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Case Digest on Obligations and Contracts: Trusts - Beneficiary - Security and Exchange Commission v. Hon. Laygo et al. G.R. No. 188639

Security and Exchange Commission v. Hon. Laygo et al.
G.R. No. 188639, September 02, 2015
Facts:
Pursuant to the mandate of Securities Regulation Code, the SEC issued the New Rules on the Registration and Sale of Pre-Need Plans to govern the pre-need industry prior to the enactment of the Pre-Need Code. It required from the pre-need providers the creation of trust funds as a requirement for registration.
Legacy, being a pre-need provider, complied with the trust fund requirement and entered into a trust agreement with Land Bank. In mid-2000, the industry collapsed for a range of reasons. Legacy, like the others, was unable to pay its obligations to the plan holders. This resulted in Legacy being the subject of a petition for involuntary insolvency by private respondents in their capacity as plan holders. Through its manifestation filed in the RTC, Legacy did not object to the proceedings and was declared insolvent by the RTC. The trial court also ordered Legacy to submit an inventory of its assets and liabilities.
The RTC ordered the SEC, to submit the documents pertaining to Legacy's assets and liabilities. The SEC opposed the inclusion of the trust fund in the inventory of corporate assets on the ground that to do so would contravene the New Rules which treated trust funds as principally established for the exclusive purpose of guaranteeing the delivery of benefits due to the plan holders. Despite the opposition of the SEC, Judge Laigo ordered the insolvency Assignee to take possession of the trust fund. Judge Laigo viewed the trust fund as Legacy's corporate assets and, for said reason, included it in the insolvent's estate.
The Assignee argues that Legacy has retained a beneficial interest in the trust fund despite the execution of the trust agreement and that the properties can be the subject of insolvency proceedings. To the Assignee, the ―control mechanisms in the Trust Agreement itself are indicative of the interest of Legacy in the enforcement of the trust fund because the agreement gives it the power to dictate on LBP (trustee) the fulfilment of the trust, such as the delivery of monies to it to facilitate the payment to the plan holders.
Issues: 1) Whether Legacy is a beneficiary in the Trust Fund Agreement;
2) Whether Legacy is a debtor of the plan holders with respect to the trust fund
Ruling:
The SC ruled that Legacy is not a beneficiary. A person is considered as a beneficiary of a trust if there is a manifest intention to give such a person the beneficial interest over the trust properties. Here, the terms of the trust agreement plainly confer the status of beneficiary to the plan holders, not to Legacy. In the recital clauses of the said agreement, Legacy bound itself to provide for the sound, prudent and efficient management and administration of such portion of the collection "for the benefit and account of the plan holders," through LBP as the trustee.
This categorical declaration doubtless indicates that the intention of the trustor (Legacy) is to make the plan holders the beneficiaries of the trust properties, and not Legacy. It is clear that because the beneficial ownership is vested in the plan holders and the legal ownership in the trustee, LBP, Legacy, as trustor, is left without any iota of interest in the trust fund. This is consistent with the nature of a trust arrangement, whereby there is a separation of interests in the subject matter of the trust, the beneficiary having an equitable interest, and the trustee having an interest which is normally legal interest.

No. Legacy is not a debtor of the plan holders relative to the trust fund. In trust, it is the trustee, and not the trustor, who owes fiduciary duty to the beneficiary. Thus, LBP is tasked with the fiduciary duty to act for the benefit of the plan holders as to matters within the scope of the relation. Like a debtor, LBP owes the plan holders the amounts due from the trust fund. As to the plan holders, as creditors, they can rightfully use equitable remedies against the trustee for the protection of their interest in the trust fund and, in particular, their right to demand the payment of what is due them from the fund. Verily, Legacy is out of the picture and exists only as a representative of the trustee, LBP, with the limited role of facilitating the delivery of the benefits of the trust fund to the beneficiaries -the plan holders. The trust fund should not revert to Legacy, which has no beneficial interest over it. Not being an asset of Legacy, the trust fund is immune from its reach and cannot be included by the RTC in the insolvency estate.
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