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TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

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 o! the !or"er entitling hi" to the per!or"ance o! certain duties and the e#ercise o! certain powers by the latter$ It is a right en!orceable in equity to the bene!icial en%oy"ent o! property the legal title to which is in another$ As it is !ounded in equity it can never result !ro" act violative o! law$ CHARACTERISTICS OF TRUST 1$ It is a relationship& '$ It is a relationship o! !iduciary character& ($ It is a relationship with respect to property not one involving "erely personal duties& )$ It involves the e#istence o! equitable duties i"posed upon the holder o! the title o! the property to deal with it !or the bene!it o! another& *$ It arises as a result o! a "ani!estation o! intention to create the relationship$ DISTINGUISHED FROM BAILMENT A delivery o! property in trust necessarily involves a trans!er o! legal title or at least a separation o! equitable interest and legal title with the legal title in the trustee whereas it is a characteristic o! a bail"ent that the bailee has possession o! without legal title to the property sub%ect to the bail"ent$ DISTINGUISHED FROM DONATION A trust is an e#isting legal relationship and involves the separation o! legal and equitable title whereas a gi!t is a trans!er o! property and e#cept in the case o! a gi!t in trust involves a disposition o! both legal and equitable ownership$ A trust constituted between two contracting parties !or the bene!it o! a third person is not sub%ect to the rules governing donations o! real property$ The bene!iciary o! a trust "ay de"and per!or"ance o! the obligation without having !or"ally accepted the bene!it o! the trust in a public docu"ent upon "ere acquiescence in the !or"ation o! the trust and acceptance under the second paragraph o! Article 1(11 o! the +ivil +ode$ DISTINGUISHED FROM CONTRACT A trust always involves an ownership e"bracing a set o! rights and duties !iduciary in character which "ay be created by a declaration without consideration whereas a contract is a legal obligation based on an underta,ing supported by a consideration which obligation "ay or "ay not be !iduciary in character$ DISTINGUISHED FROM GUARDIANSHIP OR EXECUTORSHIP In trust the trustee or holder has the legal title to the property& a guardian ad"inistrator or e#ecutor does not have legal title to the property$ DISTINGUISHED FROM STIPULATION POUR AUTRUI A trust "ay e#ist because o! a legal provision or because o! an agree"ent& a stipulation pour autrui can arise only in the case o! contracts$ A trust re!ers to speci!ic property& a stipulation pour autrui re!ers to speci!ic property or to other things$

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TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

DISTINGUISHED FROM AGENCY A trust and an agency are distinguishable on the basis o! the non-representative role o! the trustee and the representative role o! the agent$ CO-OWNERSHIP AS A TRUST A co-ownership is a !or" o! a trust with each co-owner being a trustee !or each o! the others$ PARTIES TO A TRUST 1$ Trustor or the person who creates or established the trust& '$ Trustee or the person who ta,es and holds the legal tile to the trust property !or the bene!it o! another with certain powers and sub%ect to certain duties& ($ .ene!iciary or cestui que trust or the person has an equitable interest in the property and en%oys the bene!it o! the ad"inistration o! the trust by the trustee CHARACTER OF OFFICE OF TRUSTEE 1$ As principal / The trustee is not an agent o! the trust estate or o! the cestui que trust, but he acts !or hi"sel! in the ad"inistration o! the trust estate although sub%ect to the ter"s o! the trust and law o! trusts$ '$ As agent / In so"e cases however a trustee has been regarded as an agent o! bene!iciaries o! the trust at least !or certain purposes such as !or the purpose o! i"puting to the bene!iciaries o! the trust notice given to the trustee$ ($ As !iduciary / A trustee li,e an e#ecutor or ad"inistrator holds an o!!ice o! trust$ The duties o! the latter are however !i#ed and0or li"ited by law whereas those o! trustee o! an e#press trust are usually governed by the intention o! the trustor or o! the parties i! 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$ Testa"entary trust '$ Trust inter vivos 1so"eti"es called 2living trusts34 From the viewpoint of the creative force bringing it into existence: 1$ E#press trust / which can co"e into e#istence only by the "ani!estation o! an intention to create it by the one having legal and equitable do"inion over the property "ade sub%ect to it& '$ I"plied trust / which co"es into e#istence either through i"plication o! an intention to create a trust as a "atter o! law or through the i"position o! the trust irrespective o! and even contrary to any such intention& it "ay either be5 a$ A resulting trust / which arises where a person "a,es or causes to be "ade a disposition o! property under circu"stances which raise an in!erence that he does not intend that the person ta,ing or holding the property should have the bene!icial interest in the property& is !ounded on the presu"ed intention o! the parties& OR b$ A constructive trust / which is i"posed where a person holding title to property is sub%ect to an equitable duty to convey it to another on the ground that he would be un%ustly enriched i! he were per"itted to retain it& the duty to convey the property arises because it was acquired through !raud duress undue in!luence "ista,e or through breach o! a !iduciary duty or through the wrong!ul disposition o! another6s property$ VALDEZ VS. OLARGA (51 SCRA 1!

TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

It has been held in nu"erous decisions involving !iduciary relations such as those occupied by a trustee with respect to the cestui que trust that as a general rule the !or"er6s possession is not adverse and there!ore cannot ripen into a title by prescription$ Thus adverse possession in such a case requires the concurrence o! the !ollowing circu"stances5 1$ That the trustee has per!or"ed unequivocal acts o! repudiation a"ounting to ouster o! the cestui que trust& '$ That such positive acts o! repudiation have been "ade ,nown to the cestui que trust& and ($ That the evidence thereon should be clear and conclusive$ EXPRESS TRUSTS RE"UISITES There "ust be5 1$ A co"petent trustor and trustee '$ An ascertainable trust res and ($ 7u!!iciently certain bene!iciaries There!ore5 1$ The require"ent that the e#press trust be written is only for enforceability not !or validity between the parties& hence Article 1))( "ay by analogy be included under the 7tatute o! 8rauds& '$ .y i"plication !or a trust over personal property and oral agree"ent is valid and en!orceable between the parties& ($ Regarding third persons the trust "ust be in public instru"ent registered in the Registry o! 9roperty i! it concerns real property. CREATION 1$ .y conveyance to the trustee by an act inter vivos or mortis causa '$ .y ad"ission o! the trustee that he holds the property only as a trustee There "ust be a clear intent to create a trust$ Thus no particular or technical words are required$ CAPACITY 1$ The trustor "ust be capacitated to convey property '$ The trustee "ust be capacitated to hold property and to enter into contract ($ The bene!iciary "ust be capacitated to receive gratuitously !ro" the trustor ADMINISTRATION OF THE TRUST 1$ The trustee "ust !ile a bond '$ The trustee "ust "a,e an inventory o! the real and personal property in trust ($ The trustee "ust "anage and dispose o! the estate and !aith!ully discharge his trust in relation thereto according to law or according to the ter"s o! the trust instru"ent as long as they are legal and possible )$ The trustee "ust render a true and clear account *$ The trustee cannot acquire the property held in trust by prescription as long as the trust is ad"itted 1i! he repudiates and this is "ade ,nown to the party involved prescription is per"itted4 "# MAY A TRUSTEE OF A TRUST ESTATE BE PERSONALLY LIABLE$

TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

A5 In the absence o! an e#press stipulation in a contract entered into by a trustee !or a corporation that the trust estate and not the trustee should be liable on the contract& the trustee is liable in its individual capacity$ "# WHEN MAY A TRUSTEE SUE AS SUCH$ A5 .e!ore a trustee "ay sue or be sued alone as such it is essential that his trust be e#press$ ACCEPTANCE % DECLINATION% OR RENUNCIATION BY THE TRUSTEE In the case o! an e#press trust acceptance o! trust by a trustee is necessary to charge hi" with the o!!ice o! the trustee and the ad"inistration o! the trust and to vest the legal title in hi"$ :owever his acceptance o! the trust is not necessary to its e#istence and validity since i! he declines the trust the courts will appoint a trustee to !ill the o!!ice that he declines$ One designated or appointed as trustee "ay decline the responsibility and thereby be !ree !ro" any legal or equitable duty or liability in the "atter$ ;nless a contrary intention appears in the instru"ent constituting the trust declination or re!usal or disquali!ication o! a trustee does not operate to de!eat or void the trust nor does it operate to vest legal as well as equitable title in the bene!iciary$ Renunciation o! a trust a!ter its acceptance can only be by resignation or retire"ent with court approval with agree"ent o! bene!iciaries and on satis!action o! all legal liabilities growing out o! the acceptance o! the trust$ <hen a person ad"inistering property in the character o! a trustee inconsistently assu"es to be holding in his own right this operates as renunciation o! the trust and the bene!iciaries o! the property are entitled to "aintain an action to declare their right and re"ove the un!aith!ul trustee$ ACCEPTANCE OF TRUST BY THE BENEFICIARY This is essential to the creation and validity o! a trust$ Acceptance is presu"ed i! the granting o! bene!it is purely gratuitous 1no onerous condition4 EXCE ! i! there is proo! that he really did not accept$ Acceptance by the bene!iciary o! a gratuitous trust is not sub%ect to the rules !or the !or"alities o! donations$ TERMINATION 1$ Mutual agree"ent o! all the parties '$ E#piration o! the ter" ($ 8ul!ill"ent o! the resolutory condition )$ Rescission or annul"ent *$ 9hysical loss or legal i"possibility o! the sub%ect "atter o! the trust =$ Order o! the court >$ Merger ?$ Acco"plish"ent o! the purpose o! the trust EFFECT OF LACHES Cestui que trust is entitled to rely upon the !idelity o! the trustee$ @aches applies !ro" the trustee openly denies or repudiates the trust and the bene!iciary is noti!ied thereo! or is otherwise plainly put on guard against the trustee$ On the other hand when it does not appear when the trustee repudiated e#istence o! the !iduciary relation the sa"e shall be ta,en to have been "ade only upon the !iling o! his answer to the co"plaint$ IMPLIED TRUST

TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

CONCEPT I"plied trusts are those which without being e#pressed are deducible !ro" the nature o! the transactions as "atter o! intent or which are super induced on the transaction by operation o! law is "atters o! equity independently o! the particular intention o! the parties$ The doctrine o! i"plied trusts is !ounded upon equity$ As such trust can never result !ro" acts violative o! the law$ &INDS 1$ Resulting trust / a trust whish is raised or created by the act or construction o! law or in its "ore restricted sense it is raised by i"plication o! law and presu"ed always to have been conte"plated by the parties the intention as to which is to be !ound in the nature o! their transaction but not e#pressed in the deed or instru"ent o! conveyance$ E#a"ples are those !ound in Articles 1))? to 1)** o! the A++ '$ +onstructive trust / a trust raised by construction o! law& in a "ore restricted sense and as contra-distinguished !ro" a resulting trust it is a trust not created by words e#pressly or i"pliedly evincing a direct intention to create a trust by the construction o! equity in order to satis!y the de"ands o! %ustice& it does not arise by agree"ent or intention but by operation o! law DISTINCTION BETWEEN EXPRESS AND IMPLIED TRUSTS E#press Trust +reated by the intention 1through direct and positive acts4 o! the parties +annot be proved by parol evidence when it concerns an i""ovable or any interest therein In order that laches or acquisitive prescription "ay bar an action to en!orce it an e#press repudiation "ade ,nown to the bene!iciary is required I"plied Trust +o"es into being by operation o! law independent o! the particular intention o! the parties +an be proved by oral evidence when it concerns an i""ovable or any interest therein @aches constitutes a bar to actions to en!orce it unless there is conceal"ent o! the !act giving rise to the trust

"# WHEN IS AN IMPLIED TRUST CONVERTED TO EXPRESS TRUST $ A5 An i"plied trust "ay be converted to an e#press trust by the recognition by the i"plied trustee o! the right to the property o! the owner$ AC"UISITION OF PROPERTY THROUGH PRESCRIPTION "y trustee: 1$ The possession o! a trustee is in law possession o! the cestui que trust and there!ore it cannot be a good ground !or title by prescription '$ Ao prescription shall run in !avor o! a co-owner against his co-owners or coheirs as long as he e#pressly or i"pliedly recogniBes the co-ownership ($ E#press trusts disable the trustee !ro" acquiring !or his own bene!it the property co""itted to his "anage"ent or custody at least while he does not openly repudiate the trust and "a,es such repudiation ,nown to the bene!iciary )$ Trustee "ay clai" title by prescription !ounded on adverse possession where it appears that5 a$ :e has per!or"ed open and unequivocal acts o! repudiation a"ounting to an ouster o! the cestui que trust b$ 7uch positive acts o! repudiation have been "ade ,nown to the cestui que trust c$ The evidence thereon should be clear and conclusive& and

TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

d$ The period !i#ed by law has prescribed 1the period co""ences to run !ro" and a!ter said repudiation and the ,nowledge thereo! by the cestui que trust. "y third persons: Though the statute o! li"itations 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 o! 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 !or reconveyance o! property 1real or personal4 to en!orce an i"plied trust in one6s !avor prescribed in ten 11C4 years !ro" the ti"e the right o! action '$ Accrues 1the action being based upon an obligation created by law4 that is from the moment the law creates the trust because the so-called trustee does not recogniBe any trust and has no intention to hold !or the bene!iciary$ 7o"e doctrines5 <here the action !or conveyance o! real property is based on constructive trust resulting !ro" its !raudulent registration in the na"e o! another 1see Article 1)*=4 the action "ay be !iled !ro" the discovery o! the !raud or notice thereo! which is dee"ed to have ta,en place !ro" the inscription o! the instru"ent and0or issuance o! the new certi!icate o! title by virtue thereo!$ The issuance o! said certi!icate o! title constitutes constructive notice to the public$ In another case however where the ownership o! the land was sold !ictitiously to avoid a !oreclosure o! "ortgage it was ruled that the ten-year prescriptive period should be counted not !ro" the registration o! the si"ulated sale but !ro" the date o! recording o! the release o! the "ortgage on which date the cestui que trust was charged with the ,nowledge o! the settle"ent o! the "ortgage obligation the attain"ent o! the purpose !or which the trust was created$ .ut i! the legiti"ate owner o! the sub%ect property which was !raudulently registered in the na"e o! another had always been in possession thereo! the constructive notice rule cannot be applied$ The action !or reconveyance is in reality an action to quiet title& there!ore the action is i"prescriptible$ ($ .ut where the rights o! the bene!iciary are recogniBed by the trustee the tenyear prescriptive period co""ences to run from the time the trustee begins to assert his title or to hold adversely as when the trustee !iles an e%ect"ent suit against the bene!iciary or when he registers the deed o! assign"ent o! property to hi" and secures the cancellation o! the certi!icate o! title in the na"e o! the !or"er owner and the issuance o! new certi!icate o! title in his own na"e or when he sells portions o! the property$ +ontinuous recognition o! a resulting trust precludes any de!ense o! prescription or laches in a suit to declare and en!orce the trust$ )$ <hen a person through !raud succeeds in registering a land in his na"e the law creates a constructive trust in !avor o! the de!rauded party$ 17ee Article 1)*=4$ *$ The latter is granted the right to recover the property !raudulently registered within a period o! ten years$ In the co"putation o! ti"e necessary !or prescription the present possessor "ay co"plete the period necessary !or prescription by tac,ing his possession to that o! his grantor$ This rule however applies only where there is privity between successive possessors$ .ut according to 9aras citing two 1D*C6s cases the action should be !iled within !our 1)4 years !ro" the discovery o! the !raud$

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TRUSTS MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2001

=$ The only li"itation upon the right o! the bene!iciary to recover title over the property held in trust is that the sa"e "ust not have been trans!erred to an innocent purchaser !or value in which event his re"edy is to as, !or da"ages$ EFFECT OF LACHES I"plied trust "ay be barred not only by prescription but also by laches$ @aches constitutes a de!ense to a suit to declare and en!orce an i"plied trust and !or the purpose o! the rule e#press repudiation is not required unless the trustee !raudulently and success!ully conceals the !acts giving rise to the trust$ Inas"uch as the trustee in an i"plied trust does not recogniBe any trust and has no intent to hold !or the bene!iciary the latter is not %usti!ied in delaying the action to recover his property$ It is his !ault i! he delays$ The doctrine o! laches however is less strictly applied between near relatives than when the parties are strangers to each other$ GENERAL RULE UNDER ARTICLE 1''( A resulting trust arises in !avor o! a person !ro" who" a consideration co"es !or a reconveyance o! property 1real or personal4 to another but the trust is rebuttable by proo! o! a contrary intention o! the persons !ro" who" the consideration co"es and such proo! "ay be by parol evidence$ The trust results only in !avor o! one advancing the consideration and not in !avor o! one !or whose bene!it the purchase "ay have been "ade$ EXCEPTIONS 1$ Ao trust is i"plied i! the person to who" the legal estate is conveyed is a legiti"ate or illegiti"ate child o! the payor$ The reason is there is a presu"ption that a gi!t or donation was intended in !avor o! the child$ '$ <hen an actual contrary intention is proved$ Articles 1''(% 1'')% 1'51 *+, 1'5- are ./01234+5 3.1030$ Articles 1'50% 1'5'% 1'55 *+, 1'56 are 78+03.17349/ 3.1030. A.3472/ 1'55 The general rule is that where trust "oney cannot be applied either i""ediately or within a short ti"e to the purpose o! the trust it is the duty o! the trustee to "a,e the !und productive to the bene!iciary by invest"ent o! it in so"e proper security$ .ut trustees "ust not "a,e invest"ent o! !unds in their own na"es but always indicate that they are "ade in trust capacities$ This article applies to any trustee guardian or other person holding a !iduciary relationship$ A.3472/ 1'56 The "ista,e re!erred to in this article is a "ista,e "ade by a third person not that "ade by a party to the contract$ 8or i! "ade by a party no trust is created$ 7i"ilarly the !raud re!erred to is e#tra-contractual$