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BUSINESS TRUSTS Agent must act upon Trustee acts on his own business instructions of the owner discretion Nature and Classification of Trusts Agent enters into contract in Trustee enters into contracts in his I. Definition and Essential Characteristic of Trust the name of the principal own name 1440...

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"Examining Barga in line wit h Trust Law: An Appraisal " Shariful Islam

BUSINESS TRUSTS 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

Agent must act upon instructions of the owner Agent enters into contract in the name of the principal Agent cannot be sued

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.

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Agency Trust Fiduciary in nature Essentially revocable Essentially obligatory in its terms and period and can only be rescinded based on breach of trust Agent possesses property Trustee takes legal or naked title to under agency for and in the the subject matter of trust name of the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 Roan Salanga

Trustee acts on his own business discretion Trustee enters into contracts in his own name Trustee is liable directly and may be sued in his trust capacity

Trusts

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 Page 1 of 8

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)

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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

2. Express Trust must be Proven  An express trust cannot be proven by parol evidence. Roan Salanga

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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 Roan Salanga

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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 Page 3 of 8

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. Roan Salanga

Trusts

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. Page 4 of 8

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

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

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

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. 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 Roan Salanga

III. Implied Trusts 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.

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Implied trusts—from the facts and circumstances of a given case, the existence of a trust relationship is inferred in order to Page 5 of 8

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 Roan Salanga

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who in any way against equity and good conscience, either has obtai...