LAW on

TRUSTS
Arts. 1440 – 1457, CC

Mary Jane G. Barluado, JD-2

20 December 2023
General Provisions
Arts. 1440 - 1442

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.

20 Dec 2023
 ELEMENTS OF A TRUST
1. TRUST PROPERTY 2. PARTIES TO THE TRUST

Properties Trustor Trustee Beneficiary

• Estate, fund, • Aka Settler, • Person or legal • Cestui que trust,
others of Trustmaker, entity reposed any person or
value that Grantor, Donor w/ conf. to hold entity for whose
becomes the • Sets up the trust; legal title to the benefit the trust
subject Legally transfers res or property was created:
matter of control of an in trust Spouse, Child,
the trust. asset to trustee • Manages, invests Charity, Trust,
assets Trustor
 Trust Defined
1 2
A fiduciary relationship, created by agreement or by
3
law, concerning property & which obliges the person
holding it to deal with the property (trustee), allowing
him to exercise certain powers of the owner of the legal
title (trustor), for the benefit of whom he vests
equitable title thereto (beneficiary).
:. NOTE:
The definition gives 3 characteristics of a trust as highlighted.
 Trust Distinguished
from other Relations
▪ Guardianship or Executorship
▪ Contract
▪ Stipulation Pour Autrui
▪ Donation
▪ Debt
▪ Bailment
 Trust Guardianship
• A trustee has legal • A guardian,
title to the executor or
property administrator
does not have
legal title to the
property.
 Stipulation
Trust Pour Autrui
• May exist by an • Can arise only in
agreement or by a the case of
legal provision contracts;
• Refers only to • Refers to specific
specific properties property or to
other things;
 Trust Donation
• Existing legal relationship • Transfer of property
• Involves separation of legal • Involves a disposition of
& equitable title both legal & equitable
ownership, except gift in
• Beneficiary may demand trust
performance of obligation
w/o formal acceptance in a • Must comply with the legal
public doc, upon mere requirements in accepting
acquiescence in formation donations
of the trust & acceptance
under Art. 1132(2), CC
 Trust Debt
• Duty to deal w/ a specific • Implies merely an
property for the benefit obligation to pay a
of another certain sum of money.
• Fiduciary relation • No fiduciary relation
between a trustee & a between a debtor &
beneficiary. creditor
• Beneficiary has a • Creditor has merely a
beneficial interest in the personal claim against
trust property the debtor
 Trust Contract
• Always involves an • Undertaking
ownership, supported by a
embracing a set of consideration,
rights & duties which obligation
fiduciary in
character w/c may may or may not
be created by a be fiduciary in
declaration w/o a character.
consideration
 Trust Bailment
• A delivery of a • Bailee has
property in trust possession of
necessarily without legal title
transfers the legal to the property
title in the trustee,
or at least subject to the
separates the legal bailment
title & equitable
interest
 Trust Agency
Trustee: Agent:
• May hold legal title to the • Usu. holds no title at all
property • Usu. acts in the name of the
• May act in his own name principal
• Does not necessarily or even • Has authority to make contracts
possess such authority to bind w/c will be binding on his principal
the trustor or the beneficiary
Trust: Agency:
• Usu. ends thru accomplishment • Usu. may be terminated or
of the purposes for which it revoked any time
was formed • May not be connected at all with
• Involves control over property property
• Is really a contractual relation • May be the result of a contract,
it may also be created by law
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.
 Classification of Trusts
A. As to creation:
1. Express trust 2. Implied trust
By parties, or By Operation
Intent of trustor of law; 2 kinds:

Resulting trust- Constructive trust-

Aka bare or passive No intent to create
trust; With intent to trust, but a trust is
create a trust but it is created by law to
not effective as an prevent oppression or
express trust. unjust enrichment.
Classification of Trusts
B. As to effectivity:
1. Testamentay 2. Inter vivos or
trust living trust
• To take effect upon • Effective during the owner’s
the trustor’s death life
• Usu. included as part • Grantor executes a “trust
of the will & does not deed;” once created, legal
have a separate trust title to the trust property
deed passes to the named trustee
w/ duty to administer it for
beneficiary’s benefit
Classification of Trusts
B. As to revocability:
1. Irrevocable 2. Revocable
trust trust
• May not be • Can be revoked or
terminated during cancelled by the
the specified term trustor or another
of the trust individual given the
• On the wordings in power
the creation of the • Presumption of law
trust
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.
Code Commission’s Intent for Art. 1442
• Suppletory Effect of the General Law of Trusts
• To incorporate a large part of the American law
on trusts, thereby amplifying the Phil legal
system rendering it more suited to just &
equitable solutions for many questions
• Anglo-American Precedents
 EXRESS
TRUSTS
Arts. 1443 – 1446, CC
Art. 1443.
No express trusts concerning
an immovable or any
interest therein may be
proved by parol evidence.
Formalities in Express Trusts
a) That an express trust be written is required only for
enforceability, not for validity :. Art 1443 may be
included under the Statute of Frauds.
b) By implication, oral agreement re trust over personal
property is valid & enforceable.
c) Re 3rd persons, the trust must be in a public
instrument & registered in the 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 intended.
Express Trust Is Created By:
a) Conveyance to the trustee by an act inter vivos
or mortis causa (as in a will).
b) Admission of the trustee that he holds the
property, only as trustee.
*Clear Intent is a MUST!
Provided there is CLEAR INTENTION to create a
trust, no particular or technical words are
required.
 Technicalities in wording & intention
• Particular words are not essential to the manifestation of an
intention to create a trust.
• Can create a trust without using the word “trust” or “trustee.”
• Conversely, the mere use of the word “trust” or “trustee” does
not necessarily prove an intention to create a trust.
• WoN grantor knows that the relationship which he intends
to create is called a trust, & WoN he knows the precise
characteristics of a trust are immaterial, it being
sufficient that a trust is clearly intended
Capacity of Parties
• Trustor - Must be capacitated to convey property.
However, a joint owner of a thing may be a trustor
& the other a trustee of one’s share.
• Trustee - Must be capacitated to hold property & to
enter into contracts.
• Beneficiary - Must be capacitated to receive
gratuitously from the trustor.
Geronimo & Isidro v. Nava & Aquino
GR L-12111, Jan. 31, 1959
Held:
Where, pursuant to a court decision, the plaintiff not
only allowed but even directed the tenant to pay the
rentals to the defendants, & permitted the latter to
occupy & take possession of the property when the tenant
dis-occupied it, such acts should be construed as a
recognition of the fact that the property, though still
in the former’s name, was to be held in trust for the
defendant, to be conveyed to him on payment of the
purchase price, & such trust is an EXPRESS one.
Administration of the Trust
The trustee must:
a) File a bond. (Sec. 5, Rule 98, RoC).
b) Make an inventory of the real & personal property in trust. (Sec.
6[a], Rule 98, RoC).
c) Manage & dispose of the estate & faithfully discharge his trust in
relation thereto, accdg to law or to the trust instrument terms as
long as they are legal & possible. (Sec. 6[b], Rules 98, RoC).
d) Render a true & clear account. (Sec. 6[c], Rule 98, RoC).
*The Trustee cannot acquire the property held in trust by prescription
as long as the trust is admitted.
Escobar v. Locsin, 74 Phil.
86. G.R. No. 48309. January 30, 1943

A trust is sacred & inviolable, & the

courts should therefore shield
fiduciary relations against every
manner of chicanery.
Q: May a trustee of a trust estate be
personally liable?
A: In the absence of an express stipulation in
a contract entered into by a trustee for a
corporation that the trust estate & not the
trustee should be liable on the contract, the
trustee is liable in its individual capacity.
(Tan Senguan & Co. v. Phil. Trust Co., 58 Phil.
700).
Art. 1445.
No trust shall fail because the
trustee appointed declines the
designation, unless the contrary
should appear in the instrument
constituting the trust.
Declination or refusal or disqualification of a
trustee
• Does not operate to defeat or void the trust
• Does not vest legal & equitable title in the beneficiary
unless a contrary intention appears in the instrument
constituting the trust
• A contract to renounce the right to act as a trustee has
generally been recognized to be against public policy.
 Effect if Trustee Declines
• The trust ordinarily continues.
• The court will appoint a new trustee, unless otherwise
provided for in the trust instrument. (Sec. 3, Rule 98, RoC).
A new trustee has to be appointed, otherwise the trust will
not exist.
NOTE: As between the mother & the uncle of a minor, the
former ought to be preferred as trustee of the proceeds of
an insurance policy of the deceased father in the absence
of evidence that would reveal her incompetence.
Renunciation after
acceptance:
• Resignation
• Retirement
• Agreement with beneficiaries
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
For the trust to be effective,
the beneficiary must accept:
a) expressly,
b) or impliedly,
c) or presumably.
 When Acceptance Is Presumed-
If the granting of benefit is PURELY GRATUITOUS,
beneficiary’s acceptance is presumed.
Exception: If there is proof that he really did NOT
accept.
NOTE: Beneficiary’s acceptance of a GT is NOT subject
to the rules for the formalities of donations.
:. Even if real property is involved, acceptance by the
beneficiary need not be in a public instrument.
Here, the court held that mere acquiescence in the
formation of the trust, and acceptance under the
second paragraph of Art. 1311 (regarding a stipulation
pour autrui) are sufficient.
How Express Trusts Are ENDED
a) Mutual agreement by all the parties
b) Expiration of the term
c) Fulfillment of the resolutory condition
d) Rescission or annulment (as in other contracts)
e) Loss of subject matter of the trust (physical loss or
legal impossibility)
f) Court Order (as when trust purpose is being frustrated)
g) Merger
h) Accomplishment of the purpose of the trust
NOTE:
A testamentary trust for the
administration & eventual sale of
certain properties of the testator ends
not at the time the trustee’s petition
for the sale of the property is approved
by the court, but at the time said sale
is actually made & the proceeds thereof
distributed to the proper recipients.
SHOW deep-pocket Video
IMPLIED TRUSTS
ArtS. 1447-1457
The Doctrine of Implied Trust
- Principle founded on equity as applied by
US legal system to numerous cases where an
injustice would result if the legal estate or
title were to prevail over the equitable right
of the beneficiary. Even though there has
been no fraud or immorality involved, still
there is a mutual antagonism between the
trustee & the beneficiary. Fair dealing
demands the establishment of the relation.
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.
Enumeration of Instances of Implied Trust
- Not exclusive, but trusts are recognized only
if not in conflict with:
a) the Civil Code,
b) the Code of Commerce,
c) the Rules of Court,
d) Special Laws.
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.
Purchase of Property Where Title Is Not
Given to Payer but to Another
• This is a resulting trust because a trust is intended.
• Reason: One who pays for something usually does so
for his own benefit.
• Example: Jarris buys a piece of land from Sheen.
Jarris pays the price so that he may have the
beneficial interest in the land. But he grants the
legal title to Thea.
Q: Who is the trustee& who is the beneficiary?
A: Jarris is the beneficiary, Thea is the trustee.
Q: Suppose in the example, Thea was the legitimate child of
Jarris, is an implied trust still presumed?
A: No. Here, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child. (Art.
1448, para.2).
Q: Is there implied trust if Thea was Jarris’ illegitimate child?
NOTE: Inasmuch as a presumption re existence of a donation
is provided by Art. 1448, the formalities of a donation (in
Arts. 748 & 749 CC) are NOT REQUIRED, for if the
formalities are to be still complied with, there would be
no need for the presumption.
Rule if Document Expresses a Different
Intent-
There is no implied trust if the document
expresses a different intention.
Example: Jarris paid the money for the
purchase of land, but title was given to
Remz. It was proved that Jarris paid
because he was lending the amount
to Remz.
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 Does Not Get Full
Ownership of Benefit
This is a resulting trust, where the “donee”
becomes the trustee of the real beneficiary.
Example: Ian donated land to Remz. But it
was agreed that Remz is supposed to have
only one-third of the products of said land.
There is a trust here.
Q: Who is the 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 it
is paid. The latter may redeem the
property and compel a conveyance
thereof to him.
Conveyance of Property so That It
May Serve as Security
• This is a constructive trust, the reason
of the law being to prevent unjust
enrichment.
• No fiduciary relationship exists between
the so-called “trustor” & the so-called
“trustee” in a constructive trust.
Example:
Willy wants to buy a piece of land from Liam, but
having no money, Willy asks Norm to pay for the
land. The land is then given in Norma’s name. This
is supposed to be Norma’s security until Willy pays
his debt. Here, an implied trust has been created.
Norma is only a trustee. The beneficiary is Willy;
when he has the money, he may redeem the
property & compel a conveyance thereof to him.
The trust here is implied, hence exists even if in the
title taken by Norma, there is no mention of Jose’s
interest or right to redeem.
NOTE:
Do not confuse the given example with
this case: Willy borrows money from
Norma, and Willy later buys land in his
own name. Willy then executes a
mortgage on the land in favor of
Norma.
This is NOT an implied trust. It is
clearly a case of MORTGAGE.
Trust Receipt
Defined in PNB v. Vda. y Hijos de Angel Jose, 63 Phil. 814
• The Court said: “A trust receipt, as a contract,
partakes of the nature of a conditional sale the
importer becoming the absolute owner of the
imported merchandise as soon as he has paid its price;
until the owner or the person who advanced payment
has been paid in full, or if the merchandise has
already been sold, the proceeds turned over to him,
the ownership continues to be vested in such person.”
‘Trust Receipt’ Defined
A trust receipt is a security transaction
intended to aid in financing importers
and retail dealers who do not
have sufficient funds or resources to
finance the 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.
 In the event of default or failure by the entrustee
to comply with the terms under a TR agreement:
• It is not absolutely necessary that the entruster cancel the
trust & take possession of the goods to be able to enforce his
rights thereunder.
• The law (PD 115) uses the word “may” in giving the entruster
the right to cancel the trust & take possession of the goods.
:. Petitioner has the discretion to avail of such right, or seek
any alternative action, e.g. separate civil action
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 Inherited Land Is Not
in Owner’s Name
• This is a resulting trust, for a trust is
intended.
• Example: A inherited a piece of land
from his father, but A caused the legal
title to be put in the name of X, a
brother. Here a trust is impliedly
established, with X as trustee & A as the
beneficiary.
Rules in Co-Ownership
• A co-ownership is a form of trust, with
each co-owner being a trustee for each
of the others.
• If a co-owner or co-heir possesses
certain property owned in common by
him & others, he is under the same
situation as a trustee insofar as the
shares of the other co-owners are
concerned.
Paraphernal Properties Registered
Under the Husband’s Name
• If properties inherited by a wife are registered
under the husband’s name, she can claim them
as her own upon his death even if she does not
refer to the situation as a trust.
• Reason: Here clearly a trust was intended. In
Severino v. Severino, 44 Phil. 343, it was clearly
ruled that the registration of property in the
name of one who holds in a trust character
does not extinguish the trust or destroy the
rights of the beneficiary.
Title in the Name of the Surviving
Husband
Flores v. Flores, 48 Phil. 288: “As long as the
surviving husband retains the property of the
conjugal estate itself, or its place if sold, he
holds it in the character of administrator & is
virtually a trustee (except with reference to his
share) for those interested in the conjugal
partnership. Nor does the obtaining of a Torrens
Title in any way changes the situation.”
Right of Co-heirs
Castro v. Castro, 57 Phil. 675: “One who
acquires a Torrens Title in his own name to
property which he is administering for
himself & his brother & sisters as heirs from
a common ancestor, & in common descent,
may be compelled to surrender to his co-
heirs their appropriate shares. A proceeding
for partition is an appropriate remedy by
which to enforce this right.”
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:
This is a resulting trust in view of the
intent to create a trust.

Presumption That Shares Are Equal:

The shares or interest of co-owners are
presumed to be equal. (Art. 485, para. 2,
CC).
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

• This is a resulting trust in view of the owner’s intention to

create a trust.
• Example: Jose bought from Pedro a parcel of land & it was
conveyed to him (Jose) on his statement that he would hold
it in behalf of Carlos. Here, Jose is merely the trustee, while
Carlos is the beneficiary.
Q: Suppose in the preceding example Jose asserts that he is
really the owner, would he be allowed to do this?
A: No, for he would be in estoppel. (Art. 1431, CC).
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
• This is a constructive trust, the purpose of the
law being to prevent unjust enrichment to the
prejudice of the true owner.
• Example: Marie was indebted to Susie. For the
sole purpose of guaranteeing her debt, Marie
sold her parcel of land to Susie. Here, a trust
has been created. If Marie pays her debt when
it becomes due, Marie 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.
Use of Trust Funds
This is a constructive trust, because again, the
purpose is to prevent unjust enrichment.
Art. 1455 applies to:
a) any trustee,
b) guardian, or
c) other person holding a fiduciary
relationship, like an agent; :. the
acquisitions of the agent inure to the
benefit of his principal
Reasons for the Rule
a) fiduciary or trust relations
b) estoppel
c) to remove the temptation to place self-interest
above all other things at the expense of one’s
integrity & duty to another.
.
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 3rd 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.
Property Acquired Thru Mistake or
Fraud
This is another example of a constructive
trust.
Example: Bella was given a car by Sue
although it should have been given to
Linda. Bella is considered as merely the
trustee of the car for the benefit of Linda.
Nature of the Mistake or
Fraud in Art. 1456
• The mistake is made by a `3rd
person, not by a party to the
contract. For if made by a
party, no trust is created.
• The fraud is extra-contractual.
NOTE:
Art. 1456 does not apply to a donation of
property which the donee has acquired thru
a legal donation, even if he breaks an
important condition thereof. Thus, even with
the breached condition, donee does not
become a trustee. It is still his, subject to an
action for revocation.
Art. 1457.
An implied trust may be
proved by oral evidence.
Proof of Implied Trust
This evidence applies whether the property is
real or personal.

Oral Evidence Must Be Trustworthy

While an implied trust may be proved by oral
evidence, still, said evidence must be a
trustworthy oral evidence, for oral evidence
may be easily fabricated.
THANK YOU!

MERRY
CHRISTMAS!