BUSINESS TRUSTS Agent must act upon Trustee acts on his own business

instructions of the owner discretion

Nature and Classification of Trusts
I. Definition and Essential Characteristic of Trust
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—legal relationship between one person having an
equitable ownership in property and another person owing 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
 Characteristics of a trust or express trust: (Morales v. CA)
a. It is a relationship
b. It is a relationship of a fiduciary character
c. It is a relationship with respect to property, not one involving
merely personal duties
d. It involves the existence of equitable duties imposed upon the
holder of the title to the property to deal with it for the benefit
of another
e. It arises as a result of a manifestation of intention to create the
relationship
1. Based on Equity
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.
2. Distinguished from Agency
Agency Trust
Fiduciary in nature
Essentially revocable Essentially obligatory in its terms
and period and can only be
rescinded based on breach of trust
Agent possesses property Trustee takes legal or naked title to
under agency for and in the the subject matter of trust
name of the owner
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Agent enters into contract in Trustee enters into contracts in his
the name of the principal own name
Agent cannot be sued Trustee is liable directly and may be
sued in his trust capacity
II. Kinds of Trust
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.
A. Express Trusts
1. Essence and Definition of Express Trusts
 Express trust—one created by the intention of the trustor or
of the parties (Art. 1441)
o Those created by direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an
intention to create a trust
 Essential Characteristics of Express Trusts
a. Nominate and Principal—for having been given particular
name and essentially defined by the Civil Code, and not
needing another contract to be valid and binding
b. Unilateral—only the trustee assumes obligations to carry
on the trust for the benefit of the beneficiary
c. Primarily gratuitous—supported by the consideration of
liberality, especially when Art. 1446 provides that
beneficiary’s acceptance is presumed
d. Real—an express trusts constitute a real contract, that is, it
is not merely perfected by a mere meeting of minds
between the trustor and trustee to constitute a trust.
Indeed, no trust relationship exists, until and unless, the
property constituting the res is conveyed to the trustee.
e. Preparatory—not constituted for its own sake in that the
trust relationship is essentially a medium established by
the trustor to allow full authority and discretion on the
party of the trustee to enter into various juridical acts on
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 the corpus to earn income or achieve other goals given for
the benefit of the beneficiary
o An express trust may create a form of contract pour atrui
f. Fiduciary
a) Essentially Contractual in Nature; Need No Particular
Wordings
1444. No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly intended.
 What important is whether the trustor manifested an
intention to create the kind of relationship which in law is
known as trust. (Julio v. Dalandan)
 A clear intention to create trust must be shown, and the
proof of fiduciary relationship must be clear and
convincing. (Canezo v. Rojas)
b) Based on Property Relationship
 What distinguishes a trust from other relations is the
separation of legal title and equitable ownership of the
property. In a trust relation, legal title is vested in the
fiduciary while equitable ownership is vested in a cestui
que trust (Canezo)
 Trust, in its technical sense, is a right of property, real or
personal, held by one party for the benefit of another. (Guy
v. CA)
c) Fiduciary
 The juridical concept of a trust, which in a broad sense
involves, arises from, or is the result of, a fiduciary relation
between the trustee and the cestui que trust as regards
certain property—real, personal, funds or money, or
choses in action—must not be confused with an action for
specific performance. A trustee cannot invoke the statute
of limitations to bar the action and defeat the rights of the
cestuis que trustent. (Pacheco v. Arro)
2. Express Trust must be Proven
 An express trust cannot be proven by parol evidence.
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 A trust must be proven by clear, satisfactory, and convincing
evidence. It cannot rest on vague and uncertain evidence or
on loose, equivocal or indefinite declarations.
 Rule: the burden of proving the existence of a trust is on the
party asserting its existence
 The presence of the following elements must be proved:
a) a trustor or settler who executes the instrument creating
the trust
b) a trustee, who is the person expressly designated to carry
out the trust
c) the trust res, constituting of duly identified and definite
real properties
d) the cestui que trust, or beneficiaries whose identity must
be clear
3. Kinds of Express Trust
A. Express Trust involving Immovable
1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence.
 The existence of express trusts concerning real property
may not be established by parol evidence; thus, it must be
proven by some writing or deed
o However, if the parties to the action, during the trial,
make no objection to the admissibility of the oral
evidence to support the contract, there is deemed to be
a waiver
 The requirement that express trust over immovable must
be in writing should be added as being governed by the
Statute of Frauds (Gamboa v. Gamboa)
B. Contractual/Inter vivos Trust
 An inter vivos trusts are expressed trust pursued in the
form of donation, and which therefore become solemn
contracts which must comply with the solemnities
mandated by the Law on Donations
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 C. Testamentary Trust
 When an express trust is created under the terms of the
last will and testament of the testator, it is a testamentary
trust and is governed by the Law on Succession
o Unless the will conforms with the solemnities and
conditions set by law, it will be void together with the
testamentary trust sought to be created therein
 A testamentary trust was created by a provision in the will
whereby the testator proposed to create trust for the
benefit of a secondary school to be established in the town
of Tayabas, naming as trustee the ayutamiento of the town
or if there be none, then the civil governor of the Province
of Tayabas. (Gov’t of the Phil. Islands v. Abadilla)
D. Pension or Retirement Trusts
 Publicly-regulated trusts would be those where the State
provides the vehicle by which institutions are allowed to
administer large funds for the benefit of the public. Among
such funds created under the law would be the pension
and benefits funds administered by the GSIS, the SSS and
the Pag-Ibig Fund. Tax laws provide for incentives to the
setting-up of retirement funds for employees. All such
funds are really being administered for the beneficiaries
thereof through the medium of trust.
E. Charitable Trusts
4. Parties to an Express Trust
a) Trustor—a person who establishes a trust (Art. 1440)
b) Trustee—one in whom confidence is reposed as regards
property for the benefit of another person (Art. 1440)
i. Trustee must have legal capacity to accept the trust
ii. Failure of Trustee to Assume the Position
1445. No trust shall fail because the trustee appointed declines
the designation, unless the contrary should appear in the
instrument constituting the trust.
 In case of refusal to accept the trust by the trustee, the
court will appoint a trustee
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 But, if the appointment of the trustee is a material
provision, the trustor can provide that a refusal of the
trustee to accept the trust shall result in the failure or
nullification of the same
iii. Obligations of the Trustee (Rule 98 of Rules of Court)
Sec. 1. Where trustee appointed. - A trustee necessary to carry
into effect the provisions of a will or written instrument shall
be appointed by the Court of First Instance in which the will
was allowed if it be a will allowed in the Philippines, otherwise
by the Court of First Instance of the province in which the
property, or some portion thereof, affected by the trust is
situated.
Sec. 2. Appointment and powers of trustee under will;
Executor of former trustee need not administer trust. - If a
testator has omitted in his will to appoint a trustee in the
Philippines, and if such appointment is necessary to carry into
effect the provisions of the will, the proper Court of First
Instance may, after notice to all persons interested, appoint a
trustee who shall have the same rights, powers, and duties,
and in whom the estate shall vest, as if he had been appointed
by the testator. No person succeeding to a trust as executor or
administrator of a former trustee shall be required to accept
such trust.
Sec. 3. Appointment and powers of new trustee under written
instrument. - When a trustee under a written instrument
declines, resigns, dies, or is removed before the objects of the
trust are accomplished, and no adequate provision is made in
such instrument for supplying the vacancy, the proper Court
of First Instance may, after due notice to all persons
interested, appoint a new trustee to act alone or jointly with
the others, as the case may be. Such new trustee shall have
and exercise the same powers, rights, and duties as if he had
been originally appointed, and the trust estate shall vest in him
in like manner as it had vested or would have vested, in the
trustee in whose place he is substituted; and the court may
order such conveyance to be made by the former trustee or
his representatives, or by the other remaining trustees, as may
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 be necessary or proper to vest the trust estate in the new
trustee, either alone or jointly with the others.
Sec. 5. Trustee must file bond. Before entering on the duties
of his trust, a trustee shall file with the clerk of the court
having jurisdiction of the trust a bond in the amount fixed by
the judge of said court, payable to the Government of the
Philippines and sufficient and available for the protection of
any party in interest, and a trustee who neglects to file such
bond shall be considered to have declined or resigned the
trust; but the court may until further order exempt a trustee
under a will from giving a bond when the testator has directed
or requested such exemption, and may so exempt any trustee
when all persons beneficially interested in the trust, being of
full age, request the exemption. Such exemption may be
cancelled by the court at any time and the trustee required to
forthwith file a bond.
Sec. 6. Conditions included in bond. - The following
conditions shall be deemed to be a part of the bond whether
written therein or not:
(a) That the trustee will make and return to the court, at such
time as it may order, a true inventory of all the real and
personal estate belonging to him as trustee, which at the time
of the making of such inventory shall have come to his
possession or knowledge;
(b) That he will manage and dispose of all such estate, and
faithfully discharge his trust in relation thereto, according to
law and the will of the testator or the provisions of the
instrument or order under which he is appointed;
(c) That he will render upon oath at least once a year until his
trust is fulfilled, unless he is excused therefrom in any year by
the court, a true account of the property in his hands and of
the management and disposition thereof, and will render such
other accounts as the court may order;
(d) That at the expiration of his trust he will settle his accounts
in court and pay over and deliver all the estate remaining in
his hands, or due from him on such settlement, to the person
or persons entitled thereto.
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But when the trustee is appointed as a successor to a prior
trustee, the court may dispense with the making and return of
an inventory, if one has already been filed, and in such case
the condition of the bond shall be deemed to be altered
accordingly.
iv. Generally, trustee does not assume personal liability on the
trust as to properties outside the trust estate
 When the transaction at hand could have been entered
into by a trustee either as such or in its individual
capacity, then it must be clearly indicated that the
liabilities arising therefrom shall be chargeable to the
trust estate, otherwise they are due from the trustee in
his personal capacity (Senguan v. Phil. Trust Co.)
v. Trustee generally entitled to receive a fair compensation
for his services
 Under Section 7 of Rule 98 of the Rules of Court, if the
compensation of the trustee is not determined in the
instrument creating the trust, his compensation shall be
fixed by the court that appointed him.
c) Beneficiary—the person for whose benefit the trust has been
created (Art. 1440)
 In regard to private trusts, it is not always necessary that
the cestui que trust should be named, or even be in esse at
the time the trust is created in his favor (Abadilla)
 Acceptance by beneficiary of gratuitous trust is not subject
to the rules for the formalities of donations
d) The Corpus or the Res
 The subject matter of the trust
5. How Express Trust Terminated
A. Destruction of the Corpus
 When the entire trust estate is loss or destroyed, the trust
is extinguished since the underlying proprietary basis no
longer exists to warrant any legal relationship between the
trustee and the beneficiary.
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 B. Revocation by the Trustor
 In a revocable express trust, the trustee may simply invoke
the revocation or termination clause found in the deed of
trust thereby revoking the trust and conveying notice
thereof to the trustee. Unless there is reserved power to
revoke, the general rule is that an express trust is
irrevocable.
C. Achievement of Objective, or Happening of the Condition
Provided for in the Trust Instrument
 When the trust instrument provides the objective or the
condition upon which the trust shall be extinguished, say
when the trust instrument provides that full ownership in
the trust properties shall be consolidated in the person of
the beneficiary once he reaches the age of majority, the
happening of the condition shall terminate the trust
D. Confusion or Merger of Legal Title and Beneficial Title in the
Same Person
 When the trustee of an existing trust becomes the
beneficiary thereof, or vice versa, the trust relation is ipso
jure extinguished, for it is difficult to see how a person can
owe fiduciary duties to himself.
E. Breach of Trust
 When a trustee breaches his duty of loyalty, it would
constitute legal basis by which to terminate the trust
o This operates as a renunciation of the trust and the
persons interested as beneficiaries in the property are
entitled to maintain an action to declare their right and
remove the unfaithful trustee.
III. Implied Trusts
F. Upon the Death of Trustee
 Unless otherwise expressly stipulated in the trust
instrument, the death, civil interdiction, insanity or
insolvency of the trustee does not necessarily terminate
the trust but a new trustee will be appointed
o The reason why a trust does not fail for want of a trustee
is that to permit it to fail for this reason would be
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contrary to the intention of the trustor in creating the
trust. The trustor is primarily interested in the disposition
of the beneficial interest in the property, and the matter
of its administration is a subsidiary consideration.
(Tolentino, at p. 676.)
 A trust terminates upon the death of the trustee where the
trust is personal to the trustee in the sense that the trustor
intended no other person to administer it
o After Crispulo’s death, the respondent had no right to
retain possession of the property. At such point, a
constructive trust would be created over the property by
operation of law
o Where one mistakenly retains property which rightfully
belongs to another, a constructive trust is the proper
remedial devise to correct the situation
G. Generally Express Trusts Not Susceptible to Prescription
 When there exists an express trust, prescription and laches
will run only from the time the express trust is repudiated
 The rule requires a clear repudiation of the trust duly
communicated to the beneficiary
 For acquisitive prescription to bar the action of the
beneficiary against the trustee, in an express trust, for the
recovery of the property, it must be shown that:
a) Trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust
b) Such positive acts of repudiation have been made known
to the cestui qui trust
c) Evidence thereon is clear and conclusive
1. Listing of Implied Trusts Not Exclusive; Founded on Equity
1447. The enumeration of the following cases of implied trust does
not exclude other established by the general law of trust, but the
limitation laid down in Art. 1442 shall be applicable.
 Implied trusts—from the facts and circumstances of a given
case, the existence of a trust relationship is inferred in order to
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 effect the presumed intention of the parties or to satisfy the
demands of justice or to protect against fraud
o Those which are deducible from the nature of the
transactions 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
a) Resulting Trusts
 A trust which is raised or created by the act or construction
of law
 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
and are presumed always to have been contemplated by the
parties
b) Constructive Trusts
 A trust raised by construction of law, or arising by operation
of law
 A 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
 A constructive trust is not a trust in technical sense
 There is neither promise nor fiduciary relations
o The so-called trustee does not recognize any trust and has
no intent to hold the property for the beneficiary
 Otherwise known as a trust ex maleficio, a trust ex delicto, a
trust de son tort, an involuntary trust, or an implied trust
 A trust by operation of law which arises contract to intention
and in invitum, against on who, by fraud, actual or
constructive, by duress or abuse of confidence, by
commission of wrong, or by any form of unconscionable
conduct, artifice, concealment, or questionable means, or
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who in any way against equity and good conscience, either
has obtained or holds the legal right to property which he
ought not, in equity and good conscience, hold and enjoy
 Constructive trusts are fictions of equity that the courts use
as devices to remedy any situation in which the holder of the
legal title may not, in good conscience, retain the beneficial
interest
c) Distinction between Resulting and Constructive Trust
Resulting Trust Constructive Trust
Based on equitable doctrine Created by the construction of
that valuable consideration, equity in order to satisfy the
and not legal title, determines demands of justice and
the equitable title or interest prevent unjust enrichment
Presumed always to have been Arise contrary to intention
contemplated by the parties against who [in bad faith]
ought to hold the legal right to
property
d) How to Prove Implied Trust
 Must be proven by clear, satisfactory and convincing
evidence, and cannot rest on vague and uncertain evidence
or on loose, equivocal or indefinite declarations
 May be proven by oral evidence, but the evidence must be
trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose, equivocal
or indefinite declarations
e) Distinguished from Quasi-Contracts
 Both embody the principle of equity above strict legalism
2. Purchase of Property where Beneficial Title in One Person, but
Price Paid by Another Person
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
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 implied by law, it being disputably presumed that there is a gift in
favor of the child.
 Rationale: one who pays for something usually does so for his
own benefit
3. Purchase of Property where Title is Placed in the Name of Person
who Loaned the Purchase Price
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 it is paid. The latter may redeem the property
and compel a conveyance thereof to him.
 It is only after the beneficiary reimburses the trustee of the
purchase price that the former can compel conveyance of the
property from the latter
4. When Absolute Conveyance of Property Effected only as Means
to Secure Performance of Obligation of the Grantor—Equitable
Mortgage
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.
5. Two or More Persons Purchase Property Jointly, but Places Title
in One of Them
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.
6. Property Conveyed to Person Merely as Holder thereof
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.
 Under this, the implied trust is enforceable even when the
agreement is not in writing
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 This article applies if the person conveying the property did not
expressly state that he was establishing the trust but such is
the intention
7. Donation of Property to a Donee who shall have No Beneficial
Title
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.
8. Land Passes by Succession but Heir Places Title in a Trustee
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.
9. When Trust Fund Used to Purchase Property which is Registered
in Trustee’s Name
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.
10. When Property is Acquired through Mistake or Fraud
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.
 When a person through fraud succeeds in registering the
property in his name, the law creates what is called a
“constructive or implied trust” in favor of the defrauded party
and grants the latter the right to recover the property
fraudulently registered within a period of 10 years (Heirs of
Patiwayon v. Martinez)
o The period reckoned from the issuance of the adverse title to
the property which operates as a constructive notice
 Public policy demands that a person guilty of fraud or, at least,
of breach of trust, should not be allowed to use a Torrens title
as a shield against the consequences of his wrongdoing
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 11. Does Implied Trust Prescribe or may it be Defeated by Laches
 The prescriptive period of 10 years for an action of
reconveyance applies only if there is an actual need to
reconvey the property as when the plaintiff is not in possession
thereof
o Point of reference is the date of registration of the deed or
the date of the issuance of the certificate of title of the
property provided that the property has not been acquired
by an innocent purchaser for value
 When plaintiff is in possession of the subject property, the
action, being in effect that of quieting of title to the property,
does not prescribe
 Prescription cannot apply when title of Trustee is Void due to
Forgery
 In constructive trusts, prescription may supervene even if the
trustee does not repudiate the relationship
o Repudiation of the said trust is not a condition precedent to
the running of the prescriptive period
 Close relationship and Continued recognition of Trust
relationship
o The doctrine of laches is not to be applied mechanically as
between the near relatives which would tend to excuse what
otherwise may be considered a long delay in taking action
o Moreover, continued recognition of the existence of the
trust precludes the defense of laches
 Though the Statute of Limitations does not run between the
trustee and cestui que trust as long as the trust relations
subsist, it does run between the trust and third persons
 Prescription cannot apply against a Minor Beneficiary in
Implied Trust

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