II.

TRUSTS

A. Introduction

a. Trust under the New Civil Code

●​ Legal basis: Arts. 1440–1457, Civil Code of the Philippines.​

●​ Definition: A trust is a fiduciary relationship where the trustee holds property, not for himself,
but for the beneficiary who enjoys the property.​

●​ Difference from other relations:

○​ Agency: agent represents the principal; in trust, the trustee owns property in form but
must use it for another’s benefit.
○​ Partnership: partners combine capital or industry to make profits together; in trust,
the goal is protection of property for another, not profit sharing.

📖 Example: Juan transfers a parcel of land to Pedro so that Pedro can administer it for the benefit of
Juan’s daughter, Maria. Pedro is the trustee; Maria is the beneficiary.

1. Philippine Trusts Rooted on American Law on Trusts

●​ The Spanish Civil Code (our law’s original foundation) did not contain a developed doctrine of
trusts. Instead, it emphasized obligations, contracts, and ownership concepts.​

●​ The American colonial period introduced the trust doctrine to Philippine law, patterned after
Anglo-American principles.​

●​ Thus, the Civil Code provisions on trusts reflect American influence, distinguishing between:
○​ Express trusts (created voluntarily and intentionally).
○​ Implied trusts (arising by law to prevent fraud or unjust enrichment).

📖 Example: When a deed of donation says, “I give this land to X in trust for Y,” that’s an express trust
rooted in American law.

b. The “Equity” Essence of Implied Trust

Express trust is to bring about the principles applicable to contractual relationship which are
Consensuality → Agreement makes the contract.
Mutuality → Both must be bound, not just one.
Relativity → Only the parties are affected.

Equity means fairness, conscience, and justice. Courts apply equity to correct situations where strict
legal ownership may result in injustice.

●​ Implied trusts arise not from the trustor’s intent but from law and equity, ensuring that no
person benefits unjustly at the expense of another.

📖 Example: Ana pays for a house but registers it under her brother Ben’s name because she was
working abroad. The law presumes Ben holds the house in trust for Ana (resulting trust). Equity
prevents Ben from unjustly enriching himself by claiming the house as his.
c. The Nature of Trusts

1. Trusts Do Not Create Separate Juridical Entities

●​ Unlike a corporation or partnership, a trust has no separate personality.

●​ Courts always deal with the trustee (legal owner) and the beneficiary (equitable owner), not
with the “trust” as a separate legal being.

📖 Example: If a trust owns land, the title is still in the trustee’s name, not under an entity called “ABC
Trust.”

2. Trust Divorces Naked Title of the Trust Properties from the Rest of the Trustor’s Estate

●​ The trustor transfers property in such a way that ownership is split:​

○​ Trustee: holds naked or legal title (appears on record as owner).

○​ Beneficiary: holds equitable title (enjoys benefits).​

●​ The trust property is separated from the trustor’s remaining estate; heirs of the trustor cannot
claim it as inheritance while the trust is active.

📖 Example: A father transfers land to his friend (trustee) so that the land is safe until his minor child
reaches legal age. The friend holds the naked title but cannot treat it as his own property.

Example:

●​ DBP (trustor) – put up the fund but no longer owns it.

●​ Trustees – hold and manage the fund.
●​ Employees (Beneficiaries) – entitled to the benefits.

Even if the trust is later changed or terminated, the money cannot go back to DBP; it must go
to the employees.

A trust can be valid even if the beneficiaries’ rights are future or contingent. Even if
beneficiaries’ rights are still inchoate or the beneficiaries are not yet named, a trust can still
exist. It is enough that the beneficiaries are certain or identifiable in the future (e.g., DBP
employees who will eventually retire).

3. Trusts Anchored on Splitting the Naked Title and Beneficial Title

●​ The essence of trust is this dual ownership:

○​ Naked title → duty-bound right of the trustee to manage and administer.
○​ Beneficial title → right of the beneficiary to enjoy fruits, income, or benefits of the
property.​

●​ This separation creates accountability and ensures property is not abused.

📖 Example: If land is transferred to B as trustee for C, B cannot sell it for personal gain because he
has only naked title. C, as beneficiary, enjoys the land’s fruits.
 -​ Trust principles apply only if the case involves claims over title to the property (the res) —like
ownership, possession, or beneficial enjoyment. If the issue is not about property (e.g., purely
contractual obligations or personal services), then trust concepts are irrelevant.

Meaning:
Trust principles only come into play if the dispute is about those property rights—not just any general
duty or obligation.

A trust is not formed simply because two people agree that one will look after something for the
other. For a real trust relationship to exist, there must first be a transfer of title (ownership rights) to
property (the “res”) in such a way that the trustee is made the legal title holder, while the beneficiary
is the one truly entitled to enjoy the property.

WAYS ON HOW THE TRANSFER OF TITLE CAN HAPPEN

1.​ When a Naked (legal) title is given so he is registered as owner in name only, clearly for the
benefit of another, or

2.​ When a full title is given to him but with a clear arrangement that it is held for someone else,
then there is either:
-​ an express trust (if clearly intended), or
-​ a resulting trust (if ownership is implied to belong to someone else, e.g., when one person
pays but another’s name is on the title).

3.​ When he obtained the full title wrongfully or unjustly so a constructive trust arises by
operation of law when someone acquires title in a way that equity deems unfair (e.g., fraud,
mistake, breach of confidence), so the law compels them to transfer it to the rightful owner.

NOTE:
A trust requires that the trustee actually holds valid legal title for the benefit of the beneficiary. If the
supposed trustee’s title is void from the start (because of fraud, forgery, or legal invalidity), then no
trust exists at all, and the rules on implied trust (including prescriptive periods) do not apply.

d. Kinds of Trusts

1. Express Trusts

●​ Intentionally and voluntarily created by the trustor.

●​ May be created orally or in writing (though those involving immovables generally must be in
writing under the Statute of Frauds).

📖 Example: A transfers land to B in trust for C’s education.

2. Implied Trusts (by operation of law)

Created by equity and law even without express intent. Arise even without intent, to enforce equity.

●​ Resulting Trusts: Based on presumed intent of the parties. ​

○​ 📖 Example: A pays for property but registers it under B’s name. Law presumes B
holds it in trust for A.​
 ●​ Constructive Trusts: Created by law to prevent fraud or unjust enrichment.​

○​ 📖 Example: D fraudulently registers another’s land in his name. Law treats D as

trustee for the true owner.

3. Difference in Essence

Express trust: Voluntary, intentional, based on clear agreement or declaration.

Implied trust: Arises by legal presumption or equity to protect fairness, even without agreement.

4. Trustee Bounded to a Fiduciary Duty

●​ The trustee must exercise the highest degree of loyalty, diligence, and integrity.
●​ The trustee cannot use the property for personal benefit or conflict of interest.
●​ Breach of fiduciary duty makes the trustee personally liable.

📖 Example: If B, as trustee, leases trust land to himself at a very low price, he breaches fiduciary
duty.

5. Susceptibility to Prescription or Laches

●​ Express trusts: Generally imprescriptible; they do not prescribe unless the trustee openly
repudiates the trust and informs the beneficiary.​

●​ Implied trusts: Governed by prescriptive periods (usually 10 years under Civil Code rules).​

●​ Laches: Even if within the prescriptive period, claims may be barred if the beneficiary slept on
his rights and delayed asserting them unreasonably.

📖 Example: C discovers after 15 years that his cousin still holds land he paid for. Claim may already
prescribe, or barred by laches if C unreasonably delayed action.

6. Oral Evidence to Prove Trusts

●​ Express trusts involving land must usually be in writing (Statute of Frauds).

●​ Implied trusts – may be proven by oral evidence since they arise by law.
●​ Courts allow oral testimony if needed to uphold equity.

📖 Example: A proves through witnesses that he gave money for land but B registered it in his name.
Even without written proof, court may uphold the implied trust.
EXPRESS TRUSTS

a. Definition, and Nature of Express Trusts

●​ An express trust is a trust intentionally created by the trustor (settlor).​

●​ It may be in writing, oral, or even implied from conduct (except when involving immovable
property, where writing is required).​

●​ Nature: voluntary and deliberate; parties want to create a fiduciary relation.

📖 Example: Juan donates land to Pedro in trust for Maria’s education. This is an express trust since
it was deliberately created by Juan.

1. Trustor (Settlor / Grantor)

●​ The creator of the trust.

●​ Transfers property to a trustee for the benefit of another.
●​ Key idea: starts the trust.

📖 Example: A father sets up a trust fund for his child. He is the trustor.
2. Trustee

●​ The person who receives and manages the property from the trustor.
●​ Holds only legal (naked) title, not beneficial ownership.
●​ Has a fiduciary duty → must act with honesty, loyalty, and diligence for the beneficiary.
●​ Key idea: caretaker of the trust property.

📖 Example: A bank is appointed to manage the trust fund. The bank is the trustee.
3. Beneficiary

●​ The person for whose benefit the trust was created.

●​ Enjoys the beneficial ownership (fruits, income, or use of the property).
●​ Key idea: receiver of the benefits.

📖 Example: The child for whom the trust fund was created is the beneficiary.
✅ Easy way to remember:
●​ Trustor = Giver / Creator (donates or transfers property).
●​ Trustee = Holder / Manager (caretaker with naked title).
●​ Beneficiary = Receiver (enjoys the benefits).

b. Essential Characteristics of Express Trusts

(a)​ It is a legal relationship
(b)​ It is a legal relationship of fiduciary character
(c)​ It is a legal fiduciary relationship with respect to property, not one involving merely personal
duties
1. Express trusts are essentially contractual in character

●​ Built upon consent and agreement.

●​ They may be gratuitous (donation) or onerous (trustee entitled to compensation).

📖 Example: A deed of donation says: “I hereby transfer this land to B in trust for C.” The trust is
based on agreement between trustor and trustee.

2. Essential elements of express trusts

●​ Trustor (creates trust), Trustee (holds legal title), Beneficiary (enjoys property), Trust property
(res).
●​ Consent and intent must be clear and certain.

📖 Example: A father creates a trust for his minor child; elements: father = trustor, bank = trustee,
child = beneficiary, trust fund = res.

a. Express Trusts establish contractual relationship built around property relation

●​ Unlike ordinary contracts (sale, lease), the object is not exchange of value but the holding of
property for another’s benefit.

3. Nominate and Principal, yet Governed by Equity Principles

●​ Nominate contract: expressly regulated in the Civil Code (Arts. 1440–1457).​

●​ Principal contract: stands on its own, not accessory.​

●​ But since borrowed from American law, courts still apply equitable principles to resolve gaps.

4. Unilateral and Gratuitous

●​ Usually unilateral (obligations fall mainly on trustee).​

●​ Often gratuitous, unless the trust agreement allows trustee compensation.

📖 Example: A friend agrees to hold land in trust for another without pay = gratuitous. A bank
administering a trust fund may charge fees = onerous.

5. Express Trust as a preparatory contract

●​ It prepares for future transactions, like ensuring property will be managed for a beneficiary’s
future use.

📖 Example: Parents create a trust to secure funds for child’s college education (preparatory for
future schooling).
a. Acquisitive Prescription on the Corpus Unavailing to the Trustee

●​ Trustee cannot acquire ownership of trust property by prescription.

●​ Why? Because his possession is not adverse, it is in trust.
●​ Prescription begins only if trustee clearly repudiates the trust and notifies beneficiary.

📖 Example: If B holds land in trust for C, B cannot claim ownership after 30 years unless he openly
repudiates the trust.

Rules of Enforceability of Express Trusts

1. Express Trust is Essentially a Real, Not Consensual Contract

●​ Transfer of trust property (res) must actually happen.​

●​ Unlike pure consensual contracts (like agency), trust requires a conveyance of property.

2. Express Trust must nevertheless be clearly shown to have been intended

●​ Intent must be explicit. Courts will not presume express trusts unless clearly proven.

3. Essence of the relationship between trustor and trustee prior to the conveyance of the Res

●​ Before delivery of property, trust is not perfected.​

●​ After conveyance, the trustee holds legal title subject to fiduciary duty.

4. Express Trusts over immovable must be in writing

●​ Governed by the Statute of Frauds.​

●​ Oral express trusts over land are unenforceable.

📖 Example: A verbal promise “I’ll hold this land for your son” is not enforceable in court. Must be in
writing.

Distinguishing Express Trusts from Similar Arrangements

1. Splitting of full dominion into naked/legal title and beneficial/equitable title

●​ In trust, ownership is split between trustee and beneficiary.

a. Compared with Usufruct

●​ Usufruct: owner keeps ownership, usufructuary enjoys use.

●​ Trust: trustee has naked title, beneficiary has equitable ownership.

b. Compared with Lease

●​ Lease: lessee enjoys use for a fee, but ownership stays with lessor.
●​ Trust: trustee has title, but must hold it for beneficiary’s interest.​
c. Compared with Sale

●​ Sale: full ownership passes to buyer.

●​ Trust: only naked title passes to trustee; beneficial ownership remains with beneficiary.

2. On being bound to fiduciary duties and obligations

a. Compared with Agency

●​ Agent represents principal, but does not usually hold title.

●​ Trustee holds legal title and is bound to fiduciary duty far stricter than agency.​

Kinds of Express Trusts

1. Contractual Trusts

●​ Created by agreement between parties.

2. Inter Vivos Trusts

●​ Created during the trustor’s lifetime.

📖 Example: A father transfers land in trust for his son while still alive.
3. Testamentary Trusts

●​ Created by will, effective upon trustor’s death.

📖 Example: “I give my house to X, in trust for my grandchildren.”

4. Eleemosynary or Charitable Trusts

●​ Created for charitable purposes (schools, hospitals, churches).

📖 Example: Donation of property to trustees “for the construction of a public library.”

5. Publicly-Regulated Trusts

●​ Trusts supervised by law or government (e.g., banking trusts).

●​ Trustees (like banks or trust corporations) are regulated under special laws.​