the property. with bailment. He cannot. 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. 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.. can trace the bailed property or its proceeds into the hands of third parties. and (5) beneficiaries who own equitable title (i. acceptance of the donee and beneficiary is necessary or essential. The beneficiary of a trust may demand performance of the obligation without having formally accepted the benefit of the trust in a public document. TRUST as distinguished from other relations TRUST VS. or at least a separation of legal title to. Both the trustee and the bailee control property which is not beneficially their own. upon mere acquiescence in the formation of the trust and acceptance under second paragraph of Art. be the sole trustee and the sole beneficiary of a single trust.

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

and c. IMPLIED TRUST . 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. (b) Living trust or inter vivos trust – one established effective during the owner’s life. 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. at the latest. by some writing. Express trusts are created by the intention of the trustor or of the parties.The trust property is owned by two persons at the same time. EXPRESS TRUST VS. Constructive trust – one imposed by law irrespective of and even contrary to the intention of the parties. The ownership of the trustee is a mere matter form rather substance. Trusts are either express or implied. 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. It is created by the direct and positive acts of the parties. deed. but an owner. b. It is usually included as part of the will and does not have a separate trust deed. It is designed to promote justice frustrate fraud and prevent unjust enrichment. it may be either: 1. either expressly or impliedly evincing an intention to create a trust ELEMENTS: a. An ascertainable trust res. Resulting trust – one which the intention to create a trust is presumed by law to exist from the transaction and facts of the case. EXPRESS TRUST – created by the intention of the trustor or of the parties. b. Implied trusts come into being by operation of law. ARTICLE 1441. they may be either: (a) Testamentary Trust – one which is to take effect upon the trustor’s death. The trustee is not a mere agent. will or by words. 2. IMPLIED TRUST – one which comes into being by operation of law. Sufficiently certain beneficiaries. CLASSIFICATION OF TRUST As to effectivity – from the viewpoint of whether they become effective after death of the trustor or during his life. This may either be: a. 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. A competent trustor and trustee. and nominal rather than real.

even if there is no the beneficiary is necessary in order repudiation. The creation of an express cannot be assumed from loose and vague declarations or circumstances capable of other interpretations. 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. laches may bar an action that laches or acquisitive prescription to enforce an implied trust. may bar an action to enforce an Exception. it being sufficient that a trust is clearly intended. otherwise prescribed. will. PROOF OF TRUST: General rule: trust whether express or implied may be proved by parol evidence. if there is concealment. No express trusts concerning an immovable or any interest therein may be proved by parol evidence. action must be made from the knowledge of the repudiation. by some writing. . the Code of Commerce. repudiation. EXCEPTION: ARTICLE 1443. within 10 years from knowledge of otherwise prescribed. No particular words are required for the creation of an express trust. it must be 10 years from the date of registration. An express trust over personal property or any interest therein. an implied trust.    May be waived. the Rules of Court and special laws are hereby adopted. As to prescription Action must be made within 10 years In resulting trust. whether the property subject to the trust is real or personal. insofar as they are not in conflict with this Code. Express Trusts – those trust voluntarily and intentionally. created by direct and positive act of the trustor. or oral declaration evincing an intention to create the trust.Express Implied As to creation Created by the intention of the parties Come into being by operation of law. The principles of the general law of trusts. 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. In constructive trust. deed. express trust ARTICLE 1442. ARTICLE 1444. may be proved by oral evidence. As to applicability of the Doctrine of Laches An express repudiation made known to In constructive trust.

4. Nevertheless.) Other Kinds: 1. religious. the court will appoint a trustee to fill the office that he declines. 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. It is one created for charitable. Accumulation trust – one that will accumulate income to be reinvested by the trustee in the trust for the period of time specified. KINDS OF TRUST 1. Testamentary Trust – one which is to take effect upon the trustor’s death. because of his inexperience or immaturity from his imprudent spending habits or simply because the beneficiary is spendthrift. EXCEPTION: if the trustee declines. 2. Spendthrift trust – one established when the beneficiary need to be protected.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. educational. Charitable trust – one designed for the benefit of a segment of the public or of the public in general. social. 3. the trustee will pay directly to the creditor for obligations of the beneficiary. if there is no proof to the contrary. Acceptance by the beneficiary is necessary. if the trust imposes no onerous condition upon the beneficiary. 179 N. Acceptance of a trustee a. 112 (1904). whatever is in that account will pass to a named beneficiary. NECESSITY OF ACCEPTANCE FOR THE CREATION AND VALIDITY OF A TRUST RELATIONSHIP 1. Living trust or Inter vivos trust . (The name is derived from Matter of Totten. No trust shall fail because the trustee appointed declines the designation. or for the general benefit of humanity. the case decided by the New York Court of Appeals which established the legality of this practice. the trust is ineffective if the trustor expressly provides that he would not entrust such to any other. 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. 5. . It is usually included as part of the will and does not have a separate trust deed. his acceptance shall be presumed. or scientific purpose. Totten trust . Under some circumstances. Consideration is not required to establish a trust. ARTICLE 1445.Y. Income will be paid to the beneficiary only when actually necessary. NOT NECESSARY to its existence and validity since if he declines.one established effective during the owner’s life. 2. unless the contrary should appear in the instrument constituting the trust. ARTICLE 1446.

c. Such positive acts of repudiation have been made known to the benficiary or the cestui que trust 3. 2. 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. the acceptance need not be in a public instrument. 8. Prescription. . However. ESSENTIAL to the creation and validity of a trust. 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. or otherwise compel restitution to the beneficiary. He has performed OPEN and UNEQUIVOCAL acts of repudiation 2.b. Acceptance of the beneficiary a. 4. with agreement of beneficiaries and on satisfaction of all legal liabilities growing out of the acceptance of the trust. b. such acceptance is presumed if there is no proof to the contrary and the trust does not impose any onerous condition upon the beneficiary. 3. provided its product or proceeds are capable of identification. REQUISITES OF EXPRESS TRUST TO CLAIM PRESCRIPTION 1. A trust will follow the property through all changes in its state and form. as when the trustor waived his rights in favor of the trustee or vice versa 9. 5. But a trustee’s 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. 7. Even if real property is involved. EXTINGUISHMENT OF EXPRESS TRUST 1. 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. 6. TRUST PURSUIT RULE Equity will pursue property that is wrongfully converted by the fiduciary. The evidence thereon should be clear and convincing and 4. Renunciation of a trust after its acceptance can only be by resignation or retirement with court approval or at least. 2. 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.

the intention as to which is to be found in the nature of their transaction. It is a trust not created by any words. It is a trust raised by implication of law and presumed always to have been contemplated by the parties. to hold. 1453 1450. 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. 1455. 1451. Examples Articles 1448. Resulting Constructive create trust The trust is created irrespective of or even contrary to the intentions of the parties to promote justice. but not expressed in the deed or instrument of conveyance. and the legal estate is granted to one party but the price is paid by another for . While implied trust may be proved by parol evidence. It does not arise by agreement or intention but by operation of law against one who. Resulting – a trust which is raised or created by the act or construction of law. are deducible from the nature of the transaction as matters of intention. The proof should be as fully convincing as if the acts giving rise to the trust obligation are proven by authentic document. either expressly or impliedly. or abuse of confidence obtains or holds the legal right to property which he ought not. i. duress. 1449. or which are superinduced on the transaction by operation of law as matters of equity. constructive trust arises. Constructive – trust raised by construction of law or arising by operation by law. 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. but the limitation laid down in article 1442 shall be applicable.e. in equity and good conscience. from the date of registration. 1452. ARTICLE 1447. 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. and should not be made to rest on loose. the evidence must be TRUSTWORTHY and RECEIVED by the courts with extreme caution. frustrate fraud and to prevent unjust enrichment. KINDS OF IMPLIED TRUST 1. independently of the particular intention of the parties. by fraud. without being express. 1454. 2. equivocal or indefinite declarations.CHAPTER 3 Implied Trusts – those which. There is an implied trust when property is sold. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust.

ARTICLE 1456. he nevertheless is either to have no beneficial interest or only a part thereof. a trust is established by implication of law for the benefit of the true owner. there is an implied trust in favor of the person whose benefit is contemplated. a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. ARTICLE 1453. However. 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. The former is the trustee. When property is conveyed to a person in reliance upon his declared intention to hold it for. no trust is implied by law. the person obtaining it is. or transfer it to another or the grantor. ARTICLE 1452. ARTICLE 1455. 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. a trust by virtue of law is established. ARTICLE 1451. it being disputably presumed that there is a gift in favor of the child. CONSTRUCTIVE TRUST ARTICLE 1450. of the one paying the price of the sale.the purpose of having the beneficial interest of the property. The latter may redeem the property and compel a conveyance thereof to him. 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. If property is acquired through mistake or fraud. a trust is established by operation of law in favor of the person to whom the funds belong. if the person to whom the title is conveyed is a child. while the latter is the beneficiary. 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. by force of law. If the fulfillment of the obligation is offered by the grantor when it becomes due. When land passes by succession to any person and he causes the legal title to be put in the name of another. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee. ARTICLE 1454. he may demand the reconveyance of the property to him. . aisa dc ARTICLE 1449. a trust is created by force of law in favor of the others in proportion to the interest of each. When any trustee. considered a trustee of an implied trust for the benefit of the person from whom the property comes. legitimate or illegitimate.

But. filing or entering. 3. Evidence thereon must be clear and positive. does not prescribe. 2. Trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust. 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. REQUISITES BEFORE PERIOD OF PRESCRIPTION MAY START IN REGARD TO AN ACTION BASED ON AN IMPLIED TRUST 1. 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. the discovery of fraud is deemed to have taken place at that time. Such positive acts of repudiation have been made know to the cestui que trust. 1391 applies only if fraud does not give rise to an implied trust. The 4 year prescriptive period under Art. 1390. An action for reconveyance of a parcel of land based on an implied or constructive trust prescribes in ten years. . An implied trust may be proved by oral evidence. this rule only applies only when the plaintiff or person enforcing trust is not in possession of the property. the right to seek reconveyance. Since such issuance operates as a constructive notice to the whole world. which in effect seeks to quiet title to property.PROOF OF IMPLIED TRUST ARTICLE 1457. and the action is to annul a voidable contract under Art.