TRUSTEE

 FUNDAMENTAL CONCEPTS IN TRUSTEES

 DEFINITIONS

Article 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.

Article 1441. Trusts are either express or implied.

- Express trusts are created by the intention of the trustor or of the
parties.
- Implied trusts come into being by operation of law.

 PARTIES TO A TRUST

1.) TRUSTOR – The person who establishes a trust (referred to in common – law
parlance as “grantor,” “settlor,” or “founder.”
2.) 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 res or the trust property with respect to
the person for whose benefit the trust is created.
3.) BENEFICIARY – The person for whose benefit the trust has been created
(the “cestui que trust”).

 CHARACTERISTICS OF A TRUST

CHARACTER OF THE OFFICE OF TRUSTEE

1) PRINCIPAL – The trustee is not an agent of the trust estate or of the

cestui que trust, but he acts for himself in the administration of the trust
estate, although subject to the terms of the trust and the law of trusts.
2) AGENT – In some cases, however, a trustee has been regarded as an
agent of beneficiaries of trust at least for certain purposes, such as
imputing to the beneficiaries of the trust notice given to the trustee.
3) FIDUCIARY – It is the trustee, not the trustor, who owes fiduciary duty to
the beneficiary which imposes upon him the duty to act with utmost good
faith and loyalty in all matters affecting the trust property.

ESSENTIAL CHARACTERISTICS OF EXPRESS TRUST

1. It is a relationship
2. It is a relationship of fiduciary character
 3. It is a relationship with respect to property, not one involving merely
personal duties
4. It involves existence of equitable duties imposed upon the holder
of the title to the property to deal with it for the benefit of another;
and
5. It arises as a result of a manifestation of intention to create the
relationship ---it cannot be presumed

CASE: (Morales vs. Court of Appeals; 274 SCRA 282, 1997)

- Trust relationship does not create a juridical personality.

 2. GENERAL PRINCIPLES

CHAPTER 2
Express Trusts

Article 1443. No express trusts concerning an immovable or any interest therein may
be proved by parol evidence.

Article 1444. No particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended.

NOTE:
b) EXPRESS TRUST IS ESSENTIALLY A REAL CONTRACT, NOT
MERELY CONSENSUAL
- An express trust constitute a real contract, that is, it is not merely
perfected by mere meeting of minds between the trustor and
trustee to constitute trust. No trust relationship exists, unless the
property constituting the res is conveyed to the trustee.
c) EXPRESS TRUST MUST NEVERTHELESS BE CLEARLY SHOWN TO
HAVE BEEN INTENDED
- express trust cannot be presumed
- 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.
- “no express trust concerning an immovable or any interest therein
may be proved by parol evidence”

Article 1445. No trust shall fail because the trustee appointed declines the designation,
unless the contrary should appear in the instrument constituting the trust.

Article 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.
3. REQUISITES AND PROCEDURE

RULE 98
Trustees

Section 1. Where trustee appointed. — A trustee necessary to carry into effect the
provisions of a will on 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.

Section 2. Appointment and powers of trustees 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.

Section 3. Appointment and powers of new trustee under written instrument. — When a
trustee under a written instrument declines, resigns, dies or 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, right, 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 be necessary or
proper to vest the trust estate in the new trustee, either or jointly with the others.

Section 4. Proceedings where trustee appointed abroad. — When land in the

Philippines is held in trust for persons resident here by a trustee who derives his
authority from without the Philippines, such trustee shall, on petition filed in the Court of
First Instance of the province where the land is situated, and after due notice to all
persons interested, be ordered to apply to the court for appointment as trustee; and
upon his neglect or refusal to comply with such order, the court shall declare such trust
vacant, and shall appoint a new trustee in whom the trust estate shall vest in like
manner as if he had been originally appointed by such court.

Section 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.

Section 6. Conditions included in bond. — The following conditions shall be deemed to

be 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 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 account 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 to thereto.

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.

Section 7. Appraisal. Compensation of trustee. — When an inventory is required to be

returned by a trustee, the estate and effects belonging to the trust shall be appraised
and the court may order one or more inheritance tax appraisers to assist in the
appraisement. The compensation of the trustee shall be fixed by the court, if it be not
determined in the instrument creating the trust.

Section 8. Removal or resignation of trustee. — The proper Court of First Instance

may, upon petition of the parties beneficially interested and after due notice to the
trustee and hearing, remove a trustee if such removal appears essential in the interest
of the petitioner. The court may also, after due notice to all persons interested, remove
a trustee who is insane or otherwise incapable of discharging his trust or evidently
unsuitable therefor. A trustee, whether appointed by the court or under a written
instrument, may resign his trust if it appears to the court proper to allow such
resignation.

Section 9. Proceedings for sale or encumbrance of trust estate. — When the sale or
encumbrance of any real or personal estate held in trust is necessary or expedient, the
court having jurisdiction of the trust may, on petition and after due notice and hearing,
order such sale or encumbrance to be made, and the re-investment and application of
the proceeds thereof in such manner as will best effect the objects of the trust. The
petition, notice, hearing, order of sale or encumbrance, and record of proceedings, shall
conform as nearly as may be to the provisions concerning the sale or imcumbrance by
guardians of the property of minors or other wards.

TRUSTEES
(Rule 98)

Trust

Confidence reposed in one person called the trustee, for the benefit of another
called the cestui que trust, with respect to property held by the former for the benefit of
the latter.

Trustee

A trustee is one who is appointed to carry out the provision of the will or any
written instrument executed by the trustor (Sec. 1, Rule 98).

The trustee has the legal title over the property while the beneficial title is with the
cestui que trust.

Therefore, unlike an executor or administrator, the trustee can validly make

conveyances of the property held by him in trust, subject to the right of the beneficiary
against the trustee but not against the buyer.

Rule 98 applies only to express trust

One which is created by will or written instrument, and not to an implied trust,
which is deducible from the nature of the transaction as a matter of intent, or which are
superinduced on the transaction by operation of law as a matter of equity, independent
of the particular intention of the parties (De Leon & Wilwayco, 2015 citing O’Lao v. Co
Cho Chit, G.R. No. 58010, March 31, 1993).

Where trustee appointed

1. RTC or MTC in which the will was allowed, if it be allowed in the Philippines; or
2. RTC of the province in which the property, or some portion thereof, affected by
the trust is situated (Sec. 1, Rule 98).

Nature of possession by the trustee

GR: For the purpose of prescription, the possession of the property by the trustee is not
an adverse possession, but only in the name and in behalf of the owner of the same.
 NOTE: A trust estate is exempt from the operation of the statute of limitations.

XPN: A trustee, however, may acquire the trust estate by prescription provided there is
repudiation of the trust and this fact is known to the cestui que trust.

Adverse possession

To constitute adverse possession, the following requisites must concur:

1. That the trustee has performed unequivocal acts of repudiation amounting to

the ouster of cestui que trust;
2. That such positive acts of repudiation have been known to the cestui que
trust; and
3. The evidence should be clear and conclusive . The repudiation must be clear,
open and unequivocal. In that case the statute will commence to run from and
after said repudiation and the knowledge thereof by the cestui que trust.
Furthermore, prescription in order to be available as a defense, the trustee must
prove that there was a direct repudiation of the trust and that the cestui que trust
or beneficiary had knowledge thereof (Salinas v. Tuason, G.R. No. L-33636,
March 2, 1931).

NOTE: The trustee is prohibited from acquiring the property whether by purchase, even
in a public or judicial action, either in person or through mediation of another (Art. 1491,
Civil Code).

A trustee is necessary to carry into effect:

1. Testamentary trust

A new trustee shall be appointed 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 (Sec. 2, Rule 98).

Although the will does not name a trustee, the probate court exercises sound
judgment in appointing a trustee to carry into effect the provisions of the will –
where a trust is actually created by the will by a provision that certain properties
shall be kept together undisposed during a fixed period and for a stated purpose
(Lorenzo v. Posadas, G.R. No. L-43082, June 18, 1937).

2. Contractual trust

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 RTC 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 (Sec. 3, Rule 98).

The non-acceptance by the trustee will not result in the failure of the trust, unless
the trust is purely personal (Herrera, 2005).

NOTE: The power to appoint a trustee is discretionary with the court before
whom application is made, and the appellate court will decline to interfere except
in cases of clear abuse (Herrera, 2005).

Trustee appointed abroad

Such trustee must petition the RTC where the land is situated, otherwise, the
trust will be vacant a new trustee will be appointed.

TRUSTEE DISTINGUISHED FROM EXECUTOR/ADMINISTRATOR

EXECUTOR/ ADMINISTRATOR TRUSTEE

Governing Rules
Duties are fixed and/or limited by law Usually governed by the intention of the
trustor or of the parties, if established by
contract (Art. 1441, NCC). The duties of
trustees may cover a much wider range
than those of executors or administrators
of the estate of deceased persons
(Araneta v. Perez, G.R. Nos. L-16185-
86, May 31, 1962).
As to accounting
Accounts are not under oath and except Accounts must be under oath and filed
for initial and final submission of annually
accounts, they shall be filed only at such
times as may be required by the court
As to jurisdiction
Court that has jurisdiction may be MTC or Court which has jurisdiction is the RTC in
RTC which the will is allowed; or the RTC of
the province in which the property or
some portion thereof affected by the trust
is situated
As to purpose of appointment
Appointed by the court to settle estate of Appointed to carry into effect the
the decedent provisions of a will (testamentary trust) or
written instrument (contractual trust)
As to filing of a bond
Not exempted from filing a bond even if May be exempted from filing a bond if
such exemption is provided in the will. provided in the will or if beneficiaries
Bond may still be required for payment of requested such exemption
 debts.
As to termination
Services of executors or administrator are Trusteeship is terminated upon turning
terminated upon payment of debts of the over the property to beneficiary after
estate and distribution of property to the expiration of the trust (period may be
heirs provided for in the will or trust contract)
As to payment of debts
Must pay the debts of the estate No obligation to pay the debts of the
beneficiary or trustor
SIMILARITIES
May sell, encumber or mortgage property May sell or encumber property of the
if it is necessary for the purpose of paying estate held in trust if necessary or
debts, expenses of administration or expedient or upon order of the court
legacies or for the preservation of
property or if sale will be beneficial to (On petition and after due notice and
heirs, legatees or devisees (Upon hearing)
application to the court with written notice
to the heirs)
Order of sale has no time limit. Order of sale has no time limit.

CONDITIONS OF THE BOND

Filing of bond

GR: The trustee is required to file a bond with the clerk of court having jurisdiction of the
trust in the amount fixed by the judge of said court. Neglect of trustees to file a bond will
be interpreted by the court as resignation or a decline to accept the trust (Sec. 5, Rule
98).

XPN: The trustee may be exempted from filing a bond if requested by the testator or by
all persons beneficially interested (being of full age) in the trust. However, the court may
cancel such exemption any time (Sec. 5, Rule 98).

Conditions of the bond (IDAS)

1. Make and return to the court a true inventory of all real and personal estate that
at the time of the inventory shall have come to his possession or knowledge;
2. Manage and dispose of all such estate according to law and the will of the
testator or provisions of the instrument or order under which he was appointed;
3. Render a true account of the property in his hands; and
4. At the expiration of the trust, settle his accounts in court and pay and deliver all
the estate remaining in hands, or due from him, too the person/s entitled thereto.

REQUISITES FOR THE REMOVAL AND RESIGNATION OF A TRUSTEE

1. Petition filed by parties beneficially interested;

 2. Notice to trustee; and
3. Hearing (Sec. 8, Rule 98)

GROUNDS FOR REMOVAL AND RESIGNATION OF A TRUSTEE

1. Removal appears essential in the interest of petitioners;

2. Insanity;
3. Incapability of discharging the trust; or
4. Unsuitability (Sec. 8, Rule 98)

NOTE: A trustee is at liberty to tender his resignation and apply for his release on the
sole ground of unwillingness to act further in the trust. But the acceptance of the
resignation of a trustee is not a matter of course; due regard must be had for the
interest of the parties to be affected and there must ordinarily be some ground for
discharge other than the mere wish of the trustee to be relieved (Herrera, 2005).

EXTENT OF AUTHORITY OF TRUSTEE

The powers of a trustee appointed by a Philippine court cannot extend beyond

the confines of the territory of the Republic of the Philippines. This is based on the
principle that his authority cannot extend beyond the jurisdiction of the Republic of the
Philippines, under whose courts he was appointed (De Leon & Wilwayco, 2015).

Q: Can the possession of the trustee of the property ripen into ownership?

A:

GR: An action to compel a trustee to convey property registered in his name in trust for
the benefit of the cestui qui trust does not prescribe. The trustee’s possession is not
adverse because of the specific duties imposed upon him by the Rules and therefore
cannot ripen into title by prescription.

XPN: Prescription may arise where there is adverse possession of the property. To
constitute adverse possession, the following must be present:

1. That the trustee repudiated the trust relationship;

2. That such positive acts of repudiation had been made known to the cestui que
trust; and
3. That the evidence thereon should be clear and conclusive (Ceniza v. CA, G.R.
No. L 46345, January 30,1990).

1. What is a trust?

A trust is a confidence reposed in one person, called the trustee for the benefit of
another, called the cestui que trust, with respect to the property held by the
 former for the benefit of the latter. The person in whom confidence is reposed as
regards property for the benefit of another is known as the trustee.

2. What are the kinds of trust?

1.01 DIFFERENTIATE AN EXPRESS TRUST AND AN IMPLIED TRUST.

a. 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, while an implied
trust comes into being by operation of law. (Go v. Estate of the Late Felisa Tamio
De Buenaventura, G.R. No. 211972, July 22, 2015)

b. An express trust is one created by the direct and positive acts of the parties,
by some writing or deed, or will, or by the words evidencing an intention to create
a trust.

An implied trust is one which, without being express, is deducible from the
nature of the transaction as a matter of intent, or which are super induced on the
transaction by operation of law as matters of equity, independent of the particular
intention of the parties. (O' Lao v. Co Cho Chit, 220 SCRA 656)

3. Parties to a trust relation

1.) TRUSTOR – The person who establishes a trust (referred to in common – law
parlance as “grantor,” “settlor,” or “founder.”
2.) 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 res or the trust property with respect to
the person for whose benefit the trust is created.
3.) BENEFICIARY – The person for whose benefit the trust has been created
(the “cestui que trust”).

4. What are the situations necessitating the appointment of a trustee?

a) To carry into effect a will where the testator omitted appointing a trustee in
the Philippines
b) To carry into effect other written instruments where the trustee declines,
resigns, dies or is removed before the accomplishment of trust.

5. What court has jurisdiction and venue.

Where trustee appointed

1. RTC or MTC in which the will was allowed, if it be allowed in the Philippines; or
2. RTC of the province in which the property, or some portion thereof, affected by
the trust is situated (Sec. 1, Rule 98).
6. Matters alleged in a petition

7. Procedural steps