TITLE V. TRUSTS Chapter 1. GENERAL PROVISIONS 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

- Right to the beneficial enjoyment of property - The legal title to which is vested in another - It is a fiduciary relationship subjecting the person holding the

same to the obligation for another person’s benefit. ELEMENTS 1) PARTIES to the trust

a) TRUSTOR or settler – establishes the trust b) TRUSTEE – holds property in trust for another’s benefit c) BENEFICIARY (CESTUI QUE TRUST) – person for whose benefit the trust has been created

NOTE: The trustor may also be the beneficiary. 2) TRUST PROPERTY or trust estate or subject matter of the trust CHARACTERISTICS 1) FIDUCIARY RELATIONSHIP 2) CREATED BY LAW OR BY AGREEMENT 3) LEGAL TITLE HELD BY ONE, and EQUITABLE/BENEFICIAL TITLE HELD BY ANOTHER Distinguished from Guardianship/Executorship

Trust Guardianship Executorship Has Legal Title to the property

Does not have any legal title over the property

Distinguished from Stipulation Pour Autrui

Trust

Stipulation Pour Autrui (Contract that confers benefit on a third-party

beneficiary) May exist because of a legal provision or agreement.

Can arise only in the case of contracts.

Refers to a specific property

Refers to specific property or other things.

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. CLASSES OF TRUST 1) EXPRESS: created by assent of the parties, or by the intention of the trustor 2) IMPLIED: created by operation of law

a) RESULTING TRUSTS: imposed by law to carry out actual or presumed intent of the parties, where the express trust fails b) CONSTRUCTIVE TRUSTS: est. by law, regardless of intention, to prevent fraud, oppression, or unjust enrichment

Salao, et al v. Salao Property in question was a fishpond bought by brother and sister, Ambrosia and Juan Salao as co-owners. After the death of Ambrosia, the heirs of the nephew of the co-owners sued for reconveyance claiming that the property was held to be in trust to their father. All they presented was oral testimony.

• No Express Trust – Oral testimony cannot prove • No Implied

o No Resulting – No intent from the trustor or the parties o No Constructive – Torrent title was not initiated by fraud

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. PRINCIPLES OF GEN. LAW OF TRUSTS MERELY SUPPLETORY. Must not be in conflict with those enumerated in the provision. Gelano v CA Lawyer of a company continued to be a trustee with regard to matters of litigation despite expiration of the 3year period after dissolution of the company. This is in substantial compliance to the Corporation Code. Chapter 2. EXPRESS TRUSTS ART. 1443 No express trusts concerning an immovable or any interest therein may be proved by parol evidence. EXPRESS TRUSTS DOES NOT PRESCRIBE MAY NOT BE PROVED BY ORAL EVIDENCE FORMALITIES RE EXPRESS TRUSTS - FOR ENFORCEABILITY - FOR TRUST OVER PERSONAL PROP, ORAL AGREEMENT IS VALID & ENFORCEABLE BET. THE PARTIES - RE 3RD PERSONS: trust in PUBLIC INSTRUMENT & REGISTERED in Registry of Property if it concerns real property ART. 1444 No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intented. CREATION OF EXPRESS TRUST 1) DECLARATION OF TRUSTOR THAT HE HOLDS PROPERTY IN TRUST 2) CONVEYANCE TO TRUSTEE INTER VIVOS OR BY TESTAMENT CLEAR INTENTION is needed to create a trust CAPACITY - TRUSTOR capacitated to TRANSFER PROPERTY - TRUSTEE capacitated to HOLD PROPERTY & OBLIGATE HIMSELF - BENEFICIARY capacitated to RECEIVE GRATUITOUSLY FROM TRUSTOR

ADMINISTRATION OF TRUST (BI [g] MAC) a) Trustee must file a Bond b) Trustee must make an Inventory of the real and personal property

in trust c) Trustee must Manage and dispose of the estate and faithfully

discharge his trust in relation thereto. d) Trustee must render a true and clear Account e) Trustee Cannot acquire the property held in trust by prescription

as long as trust is admitted. 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 OF DECLINATION BY TRUSTEE General Rule: Trust continues. Court appoints new trustee. Exception: Contrary should appear in the instrument. 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. NECESSITY OF ACCEPTANCE BY THE BENEFICIARY

- may be express, implied, or presumed WHEN ACCEPTANCE IS PRESUMED

- Benefit is PURELY GRATUITOUS TERMINATION OF EXPRESS TRUST (LO-RAMMER)

a) LOSS (physical loss or legal impossibility) OF SUBJECT b) ORDER OF THE COURT c) RESCISSION OR ANNULMENT d) ACCOMPLISHMENT OF PURPOSE OF THE TRUST e) MUTUAL AGREEMENT by ALL PARTIES f) MERGER g) EXPIRATION OF the TERM h) RESOLUTORY CONDITION

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.

TRUSTS RECOGNIZED ONLY IF NOT IN CONFLICT W/ CC, Code of Commerce, RoC, & special laws Victoria v. Leunberger SG, administratix of property, sold a lot to the Municipality of Victoria to be used as a cemetery. Municipality failed to register the sale. SG died, soon after her granddaughter NL claimed to have inherited the land asserting that Torrens Title protects the property. Court ruled that she has no right and no ownership. Torrens Title was not established as means of acquisition, only to confirm and register. Land is held in Trust by NL and the Municipality as the Beneficiary. IMPLIED TRUSTS as are specified by the Code don’t exclude others est. by gen. law, insofar as they’re not in conflict w/ the CC & special laws. Provable by oral evidence RESULTING TRUSTS (ACIDD) 1448 – Property Where Title Is Not Given to Payer but to Another 1452 – Property is in the Name of Only One of the Co-Buyers 1451 – Title to Inherited land is not in owners name 1453 – Person Declares his intent to hold property for someone else 1449 – Donee does not get full ownership of Benefit CONSTRUCTIVE (S-STF-M) 1450 – Conveyance of Property to serve as Security 1454 – Absolute Conveyance for Security 1455 – Use of Trust Fund 1456 – Property acquired through Mistake or Fraud. 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. No implied trust if document expresses different intent Resulting trust Example: A buys land from B. A Pays to have beneficial interest but legal title is given to C. C is trustee, A is beneficiary. However, suppose C is the child of A. No implied trust is created, it is presumed to be a gift. 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. WHEN DONEE DOESN’T GET FULL OWNERSHIP OF BENEFIT Resulting trust Example: A donated land to B. but it was agreed that B is supposed to only have 1/3 of the products. B is a trustee. 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. CONVEYANCE OF PROPERTY SO IT MAY SERVE AS SECURITY Constructive trust Example: A wants to buy a piece of land from B but A has no money. A asked C to pay B. The Land was given in C’s name. Land is supposed to be a security till A’s debts are paid. In this case, C is the trustee and A is the beneficiary. TRUST RECEIPT: security transaction intended to aid in financing importers & retail dealers who don’t have sufficient funds to finance importation or purchase of merchandise, and who may not be able to acquire credit except thru utilization, as collateral, of the merchandise imported or purchased 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. WHEN TITLE TO LAND ISN’T TO OWNER’S NAME Resulting trust Example: A inherited a piece of land from his father, but A caused the legal title to be put in the name of X. 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. WHEN PROPERTY IS IN THE NAME OF ONLY ONE OF THE CO-BUYERS Resulting trust

Example: Uy Aloc v. Cho Jan Jing Chinese Merchants bought a lot with a house to be used as their clubhouse. The property was registered under the name of only one of them. The registered owner is a mere trustee, and is therefore obliged to render proper accounting. The beneficiaries are all of the members of the club. Note: 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. WHEN A PERSON DECLARES HIS INTENT TO HOLD PROPERTY FOR SOMEONE ELSE Resulting trust Example: A bought from B a parcel of land and was conveyed to him. A declared he would hold it in behalf of B. 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. ABSOLUTE CONVEYANCE MADE FOR SECURITY PURPOSE Constructive trust Example: M was indebted to S. In order to guarantee her debt, M sold her parcel of land to S. Upon M’s payment, she may demand the resale of her 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. USE OF TRUST FUNDS Constructive trust Example: An agent using his principals money purchases the land in his own name and registers it under his own name. the Principal may bring an action for rconveyance. Sing Joco v. Sunyantung, et al. A was a confidential employee of B. B intented to purchase an hacienda and he told A about it and of his option to buy the same. Thinking that the purchase seems good, A, in his wife’s name, bought the hacienda, to prejudice B. A was held to be guilty of breach of trust.

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. PROPERTY ACQUIRED THRU MISTAKE OR FRAUD Constructive trust Nature of Mistake – Mistake made by third person, not made by a party to a contract. If made by the party, no trust is created. Nature of Fraud – Extra-contractual Right of Action – exercised against the trustee. Should be filed within four years upon discovery of the fraud. Example: M gave B a car, which should have been E’s. B is merely a trustee and may be ordered to reconvey the property to the proper beneficiary. ART 1457 An implied trust may be proved by oral evidence. PROOF OF IMPLIED TRUST – applies whether property is real or personal ORAL EVIDENCE FOR TRUST MUST BE TRUSTWORTHY (Salao v. Salao) PRESCRIPTION (Ramos et. Al v. Gregoria Ramos) Express Trust – Does not prescribe Exception: trustee repudiated trust Implied Trust Resulting Trust – Does not Prescribe

Exception: may prescribe if the trustee has expressly repudiated the trust.

Constructive – Prescribes (Justified merely by equity to satisfy the demands of justice)

Prescription for the reconveyance of real property based on implied trust is 10 years. (Spouses Dico v. Vizcaya)