ATP – Art.

1440-1457
MAD

Title V. - TRUSTS (n)

Trust v. Contract
CHAPTER 1
Trust Contract
GENERAL PROVISIONS always involves ownership, a legal obligation based on an
embracing a set of rights and undertaking supported by a
duties fiduciary in character, consideration by which
Art. 1440. A person who establishes a trust is called the trustor;
which may be created by a obligation may or may not be
one in whom confidence is reposed as regards property for the declaration WITHOUT a fiduciary in character.
benefit of another person is known as the trustee; and the person consideration.
for whose benefit the trust has been created is referred to as the
beneficiary.
Trust v. Sale

Trust Sale
Trust An express trust is not seller obliges himself to
perfected by mere consent, transfer ownership and
 A fiduciary relationship between one person having an
but requires the actual deliver possession to the
equitable ownership in a property and another owning
delivery of the naked or legal buyer.
the legal title to such property, the equitable ownership title to the trustee for the
of the former entitling him to the performance of certain relationship to legally arise.
duties and the exercise of certain powers by the latter for Trustee in an express trust Buyer takes full ownership of
the benefit of the former. only takes naked or legal title the subject matter for his sole
and for the benefit of another benefit.
Concept of trust (fideicommisso)
person, the beneficiary.
 It is a fiduciary relationship created by agreement or by Constituted merely as a Entered into for its own end,
law where the trustor of the property has the equitable preparatory agreement, a the acquiring of title of the
title while the legal title is vested in another (trustee). medium by which the trustee subject matter by the buyer
is expected to pursue other
Equitable title - refers to the enjoyment of the property. juridical acts for the benefit of
Equitable title is the benefits the buyer will get to use and the beneficiary.
enjoy when he or she becomes the legal owner. Equitable
ownership is not “true ownership.” Trust v. Lease
 Trust is founded in equity and can never result from Trust Lease
acts violative of law. Naked title is transferred to Lessor retains naked title.
 Thus, no trust can result from a contract of the trustee; full beneficial
partnership formed for an illegal purpose. ownership is for the account
of the beneficiary.
Trustee is not an agent of the trust estate
Essence of the contract is for Essence of the contract is the
 But he acts for himself in the administration of the trust the trustee to manage the enjoyment of the possession
estate, although subject to the terms of the trust and the trust property as the legal title and use of the leased property
law of trusts. holder for benefit or interest
of the beneficiary.
Benefits enjoyed by the Benefits enjoyed by the lessee
Exception: A trustee has been regarded as an agent of the
beneficiary are usually are only for a limited
beneficiaries of the trust at least for certain purposes, such permanent nature. contracted period.
as for the purpose of imputing to the beneficiaries of the
trust notice given to the trustee.
Trust v. Donation
Parties in a trust:
Trust Donation
1. Trustor who establishes the trust An existing legal relationship, There is a transfer of property
2. Trustee (fiduciary), the one in whom the confidence is which involves the separation as well as the the disposition
reposed as regards the property for the benefit of of legal and equitable title of both legal and equitable
another person ownership except in cases of
3. Beneficiary (cestui que trust) is the person for whose gifts in trust.
benefit the trust has been created (Pineda, 2006) The beneficiary of a trust may The donee must comply with
demand performance of the the legal requirements in
NOTE: The cestui que trust need not be named at the time the obligation without having accepting donations.
trust is created. It is enough that the cestui que trust is sufficiently formally accepted the benefit
certain or identifiable (Pineda, 2006). of the trust in public
document, upon mere
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acquiescence in the formation Trust Property

of the trust and acceptance
 subject matter of trust
 may be any property of value – real, personal, funds or
Trust v. Debt money, or choses in action.
 Must be existing. It must consist of property actually in
Trust Debt
existence in which the trustor has a transferable
The beneficiary of a trust has A creditor has merely a
a beneficial interest in the personal claim against the interest or title although it may, as a rule, be any kind of
trust property debtor transferable property either realty or personalty
There fiduciary relationship No fiduciary relationship including undivided, future, or contingent interest
therein.
 But trust res cannot be a mere expectancy without right
Trust v. Stipulation Pour Atrui or interest or a mere interest in the performance of a
Trust SPA contract although such interest is in the nature of a
It can arise either by virtue of It can arise only by virtue of a property right.
a contract or by legal contract and never by
Ownership by two persons at the same time
provision operation of law
Always a specific property, Could either be a specific  The trust property is owned by two persons at the same
whether real or personal, property or other things. time, the relation between the two owners being such
including an undivided that one of them with legal title under an obligation to
interest therein as in co- use his ownership for the benefit of the other.
ownership or choses in action
Either express or implied Always express and must be Ownership of trustee, a mere matter of form
accepted by the third person
 His ownership, therefore, is a mere matter of form rather
than of substance, and nominal rather than real. If we
Stipulation Pour Autrui.: a contract or provision in a contract have to regard the essence of the matter, a trustee is not
that confers a benefit on a third-party beneficiary an owner at all, but a sort of an agent, upon whom the law
(1) there is a stipulation in favor of a third person; has conferred the power and imposed the duty of
(2) the stipulation is a part, not the whole, of the contract; administering the property of another person
(3) the contracting parties clearly and deliberately Trustee, not mere agent
conferred a favor to the third person the favor is not an
incidental benefit;  He is a person to whom the property of someone else is
(4) the favor is unconditional and uncompensated; fictitiously attributed by the law, to the extent that the
(5) the third person communicated his or her acceptance of rights and powers thus vested in a nominal owner shall
the favor before its revocation; and be used by him on behalf of the real owner.
(6) the contracting parties do not represent, or are not Character of office of trustee.
authorized by, the third party.
1. As principal
 trustee is not an agent of the trust estate or of the cestui
Trust v. Trust Receipt que trust, but he acts for HIMSELF in the administration
Trust Trust Receipt of the trust estate, although subject to the terms of the
The right to the beneficial A commercial document trust and the law of trusts.
enjoyment of a property but which is connected to the  He cannot act as an agent of the trust estate for the
the legal title to which is importation of goods through reason that it lacks juristic personality.
vested in another letters of credit. 2. As agent
Fiduciary enjoyment of a Involves a security  trustee has been regarded as an agent of beneficiaries of
property transaction intended to aid in the trust at least for certain purposes, such as for the
financing importers and retail purpose of imputing to the beneficiaries of the trust
dealers who not have notice given to the trustee
sufficient funds or resources 3. As fiduciary
to finance the iportation
 trustee, like an executor or administrator, holds an office
of trust. The duties of the latter are, however, fixed
Trustor as trustee or beneficiary and/or limited by law, whereas those of trustee of an
express trust are, usually, governed by the intention of
 trustor may establish a trust with him, as the trustee or
the trustor or of the parties, if established by contract.
the beneficiary. He cannot, however, be the sole trustee
and the sole beneficiary of a single trust.

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Art. 1441. Trusts are either express or implied. Express trusts are Prescription
created by the intention of the trustor or of the parties. Implied Property cannot be acquired Property can be acquired by
trusts come into being by operation of law. by prescription because the prescription (Pineda, 2006)
possession of the trustee is not
adverse
Classification of Trust
1. As to Creation
a. Express trust - one which can come into existence Art. 1442. The principles of the general law of trusts, insofar as
only by the execution of an intention to create it by they are not in conflict with this Code, the Code of Commerce, the
the trustor or the parties; or Rules of Court and special laws are hereby adopted.

Elements: (CoRB)
1. Competent trustor and trustee
2. Ascertainable trust Res
3. Sufficiently certain beneficiaries CHAPTER 2
b. Implied trust – by operation of law EXPRESS TRUSTS
i. Resulting trust – one in which the
intention to create a trust is implied or Art. 1443. No express trusts concerning an immovable or any
presumed in law interest therein may be proved by parol evidence.
ii. Constructive trust – one imposed by law
irrespective of, and even contrary to, any
such intention for the purpose of
Burden of proof
promoting justice, frustrating fraud, or
preventing unjust enrichment.  The proof must be clear and satisfactory and convincing.

Note: Consideration is NOT required. The Parol evidence rule

2. As to Effectivity  forbids any addition to or contradiction of the terms of a

a. Testamentary trust - one which is to take effect written instrument by testimony or other evidence
upon the trustor’s death. purporting to show that, at or before the execution of the
b. trust inter vivos (sometimes called “living trust”) or parties' written agreement, other or different terms were
one established effective during the owner’s life. agreed upon by the parties, varying the purport of the
3. As to revocability written contract
a. Revocable
Failure to object to parol evidence
b. Irrevocable
 the defense that express trusts cannot be proved by parol
Presumption: revocable unless contrary appears
evidence may be waived, either by failure to interpose
Express Trust Implied Trust timely objections against the presentation of oral
As to Creation evidence not admissible under the law or by cross-
One created by the express One which is not created examining the adverse party and his witnesses along the
agreement of the parties, or by expressly by the parties or by prohibited lines
the intention of the trustor the trustor, but by operation of  To affect third persons, a trust concerning an immovable
law, there being a law creating or any interest therein must be embodied in a public
it instrument and registered in the Registry of Property
As to manner of creation  An express trust over personal property or any interest
Created by the direct and the It is merely deducible from the therein, and an implied trust, whether the property
positive acts of the parties, by nature of the transaction subject to the trust is real or personal, may be proved by
some writing, deed or by oral evidence.
words, either expressly or
impliedly, evincing an intention Kinds of Express Trust (CASS)
to create a trust
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
As to proof needed when immovable or interest therein is
charitable, educational, social, religious, or scientific
involved
Cannot be proved by parol May be proved by oral purposes, or for the general benefit of humanity. A private
evidence evidence trust is not for the good of the public in general or society as a
whole;

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2) Accumulation trust or one that will accumulate income to be Renunciation of a trust after its acceptance
reinvested by the trustee in the trust for the period of time
 Can only be by resignation or retirement with court
specified;
approval or at least, with agreement of beneficiaries and
3) Spendthrift trust or one established when the beneficiary
on satisfaction of all legal liabilities growing out of the
need to be protected, because of his inexperience or
acceptance of the trust.
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
Art. 1446. Acceptance by the beneficiary is necessary.
circumstances, the trustee will pay directly the creditor for
Nevertheless, if the trust imposes no onerous condition upon the
obligations of the beneficiary; and
beneficiary, his acceptance shall be presumed, if there is no proof
4) Sprinkling trust or one that gives the trustee the right to
to the contrary.
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
NO ACCEPTANCE, NO TRUST CREATED: It is essential that the
accumulation trust. It is a discretionary trust if it gives the
beneficiary accepts the trust. However, the acceptance in trust
trustee the discretion to pay or not to pay the income or
does not have follow the stringent requisites of acceptance of a
principal.
donation—as this is not so provided. Even if the real property is
involved. Need not be in public instrument
Art. 1444. No particular words are required for the creation of an When Acceptance Is Presumed
express trust, it being sufficient that a trust is clearly intended.
 If the granting of benefit is PURELY GRATUITOUS (no
onerous condition), the acceptance by the beneficiary is
presumed.
How an express trust is created?
1. By conveyance to the trustee by an act inter vivos or Exception: If there is proof that he really did NOT accept.
mortis causa
2. By admission of the trustee that he holds the property,
only as trustee How Express Trusts Are ENDED (THE-MAD2-BRAMP)
When trustee may sue or be sued alone. 1. Total loss of the object of trust
2. Happening of the resolutory condition, if one had been
 In order that a trustee may sue or be sued alone, It is
imposed
essential that his trust be an express trust
3. Expiration of agreed term
4. Mutual agreement of ALL parties
5. Annulment or rescission of the trust
Art. 1445. No trust shall fail because the trustee appointed
6. Decision of court declaring the trust terminated
declines the designation, unless the contrary should appear in the
7. Death or legal incapacity of the trustee when the trustor
instrument constituting the trust.
intended no other person to administer the trust.
8. Breach of trust
9. Revocation by the trustor when such power is reserved
Effect if Trustee Declines
10. Merger of the rights of the trustor and the trustee
 The trust ordinarily continues even if the trustee 11. Accomplishment of the purpose of trust
declines. 12. Prescription
 Reason — the court will appoint a new trustee, unless
NOTE: A testamentary trust for the administration and eventual
otherwise provided for in the trust instrument.
sale of certain properties of the testator ends not at the time the
 If there is no substitute, and the trustor did not provide
trustee’s petition for the sale of the property is approved by the
that the trust will be rendered ineffective in case of the
court, but at the time said sale is actually made and the
death, resignation, removal or refusal of the designated
proceeds thereof distributed to the proper recipients.
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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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
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
 If based exclusively on fraud – four years from
discovery
 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.
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.
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2. In case of implied trusts - It is well-established in
American law of trusts (expressly made applicable by
Art. 1442.) that implied trusts, as distinguished from
express trusts, may be barred not only by prescription
but also by laches.
PRESCRIPTION LACHES
Effect of delay Fact of delay
Matter of time Question of inequity of
permitting a claim to be
enforced, this inequity being
founded on some change in the
condition of the property or
the relation of the parties
Statutory Not statutory
Applies at law Applies at equity
Based on a fixed time Not fixed time
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
 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 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.
Trust in favor of borrower - When money is borrowed to purchase
property, and the conveyance is made, not to the borrower, but 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 benefi ciary 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.
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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
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.