NOTES ON TRUSTS

1. Definition:

It is a fiduciary relationship wherein legal ownership of a property is

vested in one party for the benefit of another party.

Example:

I buy a Condo unit in my name for the use and benefit of my brother.
In this case, I am the legal owner; my brother is the beneficial owner.
Hence, a trust is created and I am holding the property in trust for my
brother.

2. Parties to a Trust: (Art. 1440)

Trustor - The person who created the Trust

Trustee - The person who holds the legal ownership of the thing
Beneficiary - The person for whose benefit the Trust is created.

a. In the example in no. 1 above, I will be both the Trustor and the
Tustee, and my brother is the beneficiary.
b. Example where three different parties are involved:

Andy bought a Condo Unit putting the name of Bill as the Owner
but specifically instructing that it is for the use and benefit of
Charlie. In this case, Andy is the Trustor; Bill is the Trustee and
Charlie is the Beneficiary.

c. From the above examples, you can see that it is possible that one
person is both the Trustor and the Trustee; and another person is
the beneficiary.

3. Kinds of Trust: (Art. 1441)

a) Express Trust - Created by the intention of the Trustor or the parties

b) Implied Trust - Created by operation of law

4. Express Trust:

a. Created by the intention of the Trustor or the Parties;

b. If it involves an immovable property or any interest therein, it

cannot be proved by parol (oral) evidence. Hence, must be In
writing, to be enforceable. If involving personal property, it can be
 oral or in writing and can be proved by parol evidence. (Art.
1443).

c. No particular word is required for the creation of a Trust, it is the

intention of the parties to create a Trust that is important. (Art.
1444).

d. The Trust will not fail even if the Trustee declines the designation,
unless it is otherwise provided by the Trustor. (Art. 1445).

e. Acceptance by the Beneficiary is necessary. However, if the Trust

imposes no onerous condition, such acceptance by the Beneficiary
is presumed, if there is no proof to the contrary. (Art. 1446)

f. No Express Trust shall fail because the Trustee appointed declines

the designation unless the contrary appears in the instrument
constituting the Trust. (Art. 1445)

5. Implied Trust:

a. The doctrine of Implied Trust is founded on equity.

b. Created by operation of law;

c. Two (2) kinds of Implied Trust;

1. Resulting Trust or Bare or Passive Trust – here there is an

intent to create a Trust but it is not effective as an Express
Trust.

2. Constructive Trust – here there is no intention to create a Trust

is present, but a Trust is neverthelss created by law to prevent
unjust enrichment or oppression.

g. 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 beneficial interest of the property. The
former is the trustee, while the latter is the beneficiary. However,
if the person to whom title is conveyed is a child, legitimate or
illegitemate, 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. (Art. 1448). – RESULTING TRUST

Example:
 Al buys a piece of land from Bo. Al pays the price so that he
may have the beneficial interest in the land But the legal title was
given to Che. Che is the trustee and Al is the beneficiary. However,
if Che is the child of Al, implied trust is not presumed but a gift in
favor of the child is disputably presumed.

Note: If Al puts his Title in his name and for his enjoyment and
benefit, there is a Sale, not an implied trust.

h. 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. (Art. 1449). – RESULTING TRUST

Example:

Dan donated his car to Ely. The Registration Certificage was in

his name but the car is to be used by Fritz. Ely is the Trustee and
Fritz is the Beneficiary. The Trustor is Dan.

i. 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 mobney is
loaned or for whom it is paid. The latter may redeem the property
and compel a conveyance thereof to him when the debt is paid.
(Art. 1450) – RESULTING TRUST

Example:

Gil wants to buy a piece of land from Henry, but the former has
no money. So Gil asks Ian to pay for the land. Title was issued in
the name of Ian as security for Gil’s loan. There is an Implied Trust
with Ian as the Trustee and Gil as the Beneficiary. When Gil pays
his debt to Ian, the former can compel Ian to convey the land to
him.

j. When land passes by succession to any person and the latter

causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of rthe true
owner. (Art. 1451). – RESULTING TRUST
 Example:

Joe inherited a piece of land from his father, but he caused the
legal title to be put in the name of Kit. Here an implied trust is
established with Kit as the Trustee and Joe as the Beneficiary.

k. If two or more persons agree to purchase 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. (Art. 1452).- RESULTING TRUST

Example:

Larry and Mon agree to purchase a piece of land and title shall
be in the name of Larry. Larry is the Trustee and Mon is a
Beneficiary to the extent of one half of the property bought.

l. 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. (Art. 1453). – RESULTING TRUST

Example:

Nice bought from Orly a parcel of land and it was conveyed to

him on his statement or declaration that he would hold it in behalf
of Pat Here, Nice is the Trustee and Pat is the Beneficiary.

m. 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. (Art. 1454)
– CONSTRUCTIVE TRUST

Example:

Rey borrowed P100,000.00 from Sergs. To secure payment,

Rey signed a Deed of Absolute Sale of his car in favor of Sergs.
When Rey shall pay the obligation, he can demand from Sergs the
reconveyance to him of the car. Sergs here is the Trustee and Rey
is the Beneficiary.
n. When any trustee, guardian or any 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. (Art. 1455). – CONSTRUCTIVE TRUST

Example:

Tony is the trustee of funds belonging to Unalee. He used the

fund to buy a parcel of land in his name. In this case, Tony is the
Trustee while Unalee is the Beneficiary of the land bought by
Tony.

o. If property is acquired though mistake or fraud, the person

obtaining it is, by force of laww, considered a trustee of an implied
trust for the benefit of the person from whom the property comes.
(Art. 1456). – CONSTRUCTIVE TRUST

Example:

Vic was given a car by Win although it should have been given
to Xor. Win is considered as merely a Trustee of the car for the
Beneficiary, Xor.

p. An implied trust maybe proved by oral (parol) evidence. (Art.

1457).

1. Applies whether property is real or personal.

2. In express trust, if the property is an immovable property or an
interest therein, it cannot be proved by parol (oral) evidence.
(Art. 1443).