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Term paper on trust for Law on Business Organization I
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  Katrina E. Cariño Term Paper on Trusts Page 1  of 8   TRUSTS I. Definition and Essential Characteristic of Trust 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for  whose benefit the trust has been created is referred to as the beneficiary. Trust — legal relationship between one person having an equitable ownership in property and another person owing the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter Characteristics of a trust or express trust: (Morales v. CA) a. It is a relationship  b. It is a relationship of a fiduciary character c. It is a relationship with respect to property, not one involving merely personal duties d. It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another e. It arises as a result of a manifestation of intention to create the relationship Based on Equity 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and Special laws are hereby adopted.  As distinguished from Agency  Agency Trust Fiduciary in nature Essentially revocable Essentially obligatory in its terms and period and can only be rescinded based on breach of trust  Agent possesses property under agency for and in the name of the owner Trustee takes legal or naked title to the subject matter of trust  Agent must act upon instructions of the owner Trustee acts on his own business discretion  Agent enters into contract in the name of the principal Trustee enters into contracts in his own name  Agent cannot be sued Trustee is liable directly and may be sued in his trust capacity II. Kinds of Trust 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.  A. Express Trusts Express trust — one created by the intention of the trustor or of the parties (Art. 1441) Those created by direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust Essential Characteristics of Express Trusts  Katrina E. Cariño Term Paper on Trusts Page 2  of 8   a. Nominate and Principal — for having been given particular name and essentially defined by the Civil Code, and not needing another contract to be valid and binding  b. Unilateral — only the trustee assumes obligations to carry on the trust for the benefit of the beneficiary c. Primarily gratuitous — supported by the consideration of liberality, especially when Art. 1446 provides that  beneficiary’s acceptance is presumed d. Real — an express trusts constitute a real contract, that is, it is not merely perfected by a mere meeting of minds  between the trustor and trustee to constitute a trust. Indeed, no trust relationship exists, until and unless, the property constituting the res is conveyed to the trustee. e. Preparatory  — not constituted for its own sake in that the trust relationship is essentially a medium established  by the trustor to allow full authority and discretion on the party of the trustee to enter into various juridical acts on the corpus to earn income or achieve other goals given for the benefit of the beneficiary. An express trust may create a form of contract  pour atrui f. Fiduciary a) Essentially Contractual in Nature; Need No Particular Wordings 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.  What important is whether the trustor manifested an intention to create the kind of relationship which in law is known as trust. (Julio v. Dalandan)  A clear intention to create trust must be shown, and the proof of fiduciary relationship must be clear and convincing. (Canezo v. Rojas)  b) Based on Property Relationship  What distinguishes a trust from other relations is the separation of legal title and equitable ownership of the property. In a trust relation, legal title is vested in the fiduciary while equitable ownership is vested in a cestui que trust (Canezo) Trust, in its technical sense, is a right of property, real or personal, held by one party for the benefit of another. (Guy v. CA) c) Fiduciary The juridical concept of a trust, which in a broad sense involves, arises from, or is the result of, a fiduciary relation  between the trustee and the cestui que trust as regards certain property  — real, personal, funds or money, or choses in action — must not be confused with an action for specific performance. A trustee cannot invoke the statute of limitations to bar the action and defeat the rights of the cestuis que trustent  . (Pacheco v. Arro) 2. Express Trust must be Proven  An express trust cannot be proven by parol evidence.  A trust must be proven by clear, satisfactory, and convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations. Rule: the burden of proving the existence of a trust is on the party asserting its existence The presence of the following elements must be proved: a) a trustor or settler who executes the instrument creating the trust  b) a trustee, who is the person expressly designated to carry out the trust c) the trust res , constituting of duly identified and definite real properties d) the cestui que trust  , or beneficiaries whose identity must be clear  Katrina E. Cariño Term Paper on Trusts Page 3  of 8   3. Kinds of Express Trust  A. Express Trust involving Immovable 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence. The existence of express trusts concerning real property may not be established by parol evidence; thus, it must be proven by some writing or deed. However, if the parties to the action, during the trial, make no objection to the admissibility of the oral evidence to support the contract, there is deemed to be a waiver The requirement that express trust over immovable must be in writing should be added as being governed by the Statute of Frauds (Gamboa v. Gamboa) B. Contractual/  Inter vivos Trust  An inter vivos trusts are expressed trust pursued in the form of donation, and which therefore become solemn contracts which must comply with the solemnities mandated by the Law on Donations C. Testamentary Trust  When an express trust is created under the terms of the last will and testament of the testator, it is a testamentary trust and is governed by the Law on Succession. Unless the will conforms with the solemnities and conditions set  by law, it will be void together with the testamentary trust sought to be created therein.  A testamentary trust was created by a provision in the will whereby the testator proposed to create trust for the  benefit of a secondary school to be established in the town of Tayabas, naming as trustee the ayutamiento of the town or if there be none, then the civil governor of the Province of Tayabas. (Gov’t of the P hil. Islands v. Abadilla) D. Pension or Retirement Trusts Publicly-regulated trusts would be those where the State provides the vehicle by which institutions are allowed to administer large funds for the benefit of the public. Among such funds created under the law would be the pension and benefits funds administered by the GSIS, the SSS and the Pag-Ibig Fund. Tax laws provide for incentives to the setting-up of retirement funds for employees. All such funds are really being administered for the beneficiaries thereof through the medium of trust. E. Charitable Trusts 4. Parties to an Express Trust a) Trustor — a person who establishes a trust (Art. 1440)  b) Trustee — one in whom confidence is reposed as regards property for the benefit of another person (Art. 1440) i. Trustee must have legal capacity to accept the trust ii. Failure of Trustee to Assume the Position 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. In case of refusal to accept the trust by the trustee, the court will appoint a trustee But, if the appointment of the trustee is a material provision, the trustor can provide that a refusal of the trustee to accept the trust shall result in the failure or nullification of the same iii. Obligations of the Trustee (Rule 98 of Rules of Court)  Katrina E. Cariño Term Paper on Trusts Page 4  of 8    When the transaction at hand could have been entered into by a trustee either as such or in its individual capacity, then it must be clearly indicated that the liabilities arising therefrom shall be chargeable to the trust estate, otherwise they are due from the trustee in his personal capacity (Senguan v. Phil. Trust Co.)  v. Trustee generally entitled to receive a fair compensation for his services Under Section 7 of Rule 98 of the Rules of Court, if the compensation of the trustee is not determined in the instrument creating the trust, his compensation shall be fixed by the court that appointed him. c) Beneficiary  — the person for whose benefit the trust has been created (Art. 1440) In regard to private trusts, it is not always necessary that the cestui que trust should be named, or even be in esse at the time the trust is created in his favor (Abadilla)  Acceptance by beneficiary of gratuitous trust is not subject to the rules for the formalities of donations d) The Corpus or the  Res The subject matter of the trust 5. How Express Trust Terminated  A. Destruction of the Corpus  When the entire trust estate is loss or destroyed, the trust is extinguished since the underlying proprietary basis no longer exists to warrant any legal relationship between the trustee and the beneficiary. B. Revocation by the Trustor In a revocable express trust, the trustee may simply invoke the revocation or termination clause found in the deed of trust thereby revoking the trust and conveying notice thereof to the trustee. Unless there is reserved power to revoke, the general rule is that an express trust is irrevocable. C. Achievement of Objective, or Happening of the Condition Provided for in the Trust Instrument  When the trust instrument provides the objective or the condition upon which the trust shall be extinguished, say  when the trust instrument provides that full ownership in the trust properties shall be consolidated in the person of the beneficiary once he reaches the age of majority, the happening of the condition shall terminate the trust D. Confusion or Merger of Legal Title and Beneficial Title in the Same Person  When the trustee of an existing trust becomes the beneficiary thereof, or vice versa , the trust relation is ipso jure extinguished, for it is difficult to see how a person can owe fiduciary duties to himself. E. Breach of Trust  When a trustee breaches his duty of loyalty, it would constitute legal basis by which to terminate the trust. This operates as a renunciation of the trust and the persons interested as beneficiaries in the property are entitled to maintain an action to declare their right and remove the unfaithful trustee. F. Upon the Death of Trustee Unless otherwise expressly stipulated in the trust instrument, the death, civil interdiction, insanity or insolvency of the trustee does not necessarily terminate the trust but a new trustee will be appointed. The reason why a trust does not fail for want of a trustee is that to permit it to fail for this reason would be contrary to the intention of the trustor in creating the trust. The trustor is primarily interested in the disposition of the beneficial interest in the property, and the matter of its administration is a subsidiary consideration. (Tolentino, at p. 676.)
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