TRUSTS CONCEPT - A trust is the fiduciary relationship between one person having an equitable ownership in property and another

owning 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 for the benefit of the former. - It is a legal arrangement whereby a person transfers his legal title to property to another to be administered by the latter for the benefit of a third party. - Trust implies confidence in a relationship. Equity Essence of Implied Trusts - Express trusts are founded on the intention of the trustor or the intentions of the parties to the trust which bring about the application of pples applicable to contractual relationship - Implied trusts are created by operation of law based on equity pples - Nonetheless, both types of trusts are deemed to be vested with equitable considerations Nature of trusts - Trusts do not create separate juridical entities - The essence of what constitutes a trust is the recognition that the trustee holds directly legal or naked title to the trust properties - Trust is anchored on splitting the naked title and beneficial title - The essence of trust is that the fiduciary relationship or the enforcement of equity pples is built upon property relations - There is no real trust relationship based only on the meeting of the minds unless and until title to the res is transferred to him either of 3 ways: a) When only naked title is given to him express trust b) When full title has been registered in his name, but with a clear undertaking to hold it for the benefit of another person c) When full title to the property has been acquired by a person under circumstances that the law or equity imposes upon him the obligation to convey it to another person constructive trust

Trusts distinguished from other relations - What distinguishes a trust from other legal relations is the separation of the legal title and the equitable ownership of the subject property between two or more people. 1. TRUST BAILMENT delivery of property in trust it is a characteristic of a bailment necessarily that the bailee has possession involves a transfer of legal title, or of, without legal title to, the at least a separation of equitable property subject to the bailment. interest and legal title, with the legal title in the trustee 2. TRUST A trust is an existing legal relationship and involves the separation of legal and equitable title, 3. TRUST A trust always involves an ownership, embracing a set of rights and duties fiduciary in character which may be created by a declaration without a consideration, 4. TRUST The beneficiary of a trust has a beneficial interest in the trust property,

DONATION a gift is a transfer of property and except in the case of a gift in trust, involves a disposition of both legal and equitable ownership. CONTRACT a contract is a legal obligation based on an undertaking supported by a consideration, which obligation may or may not be fiduciary in character.

DEBT a creditor has merely a personal claim against the debtor

here is a fiduciary relation between there is no such relation between a a trustee and a beneficiary debtor and creditor. a trust refers to a duty to deal with a specific property for the benefit of another. debt implies merely an obligation to pay a certain sum of money

KINDS OF TRUSTS 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. I. As to creation A. EXPRESS TRUST which is created by the intention of the trustor or of the parties - It is the product of contractual intents; they are essentially creatures of contract law and therefore are animated by the agreed intentions of the parties under the freedom to contract doctrine B. IMPLIED TRUST- which comes into being by operation of law - Jurisprudence has distinguished between two types of implied Trusts namely (a) Resulting Trust (one in which the intention to create a trust is implied or presumed in law) and (b) Constructive Trusts (one imposed by law irrespective of, and even contrary to, any such intention for the purpose of promoting justice, frustrating fraud, or preventing unjust enrichment.) * The difference in legal effects between an express trust an implied trust was that the former is not susceptible to charges of prescription or laches whereas in the latter it is possible that the COA may be extinguished by prescription or laches * One other distinction between express trust and implied trust is that express trusts over an immovable property cannot be enforced by parol evidence, but must be properly supported by a written

instrument, whereas implied trusts regardless of the nature of the trust property, may always be enforced even when constituted orally Implied trusts are not covered by statute of frauds II. As to effectivity A. testamentary trust - one which is to take effect upon the trustors death. It is usually included as part of the will and does not have a separate trust deed B. trust inter vivos (sometimes called living trust) - one established effective during the owners life. The grantor executes a trust deed, and once the trust is created, legal title to the trust property passes to the named trustee with duty to administer the property for the benefit of the beneficiary. III. As to Revocability A. Revocable trust- one which can be revoked or cancelled by the trustor or another individual given the power; B. Irrevocable trust- one which may not be terminated during the specified term of the trust *Whether a trust is revocable or irrevocable depends on the wordings or language used in the creation of the trust. It will be presumed revocable unless the creator has expressed a contrary intention in the trust deed. EXPRESS TRUST 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. 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. Parties to an express trust (1) trustor (creator/settlor/grantor) - the person who intentionally creates or establishes the trust. He transfers legal ownership of property to a person for the benefit of a third party, who owns the equitable little; (2) trustee or the person who takes and holds the legal title to the property in trust solely for the benefit of another, with certain powers and subject to certain duties;

(3) beneficiary or cestui que trust or the person who has the equitable title or interest in the property and enjoys the benefit of the administration of the trust by the trustee. He may be a natural person or a legal entity. The trust may provide for more than one beneficiary. Trust property - The juridical concept of a trust arises from or is the result of a fiduciary relation between the trustee who holds legal title and the cestui que trust who has the equitable title as regards certain property. (1) SM of a trust may be any property of value real, personal, funds or money, or choses in action - The property so held is referred to as the trust property or trust res. Corpus and principal are names also used for the trust property. (2) The trust res must consist of property actually in existence in which the trustor has a transferable interest or - But a trust res cannot be a mere expectancy without right or interest or a mere interest in the performance of a contract although such interest is in the nature of a property right. Nature of ownership of trustee and beneficiary - Ownership by two persons at the same time. The trust property is owned by two persons at the same time, the relation between the two owners being such that trustee with legal title under an obligation to use his ownership for the benefit of the other. The beneficiary has the beneficial ownership - The Trustees ownership, therefore, is a mere matter of form rather than of substance, and nominal rather than real. - a trustee is not an owner at all, but a sort of an agent, upon whom the law has conferred the power and imposed the duty of administering the property of another person - In legal theory, however, the trustee is not a mere agent but an owner. - The interests of the beneficiary in the trust can, in general, be reached by his creditors, and he can sell or otherwise dispose of them. The beneficiary can transfer only the interests he holds the equitable title. Character of office of trustee.

(1) As principal. The trustee is not an agent of the trust estate or of the cestui que trust, but he acts for himself in the administration of the trust estate, although subject to the terms of the trust and the law of trusts because it lacks juristic personality. (2) As agent. In some cases, however, a trustee has been regarded as an agent of beneficiaries of the trust at least for certain purposes, such as for the purpose of imputing to the beneficiaries of the trust notice given to the trustee. (3) As fiduciary. A trustee, like an executor or administrator, holds an office of trust. The duties of the latter are, however, fixed and/or limited by law, whereas those of trustee of an express trust are, usually, governed by the intention of the trustor or of the parties, if established by contract. Besides, the duties of trustees may cover a much wider range than those of executors or administrators of the estate of deceased persons. Necessity of existence of beneficiary - A trust is not void for indefiniteness if by its terms the whole property will go to the beneficiary or beneficiaries who is/are undetermined but will be determined at the termination of the trust, at the latest. - It is not necessary to the creation of a trust that the cestui que trust be named or identified or even be in existence at the time of its creation; and this is especially so in regard to charitable trust. - The trustor can simply specify as the beneficaries a class of persons (e.g., my minor children,) who are readily identifiable. Essential Characteristics of express trust 1) It is a relationship 2) It is a relationship of fiduciary character 3) It is a relationship with respect to the property not one involving merely personal duties 4) 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 5) It arises as a result of a manifestation of intention to create the relationship - These characteristics also apply to resulting trust but not to constructive trust since the trustee in constructive trust actually owes no fiduciary duty

Express Trusts are essentially Contractual in Nature ART. 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. 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. Acceptance, declination, or renunciation by the trustee - In the case of an express trust, acceptance of trust by a trustee is necessary to charge him with the office of the trustee and the administration of the trust and to vest the legal title in him. - However, his acceptance of the trust is not necessary to its existence and validity, since if he declines the trust, the courts will appoint a trustee to fill the office that he declines - Art. 1445 can only mean two things a) No contractual relationship has been established yet because the actual transfer of naked title to the trustee has not been effected yet b) Trust could not be said to fail because its final establishment may still be effected by another person who accepts the trust and to whom the legal title to the corpus may be instituted - One designated or appointed as trustee may decline the responsibility and thereby be free from any legal or equitable duty or liability in the matter. Unless a contrary intention appears in the instrument constituting the trust (Art. 1145.), declination or refusal or disqualification of a trustee does not operate to defeat or void the trust; nor does it operate to vest legal as well as equitable title in the beneficiary. - Furthermore, renunciation of a trust after its acceptance can only be by resignation or retirement with court approval or at least, with agreement of beneficiaries and on satisfaction of all legal liabilities growing out of the acceptance of the trust. Acceptance of trust by the beneficiary - Acceptance of or assent to the trust by the beneficiary is essential to the creation and validity of a trust.

- The trust being beneficial to the beneficiary, his acceptance is presumed if there is no proof to the contrary. - However, if the trust imposes some onerous condition, acceptance must be shown. Such acceptance may be express or implied. - It must be noted that when the beneficiary is constituted other than the trustor then the trust actually provides for stipulation pour autri - When the designated beneficiary expressly refuses to accept the benefits of the trust, the trust ceases to have an objective. But since the naked title remains with the trustee, his obligation is to comply with the instructions of the trustor - A designation of a beneficiary which does not impose onerous condition partakes essentially of a gift or donation and is governed by the Law on Donation which makes the disposition a solemn contract -However, non-compliance with the solemnities required for donation in the realm of trust does not render the trust void since under Art. 1444 No particular words are required for the creation of an express trust it being sufficient that the trust is clearly intended Essential Elements of Express Trust (1) A competent trustor and trustee; (2) An ascertainable trust res; and (3) Sufficiently certain beneficiaries. - The trustee must also have some power of administration other than a mere duty to perform a contract although the contract is for some thirdparty beneficiary. -A declaration of terms is essential and these must be stated with reasonable certainty in order that the trustee may administer, and that the court, if called upon so to do, may enforce the trust. - Since the trustee takes title to property and administers it, it follows that he must be capable of owning property. - Consideration, is not required to establish a trust. Essential Characteristics of express trust as contractual relationship 1) Nominate and Ppal - It having been given a particular name and not needing another contract to be valid

- Many of the obligations and duties of the trustee prevail on the basis of equity and not necessarily upon the contractual intentions of the parties 2) Unilateral - It is only the trustee who assumes obligations to carry on the trust for the benefit of the beneficiary 3) Primarily Gratuitous - Generally a trust relationship imposes no obligation or burden upon the beneficiary 4) Real 5) Preparatory - Because it is not constituted for its own sake in that the trust is essentially the medium established by the trustor to allow full authority and discretion on the part of the trustee to enter into various juridical acts on the corpus 6) Fiduciary - The trustee is one in whom confidence is reposed as regards property for the benefit of another person - express trust creates a fiduciary obligation in the trustee by virtue of his having assumed naked title Acquisitive Prescription on the corpus unavailing to the trustee - One of the consequences of the fiduciary relationship existing in a trust relationship is the inability of the trustee to invoke the statute of limitations or prescription against the beneficiary. RULES OF ENFORCEABILITY OF EXPRESS TRUST ART. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence. ART. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. Evidence to prove express trust - Burden of proof. The general rule is that the burden of proving the existence of a trust is on the party alleging its existence; and to discharge this burden, it is generally required that his proof be clear and satisfactory and convincing. - Trust concerns immovable therein.

By virtue of Article 1443, a writing is necessary to prove an express trust concerning an immovable or any interest therein. The writing is required by said article not for validity but for purposes of proof. - To affect third persons, a trust concerning an immovable or any interest therein must be embodied in a public instrument and registered in the Registry of Property. - Failure to object to parol evidence. Like the defense of the Statute of Frauds, the defense that express trusts cannot be proved by parol evidence may be waived, either by failure to interpose timely objections against the presentation of oral evidence not admissible under the law or by cross-examining the adverse party and his witnesses along the prohibited lines. Creation of an express trust - Express trusts are those trusts intentionally created by direct and positive act of the trustor, by some writing, deed, will, or oral declaration evincing an intention to create the trust. - No particular words are required or essential for the creation of an express trust, it being sufficient that a trust is clearly intended. - Art. 1444 provides that an express trust will never be presumed to exist -Express trust must be proven by clear, satisfactory and convincing evidence Essence of the Relationship between trustor and Trustee Prior to the conveyance of the Rest to the trustee - The transfer of the legal title over the property to the trustee is necessary in order that a contract of express trust is constituted - Before the delivery of the naked title there is no valid contract of trust but only nominate contract of do ut facia, that is, the trustor has contractually bound himself to deliver and transfer title over the trust property to the trustee (real obligation to give) and the trustee has bound himself to accept delivery and manage the property (personal obligation to do) Express Trusts over immovables must be in writing - read p. 295-299 Villanueva

DISTINGUISHING EXPRESS TRUSTS FROM SIMILAR ARRANGEMNETS 1. TRUST USUFRUCT It is the trustee who actively Usufructuary enjoys the property manages and administers the of another and it is he who directly property and the beneficiary is a possesses and enjoys the fruits and passive receiver of the fruits and benefits of the property. Also the benefits arising from the property Usufructuary is the one who is obliged to preserve the form and substance of the property and preserve the property (Bonus Pater familias) 2. TRUST LEASE Full beneficial ownership over the What is given to the lessess is the property is for the account of the enjoyment of the possession and beneficiary and what is assumed use of the property by the trustee is the obligation to manage the trust property

another person (borne out by property relation) There is a duty of loyalty (to the best interest of beneficiary) but he is not bound by the duty of obedience for he has been given the title; not bound by the instructions of the beneficiary Revocable not at the will of the trustor or beneficiary but only based on a breach of trust (breach of the duty of loyalty and diligence)

principal to represent him and his interest in dealings with 3rd parties Agents acts based on the instruction of the ppal (duty of obedience)

Revocable at will

Permanent in nature

For a limited period

3. TRUST Express trust is not perfected by mere consent but requires the actual delivery of the naked title Trustee gets only the naked title Preparatory 4. TRUST The relationship is fiduciary because the trustee holds title to the property for the benefit of SALE Perfected by mere consent

Buyer gets the full ownership Entered into for its own end AGENCY Fiduciary relationship is strictly based on personal level; that he has been commissioned by the

KINDS OF EXPRESS TRUST 1. Contractual Trust READ p. 306-307 Villanueva 2. Inter Vivos Trust in the form of donation 3. Testamentary Trust4. Eleemosynary/ Charitable Trusts- one designed for the benefit of a segment of the public or of the public in general. 5. Publicly- Regulated Trust where the State provides the vehicle by which institutions are allowed to administer large funds for the benefit of the public (SSS, GSIS) CAPACITIES, RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES TO THE EXPRESS TRUST 1. TRUSTOR - The trustor as the creator of the trust disposes of his full ownership of the designated properties in favor of the trustee who assumes legal title and beneficiary to whom beneficial title shall pertain - Trustor must have the legal capacity to convey trust property 2. TRUSTEE - The trustee is the party primarily bound in whom confidence is reposed as regards property for the benefit of another person - He is bound by the fiduciary duties of diligence and loyalty - Trustee must also have the legal capacity to accept the trust - Trustee does not become personally liable to his separate properties outside the trust properties for contracts and

transactions arising from the trust and entered into in his official capacity as trustee - The trustee becomes personally liable when he acts with fraud or gross negligence as to all persons who suffer damage by reason of such act - Trustee is entitled to compensation for management of the trust estate (it must be reasonable depending on the circumstances or it shall be fixed by the court that appointed him [R.98 S.7]) - Resignation/Removal of Trustee- The proper RTC may upon petition of the parties beneficially interested remove a trustee if such removal appears essential to the interest of the petitioners - Obligations of the trustee a) Contractually stated duties and obligations of the Trustee - An express trust constituted under a trust arrangement normally provides for the powers and functions of the trustee and provide for the parameters of his obligation as well b) Common law duties of the trustee - A trustee is expected to carry out the trust using the diligence of good father of a family - he is also liable for gross negligence committed even when it is in the pursuit of the trust arrangement; for negligence which causes damage to another person - Trustee is expected to be loyal to the affairs and interest of the beneficiary (it includes duty to account to the beneficiary) - Deliver the property to the beneficiary when it is time to do so free from all liens and encumbrances c) Trustee is prohibited from donating the trust property d) Trustee cannot use funds of the trust to acquire property for himself e) Duties and responsibilities of the Trustee under the ROC i. Before entering on the duties of his trust, trustee shall file a bond with the court conditioned upon compliance with his duties

ii.

iii. iv.

v.

To make and return to the court, at such time it may order, a true inventory of all the personal and real estate To manage and dispose of all such estate To render upon oath at least once a year a true account of the property in his hands unless he is excused therefrom Upon the expiration of his trust, he will settle his accounts in court and pay over and deliver all the estate remaining in his hands

3. BENEFICIARY - Beneficiary is the passive recipient of the benefits flowing from the trust - beneficiary need not have legal capacity HOW EXPRESS TRUST EXTINGUISHED OR TERMINATED a) Destruction of the Corpus - The proprietary basis no longer exists to warrant any legal relationship between the parties b) Revocation by the Trustor c) Achievement of the objective or happening of the condition provided for in the trust arrangement d) Death or legal incapacity of the 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 because a new trustee will be appointed e) Confusion or merger of legal title and beneficial title in the same person - When the trustee of an existing trust becomes the beneficiary thereof, the trust relation is ipso jure extinguished f) Breach of trust - When a trustee breaches his duty of loyalty When trustee may sue or be sued alone - In order that a trustee may sue or be sued alone, it is essential that his trust be express, that is, a trust created by the direct and positive acts of the parties, by some writing, deed, or will or by proceedings in court.