DEFINITION OF TRUST

Trust is the legal relationship between one person having an equitable

ownership in property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties and
the exercise of certain powers by the latter.
It is a right, enforceable in equity, to the beneficial enjoyment of property the
legal title to which is in another. As it is founded in equity, it can never result from act
violative of law.

CHARACTERISTICS OF TRUST
1. It is a relationship;
2. It is a relationship of fiduciary character;
3. It is a relationship with respect to property, not one involving merely personal
duties;
4. It involves the existence of equitable duties, imposed upon the holder of the title
of the property to deal with it for the benefit of another;
5. It arises as a result of a manifestation of intention to create the relationship.

DISTINGUISHED FROM BAILMENT

A delivery of property in trust necessarily involves a transfer of legal title, or at
least a separation of equitable interest and legal title, with the legal title in the trustee,
whereas it is a characteristic of a bailment that the bailee has possession of, without
legal title to the property subject to the bailment.

DISTINGUISHED FROM DONATION

A trust is an existing legal relationship and involves the separation of legal and
equitable title, whereas a gift is a transfer of property and, except in the case of a gift in
trust, involves a disposition of both legal and equitable ownership.
A trust constituted between two contracting parties for the benefit of a third
person is not subject to the rules governing donations of real property. The beneficiary
of a trust may demand performance of the obligation without having formally accepted
the benefit of the trust in a public document, upon mere acquiescence in the formation
of the trust and acceptance under the second paragraph of Article 1311 of the Civil
Code.

DISTINGUISHED FROM CONTRACT

A trust always involves an ownership, embracing a set of rights and duties
fiduciary in character which may be created by a declaration without consideration,
whereas a contract is a legal obligation based on an undertaking supported by a
consideration, which obligation may or may not be fiduciary in character.

DISTINGUISHED FROM GUARDIANSHIP OR EXECUTORSHIP

In trust, the trustee or holder has the legal title to the property; a guardian,
administrator, or executor does not have legal title to the property.

DISTINGUISHED FROM STIPULATION POUR AUTRUI

A trust may exist because of a legal provision or because of an agreement; a
stipulation pour autrui can arise only in the case of contracts.
A trust refers to specific property; a stipulation pour autrui refers to specific
property or to other things.
DISTINGUISHED FROM AGENCY
A trust and an agency are distinguishable on the basis of the non-representative
role of the trustee and the representative role of the agent.

CO-OWNERSHIP AS A TRUST
A co-ownership is a form of a trust, with each co-owner being a trustee for each
of the others.

PARTIES TO A TRUST
1. Trustor or the person who creates or established the trust;
2. Trustee or the person who takes and holds the legal tile to the trust property, for
the benefit of another, with certain powers and subject to certain duties;
3. Beneficiary or cestui que trust or the person has an equitable interest in the
property and enjoys the benefit of the administration of the trust by the trustee

CHARACTER OF OFFICE OF TRUSTEE

1. As principal – The 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 estate, although
subject to the terms of the trust and law of trusts.
2. As agent – In some cases, however, a trustee has been regarded as an agent
of beneficiaries of the trust at least for certain purposes, such as for the purpose
of imputing to the beneficiaries of the trust notice given to the trustee.
3. As fiduciary – A trustee, like an executor or administrator, holds an office of trust.
The duties of the latter are, however, fixed and/or limited by law, whereas those
of trustee of an express trust are usually governed by the intention of the trustor
or of the parties, if established by contract.

CLASSIFICATION OF TRUST
From the viewpoint of whether it becomes effective after the death of the trustor or
during his life:
1. Testamentary trust
2. Trust inter vivos (sometimes called “living trusts”)
From the viewpoint of the creative force bringing it into existence:
1. Express trust – which can come into existence only by the manifestation of an
intention to create it by the one having legal and equitable dominion over the
property made subject to it;
2. Implied trust – which comes into existence either through implication of an
intention to create a trust as a matter of law or through the imposition of the trust
irrespective of and even contrary to any such intention; it may either be:
a. A resulting trust – which arises where a person makes or causes to be
made a disposition of property under circumstances which raise an
inference that he does not intend that the person taking or holding the
property should have the beneficial interest in the property; is founded
on the presumed intention of the parties; OR
b. A constructive trust – which is imposed where a person holding title to
property is subject to an equitable duty to convey it to another on the
ground that he would be unjustly enriched if he were permitted to retain
it; the duty to convey the property arises because it was acquired
through fraud, duress, undue influence, mistake, or through breach of a
fiduciary duty, or through the wrongful disposition of another’s property.

VALDEZ VS. OLARGA (51 SCRA 71)

It has been held in numerous decisions involving fiduciary relations such as
those occupied by a trustee with respect to the cestui que trust that as a general rule
the former’s possession is not adverse and therefore cannot ripen into a title by
prescription. Thus, adverse possession in such a case requires the concurrence of the
following circumstances:
1. That the trustee has performed unequivocal acts of repudiation amounting to
ouster of the cestui que trust;
2. That such positive acts of repudiation have been made known to the cestui que
trust; and
3. That the evidence thereon should be clear and conclusive.

EXPRESS TRUSTS

REQUISITES
There must be:
1. A competent trustor and trustee,
2. An ascertainable trust res, and
3. Sufficiently certain beneficiaries
Therefore:
1. The requirement that the express trust be written is only for enforceability, not
for validity between the parties; hence, Article 1443 may, by analogy, be
included under the Statute of Frauds;
2. By implication, for a trust over personal property, and oral agreement is valid
and enforceable between the parties;
3. Regarding third persons, the trust must be in public instrument registered in the
Registry of Property if it concerns real property.

CREATION
1. By conveyance to the trustee by an act inter vivos or mortis causa
2. By admission of the trustee that he holds the property only as a trustee
 There must be a clear intent to create a trust. Thus, no particular or technical words
are required.

CAPACITY
1. The trustor must be capacitated to convey property
2. The trustee must be capacitated to hold property and to enter into contract
3. The beneficiary must be capacitated to receive gratuitously from the trustor

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 he repudiates and this is made known to the party
involved, prescription is permitted)
Q: MAY A TRUSTEE OF A TRUST ESTATE BE PERSONALLY LIABLE?
A: In the absence of an express stipulation in a contract entered into by a trustee for a
corporation that the trust estate and not the trustee should be liable on the contract;
the trustee is liable in its individual capacity.

Q: WHEN MAY A TRUSTEE SUE AS SUCH?

A: Before a trustee may sue or be sued alone as such, it is essential that his trust be
express.
ACCEPTANCE, DECLINATION, OR RENUNCIATION BY THE TRUSTEE
In the case of an express trust, acceptance of trust by a trustee is necessary to
charge him with the office of the trustee and the administration of the trust and to vest
the legal title in him. However, his acceptance of the trust is not necessary to its
existence and validity, since if he declines the trust, the courts will appoint a trustee to
fill the office that he declines.
One designated or appointed as trustee may decline the responsibility and
thereby be free from any legal or equitable duty or liability in the matter. Unless a
contrary intention appears in the instrument constituting the trust, declination or refusal
or disqualification of a trustee does not operate to defeat or void the trust, nor does it
operate to vest legal as well as equitable title in the beneficiary.
Renunciation of a trust after its acceptance can only be by resignation or
retirement with court approval, with agreement of beneficiaries, and on satisfaction of
all legal liabilities growing out of the acceptance of the trust. When a person
administering property in the character of a trustee inconsistently assumes to be
holding in his own right, this operates as renunciation of the trust and the beneficiaries
of the property are entitled to maintain an action to declare their right and remove the
unfaithful trustee.

ACCEPTANCE OF TRUST BY THE BENEFICIARY

This is essential to the creation and validity of a trust.
Acceptance is presumed if the granting of benefit is purely gratuitous (no
onerous condition) EXCEPT if there is proof that he really did not accept.
Acceptance by the beneficiary of a gratuitous trust is not subject to the rules for
the formalities of donations.

TERMINATION
1. Mutual agreement of all the parties
2. Expiration of the term
3. Fulfillment of the resolutory condition
4. Rescission or annulment
5. Physical loss or legal impossibility of the subject matter of the trust
6. Order of the court
7. Merger
8. Accomplishment of the purpose of the trust

EFFECT OF LACHES
Cestui que trust is entitled to rely upon the fidelity of the trustee. Laches
applies from the trustee openly denies or repudiates the trust and the beneficiary is
notified thereof, or is otherwise plainly put on guard against the trustee. On the other
hand, when it does not appear when the trustee repudiated existence of the fiduciary
relation, the same shall be taken to have been made only upon the filing of his answer
to the complaint.

IMPLIED TRUST

CONCEPT
Implied trusts are those which, without being expressed, are deducible from the nature
of the transactions as matter of intent, or which are super induced on the transaction by
operation of law, is matters of equity, independently of the particular intention of the
parties. The doctrine of implied trusts is founded upon equity. As such, trust can never
result from acts violative of the law.

KINDS
1. Resulting trust – a trust whish is raised or created by the act or construction of law,
or in its more restricted sense, it is 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.
Examples are those found in Articles 1448 to 1455 of the NCC
2. Constructive trust – a trust raised by construction of law; in a more restricted sense
and as contra-distinguished from a resulting trust, it is a trust not created by words,
expressly or impliedly evincing a direct intention to create a trust by the construction
of equity in order to satisfy the demands of justice; it does not arise by agreement
or intention but by operation of law

Distinction between Express and Implied Trusts

Express Trust
Created by the intention (through direct
and positive acts) of the parties
Cannot be proved by parol evidence when it
concerns an immovable or any interest
therein
In order that laches or acquisitive
prescription may bar an action to enforce it,
an express repudiation made known to the
beneficiary is required
Implied Trust
Comes into being by operation of law
independent of the particular intention
of the parties
Can be proved by oral evidence when
it concerns an immovable or any
interest therein
Laches constitutes a bar to actions to
enforce it, unless there is concealment
of the fact giving rise to the trust

Q: WHEN IS AN IMPLIED TRUST CONVERTED TO EXPRESS TRUST ?

A: An implied trust may be converted to an express trust by the recognition by the
implied trustee of the right to the property of the owner.

ACQUISITION OF PROPERTY THROUGH PRESCRIPTION

By trustee:
1. The possession of a trustee is in law possession of the cestui que trust and,
therefore, it cannot be a good ground for title by prescription
2. No prescription shall run in favor of a co-owner against his co-owners or co-
heirs as long as he expressly or impliedly recognizes the co-ownership
3. Express trusts disable the trustee from acquiring for his own benefit the property
committed to his management or custody at least while he does not openly
repudiate the trust and makes such repudiation known to the beneficiary
4. Trustee may claim title by prescription founded on adverse possession where it
appears that:
a. He has performed open and unequivocal acts of repudiation amounting
to an ouster of the cestui que trust
b. Such positive acts of repudiation have been made known to the cestui
que trust
c. The evidence thereon should be clear and conclusive; and
d. The period fixed by law has prescribed (the period commences to run
from and after said repudiation and the knowledge thereof by the cestui
que trust.
By third persons:
Though the statute of limitations does not run between trustee cestui que trust
as long as the trust relation subsists, it does not run between the trust and third
persons. Thus, a third person who holds actual, open, public, and continuous
possession of a land adversely to the trust, acquires title to the land by prescription as
against such trust.

PRESCRIPTIBILITY OF ACTION FOR RECONVEYANCE BASED ON IMPLIED TRUST

1. An action for reconveyance of property (real or personal) to enforce an implied
trust in one’s favor prescribed in ten (10) years from the time the right of action
 2. Accrues (the action being based upon an obligation created by law), that is,
from the moment the law creates the trust because the so-called trustee does
not recognize any trust and has no intention to hold for the beneficiary.
 Some doctrines:
Where the action for conveyance of real property is based on
constructive trust resulting from its fraudulent registration in the name of
another (see Article 1456), the action may be filed from the discovery of the
fraud or notice thereof, which is deemed to have taken place from the
inscription of the instrument and/or issuance of the new certificate of title by
virtue thereof. The issuance of said certificate of title constitutes
constructive notice to the public.
In another case, however, where the ownership of the land was sold
fictitiously to avoid a foreclosure of mortgage, it was ruled that the ten-year
prescriptive period should be counted not from the registration of the
simulated sale, but from the date of recording of the release of the
mortgage, on which date the cestui que trust was charged with the
knowledge of the settlement of the mortgage obligation, the attainment of
the purpose for which the trust was created. But if the legitimate owner of
the subject property, which was fraudulently registered in the name of
another, had always been in possession thereof, the constructive notice rule
cannot be applied. The action for reconveyance is in reality an action to
quiet title; therefore, the action is imprescriptible.
3. But where the rights of the beneficiary are recognized by the trustee, the ten-
year prescriptive period commences to run from the time the trustee begins to
assert his title or to hold adversely, as when the trustee files an ejectment suit
against the beneficiary, or when he registers the deed of assignment of property
to him and secures the cancellation of the certificate of title in the name of the
former owner and the issuance of new certificate of title in his own name, or
when he sells portions of the property.
Continuous recognition of a resulting trust precludes any defense of
prescription or laches in a suit to declare and enforce the trust.
4. When a person through fraud succeeds in registering a land in his name, the
law creates a constructive trust in favor of the defrauded party. (See Article
1456).
5. The latter is granted the right to recover the property fraudulently registered
within a period of ten years. In the computation of time necessary for
prescription, the present possessor may complete the period necessary for
prescription by tacking his possession to that of his grantor. This rule, however,
applies only where there is privity between successive possessors.
But according to Paras, citing two 1950’s cases, the action should be
filed within four (4) years from the discovery of the fraud.
6. 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.

EFFECT OF LACHES
Implied trust may be barred not only by prescription but also by laches. Laches
constitutes a defense to a suit to declare and enforce an implied trust, and for the
purpose of the rule, express repudiation is not required, unless the trustee fraudulently
and successfully conceals the facts giving rise to the trust.
Inasmuch as the trustee in an implied trust does not recognize any trust and has
no intent to hold for the beneficiary, the latter is not justified in delaying the action to
recover his property. It is his fault if he delays. The doctrine of laches, however, is less
strictly applied between near relatives than when the parties are strangers to each
other.

GENERAL RULE UNDER ARTICLE 1448

 A resulting trust arises in favor of a person from whom a consideration comes
for a reconveyance of property (real or personal) to another, but the trust is rebuttable
by proof of a contrary intention of the persons from whom the consideration comes,
and such proof may be by parol evidence. The trust results only in favor of one
advancing the consideration, and not in favor of one for whose benefit the purchase
may have been made.

EXCEPTIONS
1. No trust is implied if the person to whom the legal estate is conveyed is a
legitimate or illegitimate child of the payor. The reason is there is a presumption
that a gift or donation was intended in favor of the child.
2. When an actual contrary intention is proved.

 Articles 1448, 1449, 1451 and 1453 are resulting trusts.

 Articles 1450, 1454, 1455 and 1456 are constructive trusts.
 Article 1455
The general rule is that where trust money cannot be applied either
immediately or within a short time to the purpose of the trust, it is the duty of the
trustee to make the fund productive to the beneficiary by investment of it in some
proper security. But trustees must not make investment of funds in their own
names but always indicate that they are made in trust capacities.
This article applies to any trustee, guardian, or other person holding a
fiduciary relationship.
 Article 1456
The mistake referred to in this article is a mistake made by a third person,
not that made by a party to the contract. For if made by a party, no trust is created.
Similarly, the fraud referred to is extra-contractual.