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CLV NOTES ON TRUSTS August 2010

I INTRODUCTION page 2

II EXPRESS TRUSTS page 15

III IMPLIED TRUSTS page 66

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I INTRODUCTION

[Updated: 06 August 2010]

I INTRODUCTION

1. Trusts under the New Civil Code

Title V in the New Civil Code on TRUSTS has no counterpart in the old Civil Code. On this matter, the Code Commission reported as follows

The law on trusts is comprehensive in American law. Trusts are divided into express and implied. The former are constituted by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.

The doctrine of implied trust is founded upon equity. The principle is applied in the American 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. A number of instances of implied trusts are specified in the Project of Civil Code, but this enumeration does not exclude other cases established by the general law on trust.

In article 1462 [now Article 1442 of the New Civil Code] the principle of the general law on trusts insofar as they are not in conflict with the proposed Civil Code, the Code of Commerce, the Rules of Court and special laws are adopted. This article incorporates a large part of the American Law on trusts and thereby the Philippine legal system will be amplified and will be rendered more suited to a just and equitable solution of many questions. (at p. 60, Malolos and Martin, Report of the Code Commission, Domerte Book Supply, 2116 Azcarraga, Manila, Philippines, 1951 ed.)

Other than the foregoing, the Code Commission provided for no further explanations or amplifications on the Law on Trusts, and most of what is commented, found expression in the few provisions of the New Civil Code.

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What is clear from the brief comments of the Code Commission is that the growth of Philippine Law on Trusts will find its impetus from common law from where it was derived, and expressed in jurisprudential rulings of the Supreme Court.

a. Philippine Trusts Rooted on American Law on Trusts

Trusts, the doctrines and principles that arise from their establishment, are rooted in the Philippine legal system based on American Law principles on Trusts. Thus, Article 1442 of the New Civil Code now provides:

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.

The foundation of Article 1442 may be drawn from the decision inGovernment v. Abadilla, 46 Phil. 642 (1924), where the Court held

As the law of trusts has been much more frequently applied in England and in the United States than it has in Spain, we may draw freely upon American precedents in determining the effect of the testamentary trust here under consideration, especially so as the trusts known to American and English equity jurisprudence are derived from the fidei commissa of the Roman law and are based entirely upon Civil Law principles. (at pp. 646-647.)

2. The 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 principles applicable to contractual relationships (i.e., consensuality, mutuality, and relativity). On the other hand, implied trusts, are created by operation of law based on equity

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principles. Nonetheless, both types of trusts are deemed to be vested with equitable considerations.

When it comes to express trusts, for example, equity consideration is expressed in Article 1445 of the Civil Code when it provides that No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust.

Under the aegis of the New Civil Code, the Court reiterated the equity basis of trusts when it held in Deluao v. Casteel, 22 SCRA 231 (1962), that as a legal consequence of trust being essentially founded on equity principles, is that no trust, whether express or implied, can be held valid and enforceable when it is violative of the law, morals or public policy.

In Miguel v. Court of Appeals, 29 SCRA 760 (1969), the Court held that

Furthermore, because the case presents problems not directly covered by statutory provisions or by Spanish or local precedents, resort for their solution must be had to the underlying principles of the law on the subject. Besides, our Civil Code itself [Article 1442] directs the adoption of the principles of the general law of trust, insofar as they are not in conflict with said Code, the Code of Commerce, the Rules of Court and special laws. (at pp. 775-776).

In other words, application of implied trusts principles on given transactions covering proprietary relations are mandated not by specific reference to statutory provisions, but by seeking equitable solutions to render justice to the parties involved or affected by the transaction.

Later, in Salao v. Salao, 70 SCRA 65 (1976), the Court characterized the equity nature of trusts, as follows

In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, but the word trust is

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frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts (89 C.J.S. 712).

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. 1440, Civil Code). There is a fiduciary relation between the trustee and the cestui que trust as regards certain property, real, personal, money or choses in action. Pacheco v. Arro, 85 Phil. 505 (at p. 80).

The equity nature of a trust supports the proposition that the intention of the trustor to create a trust for the benefit of intended beneficiary should as much as possible be realized. Thus, Article 1444 provides that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. An application of this doctrine (not the article) can be found in Government v. Abadilla, 46 Phil. 642 (1924), where after holding that the testamentary trust was very unskillfully drawn; its language is ungrammatical and at first blush seems to somewhat obscure, the Court nonetheless held: but on closer examination it sufficiently reveals the purpose of the testator. And if its provisions are not in contravention of some established rule of laws or public policy, they must be respected and given effect. (at p. 646.)

In applying the equity nature of trusts, Abadilla held that the intention of the trustor is the more essential consideration, and that

In regard to private trusts it is not always necessary that thecestui que trust should be named, or even be in esse at the time the trust is created in his favor. (Citing Flint on Trusts and Trustees, section 25; citing Frazier v. Frazier, 2 Hill Ch., 305;Ashurst v. Given, 5 Watts & S., 329; Carson v. Carson, 1 Wins [N.C.], 24.) . . . Thus a devise to a father in trust for accumulation for his children lawfully begotten at the time of his death has been held to be good although the father had no children at the time of the vesting of the funds in him as trustee. In charitable trusts such as the one here under

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discussion, the rule is still further relaxed. (Citing Perry on Trusts, 5th ed., section 66.) (at p.647.)

In Ramos v. Court of Appeals, 232 SCRA 348 (1994), where the payor of the purchase price of the property had intended that it be held by purported trustee for her because she was not qualified to hold such parcel of land, although a resulting trust should have arisen under the provisions of Article 1448 of the Civil Code, nonetheless, the Court refused to grant to the payor the relief of compelling the purported trustee to convey the land to her, ruling that

However, if the purpose of the payor of the consideration in having title title placed in the name of another was to evade some rule of the common or statute law, the courts will not assist the payor in achieving his improper purpose by enforcing a resulting trust for him in accordance with the clean hands doctrine. The courts generally refuses to give aid to claims from rights arising out of an illegal transaction, such as where the payor could not lawfully take title to land in his own name and he used the grantee as a mere dummy to hold for him and enable him to evade the land laws, i.e., an alien who is ineligible to hold title to land, who pays for it and has the title put in the name of a citizen. Otherwise stated, as an exception to the law on trust, [a] trust or a provision in the terms of a trust is invalid if the enforcement of the trust or provision would be against public policy, even though its performance does not involve the commission of a criminal or tortious act by the trustee. (at p. 361, quoting from Restatement (Second) of Trusts 62 [1959].)

3. Trusts Do Not Create a Separate Juridical Entity, But the

Naked Title of the Trustee Divorces the Trust Properties from

the Rest of the Trustees Estate

It should be noted that there is no statutory provision or case-law which recognizes a trust relationship as creating a separate juridical entity. Indeed, the essence of what constitute a trust is the

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recognition that the trustee holds directly legal or naked title to the trust properties. Nevertheless, the naked or legal title held by the trustee should be looked upon as held in his official capacity as trustee and cannot be deemed included in his estate to which he has full ownership and by which he owes no fiduciary duties.

These principles are best exemplified in Development Bank of the Philippines v. COA, 422 SCRA 465 (2004), where the DBP contributed funds into a retirement plan for its officers and employees, and constituted a board of trustees vesting it with the control and administration of the fund. Augmentation to the retirement fund were made through loans extended to the qualified officers and employees, which were invested in shares of stocks and other marketable securities, and the earnings from which were directed to be distributed to the beneficiaries even before they have retired.

The COA objected to the distribution of the earnings from the investments made through the retirement fund on the ground that is was contrary to an express provision of law which prohibits the distribution of retirement benefits to government employees prior to their actual retirement. COA also directed that the earnings from the investment be included in DBPs books of account as part of its own earnings, since the retirement and its income were actually owned by DBP having made the contributions thereto. DBP objected to the COA resolution on the ground the express trust created for the benefit of qualified DBP employees under the Trust Agreement . . . gave the Fund a separate legal personality, (at p. 467) and therefore the earnings pertained to the employees and should be credited as income of DBP.

While DBP v. COA characterized an employees trust as a trust maintained by an employer to provide retirement, pension or other benefits to its employees . . . [and ] is a separate taxable entity established for the exclusive benefit of the employees, (at p. 473) still the Court did not consider the such employees trust as a separate juridical person. The Court ruled that The principal and income of the Fund [of employees trust] would be separate and distinct from the funds of DBP, on the ground that DBP as trustor

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already conveyed legal title thereto to the Board of Trustees of the employees trust, and with DBP officers and employees having beneficial title thereto, thus:

In a trust, one person has an equitable ownership in the property while another person owns 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. . .

In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title over the Fund as well as control over the investment of the money and assets of the Fund. The powers and duties granted to the trustees of the Fund under the Agreement were plainly more than just administrative [but included the power of control, the right to hold legal title, and the power to invest and reinvest] . . . (at p. 474.)

x x x .

Clearly, the trustees received and collected any income and profit derived from the Fund, and they maintained separate books of account for this purpose. The principal and income of the Fund will not revert to DBP even if the trust is subsequently modified or terminated. The Agreement states that the principal and income must be used to satisfy all of the liabilities to the beneficiary officials and employees under the Gratuity Plan . . . (at p. 475.)

On the issue that the DBP officials and employees had no right to the fund nor to the income earned until they actually retire, which therefore did not qualify them to be considered cestui que trust or beneficiary, and therefore the same should still accrue to DBP, the Court ruled

The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who will retire x x x .

As COA correctly observed, the right of the employees to claim their gratuities from the Fund is still inchoate. [The law], does not allow employees to receive their gratutities until they retire. However,

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this does not invalidate the trust created by DBP or the concomitant transfer of legal title to the trustees. As far back as in Government v. Abadilla, the Court held that 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. It is enough that the beneficiaries are sufficiently certain or identifiable. (at pp. 476-477.)

The Court resolved in DBP v. COA, that The Agreement indisputably transferred legal title over the income and properties of the Fund to the Funds trustees. Thus, COAs directive to recored the income of the Fund in DBPs books of account as the miscellaneous income of DBP constitutes grave abuse of discretion. The income of the Fund does not form part of the revenues or profits of DBP, and DBP may not use such income for its own benefit. The principal and income of the Fund together constitute the res or subject matter of the trust. The Agreement established the Fund precisely so that it would eventually be sufficient to pay for the retirement benefits of DBP employees under [the law] without additional outlay from DBP. COA itself acknowledged the authority of DBP to set up the Fund. However, COAs subsequent directive would divest the Fund of income, and defeat the purpose for the Funds creation. (at p. 477.)

4. Essence of Trust Is Anchored on Splitting or Intention to

Split the Naked Title and Beneficial Title of the Res or

Trust Property

The essence of trusts, whether express or resulting, is that the fiduciary relationship or the enforcement of equity principles is built upon property relations; unless, the dispute involved claims arising from property rights, then trusts principles do not apply. In other words, there is no real trust relationship based only on the meeting of the minds, and that the trustee does not even begin to assume fiduciary duties towards the beneficiary, unless and until title to the res is transferred to him in either of three ways:

(a) When only naked title is given to him (i.e., he is registered as the naked or legal title holder or trustee for the benefit of an

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identified beneficiary), then an express trust has been constituted; or

(b) When full title has been registered in his name, but with a clear undertaking to hold it for the benefit of another person or pursuant to a clear arrangement with another person as the beneficiary, then an express trust at best, or resulting trust at least, has been constituted; or

(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 who has a better claim to such property, in which case a constructive trust is deemed constituted by force of law.

This has been confirmed by the Supreme Court in Caezo v. Rojas, 538 SCRA 242 (2007), where it held

What distinguishes a trust from other relations is the separation of the legal title and equitable ownership of the property. In a trust relation, legal title is vested in the fiduciary while equitable ownership is vest in a cestui que trust. Such is not true in this case. The petitioner alleged in her complaint that the tax declaration of the land was transferred to the name of [the purported trustee] Crispulos without her consent. Had it been her intention to create a trust and make Crispulo her trustee, she would not have made an issue out of this because in a trust agreement, legal title is vested in the trustee. The trustee would necessarily have the right to transfer the tax declaration in his name and to pay the taxes on the property. These acts would be treated as beneficial to the cestui que trust and would not amount to an adverse possession. (at p. 255.)

The existence of valid title in the person of the trustee for the benefit of thecestui que trust is so essential that in cases where the title of the purported trustee was void, the Supreme Court has refused to apply trust principles at all. Thus, in Ferrer v. Bautista, 231 SCRA 257 (1994), where the free patent and original certificate

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of title issued in the name of the occupant of a strip of land that had arisen by accretion was held to be void, the Court refused to apply the principle that an action for reconveyance on an implied trust prescribes in ten years after the issuance of the title, on the ground that no implied trust could arise from a void title held by the purported trustee, and hence the action to reconvey was deemed imprescriptible.

Likewise, in Macababbad, Jr. V. Masirag, 576 SCRA 70 (2009), where the title to the registered land was obtained through forging the signatures of the heirs in the purported extrajudicial settlement of estate, the Court held title by the heir who exercised fraud, was void and the rules on implied trust to limit the period to file an action for reconveyance to ten (10) years was deemed inapplicable.

5. Kinds of Trust

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.

Article 1441 of the Civil Code expressly recognizes the following kinds of trust, thus:

Express Trust which is created by the intention of the trustor or of the parties;

Implied Trust which comes into being by operation of law.

In turn, jurisprudence has distinguished between two types of implied trusts, namely: (a) Resulting Trusts; and (b) Constructive Trusts.

Express trusts are 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 principle of autonomy or the freedom to contract doctrine.

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Ramos v. Ramos, 61 SCRA 284 (1974), defined express trusts as those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust (quoting from 89 C.J.S. 122.)

Lately, in Heirs of Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009), the Court held that Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law. (at p. 418.)

On the other hand, implied trusts, particularly constructive trusts, are creatures of the law; they exist in circumstances where the law mandates it so, and in all similar situations where justice or equity has to be achieved. Implied trusts are essentially a product of equitable consideration.

Ramos defined implied trusts as those which, without being expressed, are deducible from the nature of the transaction 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. (quoting from 89 C.J.S. 724.)

The difference in legal effects between an express trust and an implied trust, according to Ramos, was that the former is not susceptible to charges of prescription or laches, whereas in the latter, it is possible that the cause of action of the cestui que trust may be extinguished by prescription or laches.

In Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), the Court applied the principles of constructive trust under Article 1456 of the Civil Code to rule on a situation where a bank had mistakenly credited to the account of a person an amount not due to the depositor (although the Court held that the primary resolution of the issues was under quasi-contract on solutio

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indebiti). Although money or other forms of legal tender do not constitute property for the holder thereof can claim ownership, the commercial value they represent is a proprietary interest where trust principles can be made to apply. Indeed, it is not unusual that trust agreements are executed with the trust departments of banks, where a good part of the corpus would constitute large sum of money.

Earlier, under the old Civil Code, in Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958), the Court held that

The reason for the difference in treatment is obvious. In express trusts, the delay of the beneficiary is directly attributable to the trustee who undertakes to hold the property for the former, or who is linked to the beneficiary by confidential or fiduciary relations. The trustees possession is, therefore, not adverse to the beneficiary, until and unless the latter is made aware that the trust has been repudiated. But in constructive trusts (that are imposed by law), there is neither promise nor fiduciary relation; the so-called trustee does not recognize any trust and has no intent to hold for the beneficiary; therefore, the latter is not justified in delaying action to recover his property. It is his fault if he delays; hence, he may be estopped by his own laches. (at p. 266.)

As will be discussed in the last chapter, it used to be the judicial position that under an express trust arrangement, the trustee can never claim either acquisitive prescription in his favor to obtain title to the property held in trust, or the benefit of extinctive prescription in order to defeat the right of the beneficiary to demand the exercise of his rights. The reason was that in an express trust arrangement, which is created only by the express or implied acceptance by the trustee that he holds the trust property for the benefit of the beneficiary, his possession thereof is not adverse to, nor in repudiation of, the rights and beneficial title of the beneficiary. Consequently, the long passage of time cannot give rise to either prescription, much less laches; there must be an express repudiation of the trust arrangement by the trustee, and notice to the beneficiary that he now holds title adverse to the beneficiary, for prescription or laches to begin commencing.

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On the other hand, under an implied trust arrangement, where there is really no implied acceptance of a trust obligation on the purported trustee, the mere fact that title has been registered in the name of the purported trustee and he holds possession thereof for his own benefit is constituted as a repudiation of any trust arrangement that the purported beneficiary may expect from the arrangement. Consequently, the mere passage of time with the purported trustee exercising dominion over the purported trust properties for his own benefit, without need of express repudiation could eventually lead to successfully claiming the effects of prescription or laches on the part of the trustee, to the detriment of the beneficiary.

This critical distinction has been blurred in the years since the Ramosdecision, with both kinds of trusts being considered capable of being subject to the defense of prescription or laches, with the difference remaining on whether there is a need for express repudiation, and the nature required for any of such repudiation to take effect. The matter is better discussed in the last chapter.

One other distinction between express trusts and implied trusts, 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. In other words, implied trusts are not within the operative cover of the Statute of Frauds, as expressed succinctly in Article 1457: An implied trust may be proved by oral evidence.

Although express trusts and implied trusts are governed by different principles, the common denominator between them is that they are legal relationships built upon property rights; there can be no express or implied trusts among individuals unless some property lies in the middle of such relationship.

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II EXPRESS TRUSTS

[Updated: 16 August 2010]

II. THE LAW ON EXPRESS TRUSTS

1. Definition and Nature of Express Trusts

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

trust are created by the intention of the trustors or of the

parties. Implied trusts come into being by operation of law.

Title V of the New Civil Code does not contain a particular definition of Trust, but its first article Article 1440 defines the persons who constitute the parties in a trust relationship, thus:

Trustor the person who establishes a trust (referred to as grantor, settlor, or founder in common-law parlance);

Trustee the person in whom confidence is reposed as regards the property placed in trust (referred to as the corpus); it is the trustee who assumes certain duties relating to the the res with respect to the person for whose benefit the trust is created; and

Beneficiary the person for whose benefit the trust has been created (the cestui que trust).

We can therefore define trust under the terms of Article 1440 as a legal relationship based primarily on the parties relationship to the property that constitutes the corpus or the trust estate, whereby a

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person, called the trustor, conveys the naked or legal title to a property to another person, called the trustee, who takes title thereto under a fiduciary obligation to administer, manage and dispose of the property for the benefit of another person, called the beneficiary, to whom therefore beneficial or equitable title pertains.

Quoting from American legal literature, Tolentino defines trust as the legal relationship between one person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and exercise of certain powers by the latter. (Tolentino, Civil Code of the Philippines, Vol. IV, at p. 669, citing 54 Am. Jur. 21, hereinafter referred to as Tolentino; reiterated in Morales v. Court of Appeals, 274 SCRA 282, 297 [1997].)

In Barretto v. Tuason, 50 Phil. 888 (1926), the Supreme Court noted that trust is known as fideicomiso under Spanish legal system, with the trustee being designated as the fiduciario, and the beneficiary referred to as thefidecomisario or the cestui que trustant.

In Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), the Court described a typical trust (as distinguished from a constructive trust under Article 1456 of the Civil Code) as one wherein confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations; in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust or intends holding the property for the beneficiary. (at pp. 353-354;italics supplied.)

In addition, PNB distinguished between the obligations of the trustee in an express trust from that in a constructive trust: Under

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American Law, a court of equity does not consider a constructive trustee for all purposes as though he were in reality a trustee; although it will force him to return the property, it will not impose upon him the numerous fiduciary obligations ordinarily demanded from a trustee of an express trust. It must be borne in mind that in an express trust, the trustee has active duties of management while in a constructive trust, the duty is merely to surrender the property. (at p. 356.)

2. Essential Characteristics of Express Trusts

In Morales v. Court of Appeals, 274 SCRA 282 (1997), after adopting Tolentinos definition of trusts, the Court enumerated the following essential characteristics of trust as enumerated in the esteemed authors book:

(a) It is a relationship;

(b) It is a relationship of 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; and

(e) It arises as a result of a manifestation of intention to create the relationship. (at p. 298)

Morales actually involved an application of the principles pertaining to implied trusts (particularly the application of Article 1448 of the Civil Code), and although one gets the impression that the characteristics pertain to all forms of trusts, both express and implied, the above enumerated essential characteristics actually pertain to express trusts, and perhaps even to resulting trusts, but not to constructive trust arrangements, since it has already been held by the Supreme Court that technically speaking, the purported

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trustee in a constructive trust actually owes no fiduciary duty or obligation to the cestui que trust, and certainly a constructive trust arises by operation of law and not as a result of a manifestation of intention to create the relationship.

a. Express Trusts Are Essentially Contractual in Character

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.

Generally speaking, an express trust is essentially contractual in characterbecause it can only be constituted through contractual intention on the part of the trustor to dispose of his property by dividing its full ownership between the trustee and the beneficiary, and requires generally the full acceptance of the naked title and fiduciary obligations on the part of the trustee, and the concomitant obligations that go with it. This is the reason why Morales indicates that one of the essential characteristic of a trust that it arises as a result of a manifestation of intention to create the relationship. (at p. 298.)

Thus, Article 1441 of the Civil Code provides that Express trusts are created by the intention of the trustor or of the parties, and Article 1444 provides that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

While Article 1441 of the Civil Code defines an express trust as created by the intention . . . of the parties, which clearly supports the proposition that the nexus of every express trust arrangement is a contractual relationship, nonetheless, it also defines an express trust as created by the intention of the trustor alone, which seems to defy the essence of mutual consent as a necessary element in

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bringing about a contractual relationship. Yet it cannot be denied that no person may find himself bound to the fiduciary duties and obligations of a trustee, unless he previously consented thereto, or expresses his consent by voluntarily assuming such relationship to the trust property which necessarily brings about the duties and obligations of a trustee.

On the other hand, Article 1445 of the Civil Code provides that No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. Read plainly, Article 1445 seems to imply that the element of consent or meeting of minds, so essential for a valid contract to arise, does not pertain to express trust and thus may lead to the conclusion that express trusts are not necessarily contractual relationships. Such impression would be wrong, as will be explained in the sections below discussing the characteristic of express trust as being a real and preparatory contract.

In other words, there can be no denying the legal truism that an express trust constitutes essentially a contractual relationship between and among the parties thereto. This is supported by Article 1446 which states that Acceptance by the beneficiary is necessary, and that if the trust does not impose any onerous condition upon the beneficiary, then his acceptance shall be presumed, if there is no proof to the contrary.

It should be noted, however, that the nexus of the contractual meeting of the minds in an express trust is that between the trustor and the trustee, and the acceptance of the benefits by the beneficiary under the trust arrangement would constitute normally merely stipulation pour autrui.Although the proper identification of the beneficiary constitutes an essential element of a valid trust, as it determines the nature and extent of the fiduciary duties and obligations of the trustee, acceptance of the benefits by the beneficiary is generally not an essential element of a valid trust. This is the reason why the lack of acceptance by the beneficiary does not generally render the trust void. The provisions of the law mandating acceptance by the beneficiary, whether express or implied, or presumed, are meant to cover the principle of

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law that nobody can be compelled to accept the gift or charity of another person without his consent.

Express trusts are essentially the product of contractual intent, and most express trust relationships are overtly contractual in nature since they are executed in a formal Deed of Trust.

An express trust may also be constituted in a will, it which case it becomes atestamentary trust, and the validity of the trust arrangement would be depended on the validity of the testamentary disposition. In such case, the issues as to the validity of the trust arrangements would have to be resolved under the Laws on Succession.

An express trust may also be constituted in the form of a donation, in which case it is embodied in a solemn contract, and many of the issues on validity would have to be resolved under the Law on Donations.

It should be noted, however, that when the beneficiary constituted in a trust is other than the trustor, then the deed of trust actually provides for stipulation pour autrui in favor of the designated beneficiary, and under Article 1446 of the Civil Code, acceptance by the beneficiary is deemed presumed. More importantly, a designation of a beneficiary which does no impose onerous conditions, partakes essentially of a gift or a donation in favor of the beneficiary, and strictly speaking is governed by the Law on Donation which makes the disposition a solemn contract. Likewise, in the Law on Taxation, the same constitute taxable gift or donation for which the proper gift tax should be paid. Nonetheless, the non-compliance with the solemnities required of donation in the realm of trust does not render the trust void. Indeed, under Article 1444 of the Civil Code No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended; and under Article 1457, it is provided that An implied trust may be proved by oral evidence.

Thus, in practice, many trust dispositions are constituted in a manner that the trustor seeks to gift the designated beneficiary

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with all the beneficial title to the estate property held in the hands of the trustee. In such cases, what is executed is merely a Deed of Trust, the solemnities of which do not fall under the Law on Donations, and generally would comply with the formalities of an ordinary deed of conveyance.

b. Essential Elements of Express Trusts

Much of the discussions hereunder, unless otherwise indicated, cover essentially contractual trusts arrangementsthose that are created by the intention of the trustor or of the parties, without taking the form of donation or testamentary disposition. Therefore, we will discuss immediately hereunder the essential characteristics of express trusts as contractual relationship of being: (a) nominate and principal; (b) unilateral; (c)primarily gratuitous; (d) real; (e) preparatory; and (f) fiduciary. The essential characteristic of an express trust being a real contract will be discussed in the next section on The Rules of Enforcement of Express Trusts.

It should be noted that Title V of the New Civil Code does not expressly state under any of its article that express trusts are contractual relationships. However, as explained above, it would be more useful on our part to consider express trusts, as distinguished from implied trusts, to be essentially contractual in nature, i.e., of being created under contractual intents, and with the rights, duties and responsibilities arising from contractual relationship.

In Mindanao Development Authority v. Court of Appeals, 113 SCRA 429 (1982), the Supreme Court held that It is fundamental in the law of trusts that certain requirements must exist before an express trust will be recognized, (at p. 436), and it affirmed the following to be the essential elements of an express trust, enumerated earlier in Francisco v. Leyco, 3 C.A.R. 2s 1384, citing Rous, Florimond C., The Trust Relationship, 96 SCRA 186, 191, thus:

(a) The Trustee: who holds the trust property and is subject to equitable duties to deal with it for anothers benefit;

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(b) The Beneficiary: to whom the trustee owes equitable duties to deal with the trust property for his; and

(c) The Res: which is the trust property which the trustee manages for the sake or the interest of the beneficiary, which can be created in anything that the law recognizes to be property.

[See also Aquino, Ranhilio Callangan, Resulting Trusts and Public Policy, 232 SCRA 364, 366, citing Dukeminier at 128.]

The enumeration of the essential elements of every express trust indicates that every trust relationship is truly a legal relationship built on property rights, and without the res or the corpus, there is really no obligation upon the trustee who cannot be expected to manage the property for the benefit of the beneficiary, simply because he has no control over property that has not been transferred to his name.

(1) Express Trusts Establish Contractual Relationships Built

Around Property Relation

Morales enumerates that one of the essential characteristic of trusts is that it is a relationship with respect to property, not one involving merely personal duties. (at p. 298; italics supplied). On this matter, Mindanao Development Authority held that

Stilted formalities are unnecessary, but nevertheless each of the above elements is required to be established, and, if any one of them is missing, it is fatal to the trusts. Furthermore, there must be a present and complete disposition of the trust property,

notwithstanding that the enjoyment in the beneficiary will

take place in the future. It is essential, too, that the purpose be an active one to prevent trust from being executed into a legal estate or interest, and one that is not in contravention of some prohibition of statute or rule of public policy. There must also be some power of administration other than a mere duty to perform a contract although the contract is for a third-party beneficiary. A declaration of terms is essential, and these must be stated with reasonable certainty in order that the trustee may administer, and

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that the court, if called upon so to do, may enforce the trust. (at p. 437, citing 76 Am Jur 2d, Sec. 31, pp. 278-279; emphasis supplied.)

Thus, when the deed of sale upon which an express trust was sought to be established in Mindanao Development Authority merely provided that the seller agree[s] to work for the titling of the entire area of my land under my own expense and the expenses for the titling of the portion sold to me shall be under the expenses of the said Juan Cruz Yap Chuy, the Court held that no express trust was constituted, since other than undertaking to pay for the expenses of titling of the property, The stipulation does not categorically create an obligation on the part of [the seller] to hold the property in trust for Juan Cruz. Hence there is no express trust. It is essential to the creation of an express trust that the settlor [trustor] presently and unequivocally make a disposition of property and make himself the trustee of the property for the benefit of another. (at p. 437,citing 76 Am Jur 2d, sec. 35, p. 281.)

Finally, the Court also noted in Mindanao Development Authority that the provision in the deed of sale that the buyer will work for the titling of the entire area of my land under my own expense, it was not clear what particular property of the seller was referred to, and thus no express trust could be validly constituted since A failure on the part of the settlor definitely to describe the subject-matter of the supposed trust or the beneficiaries or object thereof is strong evidence that he intended no trust. (at p. 438.)

In Caezo v. Rojas, 538 SCRA 242 (2007), reiterating the ruling in Morales v. Court of Appeals, 274 SCRA 282 (1997), on what constitutes the essential elements of an express trust, the Court held:

. . . The presence of the following elements must be proved: (1) a trustor or settlor who executes the instrument creating the trust; (2) a trustee, who is the person expressly deisgnated to carry out the trust; (3) the trust res, consisting of duly identified and definite real property; and (4) thecestui que trusts, or beneficiaries whose identity must be clear. . . (at p. 253.)

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Note that in Caezo, aside from reiterating that among the essential elements of an express trust is the trust res, consisting of duly identified and definite real property, it merely requires that the beneficiaries whose identity must be clear, and not that there must be prior acceptance by the beneficiary of the trust benefits for the contractual trust relationship between the trustor and the trustee can come into existence.

c. Nominate and Principal, Yet Governed by Equity Principles

As a contract, an express trust is nominate and principal, having been given particular name and essentially defined by the Civil Code, and not needing another contract to be valid and binding.

Usually the essential characteristics of nominate and principal bring about the application of the doctrine that when a legal relationship is created between the parties that embodies the essence of a trust, then in spite of the intention or nomenclature used by the contracting parties, it would still be characterized by the law, and governed by the Law on Trusts. Unfortunately, under the New Civil Code, the Law on Trusts is not complete set of law and has a general reference under Article 1442 to the principles of the general law of trusts, which are invoked as part of the Philippine Law on Trusts. In fact, 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.

d. Unilateral and Gratuitous

An express trust is a unilateral contract since only the trustee assumes obligations to carry on the trust for the benefit of the beneficiary.

Article 1446, which provides that acceptance by the beneficiary is necessary, not only confirms the contractual nature of every trust

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contract, but supports the position that an express trust is essentially a gratuitous contract, supported by the consideration of liberality, especially when the article provides that the beneficiarys acceptance is presumed if the trust imposes no onerous condition upon the beneficiary, unless there is proof that he has not accepted the benefits of the trust arrangement. Generally, therefore, a trust relationship imposes no obligation or burden upon the beneficiary.

e. Express Trust as a Preparatory Contract

Express trust is preparatory contract because it is 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 part of the trustee to enter into various juridical acts on the corpus to earn income or achieve other goals given for the benefit of the beneficiary.

An express trust may create of a form of contract pour autrui, in the sense that if the trustor does not make himself the beneficiary, but constitutes the trust for the benefit of another person, the transfer of the naked or legal title of the property to the trustee who accepts the fiduciary obligations, creates the trust, even if the beneficiary does not formally accept the beneficial titled conveyed under the trust arrangement. In such a manner, an express trust relationship creates no obligation on the part of the trustor to the designated beneficiary, nor does the beneficiary have any right against the trustor, except those voluntarily assumed by the trustor under the terms of the deed of trust. Generally, the fiduciary duties under an express trust are imposed on the trustee, and the rights of the beneficiary are exercisable against the trustee.

One would therefore arrive at the conclusion that insofar as the trustor is concerned, the act of establishing an express trust for the benefit of the beneficiary, is an act of donation or a gift, which often is taxable under the Tax Code for donors or gift tax. Yet, the constitution of an express trust, is not considered to be a form of solemn contract. This is clear under Article 1444 of the Civil Code that provides that No particular words are required for the creation

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of an express trust, it being sufficient that a trust is clearly intended.

Nonetheless, being essentially an act of liberality, and under the premise that no person can be obliged to accept the kindheartedness of others, Article 1446 expressly provides that Acceptance by the beneficiary is necessary. But since the constitution of an express trust is usually for the benefit of the designated beneficiary, Article 1446 presumes the acceptance thereof by the designated beneficiary, thus: Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.

What happens when the designated beneficiary expressly refuses to accept the benefits of the trust arrangement, and yet the naked or legal title to the corpus has already been transferred to the trustee? Does the express trustee therefore fail?

The essential characteristic of express trust being a preparatory contract would mean that with the purpose of the trust no longer availing, since the designated beneficiary has refused the trust relationship, the trust ceases to have an objective. But since the naked or legal title remains with the trustee, his obligations is to comply with the instructions of the trustor, and dispose of the properties in accordance with the instructions of the trustor.

f. Trust Constitutes Fiduciary Duties on the Trustee

Article 1440 defines the trustee as one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee. In other words, express trust creates a fiduciary relationship in the trustee by virtue of his having assumed naked or legal title to the properties constituting the corpus, under express provisions to use, control, administer and management them for the benefit of the trustee. An express trust constitute the trustee as a fiduciary for the benefit of the beneficiary, since both by contractual stipulations and by the fact that the trustee accepts

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title to the properties for the benefit of the beneficiary, constitutes necessary the duties of diligence and fidelity.

(1) 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. Thus in Pacheco v. Arro, 85 Phil. 505 (1950), the Court held that a trustee cannot invoke the statute of limitations to bar the action and defeat the right of the cestui que trustent. If the pretense of counsel for the petitioners that the promise above adverted to cannot prevail over the final decree of the cadastral court holding the predecessor-in-interest of the petitioners to be the owner of the lots claimed by the respondents were to be sustained and upheld, then actions to compel a party to assign or convey the undivided share in a parcel of land registered in his name to his co-owner or co-heir could no longer be brought and could no longer succeed and prosper. (at p. 515.)

In the same manner, in the earlier decision of Escobar v. Locsin, 74 Phil. 86 (1943), where the plaintiff was the owner of a parcel of land, but being illiterate, asked the defendants predecessor-in-interest to claim the same for her; but that instead he committed a breach of trust by claiming the lot for himself; the trial court, while recognizing that the plaintiff had the equitable title and the defendant the legal title, nevertheless dismissed the complaint because the period of one year provided for under the Torrens system for the review of a decree had elapsed, and the plaintiff had not availed herself of that remedy. In overturning the trial courts decision, the Court held -

A trust such as that which was created between the plaintiff and [defendants predecessor-in-interest]is sacred and inviolable. The Courts have therefore shielded fiduciary relations against every manner of chicanery or detestable design cloaked by legal technicalities. The Torrens system was never calculated to foment betrayal in the performance of a trust. (at p. 87.)

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The much earlier decision in Barretto v. Tuazon, 50 Phil. 888 (1926), characterized the old institution of mayorazgo a fiduciary charge made to the first-born, as the usufructuary possessor, to preserve the entailed property in the family and to deliver them at the proper time to the succeeding first-born, who shall possess and enjoy them as a species of the genus trust, the essence of which, in concise terms, is nothing more than the confiding of a thing to one in order that he may preserve it and deliver it to another. (at p. 918). Thus, the cause of action of the successors-in-interest who were entitled to benefits of the mayorazgo could not be defeated by claims of prescription or failure to fail any claims in the proceedings for the settlement of the estate of the deceased.

In Yu Tiong v. Yu, 6 SCRA 950 (1962), the Court held that in view of the fiduciary nature of the legal relation that exists between the trustee and thecestui que trust , the statute of limitations or prescription and the principle of laches cannot being invoked by the trustee with respect to the right of action of the latter. The principle was reiterated in De Buencamino v. De Matias, 16 SCRA 849 (1966).

4. Rules of Enforceability of Express Trusts

Art. 1443. No express trusts concerning an immovable

or any interst 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.

a. Express Trust Is Essentially a Real Contract, Not Merely

Consensual

Discussions on the rules governing the enforceabilityof an express trust may imply that as a contractual relationship between the trustor and the trustee, it has the essential characteristic of being consensual (i.e.,perfected, valid and binding upon mere

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meeting on the minds on the subject matter and the consideration), as contrasted from the characteristics of real (i.e., requiring the fourth element of delivery), and solemn (i.e., requiring the fourth element of form or solemnity, for validity). After all, Article 1444 of the Civil Code, which applies particularly to express trusts, provides that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. Yet by its very definition, 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.

Trusteeship is essentially a proprietary relationship, not merely from acceptance of the duties and responsibilities of a trustee. Indeed, a designated trustee may formally accept the duties and responsibilities laid out in the deed of trust, but no fiduciary obligation arises without the properties being transferred to his name. Without naked or legal title in the properties of the corpus being transferred in the name of the trustee, there is no moral or legal basis upon which his fiduciary obligations can arise.

Thus, when Article 1445 of the Civil Code provides that No trust shall fail because the trustee appointed declines the designation, it can only mean two things. No contractual relationship has been established yet because the actual transfer of naked or legal title to the designated trustee has been effected, and the trust could not be said to fail because its final establishment may still be effected by another persons who accepts the trust and to whom the naked or legal title to the corpus may be instituted. It may also mean that naked or legal title has been effected by the trustor in the name of the trustee before the latter has expressly accepted the designation; but his refusal of the trust designation cannot also work to fail the trust, because it is then possible to transfer naked or legal title to the corpus in another person who accepts the trust designation.

Article 1445 of the Civil Code recognizes that unless the contrary should appear in the instrument constituting the trust, that the

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designation of the particular individual was primordial in the establishment of the trust (which by contractual intent made the express trust as personality-centered relationship), trusteeship is essentially a property-based relationship, that the transfer of naked or legal title of the trust estate to the trustee-as-a-professional-fiduciary for the benefit of another person, is the moving spirit behind the trust relationship.

With respect to the essential characteristic that trust relationship is always based upon a splitting of dominion over the trust property (a legal relation based on property rights), Pacheco v. Arro, 85 Phil. 505 (1950), held that [t]he 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 thecestui que trust as regards certain property-real, personal, funds or money, or choses in action. (at p. 514). In more pinpointed language, Julio v. Dalandan, 21 SCRA 543 (1967), characterizes trust as a method of disposition of property. (at p. 550.)

There is no doubt that the ideal form of an express trust is constituted pursuant to a written Deed of Trust whereby naked or legal title to the trust property is conveyed to the specified trustee under clear terms and conditions providing for his duties and responsibilities towards the indicated beneficiary of the res. In this case, it must be remembered that the execution of the Deed of Trust as a public document which has the effect, as between the trustor and the trustee, of constructive delivery of the covered trust properties.

When it comes to immovables, especially registered land or any interest therein, express trusts take the ideal form of legal or naked title being registered in the name of trustee who holds the property for the benefit of the indicated beneficiary. In other words, the best form of an express trust is when the trustee is expressly registered as naked title owner.

Do we presume then that when the purported trustee holds title as full owner of the res, the underlying trust relationship is no longer express trust, but rather resulting trust? The answer do this

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is that it is legally possible to still have an express trust even when the registered title in the name of the trustee is full ownership as distinguished from naked or legal title. This is clear from both statutory provisions and jurisprudence.

Firstly, apart from the lone requirement under Article 1443 that No express trusts concerning an immovable or any interest therein may be proved by parol evidence; the controling principle is actually found in Article 1444 which provides that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

Jurisprudence supports the contractual basis of express trusts as those which are created by the direct and positive acts of the parties, by some writing or deed, or will or by words either expressly or impliedly evincing an action to create a trust. In Julio v. Dalandan, 21 SCRA 543 (1967), the Supreme Court observed that In reality, the development of the trust as a method of disposition of propery, so jurisprudence teaches, seems in large part due to its freedom from formal requirements. This principle perhaps accounts for the provision in Article 1444. . . (at p. 550, quoting from 54 Am.Jr., p. 50.)

In Julio, the evidence of an express trust was in the form of an affidavit subscribed and sworn to by [purported trustee] Clemente Dalandan . . . By the terms of this writing, Clemente Dalandan, deceased father of defendants Emiliano and Maria Dalandan, acknowledged that a four-hectare piece of riceland in Las Pinas, Rizal belonging to Victoriana Dalandan, whose only child and heir is plaintiff Victoria Julio, was posted as security for an obligation which he, Clemente Dalandan, assumed but, however, failed to fulfill The result was that Victorianas said land was foreclosed. . . (at pp. 545-546). The trial court had dismissed on the complaint seeking reconveyance of the property to the heir of Victoriana Julio on the ground of prescription: the lower court ruled that plaintiffs suit, viewed either as an action for specific performance or for the fixing of a term, had prescribed. Reason: the 10-year period from the date of the document had elapsed. (at p. 548). In ruling that the document embodied an express trust, and that prescription could

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not commence unless there was an express repudiation of the trust, the Court further held

. . . For, technical or particular forms of words or phrases are not essential to the manifestation of intention to create a trust or to such words as trust or trustee essential to the constitution of a trust as we have held in Lorenzo vs. Posadas, 64 Phil. 353, 368. Conversely, the mere fact that the word trust or trustee was employed would not necessarily prove an intention to creat a trust. what is important is whether the trustor manifested an intention to create the kind of relationship which in law is known as a trust. It is unimportant that the trustor should know that the relationship which he indends to create is called a trust, and whether or not he knows the precise characteristics of the relationship which is called a trust. Here, that trust is effective as against defendants and in favor of the beneficiary thereof, plaintiff Victoria Julio, who accepted it in the document itself. (at pp. 550-551.)

In Cuaycong v. Cuaycong, 21 SCRA 1192 (1967), the Supreme Court held that Our Civil Code defines an express trust as one created by the intention of the trustor or of the parties, and an implied trust as one that comes into being by operation of law. [Article 1441] Express trusts are those created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. . . .We find it clear that the plaintiffs alleged an express trust over an immovable, especially since it is alleged that the trustor expressly told the defendants of his intention to establish the trust. Such a situation definitely falls under Article 1443 of the Civil Code.

Ramos v. Ramos, 61 SCRA 284 (1974), held that Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust. (at p. 298, quoting from 89 C.J.S. 722).

The principle that an express trust may still be constituted outside of formal designation of the trustee as naked or legal titleholder of the corpus, and can be deduced from the words or actuations of the

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party has been consistently upheld in decisions of the Supreme Court. Sotto v. Teves, 86 SCRA 154 (1978); Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993); Rizal Surety & Ins. Co. v. Court of Appeals, 261 SCRA 69 (1996); DBP v. COA, 422 SCRA 459 (2004); Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242 (2007);Pealber v. Ramos, 577 SCRA 509 (2009).

Only recently, in Heirs of Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009), the Court held that since under Article 1444 of the Civil Code, [n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended, then an affidavit executed by eventual registered owner of a registered land that the lot brought in his name was co-owned by him, as one of the heirs of Jose, and his uncle Tranquilino. And by agreement, each of them has been in possession of half of the property, qualifies it to be as an express trust, and consequently, prescription and laches will run only from the time the express trust is repudiated. (at p. 426.)

b. Express Trust Must Nevertheless Be Clearly Shown to Have

Been Intended

Although the rule under Article 1444 is that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended, (See also Tuason de Perez v. Caluag, 96 Phil. 981 [1955]; Julio v. Dalandan, 21 SCRA 543, 546 [1967]), nonetheless Ramos v. Ramos, 61 SCRA 284 (1974), reminds us that an express trust will never be presumed to exist; that the party who claims are right under a trust arrangement must prove the existence thereof, thus: 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. As already noted, an express trust cannot be proven by parol evidence. (at pp. 300-301;Citing De Leon v. Peckson, 62 O. G. 994; Pascual v. Meneses, 20 SCRA 219, 228 [1967]; Cuaycong vs. Cuaycong, 21 SCRA 1192 [1967]).

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De Leon v. Molo-Peckson, 6 SCRA 978 (1962), reiterated the principle that to establish a trust the proof must be clear, satisfactory and convincing. It cannot rest on vague, uncertain evidence, or on a loose, equivocal or indefinite declaration. (at p. 984). However, when the trustees themselves (i.e., the donees in a donation inter vivos), themselves have executed a declaration of trust (which is defined as an act by which a person acknowledges that the property, title to which he holds is held by him for the use of another), constituted clearly and unequivocally the trust even if the same was executed subsequent to the death of the trustor, Juana Juan, for it has been held that the right creating or declaring a trust need not be contemporaneous or inter-parties (Stephenson v. Stephenson, 171 S.W. 2d Rec. 201). It was even held that an express trust may be declcared by a writing made after the legal estate has been vested in the trustee (Kurtz v. Robinson, Tex. Civ. App. 256 S.W. 2d 1003). (at p. 984.)

Lately, in Canezo v. Rojas, 538 SCRA 242 (2007), in reiterating the essential elements of an express trust, held that As a rule, however, the burden of proving rleafter

c. What Is the Essence of the Relationship Between the

Trustor and the Trustee Pri0r to the Conveyance of the Res to

the Trustee?

A deed of trust setting-up the trust relationship, constituting the trustee, providing for his duties and responsibilities and designating the beneficiary would not give rise to a true trust relationship even with the formal acceptance of the designated trustee, unless and until the property that would constitute the corpus of the trust relationship is actually conveyed to the trust relationship.

If the fourth element of delivery, i.e., transfer of legal title over the trust property to the trustee, is necessary in order that a contract of express trust is constituted, then the proper question that ought to be ask is: What is the status of a Deed of Trust, duly executed by the trustor and the trustee and accepted in the same instrument by the beneficiary, before title to the designated trust property is actually placed in the name of the trustee?

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One answer to this issue is that before delivery of title over the trust estate to the trustee, there is no valid contract of trust, but only a nominate contract of do ut facia, that is that the trustor has contractually bound himself to delivery and transfer title over the trust property to the trustee (essentially a real obligation to give), and the trustee has bound himself to accept delivery and to manage the properties to be delivered for the interests of the beneficiary (essentially a personal obligation to do).

If the so-called contract of trust is valid at this point (i.e., upon mere meeting of the minds), then in order to be a real contract, it must mean that it creates a binding obligation. But the only enforceable obligation so far created by meeting of the minds is that of the trustor to deliver legal title to the trust property to the trustee and beneficial title to the beneficiary, which does not fall within the essence of a trust which is supposed to create an obligation on the part of the trustee to manage the trust property for the benefit of the beneficiary. The trustor of a true trust does not assume any obligation; he is the creator of the trust.

d. Express Trusts Over Immovables Must Be in Writing

Article 1443 of the Civil Code provides that No express trusts converning an immovable or any interest therein may be proved by parol evidence. The clear legal implication of the language of Article 1443 is that an express trust concerning movables or any interests therein may be proved by parol evidence; which means that the mere meeting of minds over the creation of an express trust over movables creates a valid and enforceable contract of trust once the movable is delivered to the trustee.

It is my submission that Article 1443 is a lame provision, and really serves no useful purpose in the realm of true express trusts arrangements involving immovables or any interest therein.

Firstly, Article 1443 does not render the express trusts over immovables void when it is not effected in writing, it merely renders the contractual relationship unenforceable. Since it is only the grantor or the accepting beneficiary who have rights to enforce

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under the terms of the contractual relationship, it is they who are unfavorably affected by the provisions of Article 1443: they cannot adduce parol evidence in order to enforce the fiduciary duties and obligations of the trustee through court action. This means that Article 1443 constitutes a mere species of the Statute of Frauds.

Thus, in Pealber v. Ramos, 577 SCRA 509 (2009), the Supreme Court confirmed that The requirement in Article 1443 that the express trust concerning an immovable or an interest therein be in writing is merely for purposes of proof, not for the validity of the trust agreement, (at p. 528) and it went on to rule

. . . Therefore, the said article is in the nature of a statute of frauds. The term statute of frauds is descriptive of statutes which require certain classes of contracts to be in writing. The statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it inforceable. The effect of non-compliance is simply that no action can be proved unless the requirement is complied with. Oral evidence of the contract will be excluded upon timely objection. But if the parties to the action, during the trial, make no objection to the admissibility of the oral evidence to support the contract covered by the statute, and thereby permit such contract to be proved orally, it will be just as binding upon the parties as if it had been reduced to writing. (at p. 528.)

Nonetheless, Pealbar did not find for the establishment of an express trust from the oral testimony given, on the ground that the parol evidence failed to prove clearly that an express trust had been constituted, thus

A careful perusal of the records of the case reveals that respondent spouses Ramos did indeed fail to interpose their objections regarding the admissibility of the afore-mentioned testimonies when the same were offered to prove the alleged verbal trust agreement between them and petitioner. Consequently, these testimonies were rendered admissible in evidence. Nevertheless, while admissibility of evidence is an affair of logic and law,

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determined as it is by its relevance and competence, the

weight given to such evidence, once admitted, still depends

on judicial evaluation. Thus, despite the admissibility of the said testimonies, the Court holds that the same carried little weight in proving the alleged verbal trust agreement between petitioner and respondent. (at pp. 529-530.)

Civil Law provides that the Statute of Frauds, which is meant to prevent fraud and cannot be used to perpetuate fraud, has no application to contracts that have either been partially or fully executed. If that were so, and Article 1443 is merely a species of the Statute of Frauds, then it would have no application to a true express trust over an immovable, since by definition an express trust exists by virtue of the trustor having conveyed the res or the corpus to the trustee who assumes naked or legal title to it. In other words, since express trust over an immovable presents a real contract where ownership has in fact been conveyed to the purported trustee, then it is exempted from the coverage of the Statute of Frauds, and parol evidence may now be adduced to prove the existence of such express trust. Secondly, considering that express trust over immovables are necessarily covered by the characteristic of being a real contract, ineluctably no express trust over immovables can be constituted by mere meeting of the minds, and that to even be validly constituted, an express trust over immovable requires the fourth requisite of delivery to have taken placethat naked or legal title over the properties constituting the corpus have been transferred in the name of the designated trustee. And under current legislation, no title to registered land or any interest therein may be registered with the Register of Deeds and title transferred in the name of a trustee, unless the deeds are in a public instrument, and all taxes thereto have been paid and certified to have been paid. Even if Article 1443 were to be construed as referring to an express trust that has been constituted not only by the meeting of the minds of the parties, but coupled with delivery of the immovable trust property to the trustee, it would also lead to the absurd consequence of declaring as unenforceable an oral express trust

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contract, where there has been execution. It is an established doctrine that the Statute of Frauds consideration has no application to fully or partially executed contracts. In any event, registration of naked or legal title in the registered land in the name of the trustee is certainly equivalent to the trust being in writing. Finally, Article 1445 supports the proposition that a contract of express trust is not a consensual contract, but essentially requires transfer of title to the trust properties for its valid constitution, when it provides that No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. Under Article 1441, an express can be created by the intention of the trustor alone, and that Article 1445 follows up by stating that ones that intention has created the express trust, it cannot fail simply because the trustee appointed declines the designation, which can only mean that the intention of the trustor to create the trust can only be manifested by the act of placing title in the trust properties in the name of the designated trustee for the benefit of the designated beneficiary. The refusal by the designated trustee (i.e.,non-giving of his consent), does not make the express trust contract involving immovables to be void for lack of consent, for indeed the transfer of title to the property has been effected, most especially of the beneficial or equitable title to the beneficiary, whose acceptance of the grant of the trustor is deemed to have taken place when no onerous condition has been placed upon him under the terms of the trust agreement. Thirdly, it is now well-settled in Philippine jurisprudence that when an express trust over immovable is not in writing, nonetheless, it can still be proven by clear and convincing parol evidence to be a resulting trust, under the aegis of Article 1457 that provides that An implied trust may be proved by oral evidence. This matter is thoroughly covered in the next chapter on the section on Resulting Trusts. Even under the terms of the public instrument creating an express trust over immovables, the mere actual or physical delivery of possession or control over land and any interest therein to the

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designated trustee would not create a valid and binding express trust yet because naked or legal title has not yet been constituted in the name of the trustee by which he is therefore able to exercise the prerogatives of title holder for the benefit of the designated beneficiary. Thus, when an express trust has been constituted over land or any interest therein, especially those registered under the Torrens system, but there has been no effective transfer of naked or legal title to the properties constituting the corpus, there is as yet no real express trust that has arisen. Lacking the fourth requisite of delivery, the purported express trust over immovables cannot even be said to be unenforceable, for it is as yet non-existent. It may further be argued that the foregoing discussions are really for academic purposes, since even when the express trust has not been legally constituted by non-transfer of naked or legal title to the trustee, the intentions of the parties may still be pursued to equitable ends under the principles of implied trusts. Yet even for implied trust, particularly resulting trusts as discussed in the next chapter, no fiduciary relationship will arise in the person of the trustee unless and until title to the property in dispute is transferred in his name. Perhaps, if Article 1443 is to have any legal significance at all, its provisions must be understood to apply to an agreement to create an express trust over an immovable or any interest therein (which is the innominate contract do ut facia referred to earlier ). In other words, an oral agreement between the trustor and the trustee to constitute a trust over an immovable or any interest therein which is not followed-up with an actual conveyance of the covered res is not enforceable by parol evidence.

5. Distinguishing Express Trusts from Other Similar

Arrangements

We can learn more of the essence and characteristics of express trusts by comparing them with other similar contracts.

a. Splitting of Full Dominion Into Naked or Legal Title and

Beneficial or Equitable Title

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The state whereby there is a split of the full dominion of a particular property between legal title in one person and beneficial ownership in another, does not necessarily create the trust relationship.

(1) Compared with Usufruct

For example a usufruct is a property arrangement recognized under Articles 562 and 563 of the Civil Code, whereby a usufructuary enjoys the property of another (the naked title owner), and may be constituted on the whole or a part of the fruits of the thing. Consequently, it is the usufructuary who directly possess and enjoys the fruits and benefits of on the subject property.

In fact under Articles 566 and 589 of the Civil Code, it is the usufructuary who is obliged to preserve the form and substance of the property held in usufruct, and to take care of its with the diligence of a good father of a family for the benefit of the naked title holder at the end of the usufruct. In contrast, under a trust relationship, it is the trustee, the naked title holder, who actively manages and administers the trust property, and the beneficiary mainly is a passive receiver of the fruits and benefits arising from the trust property.

(2) Compared with Lease

Another example would be a lease agreement, whereby the lessor retains not only naked title to the property leased and many other beneficial titles, and what is contracted out to the lessee is the narrow enjoyment of the possession and use of the leased property, and only for a limited period provided in the lease agreement. In contradistinction, in a trust relationship, full beneficial ownership over the trust property is for the account of the beneficiary, and really what is assumed by the trustee is the obligation to manage the trust property as the legal title holder for the benefit and interest of the beneficiary. In addition, unlike in a lease arrangement where the benefits enjoyed by lessee are only for a limited contracted period, those of the beneficiary in a trust arrangement are usually of a permanent nature.

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(3) Compared with Sale

Express trusts therefore belong to those genre of contracts which involve the disposition of title to property. However, unlike a contract of sale which is defined under Article 1458 of the Civil Code as one whereby the seller obliges himself to transfer ownership and deliver possession to the buyer, an express trust is not perfected by mere consent, but requires the actual delivery of the naked or legal title to the trustee for the relationship to arise. Likewise, unlike sale where the buyer takes full ownership of the subject matter for his sole benefit, the trustee in an express trust only takes naked or legal title and for the benefit of another person, the beneficiary. Thus, a contract of sale is entered into for its own end, the acquiring of title of the subject matter by the buyer, an express trust is constituted merely as a preparatory arrangement, a medium, by which the trustee is expected to pursue other juridical acts for the benefit of the beneficiary.

b. On Being Bound to Fiduciary Duties and Obligations

(1) Compared with Agency

The essence of what makes a party in a trust arrangement the trustee is by reason of the fact that he receives naked or legal title to the property to be held in trust; and the reason why the office of the trustee is fiduciary in character is because he holds title to the property for the benefit of another person, the beneficiary. Thus, there is no trust relationship merely because the trustor stipulates in a contract that he reposes trust and confidence in the person denominated as trustee; trust relationship is essentially borne out of a property relationship whereby full dominion over a property is split between naked title in the name of the trustee where he would manage and administer the property for the benefit of the another person in whom beneficial ownership is given.

In the case of an agent, the fiduciary relationship is strictly based on a personal level: that he has been commissioned by the principal to represent him and his interest in dealings with third parties. The agent is therefore bound by the duties of obedience, diligence and

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loyalty by reason of his contractual commitment to act for and represent the principal and the latters interest with third parties; he does not purport to act for himself or upon his own powers, but by the principals authority, and therefore the agent does not have any title to the property placed in his custody. An agent therefore is bound to act in accordance with the instructions of the principal, and in the name of the principal; consequently, the agent is not a party to the contracts entered into by him in the name of the principal, and has no rights, or assumes no obligations, under such contracts.

On the other hand, the trustee is given naked title to the property to be held in trust, and he transacts business with third parties under the trust in his own behalf as a trustee and legal title holder and not in the name of the beneficiary. Although a trustee is bound by the duty of loyalty, i.e., he must act for the best interest of the beneficiary, and that in a conflict-of-interests situation, he must prefer the interest of the beneficiary over that of his own estate; nonetheless, he is not bound by any duty of obedience, for indeed he has been given legal title to the trust property precisely because he is expected to use his discretion and best judgment in pursuing transactions under the trust arrangement. He is not expected to be bound by the instructions of the beneficiary, who often is an infant, or who has no legal capacity, like an insane person. Since the trustee is obliged to manage the trust property for the benefit of the beneficiary, he is bound to exercise due diligence in his dealings in relation to the trust.

While both trust and agency relationships are fiduciary in nature, the agency relation is essentially revocable at the will of the principal, being based primarily on willingness of the principal to be represented by another person. On the other hand, a trust being essentially based on a property relationship, is not revocable at will; and although revocation of trust is the term used, it is not at the will of the trustor or the beneficiary, unless that is so stated in the trust instrument, but can only be based on a breach of trust, or only upon showing that the trustee has breached his duty of loyalty or duty of diligence. In other words, a trustee cannot generally be

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stripped of the legal title unless it is shown that he is unfit for the position of trustee, or he has breached his trust obligations. Thus, in De Leon v. Molo-Peckson, 6 SCRA 798 (1962), the Court held that in the absence of any reservation of the power to revoke, an express trust (referred to as voluntary trust), is irrevocable without the consent of the beneficiary.

6. Kinds of Express Trusts

It has been held that the development of trust as a method of disposition of property is to a large part due to its freedom from formal requirements.Lucenario, Domingo, Parol Evidence of Express Trust, 109 SCRA 451, 453,citing 54 Am. Jur. 50; also Julio v. Dalandan, 21 SCRA 543, 550 (1967). Thus, Article 1444 of the Civil Code provides that No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

In the early case of Gamboa v. Gamboa, 52 Phil. 503 (1928), the Supreme Court demonstrated how mere oral assertions of trustee obligations against the registered owner of a parcel of land was held unavailing, the Court holding a person who has held legal title to land, coupled with possession and beneficial use of the property for more than ten years, will not be declared to have been holding such title as trustee for himself and his brothers and sisters upon doubtful oral proof tending to show a recognition by such owner of the alleged rights of his brother and sisters to share in the produce of the land. In other words, the best evidence to show a trust relationship is written admission of the purported trustee that he or she has agreed to hold title to the property in question for the benefit of the claimants.

In Salao v. Salao, 70 SCRA 65 (1976), the Court held mandatory the provisions of Article 1443, which requires that an express trust involving immovable property must be covered in a written instrument, thus

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Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an express trust over the Calunuran fishpond in favor of Valentin Salao.

Purely parol evidence was offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable.

It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when the action herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to prove an express trust concerning realty. (at p. 81.)

Although Article 1444 provides that No particular words are required for the creation of an express trust, it still requires that the circumstances indicate that a trust is clearly intended. When it comes to immovable