TRUST

Title V. - TRUSTS (n) Parties in a trust:

CHAPTER 1 GENERAL PROVISIONS 1. Trustor who establishes the trust

Art. 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.
Trust  A fiduciary relationship between one
person having an equitable ownership in a
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 the exercise of certain
powers by the latter for the benefit of the
former.
2. Trustee (fiduciary), the one in whom the
confidence is reposed as regards the property
for the benefit of another person
3. Beneficiary (cestui que trust) is the person
for whose benefit the trust has been created
(Pineda, 2006)
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 certain or
identifiable (Pineda, 2006).
Trust v. Contract

Concept of trust (fideicommisso)  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).

Equitable title - refers to the enjoyment of the

property. Equitable title is the benefits the
buyer will get to use and enjoy when he or she
becomes the legal owner. Equitable ownership
is not “true ownership.” 

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.

Trustee is not an agent of the trust estate  But

he acts for himself in the administration of the
trust estate, although subject to the terms of
the trust and the law of trusts.

Exception: A trustee has been regarded as an

agent of the 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.
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Stipulation Pour Autrui.: a contract or provision
in a contract that confers a benefit on a third-
party beneficiary

(1) there is a stipulation in favor of a third

person;

(2) the stipulation is a part, not the whole, of

the contract;

(3) the contracting parties clearly and

deliberately conferred a favor to the third
person the favor is not an incidental benefit;

(4) the favor is unconditional and

uncompensated;

(5) the third person communicated his or her

acceptance of the favor before its revocation;
and

(6) the contracting parties do not represent, or

are not authorized by, the third party.

Trustor as trustee or beneficiary

 trustor may establish a trust with him, as the

trustee or the beneficiary. He cannot, however,
be the sole trustee and the sole beneficiary of a
single trust.

Trust Property

 subject matter of trust

 may be any property of value

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– real, personal, funds or money, or choses in
action.
 Must be existing. It must consist of property
actually in existence in which the trustor has a
transferable interest or title although it may, as
a rule, be any kind of transferable property
either realty or personalty including undivided,
future, or contingent interest therein.
 But trust res cannot be a mere expectancy
without right or interest or a mere interest in
the performance of a contract although such
interest is in the nature of a property right.
Ownership by two persons at the same time
 The trust property is owned by two persons
at the same time, the relation between the two
owners being such that one of them with legal
title under an obligation to use his ownership
for the benefit of the other.
Ownership of trustee, a mere matter of form
 His ownership, therefore, is a mere matter of
form rather than of substance, and nominal
rather than real. If we have to regard the
essence of the matter, a trustee is not an owner
at all, but a sort of an agent, upon whom the
law has conferred the power and imposed the
duty of administering the property of another
person
Trustee, not mere agent
 He is a person to whom the property of
someone else is fictitiously attributed by the
law, to the extent that the rights and powers
thus vested in a nominal owner shall be used by
him on behalf of the real owner.
Character of office of trustee.
1. As principal  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 the law of trusts.
 He cannot act as an agent of the trust
estate for the reason that it lacks juristic
personality.
2. As agent  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  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.
Art. 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.
Classification of Trust
1. As to Creation
a. Express trust - one which can come into
existence only by the execution of an intention
to create it by the trustor or the parties; or
Elements: (CoRB)
1. Competent trustor and trustee
2. Ascertainable trust Res
3. Sufficiently certain beneficiaries
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b. Implied trust – by operation of law
i. Resulting trust – one in which the
intention to create a trust is implied or
presumed in law
ii. Constructive trust – one imposed by
law irrespective of, and even contrary
to, any such intention for the purpose
of promoting justice, frustrating fraud,
or preventing unjust enrichment.
Note: Consideration is NOT required.
2. As to Effectivity
a. Testamentary trust - one which is to take
effect upon the trustor’s death.
b. trust inter vivos (sometimes called “living
trust”) or one established effective during the
owner’s life.
3. As to revocability
a. Revocable
b. Irrevocable
Presumption: revocable unless contrary appears
Art. 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
Art. 1443. No express trusts concerning an
immovable or any interest therein may be
proved by parol evidence. Burden of proof 
The proof must be clear and satisfactory and
convincing.
The Parol evidence rule  forbids any addition
to or contradiction of the terms of a written
instrument by testimony or other evidence
purporting to show that, at or before the
execution of the parties' written agreement,
other or different terms were agreed upon by
the parties, varying the purport of the written
contract
Failure to object to parol evidence  the
defense that express trusts cannot be proved by
parol evidence may be waived, either by failure
to interpose timely objections against the
presentation of oral evidence not admissible
under the law or by cross-examining the
adverse party and his witnesses along the
prohibited lines
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 To affect third persons, a trust concerning an
immovable or any interest therein must be
embodied in a public instrument and registered
in the Registry of Property
 An express trust over personal property or
any interest therein, and an implied trust,
whether the property subject to the trust is real
or personal, may be proved by oral evidence.
Kinds of Express Trust (CASS)
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 purposes, or for the general benefit of
humanity. A private trust is not for the good of
the public in general or society as a whole;
2) Accumulation trust or one that will
accumulate income to be reinvested by the
trustee in the trust for the period of time
specified;
3) Spendthrift trust or 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 spendrift. Income will be paid to
the beneficiary only when actually necessary.
Under some 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 determine the income beneficiaries
who should receive income each year and the
amount thereof. Income that is not distributed
in any given year is added to the corpus, as in an
accumulation trust. It is a discretionary trust if it
gives the trustee the discretion to pay or not to
pay the income or principal.
Art. 1444. No particular words are required for
the creation of an express trust, it being
sufficient that a trust is clearly intended.
How an express trust is created?
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 trustee
When trustee may sue or be sued alone.
 In order that a trustee may sue or be sued
alone, It is essential that his trust be an express
trust
Art. 1445. No trust shall fail because the trustee
appointed declines the designation, unless the
contrary should appear in the instrument
constituting the trust.
Effect if Trustee Declines
 The trust ordinarily continues even if the
trustee declines.
 Reason — the court will appoint a new
trustee, unless otherwise provided for in the
trust instrument.
 If there is no substitute, and the trustor did
not provide that 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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Renunciation of a trust after its acceptance
 Can only be by resignation or retirement with
court approval or at least, with agreement of
beneficiaries and on satisfaction of all legal
liabilities growing out of the acceptance of the
trust.
Art. 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.
NO ACCEPTANCE, NO TRUST CREATED: It is
essential that the beneficiary accepts the trust.
However, the acceptance in trust does not have
follow the stringent requisites of acceptance of
a donation—as this is not so provided. Even if
the real property is involved. Need not be in
public instrument
When Acceptance Is Presumed  If the
granting of benefit is PURELY GRATUITOUS (no
onerous condition), the acceptance by the
beneficiary is presumed.
Exception: If there is proof that he really did
NOT accept.
How Express Trusts Are ENDED (THE-MAD2-
BRAMP)
1. Total loss of the object of trust
2. Happening of the resolutory condition, if one
had been imposed
3. Expiration of agreed term
4. Mutual agreement of ALL parties
5. Annulment or rescission of the 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.
8. Breach of trust
9. Revocation by the trustor when such power is
reserved
10. Merger of the rights of the trustor and the
trustee
11. Accomplishment of the purpose of trust
12. Prescription
NOTE: A testamentary trust for the
administration and eventual sale of certain
properties of the testator ends not at the time
the trustee’s petition for the 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.
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
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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
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 If based exclusively on fraud – four trusts, as distinguished from express trusts, may
years from discovery be barred not only by prescription but also by
laches.
 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.
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

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
 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
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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.
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.

Trust in favor of borrower - When money is

borrowed to purchase property, and the
conveyance is made, not to the borrower, but
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Legal title to property purchased taken in one
co-owner
Ex. Uy Aloc v. Cho Jan Jing 19 Phil. 202
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. 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.
 Ordinarily, the creditor will require the
execution by the debtor of a mortgage (see Art.
2124.) or a pledge (see Art. 2093.) as security
for the fulfillment of the latter’s 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
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.
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
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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 implied
trust for the benefit of the person from whom
the property comes.

 Constructive trust

Example: Bella was given a car by Mina

although it should have been given to Erlinda.
Bella is considered as merely the trustee of the
car for the benefit of Erlinda.

Art. 1457. An implied trust may be proved by

oral evidence