I – INTRODUCTION TO TRUSTS 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
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.
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 in
Government 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 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
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 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 the cestui 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 discussion, the rule is still further relaxed.
(Citing Perry on Trusts, 5th ed., section 66.)” (at
p.647.)
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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
Trustee’s 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 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 DBP’s 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 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.)
xxx.
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, 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
Fund’s trustees. Thus, COA’s directive to recored the income of the Fund in
DBP’s 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,
COA’s subsequent directive would divest the Fund of income, and defeat
the purpose for the Fund’s 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 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
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 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 Cañezo 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 the
cestui 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 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.
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 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
trustee’s 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.
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
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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 Ramos
decision, 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.
—oOo—
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 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 the
fidecomisario 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 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
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In Morales v. Court of Appeals, 274 SCRA 282 (1997), after adopting
Tolentino’s definition of trusts, the Court enumerated the following “essential
characteristics” of trust as enumerated in the esteemed author’s 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 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 character
because 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 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 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
a testamentary 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 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 arrangements—those 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.
5
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 another’s
benefit;
(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 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 Cañezo 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) the cestui que trusts, or
beneficiaries whose identity must be clear. . . (at p.
253.)
Note that in Cañezo, 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 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 beneficiary’s 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
6
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 donor’s 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 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 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 defendant’s 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 court’s decision, the
Court held -
A trust – such as that which was created between the
plaintiff and [defendant’s 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.)
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 the
cestui 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 “enforceability”of 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 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 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.
7
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 the
cestui 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 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 Victoriana’s 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 plaintiff’s 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 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 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); Cañezo v. Rojas, 538 SCRA 242 (2007);
Peñalber 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]).
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?
8
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?
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 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 Peñalber 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, Peñalbar 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, 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 place—
that 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 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 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
9
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
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.
(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 loyalty by reason of his
contractual commitment to act for and represent the principal and the
latter’s interest with third parties; he does not purport to act for himself or
upon his own powers, but by the principal’s 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 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.
10
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 –
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 property, that
“a trust is clearly intended” takes only one form: a written instrument as
mandated under Article 1443. In the absence of such written instrument
then public policy expressed under Article 1443 is that no such intent to
create a trust exists, and consequently, there are not trust obligations on the
part of the purported trustee.
When it comes to other forms of trust properties, the element of “intention to
create trust” must still come into play, which is any evidence tending to
show that the trustor had transferred title to the trust property with intention
to have them managed for the benefit of the beneficiary, coupled with an
intention on the part of the trutee to have accepted title to the trust property
with the obligation to manage them for the benefit of the beneficiary. An
express trust is never presumed to exist merely on the basis that title to
property has been transferred to another person; in the absence of written
evidence, the intention to create a trust must be proved by clear and
convincing evidence. Thus, De Leon v. Molo-Peckson, 6 SCRA 978 (1962),
held –
True, it is 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 . . . but here the document in
question clearly and unequivocally declares the
existence of 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 .
. It was even held that an express trust may be
declared by a writing made after the legal estate has
been vested in the trustee. . . (at p. 984.)
In De Leon, the instrument showed that the appellants agreed to sell to the
appellee the lots at a nominal price of P1.00 per lot, which to the Court
represented a recognition of a pre-existing trust or a declaration of an
express trust, based on the provision in the donor’s will to the effect that the
titles to the land should be conveyed to appellants with the duty to hold
them in trust for the appellee.
But in Salao, after it was held that no express trust could have been
constituted over immovables without a written trust, the Court went on to
determine whether a trust over immovable property, which cannot be
enforced in the absence of written evidence thereof, can still be pursued
under the provisions of implied trust: “Is plaintiffs’ massive oral evidence
sufficient to prove an implied trust, resulting or constructive, regarding the
two fishponds?” (at p. 81; italic format supplied). The matter will be covered
under the chapter on implied trusts.
a. Contractual Trusts
The manner of splitting the legal title and beneficial ownership over the
property (i.e., the corpus) to be held in trust may be done in several ways.
For example, the situation covered under Article 1440 would involve a
situation where the full owner of a property, defined as the trustor, conveys
the naked title to one person, say a banking institution, as trustee, under the
terms of the trust agreement for the benefit of another person called the
beneficiary, say the retarded child of the trustor. In this case, you would
have three parties to the trust arrangement.
Another mode would be for the trustor to convey the naked title of the trust
property to a trustee, say a banking institution, with trustor himself to
become the beneficiary of the trust. In this case you would only have two
parties to the trust agreement, the trustor-beneficiary and the trustee.
A third mode would be for the trustor to convey the title to the property to
himself merely as trustee for the benefit of a beneficiary, such as when a
father donates a property to his son by constituting himself as the trustee
during the infancy of the son. In this case, there are essentially only two
parties, the trustor-turned-trustee and the beneficiary. Such an arrangement
essentially covers a gift by the trustor to the beneficiary.
What is clear from the foregoing illustrations is that express trust
relationship is the product of contractual intentions. Express trusts therefore
are the creature of what we term in Contract Law as the “freedom to
contract” or the doctrine of autonomy, and the right of every owner to deal
with proprietary arrangements over property owned by him in a manner that
serves his purpose, provided it is not contrary to laws, moral or public
policy.
In order to complete the definition of terms, it should be noted that the
properties that are covered by the trust relationship are referred to
collectively as the “corpus”, and should be distinguished from the fruits,
earning and interests that are earned from the trustee’s management of the
corpus.
b. Inter Vivos Trusts
As discussed previously, inter vivos trusts are expressed trust pursued in
the form of donations, and which therefore become solemn contracts which
must comply with the solemnities mandated by the Law on Donations.
A good example of an express trust created through a donation is found in
the decision in De Leon v. Molo-Peckson, 6 SCRA 978 (1962), where the
husband, Mariano Molo y Legaspi died leaving a will wherein he
bequeathed his entire estate to his wife, Juana Juan, who in turn executed
a will naming therein many devisees and legatees, including Guillermo San
Rafael. Subsequently, Juana Juan executed a donation inter vivos in favor
of her two daughters for almost the entire property, which included the ten
parcels of land located in Pasay City and subject of the suit. Six months
after the mother died, the donees-daughters executed a “Mutual
Agreement” whereby the bound themselves to sell for P1.00 each the ten
lots to the issues of Guillermo San Rafael under the express purpose “That
this agreement is made in conformity with the verbal wish of the late Don
Mariano Molo y Legaspi and the later Doña Juana Francisco Juan y Molo.
These obligations were repeatedly told to [the donees-daughters] before
their death and that the same should be fulfilled after their death.”
Although the donees-daughter subsequently tried to revoke the Mutual
Agreement, the Court held that an express trust had been duly constituted,
since the instrument, “wherein the appellants [donees-daughters] agreed to
sell to the appellee the lots at a nominal price of P1.00 pler lot, represents a
recognition of a pre-existing trust or a declaration of an express trust, based
on the provision in the donor’s will to the effect that the titles to the land
11
should be conveyed to appellants with the duty to hold them in trust for the
appellee.” (at p. 984.)
c. Testamentary Trust
When an express trust is created under the terms of the last will and
testament of the testator, it is a testmentary 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 testmentary trust
sought to be created therein.
Palad v. Province of Quezon, 46 SCRA 354 (1972), shows where an
express trust was embodied in a holographic will containing testamentary
dispositions, through which the testator created a trust for the establishment
and maintenance of a high school to be financed with tie income of certain
specified properties for the benefit of the inhabitants of a town, naming as
trustee whomsoever may be the governor of the province.
In Perez v. Araneta, 4 SCRA 430 (1962), the Court held that the provisions
of the will of the decedent explicitly authorizing the trustee constituted
therein to sell the property held in trust and to acquired, with the proceeds
of the sale, other properties, leaves no room for doubt about the intent of
the testatrix to keep, as part of the trust estate, said proceeds of sale, and
not turn the same over to the beneficiary as net rental or income.
In De Leon v. Molo-Pecson, 6 SCRA 798 (1962), the Court held that the
execution by the appellants of the agreement to sell the parcels of land at a
nominal price of P1.00 per lot, represent a recognition of a pre-existing trust
or a declaration of an express trust, based on the provisions in the donor’s
will to the effect that the titles to the parcels of land covered should be
conveyed to appellants with the duty to hold them in trust for the appellee.
d. Eleemosynary or Charitable Trusts
A description of a charitable trusts is found in Lopez v. Court of Appeals,
574 SCRA 26 (2008), where in the notarial will, the testator “expressed that
she wished to constitute a trust fund for her paraphernal properties,
denominated as Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to
be administered by her husband. . . Two-thirds (2/3) of the income from
rentals over theses properties were to answer for the education of
deserving but needy honor students, while one-third (1/3) was to shoulder
the expenses and fees of the administrator.”
However, the properties designated for the Fideicomiso were excluded and
instead adjudicated to the husband (Jose) as sole heir. Consequently, the
Court ruled that “On the premise that the disputed properties ere the
paraphernal properties of Juliana which should have been included in the
Fideiocomiso, their registration in the name of Jose would be erroneous
and Jose’s possession wuld be that of a trustee in an implied trust . . .
[which from] the factual milieu of this case is provided in Article 1456 of the
Civil Code.” (at p. 36.)
e. Publicly-Regulated 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.
A good example of a retirement trust is that discussed in Development Bank
of the Philippines v. Commission on Audit, 422 SCRA 459 (2004), which the
Court described as follows:
In the present case, the DBP Board of Governors’
(now Board of Directors) Resolution No. 794 and the
agreement executed by former DBP Chairman Rafael
Sison and the trustees of the Plan created an express
trust, specifically, an employees’ trust. An employees’
trust is a trust maintained by an employer to provide
retirement, prson or other benefits to its employees. It
is a separate taxable entity established for the
exclsuivse benefit of the employees. Resolution No.
794 shows that DBP intended to establish a trust fund
to cover the retirement benefits of certain employees
under Republic Act No. 1616 (“RA 1616″). The
principal and income of the Fund would be separate
and distinct from the funds of DBP. . . (at p. 473.)
Although the Supreme Court held that the principal and income of the fund
no longer pertained in ownership to DBP, since naked title has been
devolved to the trustees of the Fund, and that beneficial interest was with
the qualified officers and employees of DBP, nonetheless it found that DBP,
as trustor, has legal standing to sue on matters relating to the Fund, thus:
As a party to the Agreement and a trustor of the Fund,
DBP has a material interest in the implementation of
the Agreement, and in the operation of the Gratuity
Plan and the Fund as prescribed in the Agreement.
The DBP also possesses a real interest in upholding
the legitimacy of the policies and programs approved
by its Board of Directors for the benefit of DBP
employees. . . (at p. 472.)
7. Capacities, Rights, Duties and Obligations of the Parties to the
Express Trust
a. The Trustor
(1) Trustor as the Creator of the Trust
Under Article 1440, the “trustor” is defined as the “person who establishes a
trust;” and under Article 1441, an express trust may be “created by the
intention of the trustor.” The trustor therefore, disposes of his full ownership
of the designated trust properties in favor of the trustee who assumes legal
title thereto, and the beneficiary, to whom beneficial or equitable title shall
pertain.
It is possible that under an express trust, the trustor transfers naked or legal
title to properties to the trustee, but with the trustor designated as the
beneficiary.
(2) Trustor Must Have Legal Capacity to Convey Trust Property
Gayondato v. Treasurer of the P.I., 49 Phil. 244 (1926), distinguishes an
express trust from an implied trust in the sense that in an express trust, the
trustor must have legal capacity to create the trust, which effectively
requires the ability to convey naked or legal title in the trust property to the
trustee to be held by the latter for the benefit of the beneficiary. The Court
held –
Bouvier defines a trust in its technical sense as “a
right of property, real or personal, held by one party
for the benefit of another.” In the present case we
have this situation: The plaintiff was a minor at the
time of the registration of the land and had no legal
guardian. It is true that her mother in whose name the
land was registered was the natural guardian of her
person, but that guardianship did not extend to the
property of the minor and conferred no right to the
administration of the same . . . and the plaintiff, being
a minor and under disability, could not create a
technical trust of any kind. Applying Bouvier’s
definition to this state of facts, it is clear that there was
no trust in its technical signification. The mother had
no right of property or administration in her daughter’s
estate and was nothing but a mere trespasser. . . . (at
p. 250)
In effect, capacity of the parties is not essential in implied trusts, because
the arrangement is imposed by operation of law; whereas, in an express
trust, capacity to transfer title on the trust properties, in order to have legal
title held by the trustee, is critical.
b. The Trustee
(1) Trustee Is the Party Primarily Bound
Under Article 1440, the “trustee” is the person in the trust relation in whom
confidence is reposed as regards property for the benefit of another person.
It is the trustee therefore who is the party primarily bound under the trust
12
relation, and being possessed of the legal title to the trust property held for
the benefit of another person, he is bound by the fiduciary duties of
diligence and loyalty.
(2) Trustee Must Have Legal Capacity to Accept the Trust
It is to the trustee that naked or legal title to the trust properties is
transferred. Consequently, the trustee must also have legal capacity to
accept the trust, especially when upon acceptance of the trust, he binds
himself to certain obligations.
(3) When Trustee Declines the Designation
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.” On this matter, Tolentino
wrote –
Want of Trustee. — The principle that equity will not allow a trust to fail for
want of a trustee is clearly established. Where a trust has once been
created and the trustee dies, becomes insane or subject to some other
legal incapacity, or resigns or is removed, the trust does not fail, but a new
trustee will be appointed. Such an appointment will be made by the proper
court unless by the terms of the trust other provision is made for the
appointment of a successor trustee. 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.
x x x.
There are cases, however, in which it may appear that the trustor intended
the trust to continue only so long as the person designated by him as
trustee should continue as such. It may be so provided by the terms of the
trust, or it may appear that the purposes of the trust cannot be carried out
unless the person named as trustee continues to act. In such a case, the
trust will fail, if the trustee resigns, dies, is removed, or otherwise ceased to
be a trustee. (Tolentino, Civil Code of the Philippines, Vol. IV, at pp. 676-
677 [1991 ed.].)
Want of Trustee. — The
principle that equity will not allow a trust
to fail for want of a trustee is clearly
established. Where a trust has once
been created and the trustee dies,
becomes insane or subject to some
other legal incapacity, or resigns or is
removed, the trust does not fail, but a
new trustee will be appointed. Such an
appointment will be made by the proper
court unless by the terms of the trust
other provision is made for the
appointment of a successor trustee.
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.
The principle that the law will not allow a trust to fail due non-acceptance,
resignation, incapacity or death of the designated trustee in recognized
under our Rules of Court which provide for the duties of the trustee and the
manner of appointment or replacement, as discussed hereunder.
(4) Obligations of the Trustee
(i) Contractually Stated Duties and Obligations of the Trustee
An express trust constituted under a trust agreement normally provides for
the powers and functions of the trustee, and would enumerate such powers
which under the law need to be covered by a special power of attorney to
remove any doubt as to the duties of the trustee, and provide for the
parameters of his obligations as well.
(ii) Common Law Duties of the Trustee
The position of trustee being fiduciary in nature, a trustee is expected to
carry out the trust using the diligence of a good father of a family. The
trustee becomes personally liable for gross negligence committed even
when it is in the pursuit of the trust arrangement; for negligence which
causes damage to another person constitutes a wrong committed by the
tortfeasor for which he can be held personally liable. Every trustee has the
common law duty of diligence.
In addition, the trustee is expected to be loyal to the affairs and interest of
the beneficiary. He cannot appropriate for himself any opportunity which in
the course of his functions as trustee should pertain to the beneficiary. He
has the duty to account t the beneficiary for the affairs of the trust. And he
cannot convert the use of the trust properties, and the incomes, fruits and
proceeds for his own benefit. Every trustee has the common law duty of
loyalty.
Perez v. Araneta, 4 SCRA 434 (1962), held that although the beneficiaries
may be entitled to receive the income flowing from the trust estate, the
profits realized in the sale of trust properties are part of the capital held in
trust, to which the beneficiaries are entitled to receive as income.
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), held that the other duties of
the trustee, which flow out of the main duty of loyalty, would be the duty to
account to the beneficiary of the trust estate. It would be the duty of the
trustee also to deliver the property in trust to the cestui que trust , when it is
time to so do it, free all liens and encumbrances.
Under Article 1455, when the trustee uses trust funds for the purchase of
property and causes the conveyance to be made in his name or a third
person, a trust is established in favor of the beneficiary.
A violation of the duties of the trustee may constitute a “breach of trust” that
would be the legal basis by which the trustee may be removed, or the trust
revoked entirely.
(iii) Trustee is Prohibited from Donating Trust Property
Under Article 736 of the Civil Code, “trustees cannot donate the property
entrusted to them.” Such prohibition is in accordance with the fiduciary duty
of loyalty of a trustee, that the holds the trust property for the benefit of the
beneficiary. He therefore cannot exercise acts of beneficence employing the
property that he holds for the benefit of another person. (see Araneta v.
Perez, 5 SCRA 338 [1962].)
(iv) Trustee Cannot Use Funds of the Trust to Acquire Property for
Himself
Under Article 1455 of the Civil Code (on implied trusts), “When any trustee .
. . uses trust funds for the purchase of property and causes the conveyance
to be made to him or to a third person, a trust is established by operation of
law in favor of the person to whom the funds belong.” Article 1455 actually
establishes the parameters of the duty of loyalty that every trustee owes to
the beneficiary—that the trustee is obliged to use the funds of the trust
estate for the sole benefit of the beneficiary.
Every trustee in express trust, being the naked title holder, of course has
the power to use funds of the trust estate to acquire properties to be placed
in his name, but that would have to be officially as “trustee”. Article 1455
applies in a situation where the property is placed in the name of the trustee
without indicating that he holds it as trustee. That would then later authorize
him to claim the property as his own, in breach of his duties of loyalty.
(v) Duties and Responsibilities of the Trustees under the Rules of
Court
Rule 98 of the Rules of Court grants the court authority to appoint a trustee
when “necessary to carry into effect the provisions of a will or a written
instrument.” (Section 1), and that title to the trust estate will vest in the
trustee thus appointed by the courts (Section 2).
In particular, Section 3 of Rule 98, provides that –
“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
13
 made in such instrument for supplying the vacancy,
the proper [Regional Trial Court] may, after due notice
to all persons interested, appoint a new trustee to act
alone or jointly with the others, as the case may be.
Such new trustee shall have and exercise the same
powers, rights, and duties as if he had been originally
appointed, and the trust estate shall vest in him in like
manner as it had vested or would have vested, in the
trustee in whose place he is substituted; and the court
may order such conveyance to be made by the former
trustee or his representatives, or by the other
remaining trustees, as may be necessary or proper to
vest the trust estate in the new trustee, either alone or
jointly with others.”
The provisions of Rule 38 of the Rules of Court are meant to implement the
rule in this jurisdiction that the non-acceptance, death, civil interdiction,
insanity, insolvency, or even the resignation of a designated trustee, shall
not of itself prevent a trust from coming into fruition or extinguish one that
has been already constituted. The doctrine flows from the equity nature of
the trust as a legal institution in the Philippines.
An example of the application of this principle is in the decision in Lorenzo
v. Pasadas, 64 Phil. 353 (1937), where the will of the decedent never used
the term “trust”, but nevertheless the intention to create one was deemed
implicit to the Court, thus –
“The appointment of P.J.M. Moore as trustee was
made by the trial court in conformity with the wishes
of the testator as expressed in his will. It is true that
the word ‘trust’ is not mentioned or used in the will but
the intention to create one is clear. No particular or
technical words are required to create a testamentary
trust (69 C.J., p. 711). The words ‘trust’ and ‘trustee’,
though apt for the purpose, are not necessary. In fact,
the use of these two words is not conclusive on the
question that a trust is created (69 C.J., p. 714). ‘To
create a trust by will the testator must indicate in the
will his intention so to do by using language sufficient
to separate the legal from the equitable estate, and
with sufficient certainty designate the beneficiaries,
their interest in the trust, the purpose or object of the
trust, and the property or subject matter thereof.
Stated otherwise, to constitute a valid testamentary
trust there must be concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2)
a definite subject; (3) a certain or ascertained object;
statutes in some jurisdictions expressly or in effect so
providing.’ (69 C. J., pp. 705, 705.) There is no doubt
that the testator intended to create a trust. He ordered
in his will that certain of this properties be kept
together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound
judgment in appointing a trustee to carry into effect
the provisions of the will. (see sec. 582, Code of Civil
Procedure).” (at pp. 368-369).
Following up on this principle, the Supreme Court held in Julio v. Dalandan,
21 SCRA 543 (1967), that –
“For, technical or particular forms of words or phrases
are not essential to the manifestation of intention to
create a trust or to the establishment thereof. Nor
would the use of some such words as ‘trust’ or
‘trustee’ essential to the constitution of a trust as we
have held in Lorenzo v. Posadas, 64 Phil. 453, 368.
Conversely, the mere fact that the word ‘trust’ or
‘trustee’ was employed would not necessarily prove
an intention to create 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. Is it important that the trustor should know that
the relationship which intents 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)
Under Sections 5 and 6 of Rule 98, the following are the duties and
responsibilities of the trustee appointed by the courts:
(a) Before entering on the duties of his trust, a trustee
shall file a bond with the court conditioned upon
compliance with his duties;
(b) To 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;
(c) To 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;
(d) To render upon oath at least once a year until his
trust is fulfilled, unless he is excused therefrom in any
year by the court, a true account of the property in his
hands and of the management and disposition
thereof, and will render such other account as the
court may order; and
(e) Upon the expiration of his trust, he will settle his
accounts in court and pay over and deliver all the
estate remaining in his hands, or due from him on
such settlement, to the person or persons entitled
thereto.
(vi) Proper Proceedings for Sale or Encumbrance of Trust Estate
Under Section 9 of Rule 98 of the Rules of Court, when the sale or
encumbrance of any real or personal estate held in trust is necessary or
expedient, the Regional Trial Court (RTC) having proper jurisdiction of the
trust may, on petition and after due notice and hearing, order such sale or
encumbrance to be made, and the reinvestment and application of the
proceeds thereof in such manner as will best effect the objects of the trust.
(vii) Trustee Does Not Assume Generally Personal Liability on the
Trust
Although a trustee enters upon the fulfillment of his duties by his own name,
and not in the name of the trustor or the beneficiary, nonetheless, it should
be understood that the performance of the functions of the trustee and the
contracts entered into in pursuit of the trust, as performed under “official
capacity” as a trustee. Consequently, the liabilities assumed by the trustee
is such capacity can only be enforced to the extent of the trust properties. In
other words, the trustee, unless he so stipulates, does not become
personally liable to his separate properties outside of the trust properties,
for contracts and transactions arising from the trust and entered into in his
official capacity as trustee.
Thus, in Tan Senguan and Co. v. Phil. Trust Co., 58 Phil. 700 (1933), where
the properties for which the trust company had entered into transaction
were received not in a trustee capacity, the Court held that the trustee
would be liable for such transactions in its personal capacity, and not as a
trustee.
A trustee who acts within the scope of the trust therefore, has a right to
charge to the trust estate the expenses incurred by reason thereof.
On the other hand, a trustee is expected to exercise due diligence in the
pursuit of the trust, and when he acts with fraud or gross negligence, he
becomes personally liable for his own separate properties, as to all persons
who suffer damage by reason of such fraud or negligence.
(viii) Trustee is Entitled to Compensation for Management of the Trust
Estate
In Lorenzo v. Pasadas, 64 Phil. 353 (1937), the Court held that as a matter
of general proposition, “A trustee, no doubt, is entitled to receive a fair
compensation for his services.” (at p. 365, citing Barney v. Saunders, 16
How., 535, 14 Law. Ed., 1047.)
14
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.
In Araneta v. Perez, 7 SCRA 258 (1962), the Court held that the
reasonableness of fees of a trustees should be determined in advance, but
must be determined at the time he files a claim for the same, since
reasonableness depends upon variable circumstances, such as the
character and powers of the trusteeship, the risk and responsibility
assumed, the time and labor and skill required in the administration of the
trust, as well as the care and management of the estate. The Court also
held that the trustee may be indemnified out of the trust estate for the
expenses incurred in rendering and proving his accounts and for the costs
and counsel’s fees in connection therewith.
(ix) Removal or Resignation of Trustee
Under Section 8 of Rule 98 of the Rules of Court, the proper RTC 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 interests of the petitioners. The RTC 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 therefore.
The section also recognizes that a trustee, whether appointed by the court
or under a written instrument, may resign his trust if it appears to the court
that is it proper to allow such resignation.
c. The Beneficiary
(1) Beneficiary Is the Passive Recipient of Benefits Flowing from the
Trust
Under Article 1440 of the Civil Code, the “beneficiary” is the person for
whose benefit the trust has been created. As a general rule, the designation
of the beneficiary, is a gratuitous act, essentially an act of donation by which
beneficial or equitable title to the trust property is given to the beneficiary.
However, when the trustor creates the trust by designating a trustee to hold
the trust properties for the benefit of the trustor, there is no act of
beneficence in this case, but constitutes more as a sense of estate
planning.
Under Article 1446 of the Civil Code, acceptance by the beneficiary of the
express trust 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. The situation does not cover the case when the
trustor designates himself as the beneficiary.
Article 725 of the Civil Code defines donation as “an act of liberality
whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it.” Since a person cannot be compelled to accept the
generosity of another, it is provided under Article 1446 that “[a]cceptance by
the beneficiary is necessary.” Although the Law on Donations provides for
solemnities for the act of donation and its acceptance, it has been held in
Cristobal v. Gomez, 50 Phil. 810 (1927), that the acceptance by the
beneficiary of gratuitous express trust is not subject to the rules for the
formalities of donations.
Parenthetically, under Article 748, it is provided that “the donation of a
movable may be made orally or in writing. An oral donation requires the
simultaneous delivery of the thing or the document representing the right
donated. If the value of he personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be made in writing.
Otherwise, the donation shall be void.”
Under Article 749 of the Civil Code, “in order that the donation of an
immovable may be valid, it must e made in a public document, specifying
therein the property donated and the value of the charges which the donee
must satisfy. The acceptance may be made in the same deed of donation or
in a separate public document, but it shall not take effect unless it is done
during the lifetime of the donor. If the acceptance is made in a separate
instrument, the donor shall be notified thereof in an authentic form, and this
step shall be noted in both instruments.”
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), relying upon American
jurisprudence, held that “The fact that the beneficiaries [to a donation inter
vivos] were not notified of the existence of the trust or that the latter have
not been given an opportunity to accept it is of no importance, for it is not
essential to the existence of a valid trust and to the right of the beneficiaries
to enforce the same that they had knowledge thereof at the time of its
creation (Soehr v. Miller, 296 F. 414). Neither is it necessary that the
beneficiary should consent to the creation of the trust (Wockwire-Spencer
Steel Corporation v. United Springs Mfg. Co., 142 N.E. 758, 247 Mass.
565). In fact it has been held that in case of a voluntary trust the assent of
the beneficiary is not necessary to render it valid because as a general rule
acceptance by the beneficiary is presumed (Article 1446, new Civil Code;
Cristobal v. Gomez, 50 Phil. 810).” (at p. 985)
(2) Beneficiary Need Not Have Legal Capacity
It is posited that the beneficiary of an express trust need not have legal
capacity to be constituted as such in a trust agreement, especially so when
the designation is an act of pure liberality.
Under Article 738 of the Civil Code, “All those who are not specially
disqualified by law therefore may accept donations,” which means that all
persons regardless of legal capacity, may be donees except only in those
specific cases where the donation to them cannot be made. Article 741
provides that minors and others who cannot enter into a contract may
become donees but acceptance shall be done through their parents or legal
representatives. Under Article 742, donations may even be made to
conceived and unborn children and may be accepted by those persons who
would legally represent them if they were already born.
In the case of express trust, Article 1446 of the Civil Code provides that if
the trust imposes no onerous condition upon the beneficiary, his
acceptance shall be presumed, if there is no proof to the contrary.
The provisions do not cover also charitable trusts, or those constituted upon
a trustee who holds legal title to the trust properties for the benefit of a
general group of beneficiaries.
8. How Express Trust Extinguished or Terminated
Like any other legal relationship, express trust relationships may be
terminated by reason provided for in the trust instrument itself, or upon
grounds provided for by law or equity.
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.
In De Leon v. Molo-Peckson, 6 SCRA 978 (1962), the donee-daughters had
tried to revoke the Mutual Agreement they previously executed confirming
the desires of the mother who donated to them that the ten parcels of land
donated would be sold at nominal price to a designated cetui que trust. The
Court held that although “It is true, as appellants contend, that the alleged
declaration of trust was revoked, and having been revoked it cannot be
accepted, but the attemted revocation did not have any legal effect. The
rule is that in the absence of any reservation of the power to revoke a
voluntary trust is irrevocable without the consent of the beneficiary . . . It
cannot be revoked by the creator alone, nor by the trustee.” (at p. 985,
citing Allen v. Safe Depolsit and Trust Co., of Balitmore, 7 A.2d 180, 177
Md. 26; Fricke v. Weber, C.A.A. Ohio, 145 F.2d 737; Hughes v. C.I.R.,
C.C.A. 9, 104 F.2d 144; Ewing v. Shannahan, 20 S.W. 1065, 113 Mo. 188;
italics supplied)
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
15
happening of the condition shall terminate the trust.

d. Death or Legal Incapacity of the 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. Thus, Tolentino writes:

The principle that equity will no allow a trust to fail for

want of a trustee is clearly established. Where a trust
has once been created and the trustee dies, becomes
insane or subject to some other legal incapacity, or
resigns or is removed, the trust does not fail, but a
new trustee will be appointed. Such an appointment
will be made by the property court unless by the terms
of the trust other provision is made for the
appointment of a successor trustee. 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.)

In Canezo v. Rojas, 538 SCRA 242 (2007), where the daughter alleged that
he had entrusted possession and title to the property to her father Crispulo
when she left Mindanao based on either an express trust or a resulting
trust, the Supreme Court laid down the following legal effect on the death of
the trustee:

Assuming that such a relation existed, it terminated

upon Crispulo’s death in 1978. A trust terminates
upon the death of the trustee where the trust is
personal to the trustee in the sense that the trustor
intended no other person to administer it. If Crispulo
was indeed appointed as trustee of the property, it
cannot be said that such appointment was intedned to
be conveyed to the respondents or any of Cripulo’s
other heirs. Hence, after Crispulo’s death, the
respondent had no right to retain possession of the
property. At such point, a constructive trust would be
created over the property by operation of law. Where III. IMPLIED TRUSTS
one mistakenly retains property which rightfully
belongs to another, a constructive trust is the proper 1. Nature and Types of Implied Trusts
remedial device to correct the situation. (at p. 257.
Art. 1441. Trusts are either express or
e. Confusion or Merger of Legal Title and Beneficial Title in the Same implied. Express trusts are created by the
Person intention of the trustor or of the parties. Implied
trusts come into being by operation of law.
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 Art. 1442. The principles of the general law
how a person can owe fiduciary duties to himself. of trusts, insofar as they are not in conflict with
this [Civil] Code, the Code of Commerce, the
f. Breach of Trust Rules of Court and special laws are hereby
adopted.
When a trustee breaches his duty of loyalty, it would constitute legal basis
by which to terminate the trust. Art. 1445. The enumeration of the following
cases of implied trust does not exclude others
established by the general law of trust, but the
Thus, in Martinez v. Graño, 42 Phil. 35 (1921), the Court held that when a limitation laid down in Article 1442 shall be
person administering the property in the character of a trustee applicable.
inconsistently assumes to be holding it in his own right, 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 According to the Report of the Code Commission, the underlying doctrine of
the unfaithful trustee. implied trusts is founded on equity, derived from American decisions under
a legal system where injustice would result in which the legal estate or title
were to prevail over the equitable right of the beneficiary. (Report of the
—oOo— Code Commission, p. 60)

Under Article 1441 of the New Civil Code, as distinguished from express
trust which are “created by the intention of the trustor or of the parties,”
implied trusts “come into being by operation of law.” This may imply that
implied trusts are essentially creatures of the law, and do not arise from the
intentions of the parties bound by the trust relationship. Although such an
implication may be true of constructive trusts, it does not accurately apply to
resulting trusts, as explained hereunder.

a. Two Types of Implied Trusts: Resulting Trusts and Constructive

16
Trusts
In Ramos v. Ramos, 61 SCRA 284 (1974), the Supreme Court defined and
characterized implied trusts as “those which, without being expressed, are
deducible from the nature of the transactions as matters of intent, or which
are superinduced on the transaction by operation of law as matters of
equity, independently of the particular intention of the parties (89 C.J.S.
724).” (at p. 298; italics supplied) Ramos’ distinguishing principles
were reiterated in Salao v. Salao, 70 SCRA 65, 80 (1976).
Morales v. Court of Appeals, 274 SCRA 282 (1997) defined implied trusts
as those that “come into being by operation of law, either through
implication of an intention to create a trust as a matter of law or through the
imposition of the trust irrespective of, and even contrary to, any such
intention.” (at p. 298)
Therefore, implied trust which are “deductible from the nature of the
transactions as matters of intent,” are referred to as resulting trusts; and
those which are superinduced “by operation of law as matters of equity” are
constructive trusts.
Morales gave the rationale for resulting trusts as being “based on the
equitable doctrine that valuable consideration and not legal title determines
the equitable title or interest and are presumed to always to have been
contemplated by the parties. They arise from the nature or circumstances of
the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligation in equity to hold his legal
title for the benefit of another.” (at p. 298)
On the other hand, Morales defines constructive trusts as those which “are
created by the construction of equity in order to satisfy the demands of
justice and prevent unjust enrichment. They arise contrary to intention
against one who, by fraud, duress or abuse of confience, obtains or holds
the legal right to property which he ought not, in equity and good
conscience, to hold.” (at p. 298, citing Huang v. Court of Appeals, 236
SCRA 420 [1994]; Vda. De Esconde v. Court of Appeals, 253 SCRA 66
[1996]. Reiterated in Cañezo v. Rojas, 538 SCRA 242 [2007]; Peñalber v.
Ramos, 577 SCRA 509 [2009]).
In Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), the
Court held that “the framers of our present Civil Code incorporated implied
trusts, which includes constructive trusts, on top of quasi-contracts, both of
which embody the principle of equity above strict legalism.” (at p. 356,
italics supplied)
b. Two Types of Implied Trusts Distinguished from Express Trusts
Unlike an express trust, which essentially proceeds from a clear or direct
contractual intention to dispose of trust property to a trustee for the benefit
of the beneficiary, in a resulting trust, no such intention is apparent, but
merely presumed by law from the nature of the transaction. In essence,
express trusts are creatures of the parties’ express intent usually
manifested by devolving naked or legal title to the trustee of the res,
whereas resulting trusts are implied by law from the implied intentions of the
parties as derived from the nature of their transactions.
When it comes to constructive trusts, no such intention at all is drawn from
the nature of the transaction, and the purpose of the law in imbuing the
relationship with trust characteristics is to achieve equity demanded by the
situation. In fact, Ramos holds that constructive trust may be constituted by
force of law “independently of the particular intentions of the parties.”
Express trusts over immovables can be proved by parol evidence, in both
types of implied trusts, they may be proved and enforced by parol evidence.
Since the trust relationship in constructive trusts is imposed by law, then
there is really no fiduciary relationship existing between the purported
trustee and the purported cestui que trust; whereas, in both express trusts
and resulting trusts, the trustee assumes fiduciary duties to the cestui que
trust.
Consequently, while express trusts (also in resulting trusts) may be subject
to laches or defenses of prescription only when there has been a previous
clear repudiation by the trustee made known to the beneficiary; in
constructive trusts, no such repudiation need be made for prescription to
begin to run.
2. Rules of Enforceability of Implied Trusts
Art. 1457. An implied trust may be proved by oral evidence.
The discussions hereunder are based on the legal premise that trusts
relationships, whether express or implied, are built on existing property
relations and that at the center of the legal issue involves property that has
been transferred in the name of, or in ownership to, the purported trustee.
Issues pertaining to the enforceability of trusts relations, and the nature of
the evidence that is legally allowed to prove such trust relations, are
pursued only when such property relations are in place. Morales has in fact
considered as one of the essential characteristics of every trust that “it is a
relationship with respect to property, not one involving merely personal
duties.” (at p. 298) Such a legal premise follows the principle that trusts
contracts (i.e., express and resulting trusts) have the essential
characteristic of real as distinguished from consensual or formal.
Under the old Civil Code, the syllabus appearing at the beginning in the
decision in Gamboa v. Gamboa, 52 Phil. 503 (1928), affirmed the nature of
proof that must be satisfied in order to prove implied trusts, thus —
1. Trusts; Proof Insufficient to Show Title of Land to
Have Been Held in Trust.–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 brothers and
sisters to share in the produce of the land. (at pp.
503-504)
Under Article 1457 of the New Civil Code, an implied trust, whether
resulting or constructive, may be proved by oral evidence, without
distinction on whether it involves a movable or an immovable property.
Article 1457 therefore contains the rationale for implied trusts as reported
by the Code Commission that “the underlying doctrine of implied trusts is
founded on equity . . . under a legal system where injustice would result in
which the legal estate or title were to prevail over the equitable right of the
beneficiary.” This is in contrast to Article 1443, which provides that an
express trust over immovables or any interest therein can only be
constituted in writing, and cannot be proved by parol evidence, which
embodies the public policy that when it comes to registered land, generally
parol evidence cannot derogate the title of the registered owner.
In Salao v. Salao, 70 SCRA 65 (1976), where the Court refused to enforce
the claims of the plaintiffs under a cause of action based on an express
trust over immovable property unsupported by a written instrument, next
proceeded to address the issue “Is plaintiffs’ massive oral evidence
sufficient to prove an implied trust, resulting or constructive, regarding the
two fishponds?” (at p. 81). The Court held that indeed if the principles of
express trust cannot be applied for lack of written evidence to sustain a
trust over immovables, then the oral evidence can be accepted by the
courts to support a claim of implied trusts.
But the Court in Salao also held that although oral evidence may be
adduced to prove an implied trust over immovables, it held that in order to
be recognized such oral evidence must measure up to the yardstick that a
trust must be proven by clear, satisfactory and convincing evidence, and
cannot rest on vague and uncertain evidence or on loose, equivocal or
indefinite declarations. (at p. 83, citing De Leon v. Molo-Peckson, 116 Phil.
1267 [1962]) The Court quoted the following authorities —
Trusts; Trust and trustee; establishment of trust by parol
evidence; certainty of proof. Where a trust is to be established by
oral proof, the testimony supporting it must be sufficiently strong
to prove the right of the alleged beneficiary with as much
certainty as if a document proving the trust were shown. A trust
cannot be established, contrary to the recitals of a Torrens title,
upon vague and inconclusive proof. (Syllabus, Suarez vs.
Tirambulo, 59 Phil. 303).
Trust evidence needed to establish trust on parol
testimony. In order to establish a trust in real property
by parol evidence, the proof should be as fully
convincing as if the act giving rise to the trust
obligation were proven by an authentic document.
Such a trust cannot be established upon testimony
consisting in large part of insecure surmises based on
ancient hearsay. (Syllabus, Santa Juana vs. Del
Rosario, 50 Phil. 110).
17
In Salao, the Court noted its earlier decision in Yumul v. Rivera and Dizon,
64 Phil. 13 (1937), where it held that when it comes to registered land, “A
certificate of title is conclusive evidence of the ownership of the land
referred to therein (sec. 47, Act No. 496). x x x. But a strong presumption
exists that Torrens certificates of title have been regularly issued and are
valid and, in order to maintain an action in personam for reconveyance…,
proof as to the fiduciary relation of the parties and of the breach of trust
must be clear and convincing.” (at pp. 17-18) It also referred to its decision
in Legarda and Prieto v. Saleeby, 31 Phil. 590, 593 (1915), where it held
that the purpose of the Torrens system is to quiet title to land: “Once a title
is registered, the owner may rest secure, without the necessity of waiting in
the portals of the court, or sitting in the mirador de su casa, to avoid the
possibility of losing his land.” (at pp. 83-84)
The Court in Salao also referred to its decision in Legarda and Prieto v.
Saleeby, 31 Phil. 590, 593 (1915), where it held that the purpose of the
Torrens system is to quiet title to land: “Once a title is registered, the owner
may rest secure, without the necessity of waiting in the portals of the court,
or sitting in the mirador de su casa, to avoid the possibility of losing his
land.” (at pp. 83-84)
The Court then concluded in Salao that “There was no resulting trust in this
case because there never was any intention on the part of the parties
involved to create any trust. There was [also] no constructive trust because
the registration of the two fishponds . . . was not vitiated by fraud or
mistake. This is not a case where to satisfy the demands of justice it is
necessary to consider the . . . fishponds as being held in trust.” (at p. 84).
The Salao doctrines therefore show the close kinship between express
trusts and resulting trusts and that treatment can move from one to the
other in order to achieve equity.
In Municipality of Victorias v. Court of Appeals, 149 SCRA 32 (1987), it was
held that the existence of public records other than the Torrens
title indicating a proper description of the land, and not the technical
description thereof, and clearly indicating the intention to create a trust, was
considered sufficient proof to support the claim of the cestui que trust.
In Ong Ching Po v. Court of Appeals, 239 SCRA 341 (1994), where the
Court held that although an implied trust may be proved orally, “the
evidence to prove it must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on loose, equivocal and
indefinite declarations.” (at p. 347)
Lately, in Booc v. Five Stars Marketing Co., Inc., 538 SCRA 42 (2007), the
Court reiterated the doctrine it laid down in Morales v. Court of Appeals, 274
SCRA 282 (1997), and Tigno v. Court of Appeals, 280 SCRA 262 (1997),
that “As a rule, the burden of proving the existence of a trust is on the party
asserting its existence and such proof must be clear and satisfactorily show
the existence of the trust and its elements.” Booc held that an affidavit of
the fact of resulting trust against contrary affidavits presented by other
witnesses, as well as the transfer certificates of title and tax declarations to
the contrary, do not support clearly the existence of trust.
The conclusion one gets from reading the foregoing decisions is that, faced
with a Torrens title that shows no trust relationship assumed by the
registered owner, and there is no other written evidence to show an
intention to create a trust, then generally oral evidence is unavailable to
overcome the registered title of the purported trustee who denies the
existence of any trust. The reliable evidence to indicate a resulting trust
relationship against a clean title registered in the name of the purported
trustee can only be a written document signed by said purported trustee
acknowledging that he holds title for the benefit of another party, or from the
nature of the transaction duly proven indicating how title was acquired by
the registered owner, and shows that there was a clear agreement or
intention to hold it for the benefit of another person.
Perhaps the best way to end this section is to invoke the decision in
Cañezo v. Rojas, 538 SCRA 242 (2007), which held that –
While implied trust may be proved by oral evidence,
the evidence must be trustworthy and received by the
courts with extreme caution, and should not be made
to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral
evidence can easily be fabricated. In order to
establish an implied trust in real property by parol
evidence, the proof should be as fully convincing as if
the acts giving rise to the trust obligation are proven
by an authentic document. An implied trust, in fine,
cannot be established upon vague and inconclusive
proof. In the present case, there was no evidence of
any transaction between the petitioner and her father
form which it can be inferred that a resulting trust was
intended. (at p. 256)
3. Resulting Trusts
In Ramos v. Ramos, 61 SCRA 284 (1974), the Court held that “‘A resulting
trust is broadly defined as a trust which is raised or created by the act or
construction of law, but in its more restricted sense it is a trust raised by
implication of law and presumed always to have been contemplated by the
parties, the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of conveyance
(quoting from 89 C.J.S. 725; italics supplied). Examples of resulting trusts
are found in article 1448, [1449, and] 1455 of the Civil Code.” (at p. 298).
This characterization of resulting trust was reiterated in Salao v. Salao, 70
SCRA 65, 80-81 (1976).
a. Burden of Proof in Resulting Trusts
The essence of resulting trusts is the implication drawn out by law from the
nature of the transactions covered; and necessarily, the enumerated cases,
being merely implied trust from the law’s perceived intentions of the parties,
constitute disputable presumptions of trust, and evidence may thus be
adduced to show that no trust was intended nor contemplated by the
parties. Correctly interpreted, since it is the law that imbues certain
transactions with the characteristics of resulting trusts, the cestui que trust
need only prove the facts that would constitute the covered transaction and
the legal presumption that there exists a resulting trust would arise from the
very nature of the transaction proven; immediately, the burden of proof
would be on the part of the purported trustee to show that no such trust
relationship was intended.
b. Blurring of the Distinction Between Express Trusts and Resulting
Trusts
If we go by the jurisprudential definition of resulting trust, the presumed
intention of the parties bounded by the trust relationship is drawn from the
nature of the transaction, and not from the words, acts or omissions of the
parties. Thus, when the intention is derived, not only from the nature of the
transactions, but from the verbal expressions of the parties, then the
relationship is one of express trust, not resulting trust, since under Article
1441 of the Civil Code, express trust are “created by the intention of the
trustor or of the parties.” Only recently, in Cañezo v. Rojas, 538 SCRA 242
(2007), the Court characterized 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 evincing an intention to create a trust,” (at pp. 251-252,
italics supplied, citing Buan Vda. De Esconde v. Court of Appeals, 253
SCRA 66, 73 [‘1996]), as distinguished from implied trusts (which would
include resulting trusts) “which, without being expressed, are deducible
from the nature of the transaction as matters of intent or, independently, of
the particular intention of the parties, as being superinduced on the
transaction by operation of law basically by reason of equity.” (at p. 252)
Yet, as shown by the discussions hereunder, the rules on implied trusts
(particularly resulting trusts) have been made to apply to situations which
are considered as express trusts because the intentions of the parties are
deducible “by the direct and positive acts of the parties, by some writing or
deed, or will, or by words evincing an intention to create a trust.”
Discussions on this issue will start with the early decision in Martinez v.
Graño, 42 Phil. 35 (1921), were the facts showed that previously the heirs
of the deceased spouses Martinez had sold under a sale a retro the parcels
of land inherited from the deceased spouses in order to cover the debts of
the estates; and that in order to expedite the obtaining of a large loan from
a savings association to prevent the consolidation of title to the buyer a
retro , the heirs had agreed to allow one of their own to effect redemption
and deal directly with the savings association.
Martinez decision narrated that “The person chosen as the repository of
this trust was Clemencia Graño,” (at p. 39) who executed a notarial
declaration “in which she states, among other things, that she had
intervened in the aforementioned transactions in behalf of all the Martinez
heirs.” (at p. 40) But “[i]n consideration of the responsibility thus to be
assumed by Clemencia Graño, as borrower, all of the adult Martinez heirs
personally and the guardians of the minor heirs executed a document jointly
18
with Clemencia Graño . . . in which it was agreed that Clemencia Graño
should have exclusive possession of all the land pertaining to the Martinez
estate and administer the same for the purpose of raising the necessary
revenue to meet her obligations” (at p. 40) to the lending savings
association. Years later, Clemencia Graño asserted that she was
the absolute owner of all the property obtained by her from the original
buyer a retro and denied that the other Martinez heirs had any interest
whatsoever therein.
The Supreme Court held in Martinez that the properties redeemed from the
buyer a retro and mortgaged with the savings associations were “held in
trust by the said Clemencia Graño for the benefit of the said heirs . . .
subject, however, to the mortgage in favor” of the savings association. The
Court did not characterize what type of trust was created by the transaction
since the decision was rendered under the Spanish Civil Code, but it held
that the Martinez heirs were entitled to accounting from the said Clemencia
Graño of all the proceeds obtained from her administration of the
properties, that any amount appropriated by her for her own benefit and not
applied to the payment of the mortgage loan would have to be reimbursed;
and that “it being manifestly improper that a person in the hostile attitude
occupied by Clemencia Graño towards the Martinez heirs should be
allowed to administer the property in question, it results that the
receivership [previously ordered by the trial court] should be reinstated.” (at
p. 49). Martinez is a prime example of the application of trusts principles
under the old Civil Code, purely based on equity principles and without
statutory support.
The principle was reiterated under the aegis of the New Civil Code in Heirs
of Candelaria v. Romero, 109 Phil. 500 (1960), where the proven facts
showed that one brother (Emilio) had taken over the installment payments
over a purchased subdivision lot of another brother (Lucas) who had fallen
ill, until the whole purchase price had been fully satisfied under the
arrangement “that although Lucas Candelaria had no more interest over the
lot, the subsequent payments made by Emilio Candelaria until fully paid
were made in the name of Lucas Candelaria, with the understanding that
the necessary documents of transfer will be made later, the reason that the
transaction being from brother to brother.” (at p. 501). Years later, when the
certificate of title was issued in the name of Lucas, his heirs refused to
reconvey the property to the heirs of Emilio. In an action for reconveyance
filed by the heirs of Emilio, the trial court dismissed the complaint holding
“that an express and not an implied trust was created as may be gleaned
from the facts alleged in the complaint, which in unenforceable without any
writing, and that since [the title] covering the land in question had been
issued to Lucas Cadelaria way-back in 1918 or 38 years before the filing of
the complaint, the action has already prescribed.” (at p. 502) On appeal,
the Supreme Court held that –
The trust alleged to have been created, in our opinion,
is an implied trust. As held, in effect, by this Court in
the case of Martinez vs. Graño (42 Phil., 35), where
real property is taken by a person under an
agreement to hold it for, or convey it to another or the
grantor, a resulting or implied trust arises in favor of
the person for whose benefit the property was
intended. Such implied trust is enforceable even when
the agreement is not in writing, and is not an express
trust which requires that it be in writing to be
enforceable. This rule, which has been incorporated
in the new Civil Code in Art. 1453 thereof, is founded
upon equity. The rule is the same in the United States,
particularly where, on the faith of the agreement or
understanding, the grantee is enable to gain an
advantage in the purchase of the property or where
the consideration or part thereof has been furnished
by or for such other. . . . It is also the rule there that an
implied trust arises where a person purchases land
with his own money and takes a conveyance thereof
in the name of another. In such a case, the property is
held on a resulting trust in favor of the one furnishing
the consideration for the transfer, unless a different
intention or understanding appears. The trust which
results under such circumstances does not arise from
contract or agreement of the parties, but from the
facts and circumstances, that is to say, it results
because of equity and arises by implication or
operation of law. (at pp. 502-503; italics supplied)
Finding that a resulting trust was duly constituted, the Court applied the
principle that “Continuous recognition of a resulting trust, however,
precludes any defense of laches in a suit to declare and enforce the trust. . .
. The beneficiary of a resulting trust may, therefore, without prejudice to his
right to enforce the trust, prefer the trust to persist and demand a
conveyance from the trustee.” (at p. 504) The Court also ruled that “It being
alleged in the complaint that Lucas held the title to the lot in question merely
in trust for Emilio and that this fact was acknowledged not only by him but
also by his heirs, herein defendants—which allegation is hypothetically
admitted—we are not prepared to rule that plaintiff’s action is already
barred by lapse of time. On the contrary, we think the interest of justice
would be better served if she and her alleged co-heirs were to be given an
opportunity to be heard and allowed to present proof in support of their
claim.” (at p. 504)
Although Candelaria refers to the ruling in Martinez to have recognized the
constitution of a “resulting trust” even though in Martinez the agreement
was covered in three notarized documents, what may be learned from
Candelaria is that when the arrangement is covered merely by verbal
agreement, the trust relationship constituted over immovables would then
be characterized as being a “resulting trust” in order to achieve equity and
be able to move around the requirement under Article 1443 of the Civl Code
that “No express trusts concerning an immovable or any interest therein
may be proved by parol evidence.” Thus, in Candelaria, having resolved
that what was constituted was a resulting trust, the Court directed the case
to be remanded to the trial court to allow the heirs of the cestui que trust to
prove their allegations which would include parol evidence.
In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court held that
“The concept of implied trusts is that from the facts and circumstances of a
given case the existence of a trust relationship is inferred in order to effect
the presumed (in this case it is even expressed) intention of the parties or to
satisfy the demands of justice or to protect against fraud.” (at p. 179)
Only lately, in Cañezo v. Rojas, 538 SCRA 242 (2007), the Court held that
–
“A resulting trust is a species of implied trust that is
presumed always to have been contemplated by the
parties, the intention as to which can be found in the
nature of their transaction although not expressed in a
deed or instrument of conveyance. A resulting trust is
based on the equitable doctrine that it is the more
valuable consideration than the legal title that
determines the equitable interests in property.” (at p.
256; italics supplied.)
It seems therefore that when the intention of the parties bound by the trust
relationship is found expressed in a deed or instrument, it covers an
express trust; whereas, when the same intention is merely verbal or can be
proved by parol evidence, it may be considered as a resulting trust.
In the chapter on express trusts, the question has been asked whether for
express trust to exist, as distinguished from resulting trust, it is necessary
that naked title is formally registered in the name of the trustee who
expressly assumes fiduciary obligations to an identified beneficiary. The
implication is that a written undertaking by the title holder of a property,
especially registered land, holding the property for the benefit of another
only creates a resulting trust and not an express trust.
The latest decision on the matter, Heirs of Tranquilino Labiste v. Heirs of
Jose Labieste, 587 SCRA 417 (2009), is to the effect that a written
undertaking by the registered owner to hold the property for the benefit of
another would constitute an express trust, even when title registered in the
name of the purported trustee is full title.
In Labiste, Epifanio Labiste, representing the heirs of Jose Labiste, and his
uncle, Tranquilino Labiste, obtained joint registration as co-owners of
a large tract of land which they bought from the Bureau of Lands.
Subsequently, the heirs of Tranquilino also bought the one-half interest of
the Jose heirs and took over full possession of the property. After the war,
the Jose heirs filed a petition for the reconstitution of title to the property
with a agreement with the Tranquilino heirs that the latter’s claims would be
litigated after the reconstitution of the title. The reconstituted title was issued
over the property in the name of Epifanio Labiste as representing the Jose
heirs, who thereafter refused to honor the rights of the Tranquilino heirs.
When suit was filed seeking reconveyance of the title to the property to the
Tranquilino heirs, it was ruled by the trial court that the action had
prescribed having been filed beyond the 10-year period from the
registration of title as mandated for a resulting trust.
19
The Supreme Court ruled that the situation constituted an express trust,
and not a resulting trust, and that consequently “prescription and laches will
run only from the time the express trust is repudiated,” continuing that —
. . . The Court has held that for acquisitive
prescription to bar the action of the beneficiary
against the trustee in an express trust for the recovery
of the property held in trust it must be shown that: (a)
the trustee has performed unequivocal acts of
repudiation amounting to an ouster of the cestui que
trust; (b) such positive acts of repudiation have been
made known to the cestui que trust, and (c) the
evidence thereon is clear and conclusive.
Respondents cannot rely on the fact that the Torrens
title was issued in the name of Epifanio and the other
heirs of Jose. It has been held that a trustee who
obtains a Torrens title over property held in trust by
him for another cannot repudiate the trust by relying
on the registration. The rule requires a clear
repudiation of the trust duly communicated to the
beneficiary. The only act that can be construed as
repudiation was when respondents filed the petition
for reconstitution in October 1993. And since
petitioners filed their complaint in January 1995, their
cause of action has not yet prescribed, laches cannot
be attributed to them. (at p. 426)
The Court noted in Labiste that “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.’” (at pp. 425-426) It therefore
concluded, that what was involved was not an implied trust, but rather an
express trust since “The Affidavit of Epifanio is in the nature of a trust
agreement. Epifanio affirmed 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.
Their arrangement was corroborated by the subdivision plan prepared by
Engr. Bunagan and approved by Jose P. Dans, Acting Director of Lands.”
(at p. 426).
Compare the ruling in Labiste, with that in Cañezo v. Rojas, 538 SCRA 242
(2007), where the petitioning daughter sought to recover a parcel of land
from her stepmother which the latter inherited from the deceased husband.
The daughter alleged that she was the one who purchased the unregistered
land from the Bureau of Lands, but that when she had to leave Mindanao,
she placed it in the care of her father who verbally agreed to hold title on
her behalf. The father eventually obtained a tax declaration to the land in
his name and paid the real property taxes thereon also in his name. After
the father died, the stepmother took over the title to the land. The daughter
sought a reconveyance of title to the land on the ground of a trust was
created thereon in her favor. The daughter executed a sworn statement to
prove the existence of an express trusts or a resulting trusts on the theory
that prescription or laches cannot be poised against her claims on the
property. The Court ruled against the daughter as follows:
It is true that in express trusts and resulting trusts, a
trustee cannot acquire by prescription a property
entrusted to him unless he repudiates the trust. x x
x . (at p. 252)
As a rule, however, the burden of proving the
existence of a trust is on the party asserting its
existence, and such proof must be clear and
satisfactorily show the existence of the trust and its
elements. . . . Accordingly, it was incumbent upon
petitioner [daughter] to prove the existence of the trust
relationship. And petitioner sadly failed to discharge
that burden.
The existence of express trust concerning real
property may not be established by parol evidence. It
must be proven by some writing or deed. In this case,
the only evidence to support the claim that an express
trust existed between the petitioner and her father
was the self-serving testimony of the petitioner. Bare
allegations do not constitute evidence adequate to
support a conclusion. They are not equivalent to proof
under the Rules of Court. (at p. 253)
The best evidence of an express trust, would be a Deed of Trust, which
describes the trust properties, and conveys naked or legal title thereto to
the trustee under terms and conditions that indicate the powers, duties and
responsibilities of the trustee to the indicated beneficiary. A deed of trusts is
usually acknowledged and subscribed by both the trustor and the trustee. In
Labiste, where there was no such deed of trust, but the Court allowed
sworn statements to constitute as the written evidence to prove the
existence of an express trust; whereas, in Cañezo, such sworn statement
was deemed to be insufficient to prove either an express or a resulting trust.
The lesson learned from a comparison of the Labiste and the Cañezo
rulings is that, outside of a formal deed of trust, written or sworn statements
narrating the purported trust, in order to support the conclusion that there is
such a trust relationship, must contain the signature of “the party sought to
be bound” (a term used for the requisite memorandum under the Statute of
Frauds), i.e., the signature of the trustee, who under any trust relationship,
is really the party who assumes obligations and fiduciary duties relative to
the property held in trust.
b. Rule of Prescriptibility of Resulting Trusts
Since a resulting trust is much akin to an express trust under the
consideration that it arises from the presumed or sometimes merely orally
expressed intention of the parties, the Supreme Court has held in Ramos v.
Ramos, 61 SCRA 284 (1974), that the rule of imprescriptibility of an action
to recover property held in express trust, may possible apply to a resulting
trust as long as the trustee has not repudiated the trust.
Therefore, the rules on acquisitive prescription when it comes to resulting
trusts, would be the same rules pertaining to express trusts. The matter is
dealt more in detail in the last chapter.
4. Constructive Trusts
In Diaz v. Gorricho and Aguado, 103 Phil. 261, 266 (1958), and Carantes v.
Court of Appeals, 76 SCRA 514, 524 (1977), the Court characterized
constructive trust as one “which is imposed by law . . . [and] there is neither
promise nor fiduciary relations; the so-called trustee does not recognize any
trust and has no intent to hold the property for the beneficiary.”
In Geronimo and Isidoro v. Nava and Aquino, 105 Phil. 145 (1959), a
constructive trust was held to have arisen upon a trial court’s decision
becoming final and executory which held that defendants-spouses’ right to
redeem the property in litigation and ordered the plaintiffs-spouses to make
the resale, in the sense that although the plaintiffs-spouses were the
registered owners of the property they possessed only naked title thereto
which they were to hold in trust for the defendants-spouses to redeem,
subject to the payment of the redemption price. However, the Court held in
that decision that “In the latter instance of constructive trust, prescription
may apply only where the trustee asserts a right adverse to that of the
cestui que trust, such as, asserting acts of ownership over the property
being held in trust,” (at p. 153), which is contrary to its ruling that in a
constructive trust, since there is really no fiduciary relationship, no act of
repudiation need to be made by the trustee for prescription to run.
Ramos v. Ramos, 61 SCRA 284 (1974), characterized constructive trust as
–
“. . . a trust raised by construction of law, or arising by
operation of law. In a more restricted sense and as
contradistinguished from a resulting trust, a
constructive trust is a trust not created by any words,
either expressly or impliedly evincing a direct intention
to create a trust, but by the construction of equity in
order to satisfy the demands of justice. It does not
arise by agreement or intention, but by operation of
law. (89 C.J.S. 726-727). If a person obtains legal
title to property by fraud or concealment, courts of
equity will impress upon the title a so-called
constructive trust in favor of the defrauded party. A
constructive trust is not a trust in the technical sense.”
(at p. 298-299; citing Article 1456 of the Civil Code;
and Gayondato v. Treasurer of the P.I., 49 Phil. 244
[1926]).
The ruling has been reiterated in Salao v. Salao, 70 SCRA 65, 81 (1976);
Guy v. Court of Appeals, 539 SCRA 584 (2007).
a. Distinguishing from Resulting Trusts
Unlike resulting trusts that draw their essence from the perceived intention
20
of the parties as taken from the structure of the transactions covered,
constructive trusts draw their essence from the need to impose a fiduciary
duty on a person who takes title to a property to achieve justice or equity on
behalf of another person who would otherwise be adversely affected by the
fact that such title remains with, or has been conveyed to, another person.
In Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), the
Court distinguished an express trust from the constructive trust in the
following manner, thus –
In analyzing the law on trust, it would be instructive to
refer to Anglo-American jurisprudence on the subject.
Under 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)
In Aznar Brothers Realty Company v. Aying, 458 SCRA 496 (2005), the
Court distinguished a resulting trust from a constructive trust, as follows —
Resulting trusts are based on the equitable doctrine
that valuable consideration and not legal title
determines the equitable title or interest and are
presumed always to have been contemplated by the
parties. They arise from the nature of circumstances
of the consideration involved in a transaction whereby
one person thereby becomes invested with legal title
but is obliged in equity to hold his legal title for the
benefit of another. On the other hand, constructive
trusts are created by the construction of equity in
order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention
against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property
which he ought not, in equity and good conscience, to
hold. (at pp. 508-509)
The principle was reiterated in Lopez v. Court of Appeals, 574 SCRA 26
(2008), where the Court further held that —
A resulting trust is presumed to have been
contemplated by the parties, the intention as to which
is to be found in the nature of their transaction but not
expressed in the deed itself. Specific examples of
resulting trusts may be found in the Civil Code,
particularly Arts. 1448, 1449, 1451, 1452 and 1453.
A constructive trust is created, not by any word
evincing a direct intention to create a trust, but by
operation of law in order to satisfy the demands of
justice and to prevent unjust enrichment. It is raised
by equity in respect of property, which has been
acquired by fraud, or where although acquired
originally without fraud, it is against equity that it
should be retained by the person holding it.
Constructive trusts are illustrated in Arts. 1450, 1454,
1455 and 1456. (at p. 27)
Lately, in Cañezo v. Rojas, 538 SCRA 242 (2007), the Court held that –
A constructive trust is one created not by any word or
phrase, either expressly or impliedly, evincing a direct
intention to create a trust, but one which arises in
order to satisfy the demands of justice. It does not
come about by agreement or intention but in the main
by operation of law, construed as against one who, by
fraud, duress or abuse of confidence, obtains or holds
the legal right to property which he ought not, in
equity and good conscience, to hold. (at p. 258)
b. Constructive Trusts Similar in Purpose to Quasi-Contract of Solutio
Indebiti
It is quite interesting to note that in Philippine National Bank v. Court of
Appeals, 217 SCRA 347 (1993), the Supreme Court discussed the
similarity in the nature and equity considerations of constructive trusts and
the quasi-contract of solutio indebiti, thus:
Rarely in this Court confronted with a case calling for
the delineation in broad strokes of the distinctions
between such closely allied concepts as the quasi-
contract called “solutio indebiti” under the venerable
Spanish Civil Code and the species of implied trust
denominated “constructive trust,” commonly regarded
as of Anglo-American origin. Such a case is the one
presented to us now which has highlighted more of
the affinity and less of the dissimilarity between the
two concepts as to lead the legal scholar into the error
of interchanging the two. Presented below are the
factual circumstances that brought into juxtaposition
the twin institutions of the Civil Law quasi-contract
and the Anglo-American trust. (at p. 350)
In PNB, the drawee-bank had mistakenly credited double payments into the
account of the payee Mata, which it discovered only six years later, at which
time it made a formal demand upon the payee to refund the overpayment.
When the payee did not comply with the demand, the petitioner drawee-
bank filed a collection case “based on a constructive trust under Article
1456 of the Civil Code, it has a right to recover the said amount it
erronenously credited to respondent Mata.” (at p. 351).
The drawee-bank did not seek to recover based on solutio indebiti since
under Article 1145(2) of the Civil Code, it has exceed the statute of limitation
of 6 years. The trial court rendered judgment dismissing the complaint
ruling that “the instant case falls squarely under Article 2154 on solutio
indebiti and not under Article 1456 on constructive trust. In affirming the
lower court, the appellate court added in its opinion that under Article 2154
on solutio indebiti, the person who makes the payment is one who commits
the mistake vis-a-vis the recipient who is unaware of such a mistake.” (at p.
351)
The Supreme Court noted that “Petitioner [drawee-bank] naturally opts for
an interpretation under constructive trust as its action . . . can still prosper
[i.e, implied trust], as it is well within the prescriptive period of ten (10) years
as provided by Article 1144, paragraph 2 of the Civil Code.” (at p. 352) In
contrasting an express trust from an implied trust, the Court held in PNB –
A deeper analysis of Article 1456 reveals that it is not
a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is name a
trustee for the benefit of another who is called the
cestui qui trust, respecting property which is held by
the trustee for the benefit of the cestui qui 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 nor intends holding the
property for the beneficiary.” (at pp. 353-354)
xxx.
In analyzing the law on trust, it would be instructive to
refer to Anglo-American jurisprudence on the subject.
Under 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.
Still applying American case law, quasi-contractual
obligations give rise to a personal liability ordinarily
enforceable by an action at law, while constructive
trusts are enforceable by a proceeding in equity to
compel the defendant to surrender specific property.
To be sure, the distinction is more procedural than
21
 substantive. (at p. 356)
In drawing the parallelism between solutio indebiti and trusts, the Court
noted that “While the principle of undue enrichment or solutio indebiti, is not
new, having been incorporated in the subject on quasi-contracts in Title XVI
of Book IV of the Spanish Civil Code . . . the chapter on Trusts is fairly
recent, having been introduced by the Code Commission in 1949. Although
the concept of trusts is nowhere to be found in the Spanish Civil Code, the
framers of our present Civil Code incorporated implied trusts, which
includes constructive trust, on top of quasi-contracts, both of which embody
the principle of equity above strict legalism.” (at pp. 355-356, italics
supplied). In addition, the Court held –
Further reflection on these concepts reveals that
constructive “trust” is as much a misnomer as a
“quasi-contract”, so far removed are they from trusts
and contracts proper, respectively. In the case of a
constructive trust, as in the case of quasi-contract, a
relationship is “forced” by operation of law upon the
parties, not because of any intention on their part but
in order to prevent unjust enrichment, thus giving rise
to certain obligations not within the contemplation of
the parties. (at p. 356)
In ruling that the drawee-bank had a right to invoke the principles of
constructive trust under Article 1456 of the Civil Code, the Court held that
“We agree with petitioner’s stand that under Article 1456, the law does not
make any distinction since mutual mistake is a possibility on either side—on
the side of either the grantor or the grantee. Thus, it was error to conclude
that in a constructive trust, only the person obtaining the property commits a
mistake. This is because it is also possible that a grantor, like PNB in the
case at hand, may commit the mistake.” (at p. 357). Nonetheless, the
drawee-bank lost the case on the ground of laches.
5. Implied Trusts Particularly Constituted by Law
Art. 1445. The enumeration of the following
cases of implied trust does not exclude others
established by the general law of trust, but the
limitation laid down in Article 1442 shall be
applicable.
Article 1447 of the Civil Code expressly provides that the enumeration in
the subsequent articles of the cases of implied trust does not exclude
others established by the general law of trust, but that the limitation laid
down in Article 1442 shall be applicable, i.e., so long as those principles do
not conflict with the Civil Code, the Code of Commerce, the Rules of Court
and special laws.
The discussions in this section would ultimately show that strictly speaking
the enumerated implied trusts are essentially resulting trusts (Articles 1448
to 1455), and that the only true constructive trusts are those covered by
Article 1456, which actually embodies the general principle for constructive
trusts.
a. Purchase of Property Where Title Placed in One Person, But Price
Paid by Another Person
Art. 1448. There is an implied trust when
property is sold, and the legal estate is granted to
one party but the price is paid by another for the
purpose of having the beneficial interest of the
property. The former is the trustee, while the latter
is the beneficiary.
However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of
the one paying the price of the sale, no trust is
implied by law, it being disputably presumed that
there is a gift in favor of the child.
Under Article 1448 of the Civil Code, there is an implied trust when property
is bought, and the legal estate is granted to one party but the price is paid
by another for the purpose of having the beneficial interest of the property.
The person in whose name the property is registered is the trustee, while
the person who paid for the price shall be the beneficiary. The presumption
of resulting trust arises from the truism expressed in Uy Aloc v. Cho Jan
Jing, 19 Phil. 202 (1911), that one of who pays for something usually does
so for his own benefit.
Truly, Article 1448 covers a resulting trust that bases itself from the implied
intentions of the trustor-beneficiary and the acceptance of the obligation by
the trustee who is fully aware that property is registered in his name for
which he never paid the price. See Ramos v. Ramos, 61 SCRA 284 (1974),
Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), and
Lopez v. Court of Appeals, 574 SCRA 26 (2008).
In Morales v. Court of Appeals, 274 SCRA 282 (1997), the Court referred to
the implied trust covered under Article 1448 as “purchase money resulting
trust.” (citing 76 Am.Jur. 2d Trusts §179), thus:
The trust is created in order to effectuate what the law
presumes to have been the intention of the parties in
the circumstances that the person to whom the land
was conveyed holds it as trustee for the person who
supplied the purchase money. (at p. 299)
The reason why the situation described under Article 1448 is an implied
trust is that unlike in express trust, the person who takes title to the
purchased property does not expressly bound himself to hold or administer
the same for the benefit of any person. The presumption of a resulting trust
arises from the fact of a sale transaction where the evidence shows that title
is placed in the name of one person, while the purchase price was paid by
the other.
The other reason why there is only an implied or resulting trust is that full
title, not just naked or legal title, is placed in the name of a person who is
not referred to formally as “trustee” nor is the other person who paid for the
purchase price referred to formally as a “beneficiary”. This is to emphasize
the point that the most distinguishing mark between an express trust and a
resulting trust is that in the former the parties bound by the trust are formally
constituted with naked or legal title placed in the trustee and beneficial title
pertains to the beneficiary, or that the trustee (whatever he may be called)
is expressly given title to the property with obligations to hold it for the
benefit of another party (whatever he may be called).
The situation covered under Article 1448 of the Civil Code is meant to
address the observation made in the early decision in Martinez v. Martinez,
1 Phil. 647 (1903), where the facts showed that it was the father who
expended the sums for the purchase of two vessels which were registered
in the name of his son, who was then of legal age, where the Court held —
It may be true that the laws in some of the United
States would in this case raise a resulting trust in
favor of the plaintiff [the father]. But such laws are not
in force here; and whatever other right the plaintiff
may have against the defendant [son], either for the
recovery of the money paid or for damages, it is clear
that such payment gave him no title either legal or
equitable to these vessels. (at p. 649)
In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court applied the
provisions of Article 1448 to impute a resulting trust where pursuant to a
special arrangement with the GSIS which had foreclosed the mortgaged
property and the right of redemption had already expired, the mortgagors-
spouses had effected the sale thereof to the purported trustee with the
undertaking that the latter would use funds supplied by the spouses to buy-
back the property on behalf of the spouses. The Court observed that “The
concept of implied trusts is that from the facts and circumstances of a given
case the existence of a trust relationship is inferred in order to effect the
presumed (in this case it is even expressed) intention of the parties or to
satisfy the demands of justice or to protect against fraud.” (at p. 179).
One will notice from Padilla, that although there is an express agreement on
the part of the trustee to hold the property for the benefit of the spouses, it
would still constitute an implied or resulting trust, when by definition under
Article 1441, it ought to be an express trust. Do we hold therefore that when
it comes to registered land, where full title (as contrasted from title
registered “as trustee”) in placed in the name of the purported trustee, it
cannot be express trust because the Torrens title does not show naked or
legal title in the registered owner, much less does it indicate the
beneficiary? And if the trust relationship was expressed in an instrument not
registered in the Torrens titles, would the arrangement now be an express
trust, rather than an implied trust?
(1) When Title Is Placed in the Name of a Child
22
Article 1448 expressly provides that there is no presumption of resulting
trust, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, it being disputably
presumed that there is a gift in favor of the child.
In De los Santos v. Reyes, 205 SCRA 437 (1992), the Court held that if the
person to whom the title is conveyed is a child, legitimate or illegitimate, of
the one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child.
As a general rule, it cannot be expected that a parent placing property he
bought in the name of the child intended any form of trust, since it cannot
be normally expected that a child would administer property for the benefit
of the parents. Should Article 1448 be interpreted to mean, when it uses the
word “child” to cover a situation where title to the property is placed by the
parent in the name of a child who then was a minor? I believe that this is a
reasonable presumption, as bolstered by the decisions discussed
hereunder.
In Martinez v. Martinez, 1 Phil. 647 (1903), the Court alluded to the
provision of then Article 161 of the old Civil Code, relating to minors, that
the ownership or enjoyment of property acquired by a minor child with funds
of his parents, pertain to the latter [parents], which the Court observed was
“the only provision which the we have found anywhere in the laws now in
force that declares the property to belong to the person who paid the
money.” (at p. 649). The exception under Article 1448 is merely a
disputable presumption, which means that it can still be shown that indeed
the parents had placed property bought by them in the name of their child to
impose an obligation on the part of the child to administer the same for the
benefit of the parents, especially when the child reaches the age of majority.
In Morales v. Court of Appeals, 274 SCRA 282 (1997), the Court recognized
three exceptions to the establishment of an implied resulting trust under
Article 1448, “The first is stated in the last part of Article 1448 itself. Thus,
where A pays the purchase money and title is conveyed by absolute deed
to A’s child or to a person to whom A stands in loco parentis and who makes
no express promise, a trust does not result, the presumption being that a
gift was intended.” (at p. 299.) It is only with respect to a minor child that a
parent stands in loco parentis.
Only lately in Ty v. Ty, 553 SCRA 306 (2008), where the evidence showed
that the father had paid for the price of the purchase of a valuable tract of
land along EDSA, but where the title was placed in the name of a son, it
was held by the Court that no express trust could be deemed constituted
because there was no writing to prove the same as required under Article
1443 of the Civil Code when it comes to trust being constituted over
immovable properties. Although, the Court did concede that it was still
possible to prove the existence of an implied trust, nevertheless, it ruled
that the provisions of Article 1448 expressly provide that no implied trust is
deemed to have been established if the person to whom the title is
conveyed is the child of the one paying the price of the sale, and instead a
donation is disputably presumed in favor of the child. In Ty, the successors
of the deceased father had not shown that no such donation was intended.
(2) When It Is the Child that Supplies the Purchase Price
A good illustration where no implied trust arises can be found in Trinidad v.
Ricafort, 7 Phil. 449 (1907), where the evidence showed that the father had
repurchased the property he sold to a third party using the money of his
son; yet the implied trust arrangement imbued by the trial court to justify the
taking over of title by the son after the death of the father, was overturned
by the Supreme Court —
It plainly appears from all of the evidence in the case
that at the time of the death of [the father] he was still
the owner of whatever interest was acquired by the
repurchase of this property in 1894, and that if the
2,600 pesos furnished by [the son] to his father for
that purpose it was so furnished by way of a loan and
did not transfer to [the son] any interest in the
property. (at p. 452)
In other words, the equity principles under Article 1448 cannot apply in a
situation where property is bought by the father in his own name, using the
money of the child. Resulting trusts under Article 1448 comes from the
presumed intention of the trustor who supplied the money to have beneficial
on trust in the property. In Ty, the presumed intention was coming from the
father and could not be presumed to come from a child.
(3) When a Contrary Intention Is Proved
Morales v. Court of Appeals, 274 SCRA 282 (1997), held that “Another
exception [to the establishment of an implied resulting trust under Article
1448] is, of course, that in which an actual contrary intention is proved.” (at
p. 299.) The ruling emphasizes the fact that the implied trusts superinduced
by law under the various provisions in the Title V in the new Civil Code
constitute merely disputable presumptions, and the burden of proof is on
the party alleging that there is no implied trust constituted on each of the
transactions specifically covered by law. Yet, in Morales, the immediate
ruling of the Court tended to apply the general rule that “the burden of
proving the existence of a trust is on the party asserting its existence,” thus:
There are recognized exceptions to the establishment
of an implied resulting trust. . . Another exception is,
of course, that in which an actual contrary intention is
proved. . . (at p. 299)
As a rule, the burden of proving the existence of a
trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the
existence of the trust and its elements. While implied
trust may be proved by oral evidence, the evidence
must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral
evidence can easily be fabricated. (at p. 300)
(4) When Purchase Price Extended as a Loan
If it is shown that the person who paid for the amount of the purchase price
did so as a loan or as an advance to the person in whose name the title to
the property is transferred, then no implied trust should also result because
of the lack of intention on the part of the person supplying the money to
have beneficial interest in the property bought.
Such situation is in contrast with the situation covered in Article 1450 of the
Civil Code (discussed immediately hereunder), where the title to the
property is placed in the name of the person who advanced or loan the
amount, which is considered to be a form of implied trust, but may properly
be treated as an equitable mortgage.
(5) Exception: When the Purchase Is Made in Violation of an Existing
Statute
Morales v. Court of Appeals, 274 SCRA 282 (1997), held that another
exception to the establishment of an implied resulting trust under Article
1448 is “where the purchase is made in violation of an existing statute and
in evasion of its express provision, [since] no trust can result in favor of the
party who is guilty of fraud.” (at p. 299, citing 4 Tolentino 679,-680.)\
This particular ruling in Morales reiterates the principle laid down in Deluao
v. Casteel, 22 SCRA 231 (1962), that since implied trusts are essentially
founded on equity principles, no trust can be held valid and enforceable
when it is violative of the law, morals or public policy.
b. Purchase of Property Where Title Is Placed in the Name of Person
Who Loaned the Purchase Price
Art. 1450. If the price of a sale of property is
loaned or paid by one person for the benefit of
another and the conveyance is made to the lender
or payor to secure the payment of the debt, a trust
arises by operation of law in favor of the person
to whom the money is loaned or for whom it is
paid. The latter may redeem the property and
compel a conveyance thereof to him.
Under Article 1450 of the Civil Code, if the price of a property bought is
loaned or paid by one person for the benefit of another and the conveyance
is made to the lender or payor “to secure the payment of the debt,” an
implied trust arises by operation of law in favor of the person to whom the
money is loaned or for whom it is paid. The beneficiary is expressly
empowered to redeem the property and compel a conveyance thereof to
him.
23
While, Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993),
enumerates the arrangement under Article 1450 as a resulting trust, Lopez
v. Court of Appeals, 574 SCRA 26 (2008,) holds the implied trust
arrangement to be a constructive trust. We agree with the PNB
characterization, since it can be deduced from the very essence of the
described transaction that the buyer took title to the property as security for
the loan or advance given to the cestui que trust, and such trustee therefore
holds title subject to the intention of the cestui que trust to pay for the
principal as a means to secure title to the property that was bought in his
behalf in the first placed.
(1) Akin to an Equitable Mortgage Arrangement
The implied trust situation covered under Article 1450 is akin to an equitable
mortgage arrangement, since title to the property intended for the borrower
is placed in the name of the lender to secure the payment of the debt.
In Raymundo v. Bandong, 526 SCRA 514 (2007), the Supreme Court
reiterated the long-standing definition of equitable mortgage “as one which
although lacking in some formality or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible
or contrary to law.” (at p. 525.) That is the reason why the Article 1450
expressly provides that the borrower may redeem the property and compel
the lender to convey the property to him.
It should be noted, however, that the arrangement provided under Article
1450 is not the typical equitable mortgage arrangement found in the Law on
Sale, since under such arrangement, the equitable mortgage is constituted
between the purported seller (borrower-mortgagor) and buyer (lender-
mortgagee) in the contract of sale with a right of repurchase, where the
purpose of the sale is really to secure a principal obligation, usually a loan,
between the purported seller and purported buyer. Under Article 1450, the
equitable mortgage is constituted by the sale of a third party of his property
to a purported buyer (the lender-mortgagee) who takes titles to secure his
loan or advance made to the cestui que trust, who is a stranger to the
contract of sale.
The characterization of the situation as an implied trust, would impose upon
the lender-buyer the fiduciary obligations of the trustee. When the borrower
fails to pay the loan or obligation, it would be anomalous for the lender-
buyer to bring a collection case, for indeed he has already in his name the
property bought as security the loan; otherwise, it would amount to unjust
enrichment. But if the lender does nothing because he is deemed to be fully
paid with the property already secured in his name, that would constitute
pactum commissorium prohibited under Article 2088 of the Civil Code, and
the title of the lender would be void ab initio. Without the right to redeem
granted under Article 1450 of the Civil Code, could the borrower, who is a
stranger to the contract of sale effected between a third-party and the
lender seek recovery of the property by way of redemption? Fortunately,
with Article 1450 in place, there is no doubt that the borrower has the ability
to redeem the property by paying his loan to, or advances from, the lender-
trustee.
But even without Article 1450 in the statute books, it is our position that
indeed the borrower may seek redemption of the property bought by and
placed in the name of the lender. It has already been held by the Supreme
Court that in spite of the best evidence rule, a written contract may be
proved by parol evidence to be an equitable mortgage, because the public
policy against pactum commissorium takes precedence. (Cuyugan v.
Santos, 34 Phil. 100 [1916]; Mariano v. Court of Appeals, 220 SCRA 716
(1993); Rosales v. Suba, 408 SCRA 664 [2003]). It is usual in such
arrangements that although the property bought is placed in the name of
the lender, it is the borrower who takes possession and enjoys the property
bought, and pays for the real property taxes due thereon. Such an
arrangement would constitute badges of equitable mortgage under Article
1602 of the Law on Sales under the Civil Code.
When the borrower-beneficiary fails or refuses to redeem the property (i.e.,
pay the principal obligation), and the lender brings an action for collection,
can the trust property be levied upon for the payment of the judgment debt,
contrary to his duty of loyalty as a implied trustee? The answer would of
course be in the affirmative.
Indeed, in an equitable mortgage situation, even when title is registered in
the name of the lender, it is considered void for being in violation of the
public policy against pactum commissorium. In a situation where the
borrower has defaulted on his loan, the remedy of the lender is not to
appropriate title to the property but rather bring an action for foreclosure
(Briones-Vazquez v. Court of Appeals, 450 SCRA 644 [2005]), or to bring a
simple collection suit (Binga v. Bello, 471 SCRA 653 [2005].).
It should be emphasized, though that when the principal contract has been
extinguished with full payment thereof, then necessarily the accessory
contract of equitable mortgage is also extinguished, which then allows the
borrower to recover any and all properties given as security for the loan.
c. When Absolute Conveyance of Property Effected Only as a Means
to Secure Performance of Obligation of the Grantor
Art. 1454. If an absolute conveyance of
property is made in order to secure the
performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is
offered by the grantor when it becomes due, he
may demand the reconveyance of the property to
him.
Under Article 1454 of the Civil Code, if an absolute conveyance of property
is made in order to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established. If the fulfillment of
the obligation is offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him.
The principle embodied in Article 1454 of the New Civil Code were applied
under the old Civil Code in De Ocampo v. Zaporteza, 53 Phil. 442 (1929),
where a deed of sale with right of repurchase was really intended to cover a
loan made by the purported seller from the purported buyer and title to the
subject matter was placed in the name of the buyer. The Supreme Court
held that the “application must here be made of the doctrines upheld in the
cases of Uy Aloc vs. Cho Jan Ling (19 Phil., 202); Camacho vs. Municipality
of Baliaug (28 Phil., 46); and Severino vs. Severino (44 Phil., 343), to the
effect that the defendants [buyer] only hold the certificate of transfer in trust
for the plaintiffs with respect to the portion of the lot planted with 1,300
coconut trees, and they are therefore bound to execute a deed in favor of
the plaintiffs, transferring to them said portion planted with 1,300 coconut
trees.” (at p. 445.)
While PNB enumerates the arrangement under Article 1454 as one of the
resulting trusts, Lopez holds the implied trust arrangement to be a
constructive trust. We tend to agree with the PNB characterization.
The situation covered under Article 1454 really constitutes an equitable
mortgage arrangement thoroughly covered under Article 1602 to 1605 of
the Law on Sales in the Civil Code. Indeed, the “absolute conveyance of
property” described in Article 1454 is nothing more than a “deed of absolute
sale;” and Article 1604 embodies a doctrine long-established in Philippine
jurisprudence that “The provisions of article 1602 [on badges of equitable
mortgage] shall also apply to a contract purporting to be an absolute sale.”
(Zamora v. Court of Appeals, 260 SCRA 10 [1996]; Tuazon v. Court of
Appeals 341 SCRA 07 [2000].)
If one would wonder why the matter has to be covered by the principles of
implied trusts under Article 1454 of the New Civil Code, the plausible
answer is that Articles 1604 and 1605 in the Law on Sales, expressly allows
the purported seller to ask for the reformation of the deed of absolute sale
to reflect its true nature as a mortgage contract, but nowhere expressly
grants the right to the seller to redeem the property sold. The power of the
purported seller in an equitable-mortgage-cum-deed-of-absolute-sale to
redeem the property in the absence of a right of redemption clause is
expressly provided for in Article 1454.
Frankly, it would have been far better to transfer the right to redeem under
Article 1454 to be part of Article 1605 of the Civil Code, instead of treating
the matter under implied trusts. A good reason we give for this advocacy is
that since the contract or arrangement defined under Article 1454 is
considered a constructive trust, it would be susceptible under current
jurisprudence to the defense of prescription, especially when it comes to
registered land. Under the Law on Sales, the arrangement would clearly be
an equitable mortgage since the disposition contract is really a security
arrangement for a principal obligation. Since property given as security has
in fact been placed in the name of the obligee, this would be contrary to the
public policy against pactum commissorium under Article 2088 of the Civil
Code which provides that the creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose of them; that any stipulation to
the contrary is null and void; and the right of the borrower-seller to redeem
the property purportedly sold in really imprescriptible (i.e., for as long as the
buyer can fully pay the principal obligation, which brings about the
24
extinguishment of the accessory equitable mortgage arrangement), save
when formal foreclosure proceedings have been brought by the lender-
buyer, or if the property has passed a third party buyer in good faith and for
value.
d. Two or More Persons Purchase Property Jointly, But Places Title in
One of Them
Art. 1452. If two or more persons agree to
purchase property and by common consent the
legal title is taken in the name of one of them for
the benefit of all, a trust is created by force of law
in favor of the others in proportion to the interest
of each.
Under Article 1452 of the Civil Code, if two or more persons agree to
purchase property and by common consent the legal title is taken in the
name of one of them for the benefit of all, a trust is created by force of law
in favor of the others in proportion to the interest of each. Both PNB and
Lopez classify the arrangement under Article 1452 as a resulting trust, to
which characterization we agree with.
An application of the principle covered in Article 1452 under the old Civil
Code can be found in De la Cruz v. Nino, 18 Phil. 284 (1911), where the title
to certain parcels of land appear to have been drawn up only in the name of
one of the two parties who formed a partnership and combined their capital
to acquire the properties. Nonetheless, there was drawn up between them a
private document that described their arrangements, which has never been
impugned by the party in whose names the titles to the land had been
placed. The Court held that the parties were really co-owners, and the
party in whose names appear the titles to the land, being in possession of
only half of the parcels of land, was not entitled to claim possession of the
other half held by the heirs of the deceased co-owner.
In Uy Aloc v. Cho Jan Jing, 19 Phil. 202 (1911), where a number of Chinese
merchants raised a fund by voluntary subscription with which they
purchased a valuable tract of land and erected a large building to be used
as a sort of club house for the mutual benefit of the subscribers to the fund;
but since the association was not registered as a juridical person, it was
agreed to have the title to the property placed in the name of one of their
members, who accepted the trust, and agreed to hold the property as agent
and trustee of the members of the association. When the title holder
refused to account for the rentals earned from the property, and in fact set
up title in himself, the members brought suit to have title conveyed to them.
The Court held in Uy Aloc that there was an implied trust constituted and
the registered owner held it under an obligation, both express and implied,
to deal with it exclusively for the benefit of the members of the association
and subject to their will.
One has to wonder why the arrangement described under Article 1452 of
the Civil Code should even be considered an “implied trust” arrangement;
the very language of Article 1452 shows that it covers an express trust
arrangement, since it says that is covers as situation where “two or more
persons agree to purchase property” and that “by common consent the
legal title is taken in the one of one of them for the benefit of all.” In other
words, a trust arrangement is created not “by force of law”, but by the
intentions clearly expressed by the parties through their “agreement” and
“common consent”, and therefore falls with the definition under Article 1441
that “Express trust are created by the intention of the trustor or of the
parties.”
The only reason we see why the law would treat the arrangement under
Article 1452 not as an express trust is because full title, not just naked or
legal title is placed in the name of the trustee, which means that insofar as
the world is concerned he appears to be the full owner, rather than as a
trustee. This is especially true when it comes to registered land where full
title is placed in the name of the trustee (i.e., he is not registered as
“trustee” in the certificate of title), and therefore, the trust arrangement can
only be “implied” from other source.
e. Property Conveyed to Person Merely as Holder Thereof
Art. 1453. When property is conveyed to a
person in reliance upon his declared intention to
hold it for, or transfer it to another or the grantor,
there is an implied trust in favor of the person
whose benefit is contemplated.
Under Article 1453 of the Civil Code, when property is conveyed to a person
in reliance upon his declared intention to hold it for, or transfer it to another
or the grantor, there is an implied trust in favor of the person whose benefit
is contemplated. Both PNB and Lopez characterize the arrangement under
Article 1453 as resulting trust.
As in the case of Article 1452, the situation covered by Article 1453 covers
really an express trust, because title to property is taken by the trustee
under a clear agreement to hold it for another person. The only difference is
that there may be a situation where the person sought to be benefited by
the grantor has not yet given formal acceptance of the benefit. Even such a
situation is not critical, since under Article 1446, if the trust imposes no
onerous conditions upon the beneficiary, his acceptance is presumed.
Jurisprudence has also affirmed the validity of a trust established for a
person who is not yet existing, such as an unborn child.
The points raised in the foregoing paragraph seemed to have been affirmed
by the Supreme Court in Cuaycong v. Cuaycong, 21 SCRA 1192 (1967),
but with opposite results. In Cuaycong, the Court denied the application of
the provisions of Article 1453 to establish an implied trust: “Said arguments
are untenable, even considering the whole complaint. The intention of the
trustor to establish the alleged trust may be seen in paragraphs 5 and 6.
Article 1453 would apply if the person conveying the property did not
expressly state that he was establishing the trust, unlike the case at bar
where he was alleged to have expressed such intent. Consequently, the
lower court did not err in dismissing the complaint,” (at p. 1198) on the
ground that since the complaint sought to recover an express trust over
immovables, then under Article 1443 of the Civil Code, the same may not
be proved by parol evidence.
An example of the situation covered by Article 1453 may be found in the
decision in Pacheco v. Arro, 85 Phil. 505 (1950), where the claims of
respondents in cadastral case were withdrawn relying upon the assurance
and promise made in open court by petitioners’ predecessor-in-interests
that upon obtaining title to the properties subject to the petition, he would
convey and assign the lots to the respondents in accordance with their
respective claims. In an action for specific performance filed to compel the
petitioner to assign and convey the lots covered, the Court held: “When the
claim to the lots in the cadastral case was withdrawn by the respondents
relying upon the assurance and promise made in open court by . . . the
predecessor-in-interests of the petitioners, a trust or a fiduciary relation
between them arose, or resulted therefrom, or was created thereby.” (at pp.
514-515) Consequently, the Court held that such trustee cannot invoke the
statute of limitations to bar the action and defeat the right of the cestuis que
trust.
Earlier, in Martinez vs. Graño, 42 Phil. 35 (1921), the Court held that a
person who, before consolidation of property in the purchaser under a
contract of sale with pacto de retro, agrees with the vendors to buy and
administer the property until all debts constituting an encumbrance thereon
shall be paid, after which the property shall be turned back to the original
owner, is bound by such agreement, and becomes in effect a trustee to hold
and administer the property in such character. The principle was reiterated
in Cristobal v. Gomez, 50 Phil. 810 (1927).
In reiterating the Martinez ruling, the Court in Heirs of Emilio Candelaria
v. Romero, 109 Phil. 500 (1960), held —
The trust alleged to have been created, in our opinion,
is an implied trust. As held, in effect, by this Court in
the case of Martinez vs. Grano (42 Phil., 35), where
property is taken by a person under an agreement to
hold it for, or convey it to another or the grantor, a
resulting or implied trust arises in favor of the person
for whose benefit the property was intended. This
rule, which has been incorporated in the new Civil
Code in Art. 1453 thereof, is founded upon equity. The
rule is the same in the United States, particularly
where, on the faith of the agreement or
understanding, the grantee is enabled to gain an
advantage in the purchase of the property or where
the consideration or part thereof has been furnished
by or for such other. Thus, it has been held that where
the grantee takes the property under an agreement to
convey to another on certain conditions, a trust results
for the benefit of such other or his heirs, which equity
will enforce according to the agreement. (189 C.J.S.
960). It is also the rule there that an implied trust
arises where a person purchases land with his own
money and takes a conveyance thereof in the name
of another. In such a case, the property is held on a
25
 resulting trust in favor of the one furnishing the
consideration for the transfer, unless a different
intention or understanding appears. The trust which
results under such circumstances does not arise from
contract or agreement of the parties, but from the
facts and circumstances, that is to say, it results
because of equity and arises by implication or
operation of law. (See 89 C.J.S. 964-968). (at pp.
502-503)
f. Donation of Property to a Donee Who Shall Have No Beneficial Title
Art. 1449. There is also an implied trust
when a donation is made to a person but it
appears that although the legal estate is
transmitted to the donee, he nevertheless is either
to have no beneficial interest or only a part
thereof.
Under Article 1449 of the Civil Code, there is an implied trust when a
donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial
interest or only a part thereof. In such a situation, the donor is deemed to
have become the beneficiary under an implied trust arrangement. Lopez
and PNB classify the arrangement under Article 1449 as a resulting trust;
for obvious reasons, we agree with such a position.
In has been opined that the resulting trust covered under Article 1449 is
analogous to, but should not be confused with, the fideicommissary
substitution under Article 863 of the Civil Code, wherein the testator
designates a person as an heir charging him to deliver to another person
the whole or part of the inheritance. (Coquia, Jorge R., The Doctrine of
Implied Trust, 310 SCRA 486, 492). Yet, under the old Civil Code, it was
observed by the Court in Perez v. Garchitorena and Casimiro, 54 Phil.
431(1930), that a fideicommissary substitution is not equivalent to the
English trust.
Under the New Civil Code, in Adaza v. Court of Appeals, 171 SCRA 369
(1989), where the father donated a piece of land in the name of the
daughter but with verbal notice that the other half would be held by her for
the benefit of a younger brother, coupled with a deed of waiver later on
executed by the daughter that she held the land for the common benefit of
her brother, the Court held that the arrangement created an implied trust in
favor of the brother under Article 1449 of the Civil Code.
Adaza is quite a curious ruling for two reasons. Firstly, if the donation to the
daughter was made by the father with the express directive that the
daughter would take title for her benefit and that of her younger brother,
would that not constitute an express trust, or one that is created by the
express intention of the father? Secondly, did not the waiver constitute a
written acknowledgment on the part of the trustee that the took title for the
benefit of the brother also, and thereby constitute competent evidence to
support an express trust arrangement?
g. Land Passes By Succession But Heir Places Title into a Trustee
Art. 1451. When land passes by succession to any
person and he causes the legal title to be put in
the name of another, a trust is established by
implication of law for the benefit of the true owner.
Under Article 1451 of the Civil Code, when land passes by succession to
any person and he causes the legal title to be placed in the name of
another, a trust is established by implication of law for the benefit of the true
owner.
Both PNB and Lopez characterize the implied trust arrangement covered
under Article 1451 as resulting trust. We agree with such characterization.
The language of Article 1451, as it limits its application to land, may be
taken to mean that no such implied trust arises when it comes to other
types of property, especially as to movable properties, when the prevailing
doctrine is that he who possess movable is presumed to be the rightful
owner. That would perhaps be an erroneous conclusion for the following
reasons: Firstly, Article 1451 limits its application to land because the
principal of implied trust it embodies is most appropriate to registered land,
where title issued in the name of the trustee, without indication that he holds
the same under fiduciary undertakings, can be an occasion to abuse.
Secondly, the enumeration of the applicability of implied trust under Article
1451 and those of other articles, is not deemed to be on an exclusive basis
as clearly expressed in the language of Article 1447: “The enumeration of
the following cases of implied trust does not exclude others established by
the general law of trust.”
Article 1451 should be read to cover the situation when the property
inherited is registered in another’s name as full owner rather than as
“trustee”, for in the latter case that would clearly be an express trust.
Article 1451 should also be distinguished from the situations covered by
Article 1456 where property is acquired through fraud or mistake (discussed
hereunder), because under Article 1451, the placing of title in the name of
another (the trustee) is done purportedly with the knowledge and consent of
the cestui que trust. What makes the arrangement under Article 1451 an
implied trust arrangement is the lack of clear purpose or intention on why
the heir caused legal title to be put in another person’s name. Article 1451
does not cover a situation where the person takes title to the inherited land
acknowledging clearly that he does so for the benefit of the heir, for that
would be an express trust, except for the fact that title in registered fully in
the name of such person, and not expressly as “trustee”.
The doctrine covered in Article 1451 has for its basis the decisions of the
Supreme Court under the old Civil Code that did not contain provisions on
trusts. Thus, in Bargayo v. Camumot, 40 Phil. 857 (1920), the Court held
that that the co-owner or co-heir who is in possession of an inheritance pro
indiviso for himself and in representation of his co-owners or co-heirs, if, as
such owner, he administers or takes care of the rest thereof with the
obligation of delivery it to his co-owners or co-heirs, is under the same
situation as a trustee. Bargayo however recognized the principle that when
a co-owner or co-heir refutes the co-ownership and takes adverse
possession of the property for himself alone, then acquisitive prescription
may arise in his favor to the detriment of the other co-heirs or co-owners.
Bargayo distinguished between the rule of imprescriptibility of the action for
partition among co-owners, from the doctrine of acquisitive prescription that
allows a person to obtain title to property by open, adverse possession.
In Castro v. Castro, 57 Phil. 675 (1932), the Court held that one who
acquires a Torrens title in his own name to property which he is
administering for himself and his siblings as heirs in common by descent
from a common ancestor may be compelled to surrender to each of his co-
heirs his appropriate share, and a proceedings for partition is an
appropriate remedy by which to enforce such right. With respect to the legal
position taken by the brother who had title registered in his name that he
had repudiated the trust more than ten years before the action for partition
had been filed by his siblings, and thus had acquired title by adverse
possession, the Court did not dispute the theory of acquisitive prescription
being available in such a situation but held that it could not be applied on
the basis that this supposed repudiation of the trust first took place before
[brother cestui que trust] had reached his majority. The Court held “we are
unable to see how a minor with whom another is in trust relation can be
prejudiced by repudiation of the trust addressed to him by the person who is
subject to the trust obligation. The defendant in our opinion is not entitled to
the benefit of prescription from his supposed repudiation of the trust.” (at p.
685)
In Mabana v. Mendoza, 105 Phil. 260 (1959), where title to a homestead
was obtained pursuant to an agreement entered into between the applicant
and his co-heirs that should put the title in his name subject to the condition
that he was merely to act as a trustee of his co-heirs, and a partition of the
property would later be effected between him and his co-heirs, the Court
held that there was created a relationship of trust between the applicant and
his co-heirs which gives to the latter the right to recover their share in the
property unimpaired by the defense of prescription.
In Custodia v. Casiano, 9 SCRA 841 (1963), where the predecessor-in-
interest had bought a large tract of land on installments, which devolved to
the heirs upon his death, but upon full payment thereof, the only male heir
had caused the title to be issued in his name with the understanding with
his co-heir that he would act as trustee, the Court held that there being no
evidence that the trust relation had even been repudiated by said trustee,
then the relationship of co-ownership had existed between such trustee and
his sisters and the right of the successors in interest of the said sister to
bring an action for the recovery of their shares against the successor-in-
interest of the said trustee cannot be barred by prescription, despite the
lapse of 25 years from the date of registration of the land in the trustee’s
name.
The decision in Mariano v. Judge De Vega, 148 SCRA 342 (1987), reminds
us that the principles of implied trust under Article 1451 do not apply when
26
the real property is unregistered land and no title has been issued in the
name of one of the co-owners, and the situation only shows that he has
possession and enjoyment of the property subject of the co-ownership. No
implied trust could be ascribed to the situation according to the Court in
that: “The existence of the co-ownership here argues against theory of
implied trust, for then a co-owner possesses co-owned property not in
behalf of the other co-owners but in his own behalf,” (at p. 346) in
accordance with the truism that possession by a co-owner of the property
owned in common is not necessarily adverse possession against the other
co-owners for “[a]fter all, co-owners are entitled to be in possession of the
premises, and it would not also constitute a clear repudiation of the co-
ownership itself.” (at p. 346)
In Ting Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008), where a Chinese
resident had caused land to be placed in the name of the trustee who was
bound to hold the same for the benefit of the trustor and his family in the
event of death, the application of the doctrine of a resulting trust under
Article 1451 by the heirs of the trustor could not be upheld by the Court:
“This contention must fail because the prohibition against an alien from
owning lands of the public domain is absolute and not even an implied trust
can be permitted to arise on equity consideration.” (at p. 434)
h. When Trust Fund Used to Purchase Property Which is Registered in
Trustee’s Name
Art. 1455. When any trustee, guardian or
other person holding a fiduciary relationship uses
trust funds for the purchase of property and
causes the conveyance to be made to him or to a
third person, a trust is established by operation of
law in favor of the person to whom the funds
belong.
Under Article 1455 of the Civil Code, when any trustee, guardian or other
person holding a fiduciary relationship uses trust funds for the purchase of
property and causes the conveyance to be made to him or to a third person,
a trust is established by operation of law in favor of the person to whom the
funds belong.
While Ramos and PNB characterize the arrangement covered under Article
1455 as constituting a resulting trust, Lopez holds that it is a form of
constructive trust. I believe that the better position is to treat such a
situation as constituting a resulting trust, since it comes about in breach of
fiduciary duty of loyalty that is brought about that a pre-existing contractual
relationship, i.e., agency or express trust.
Article 1455 is the operative provision governing the duty of loyalty of the
agent to the principal, as well as the trustee to the beneficiary. A trustee is
duty-bound to handle the affairs of the trust and to apply all the properties in
the trust estate for the sole benefit of the beneficiary. In a situation where
there is a conflict between the interests of the trustee and the beneficiary, it
is the duty of the trustee to prefer that of the beneficiary. A violation of the
duty of loyalty makes the trustee personally liable to the beneficiary for the
resulting damages. An appropriation of any business or interest that should
be for the account of the beneficiary would require that the trustee to
reimburse the profits or turn-over the benefits to the estate trust. The
principle laid down in Article 1455 covering the fiduciary duty of loyalty of
the trustee is applicable to express trusts and implied trusts.
In Camacho v. Municipality of Baliwag, 28 Phil. 466 (1914), where evidence
showed that a municipal officer received funds from the members of the
community to bid on behalf of the municipality at a public auction of the land
that was taken over by the national government, and who after many years
claimed title in his own name, the Court held —
There have been a number of cases before this court
in which a title to real property was acquired by a
person in his own name while acting in a fiduciary
capacity, and who afterwards sought to take
advantage of the confidence reposed in him by
claiming the ownership of the property for himself.
This court has invariably held such evidence
competent as between the fiduciary and the cestui
que trust. (at pp. 468-469)
The Court went further to summarize the development of the doctrine, thus
— held liable, any obligation, such as that of transferring to plaintiffs the estate
In Uy Aloc vs. Cho Jan Ling (19 Phil. Rep., 202), the
members of a Chinese club agreed to purchase some
real property and for that purpose subscribed a fund
and placed it in the hands of the defendant, who
made the purchase in his own name. Subsequently,
he refused to account for the rents on the property
and claimed it as his own. This court held parol proof
of the trust sufficient to overcome the case in favor of
the defendant by reason of his registered documents
of title, and decreed that a conveyance be made by
the defendant to the members of the association.
In Taguinot vs. Municipality of Tanay (9 Phil. Rep.,
396), the plaintiffs, as heirs of their father, sought to
recover possession of a parcel of land held by the
municipality on the strength of a Spanish patent
issued to him. It was proved (largely by parol
evidence) that their father acted on behalf and at the
expense of the municipality in securing the patent.
The patent was retained by the gobernadorcillo, a
copy only being issued to the patentee. The latter also
drew up a private document engaging to execute a
conveyance to the municipality, the same being
offered in evidence. The municipality had continuously
occupied the land since the issuance of the title. The
judgment of the court below dismissing the complaint
was affirmed.
In the following cases of a similar character, parol
evidence was held not sufficient to overcome the case
made out by the holder of the registered title: Belen
vs. Belen (13 Phil. Rep., 202); Garen vs. Pilar (17
Phil. Rep., 132); Balatian vs. Agra (17 Phil. Rep.,
501). Agonoy vs. Ruiz (11 Phil. Rep., 204), and
Madariaga vs. Castro (20 Phil. Rep., 563), were both
cases wherein one person was delegated by a
community of property owners to secure in his own
name a patent from the Spanish Government
covering all their lands, the object being to save the
expense of obtaining individual patents in the name of
each. After securing these patents, the therein
grantees ejected their neighbors from the land
covered by the patents and respectively claimed the
land as their own. The evidence tending to establish
these facts was considered by the court in both cases
relief by reformation of the patent or a compulsory
conveyance to the injured persons was denied in
each case, because the rights of an innocent third
purchaser intervened. But in the first case the injured
persons were held entitled to damages, provided they
were able to establish the same. In the second case,
however, the court presumed a waiver of their claims
by reason of other evidence of record. The fact that
the parol evidence relied upon in the cases cited in
this paragraph to defeat the documents of title was
carefully considered by the court, impliedly admits its
competency. It failed in its purpose in these cases
merely because it was not sufficiently strong to
overcome the case in favor of the holders of the
registered titles. (at pp. 469)
The Court concluded in Camacho that “We hold, therefore, that the parol
evidence introduced by the defendant municipality was competent to defeat
the terms of the plaintiff’s deed. It need only be added that in all such cases
as the present we have required and shall continue to require that the proof
contradicting such documents must be clear and convincing. These
qualities are apparent in the proof offered by the defendant municipality in
the case at bar.” (at p. 470)
In Sing Joco v. Sunyantung, 43 Phil. 589 (1922), where a trusted or
confidential employee of the company directly employed fraud to induce the
company to forfeit it option to purchase a valuable large tract of land, and
thereafter caused his wife to purchase the same. In affirming the decision of
the trial court which decreed the reconveyance of the property to the
company, the Court then admitted that from statutory law point of view only
a recovery of damages against the employee was allowed, thus: “This
reparation provided for in the Civil Code and applied to the case of bar
seems to be limited to the indemnification of damages, as we are not aware
of any express provision in said Code which imposes upon the person thus
in question. (at p. 593).” Nonetheless, the Court affirmed that “This specific
relief [of reconveyance], however, has already come to be applied in this
27
jurisdiction in similar cases, among which can be cited that of Camacho vs.
Municipality of Baliuag (28 Phil., 466.) And in the North American law such
sanction is expressly recognized, and a transaction of this nature might be
regarded as an ‘equitable trust’ by virtue of which the thing acquired by an
employee is deemed not to have been acquired for his own benefit or that
of any other person but for his principal, and held in trust for the latter.” (at
p. 593, citing 21 R. C. L., 825; 2 Corpus Juris, 353). In justifying such a
resolution, the Court held —
Such an act of infidelity committed by a trusted
employee calculated to redound to his own benefit
and to the detriment of his employers cannot pass
without legal sanction. Nemo debet aliena jactura
locupletari; nemo ex suo delicto meliorem suam
conditionem facera potest. It is an illicit act committed
with culpa and therefore, its agent is liable (art. 1089,
Civil Code), for the damage caused (art. 1902,
ibidem). Not identical, but similar, to this infidelity is
the abuse of confidence sanctioned in our Penal
Code as a generic circumstance, nay as specific
aggravating one, and even as an essential element of
certain crimes.
Such principle, however, in case of this nature is
generally recognized in our laws, since in the case of
commercial agents (factores) it is expressly
established. Undoubtedly, formerly under the
circumstances then prevailing such sanction was not
necessary in the field of civil law, because its sphere
of action is the general relations of society; but even
then it was deemed necessary expressly to protect
with such sanction the commercial relations wherein
the question of gain was involved, which is sometimes
so imperative as to ignore everything, even the very
principles of loyalty, honesty, and fidelity. (at pp. 592-
593)
A confidential employee who, knowing that his
principal was negotiating with the owner of some land
for the purchase thereof, surreptitiously succeeds in
buying it in the name of his wife, commits an act of
disloyalty and infidelity to his principal, and is liable for
damage. The reparation of the damage must consist
in respecting the contract which was about to be
concluded, and transferring the said land for the same
price and upon the same terms as those on which the
purchase was made for the land sold to the wife of
said employee passed to them as what might be
regarded as equitable trust, by virtue of which the
thing thus acquired by an employee is deemed to
have been acquired not for his own benefit or that of
any other person but for his principal and held in trust
for the latter. (at p. 593)
In Severino v. Severino, 44 Phil. 343 (1923), the Court held —
The relations of an agent to his principal are fiduciary
and it is an elementary and very old rule that in regard
to property forming the subject-matter of the agency,
he is estopped from acquiring or asserting a title
adverse to that of the principal. His position is
analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be
allowed to create in himself an interest in opposition
to that of his principal or cestui que trust. Upon this
ground, and substantially in harmony with the
principles of the Civil Law (see sentence of the
supreme court of Spain of May 1, 1900), the English
Chancellors held that in general whatever a trustee
does for the advantage of the trust estate inures to
the benefit of the cestui que trust. (Greenlaw vs. King,
5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte
Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337;
Oliver vs. Court, 8 price, 127.) The same principle has
been consistently adhered to in so many American
cases and is so well established that exhaustive
citations of authorities are superfluous and we shall
therefore limit ourselves to quoting a few of the
numerous judicial expressions upon the subject. The
principle is well stated in the case of Gilber vs.
Hewetson (79 Minn., 326) —
“A receiver, trustee, attorney, agent, or any other
person occupying fiduciary relations respecting
property or persons, is utterly disabled from acquiring
for his own benefit the property committed to his
custody for management. This rule is entirely
independent of the fact whether any fraud has
intervened. No fraud in fact need be shown, and no
excuse will be heard from the trustee. It is to avoid the
necessity of any such inquiry that the rule takes so
general a form. The rule stands on the moral
obligation to refrain from placing one’s self in
positions which ordinarily excite conflicts between
self-interest and integrity. It seeks to remove the
temptation that might arise out of such a relation to
serve one’s self-interest at the expense of one’s
integrity and duty to another, by making it impossible
to profit by yielding to temptation. It applies universally
to all who come within its principle.” (at pp. 350-351)
i. When Property is Acquired Through Mistake or Fraud
Art. 1456. If property is acquired through
mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied
trust for the benefit of the person from whom the
property comes.
Under Article 1456 of the Civil Code, if property is acquired through mistake
or fraud, the person obtaining it is, by force of law, considered a trustee
under a implied trust arrangement for the benefit of the person from whom
the property comes.
Lopez affirms that Article 1456 covers a form of constructive trust.
Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), also
confirms the arrangement covered under Article 1456 as a constructive
trust, thus —
A deeper analysis of Article 1456 reveals that it is not
a trust in the technical sense[,] for in a typical trust,
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 general 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 nor intends holding the
property for the beneficiary. (at pp. 353-354)
By its language Article 1456 covers all types of property, whether movable
or immovable. Yet the cases that have applied the principle in Article 1456
have often involved immovable, specially registered parcels of land, where
the public policy is that the operative key to determine who has title to the
property is registration. When it comes to movable property, the operation
of an implied trust under Article 1456 must contend with the public policy
covered in Article 559 of the Civil Code that possession of movable property
acquired in good faith is equivalent to title, thus –
Art. 559. The possession of movable
property acquired in good faith in equivalent to a
title. Nevertheless, one who has lost any movable
or has been unlawfully deprived thereof, may
recover it from the person in possession of the
same.
If the possessor of a movable lost or of which the
owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price
paid therefore.
The second part of Article 559 offers the same principle of recovery on the
part of the true owner of a movable that is similar to the implied trust
doctrine under Article 1456: “Nevertheless, one who has lost any movable
or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.”
28
(1) Application of Principle under the Old Civil Code
Lopez affirms that Article 1456 covers a form of constructive trust.
Philippine National Bank v. Court of Appeals, 217 SCRA 347 (1993), also
confirms the arrangement covered under Article 1456 as a constructive
trust, thus —
A deeper analysis of Article 1456 reveals that it is not
a trust in the technical sense[,] for in a typical trust,
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 general 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 nor intends holding the
property for the beneficiary. (at pp. 353-354)
(1) Application of Principle under the Old Civil Code
The equity principle now expressed in Article 1456 first found expression in
Gayondato v. Insular Treasurer, 49 Phil. 244 (1926). In Gayondato, where a
mother and her minor daughter inherited a large tract of land, and had it
applied for cadastral survey, but title was mistakenly issued only in the
name of the mother, the Court held that courts of equity will impress upon
the title, a condition which is generally in a broad sense termed
“constructive trust” in favor of the defrauded party, but the use of the word
“trust” in this sense is not technically accurate and is not the kind of trust.
In the application of the underlying equity principle now contained in Article
1456, the Court has always emphasized that in spite of the proceedings
under the Torrens system of registration being in rem, and the title issued
thereto being considered imprescriptible and indefeasible, the Torrens
system does not prevent the cestui que trust under an implied trust to sue
for the recovery of the land in the action for reconveyance, whenever the
property is acquired through mistake or fraud, since the person obtaining
the registered title is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property comes.
In Severino v. Severino, 44 Phil. 343 (1923), where the uncle who was
acting as agent or administrator of the property belonging to a niece, had
procured through fraud a Torrens title over said property in his name, it was
held that the uncle was obliged to surrender the property to the niece and
transfer title to her.
In Laureano v. Stevenson, 45 Phil. 252 (1923), a certificate of title under the
Torrens system was mistakenly issued in favor of petitioner Kilayko
covering not only the parcel of land he bought from Laureano, but including
another adjacent land which remained the property of his seller. When the
creditors of Kilayko had levied upon all the properties covered by the title to
enforce a judgment debt obtained against Kilayko, Laureano then learned
of the mistake committed during the registration proceedings which had
become final and executory. In determining whether Laureano could legally
prevent the public sale of properties registered under the Torrens system in
the name of Kilayko, the Court held —
The fundamental principles governing the Torrens
system are well known. Ordinarily if one tasks no
steps to protect his property interests at the time of
the cadastral survey, he is estopped to dispute the
title. He has one year from the issuance of the decree
to allege and prove fraud. But he may not wait longer
than this period to assert his rights. And were this an
ordinary registration case, we would reach a
conclusion satisfactory to the appellants. But we think
that there is more to the case than this.
It must not be forgotten that Kilayco never laid claim
to this property; that the two lots Nos. 4267 and 4289
covered by the certificate of title No. 830 were
mistakenly registered in the name of Eugenio Kilayco;
that the court did not have jurisdiction to confirm the
title of said two lots either in favor of Eugenio Kilayco
or of anybody else, for the reason that no petition for
title was filed, no trial was held, no evidence was
presented, and no judgment was rendered regarding
these two lots in the land registration proceedings;
that Kilayco never asserted any right of ownership
over the property; that the rent was paid to Laureano;
and that judgment was obtained in the courts in favor
of Laureano through the acquiescence and consent of
Kilayco. Kilayco was, in effect, merely holding the title
of the property in trust for Laureano. The creditors of
Kilayco had in the property, which, in this case, was
nothing. (at pp. 254-255)
In De Ocampo v. Zaporteza, 53 Phil. 442 (1929), where it was determined
that an instrument, which did not express the true contract between the
parties, but which nevertheless became the basis upon which the
defendants obtained the amendment of the decree of adjudication by which
they received a certificate of transfer of title covering more than the number
of lots due them, the Court held that “application must here be made of the
doctrines upheld in the cases of Uy Aloc vs. Cho Jan Ling (19 Phil., 202);
Camacho vs. Municipality of Baliuag (28 Phil., 466); and Severino vs.
Severino (44 Phil., 343), to the effect that the defendants only hold the
certificate of transfer in trust for the plaintiffs with respect to the portion of
the lot planted with 1,300 coconut trees; and they are therefore bound to
execute a deed in favor of the plaintiff, transferring to them said portion
planted with 1,300 coconut trees.” (at p. 445)
In Escobar v. Locsin, 74 Phil. 86 (1943), the designated agent, taking
advantage of the illiteracy of the principal, claimed for himself the property
which he was designated to claim for the principal and managed to have it
registered in his own name and became part of his estate when the agent
died. The Court held that the estate was in equity bound to execute the
deed of conveyance of the lot to the cestui que trust: “A trust—such as that
which was created between the plaintiff and Domingo Sumangil—is sacred
and inviolable. The Courts have therefore shielded fiduciary relations
against every manner of chicanery or detestable designed cloaked by legal
technicalities. The Torrens system was never calculated to foment betrayal
in the performance of a trust.” (at p. 87).
In Pacheco v. Arro, 85 Phil. 505 (1950), the Court held that “When the claim
to the lots in the cadastral case was withdrawn by the respondents relying
upon the assurance and promise made in open court by . . . the
predecessor-in-interest of the petitioners, a trust or fiduciary relation
between them arose, or resulted therefrom, or was created thereby. The
trustee cannot invoke the statute of limitations to bar the action and defeat
the right of the cestui que trustent.” (at pp. 514-515)
The reason why Pacheco is covered under Article 1456, rather than under
Article 1453 (“When property is conveyed to a person in reliance to his
declared intention to hold it for, or transfer is to another or the grantor”) is
because the action for reconveyance was being filed against the
successors-in-interest of the person who gave such a declaration, and
consequently, the property held in trust passed to the heirs by way mistake,
and rightfully covered under Article 1456. This state of things was
acknowledged years later by the Supreme Court in Canezo v. Rojas, 538
SCRA 242 (2007), where it held:
Assuming that such a[n express trust] relation existed,
it terminated upon Cripulo’s death in 1978. A trust
terminates upon the death of the trustee where the
trust is personal to the trustee in the sense that the
trustor intended no other person to administer it. If
Crispulo was indeed appointed as trustee of the
property, it cannot be said that such appointment was
intended to be conveyed to the respondents or any of
Crispulo’s other heirs. Hence, after Crispulo’s death,
the respondent had no right to retain possession of
the property. At such point, a constructive trust would
be created over the property by operation of law.
Where one mistakenly retains property which rightfully
belongs to another, a constructive trust is the proper
remedial device to correct the situation. (at p. 257)
In Sevilla v. De los Angeles, 97 Phil. 875 (1955), one of the heirs of
decedent Felix Sevilla, through fraudulent representation, succeeded in
having the original certificate of title issued in the name of the “heirs of Felix
Sevilla” cancelled and a new one issued in her name only and thereby
enabling her to possess the land and appropriate the produce therefor. The
Court held that “This was of acquiring title creates what is called
‘constructive trust” in favor of the defrauded party and grants to the latter a
right to vindicate the property regardless of the lapse of time.” (at p. 879;
italics supplied)
29
(2) Application under the New Civil Code
In Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958), the Supreme Court
recognized that Article 1456 “merely expresses a rule already recognized
by our courts [first enunciated in Gayondato v. Insular Treasurer, 49 Phil.
244 (1926)] prior to the [New Civil] Code’s promulgation.” (at p. 264)
Shortly thereafter, in Avecilla v. Yatco, 103 Phil. 666 (1958), the Court held
that the implied trust arrangement imposed by Article 1456 allows the
aggrieved party a remedy to seek reconveyance against the party who has
employed fraud, thus —
But the right of action in this constructive trust should
be exercised against the trustee, who caused the
fraud, and not against an innocent purchaser for
value, as the Susana Realty, Inc. This right may also
be exercised against Santiago Cruz who also
obtained title to the land with knowledge of the fraud,
but not with regard to Susana Realty, Inc. which, as
already stated, has bought the property in good faith.
The remedy in this case of the defrauded heirs is to
bring an action for damages against those who
caused the fraud or were instrumental in depriving
them of the property. Their action cannot reach an
innocent purchaser for value who is protected by law.
(at p. 670)
Likewise, under the New Civil Code, the Court reiterated the principle that
public policy demands that a person guilty of fraud or at least, of breach of
trust, should not be allowed to use a Torrens title as a shield against the
consequences of his own wrongdoing. In Vda. de Jacinto v. Vda. de
Jacinto, 5 SCRA 370 (1962), the Supreme Court held —
Even in the absence of fraud in obtaining registration
or even after the lease of one year after the issuance
of a decree of registration, a co-owner of land who
applied for and secured its adjudication and
registration in his name knowing that it had not been
allotted to him in the partition, may be compelled to
convey the same to whoever received it in the
apportionment, so long as no innocent third party had
acquired rights therein, in the meantime for a valuable
consideration. “Indeed, any rule to the contrary would
sanction one’s enrichment at the expense of another.
Public policy demands that a person guilty of fraud or,
at least, of breach of trust, should not be allowed to
use a Torrens title as a shield against the
consequences of his wrongdoing (Cabanos vs.
Register of Deeds, etc., 40 Phil. 620; Severino vs.
Severino, 41 Phil. 343).
Lastly, the claim of the heirs of Pedro Jacinto that the
latter had acquired ownership of the property in
litigation by prescription, is likewise untenable. As we
had recently held in Juan, et a. vs. Zuñiga, G.R. No.
L-17044, April 28, 1962, an action to enforce a trust is
imprescriptible. Consequently, a co-heir who, through
fraud, succeeds in obtaining a certificate of title in his
name to the prejudice of his coheirs, is deemed to
hold the land in trust for the latter, and the action by
them to recover the property does not prescribe. (at
pp. 376-377)
The Court has since then re-affirmed under the New Civil Code the principle
that registration of property by one person in his name, whether by mistake
or fraud, the real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real owner, which
would justify an action for reconveyance —
← In Gonzales v. Jimenez, 13 SCRA 80
(1965), where unregistered land was sold by the
father to a buyer who took possession thereof, but
subsequently, the father managed to obtain a free
patent over the same property in the name of the son
to whom an original certificate of title was issued.
← In Fabian v. Fabian, 22 SCRA 231 (1968),
where co-heirs entered into an extrajudicial settlement
of the estate of the decedent, excluding therefrom
some of the other forced heirs, and subsequently
obtaining original and transfer certificates of title in
their names, the co-heirs who obtained title through
fraud were considered trustees under an implied trust
for the benefit of the other co-heirs.
← In Buena v. Reyes, 27 SCRA 1179 (1969),
where the husband of one of the co-heirs was
designated by all the heirs of the decedent to file an
answer in the cadastral proceedings and to obtain title
to the property left by the decedent in behalf of all
heirs, but instead only obtained title in his name and
his two brothers, the Court ruled the creation of a
constructive trust.
← In Magallon v. Montejo, 146 SCRA 282
(1986), where conjugal property was adjudicated
entirely in the name of the surviving husband and
leaving out the children from their successional rights
to one-half of the property pertaining to their
deceased mother, the Court held that a constructive
trust under Article 1456 had been duly constituted
with the surviving father “as the trustee of a
constructive trust, [with] an obligation to convey to the
private respondents that part of the land in question to
which she now claims an ostensible title, said portion
rightfully pertaining to the respondents’ deceased
mother as her share in the conjugal partnership.” (at
p. 290)
← In Municipality of Victorias v. Court of
Appeals, 149 SCRA 32 (1987), where registered land
previously sold to the municipal corporation, but which
failed to duly register the sale, was erroneously
passed by intestate succession to the heirs of the
seller, it was held that notwithstanding the
irrevocability of the Torrens title the trustee and his
successors-in-interest were bound to execute the
deed of reconveyance: “As the land in dispute is held
by private respondents in trust for the Municipality of
Victorias, it is logical to conclude that the latter can
neither be deprived of its possession nor be made to
pay rentals thereof. Private respondent is in equity
bound to reconvey the subject land to the cestui que
trust, the Municipality of Victorias. The Torrens system
was never calculated to foment betrayal in the
performance of a trust.” (at p. 45)
← In Adille v. Court of Appeals, 157 SCRA
455 (1988), where one of the co-owners exercised for
himself alone the right to redeem the property sold
under a sale a retro and placed title solely in his
name, he was held to have taken title as trustee
under an implied trust governed under Article 1456.
← Pajarillo v. Intermediate Appellate Court,
176 SCRA 340 (1989), where the mother had
previously validly donated the land to a daughter, and
latter sold it again to a son who knew of the donation,
the latter having received title thereto as a trustee of
an implied trust under Article 1456.
←
Yet, the Supreme Court has not been consistent in its position. Let us first
take the decision in Heirs of Tanak Pangaaran Patiwayon v. Martinez, 142
SCRA 252 (1986), where the decedent during his lifetime had married
legitimately three successive times, but without liquidation of the conjugal
partnerships formed during the first and second marriages. The only male
issue managed to convince his co-heirs that he should act as administrator
of the properties left by the decedent, but instead obtained a certificate of
title in his own name to the valuable piece of property of the estate. It was
held by the Court that where the son, through fraud was able to secure a
title in his own name to the exclusion of his co-heirs who equally have the
right to a share of the land covered by the title, an implied trust was created
in favor of said co-heirs, and that said son was deemed to merely hold the
property for their and his benefit:
The rules are well-settled that when a person through
fraud succeeds in registering the property in his
name, the law creates what is called a “constructive
or implied trust” in favor of the defrauded party and
grants the latter the right o recover the property
fraudulently registered within a period of ten years.
(See Ruiz v. Court of Appeals, 79 SCRA 525, 537). (at
30
 p. 261, citing Gonzales v. Jimenez, Sr., 13 SCRA 80,
82 [1965])
Just a few months later, in Mariano v. Judge De Vega, 148 SCRA 342
(1987), where the children of the decedent by his second marriage had
taken over properties of the estate, excluding therefrom grandchildren of
the decedent by his first marriage, the Court held that the situation is one
that is governed by the rules of co-ownership under Article 494 of the Civil
Code which provides that no prescription shall run in favor of a co-owner or
co-heir against his co-owners or co-heirs so long as he expressly or
impliedly recognizes the co-ownership. In view of a clear repudiation of the
co-ownership duly communicated to the co-heirs, no prescription occurred
and the filing of the action for partition and delivery of possession covering
their corresponding shares 28 years after the death of the decedent was
deemed not filed out of time.
In Tomas v. Court of Appeals, 185 SCRA 627 (1990), while a large tract of
land was still unregistered land, the owners sold portions thereof to the
vendees covered by tax declarations, and possession and control thereof
was transferred to the vendees. Yet when the owners had sought
registration of the property under the Torrens system, they included the
portions already sold and obtained title thereto in their names. Upon
discovery thereof, the vendees filed an action for reconveyance to which
the registered owner pleaded finality of the decree of registration. The Court
held that an implied trust was constituted under Article 1456 thus: “In the
present case, prescription will not lie in favor of the petitioners [owners-
sellers] who are not even in possession of the disputed land. “ (at p. 633).
In Noel v. Court of Appeals, 240 SCRA 78 (1995), where the surviving wife
sold the entirety of a parcel of land bought during the marriage, without the
authority from the forced heirs of the deceased husband, the Court in ruling
that that the sale of the other half constituted the buyer as trustee under an
implied trust under Article 1456, held —
In Diaz v. Gorricho, 103 Phil. 261 (1958), the Court
said that Article 1456 merely expresses a rule
recognized in Gayondato v. Insular Treasurer, 49 Phil.
244 (1926). Applying said rule, the Gayondato court
held that the buyer of a parcel of land at a public
auction to satisfy a judgment against a widow
acquired only one-half interest on the land
corresponding to the share of the widow and the other
half belonging to the heirs of her husband became
impressed with a constructive trust in behalf of said
heirs. (at pp. 88-89)
what is sought instead is the transfer of the property wrongfully or
erroneously registered in another’s name to its rightful owner or to one with
a better right. (Ibid) If the registration of the land is fraudulent, the person in
whose name the land is registered holds it as a mere trustee, and the real
owner is entitled to file an action for reconveyance of the property. (citing
Mendizabel v. Apao, 482 SCRA 587 [2006])” (at p. 751)
In Pasiño the respondents were able to establish that they have a better
right to the parcel of land since they had long been in possession of the
property in the concept of owners, by themselves and through their
predecessors-in-interest. Therefore, despite the irrevocability of the Torrens
titles issued in the names of the petitioners and even if they are already the
registered owners under the Torrens system, the petitioners may still be
compelled under the law to reconvey the property to respondents.
In Lopez v. Court of Appeals, 574 SCRA 26, where in her notarial will the
testator “expressed that she wished to constitute a trust fund for her
paraphernal properties, denominated as Fideicomiso de Juliana Lopez
Manzano (Fideicomiso), to be administered by her husband. . . Two-thirds
(2/3) of the income from rentals over theses properties were to answer for
the education of deserving but needy honor students, while one-third (1/3)
was to shoulder the expenses and fees of the administrator,” but that
eventually in the probate of the will the properties were adjudicated to the
husband as sole heir, the Court ruled that “On the premise that the disputed
properties are the paraphernal properties of Juliana which should have
been included in the Fideiocomiso, their registration in the name of Jose
would be erroneous and Jose’s possession would be that of a trustee in an
implied trust . . . [which from] the factual milieu of this case is provided in
Article 1456 of the Civil Code. . . . The apparent mistake in the adjudication
of the disputed properties to Jose created mere implied trust of the
constructive variety in favor of the beneficiaries of the Fideicomiso.” (at pp.
38)
Recently, in Luna, Jr. v. Cabales, 608 SCRA 206 the court held that “The
registration of a property in one’s name, whether by mistake or fraud, the
real owner being another, impresses upon the title so acquired the
character of a constructive trust for the real owner. The person in whose
name the land is registered holds it as a mere trustee, and the real owner is
entitled to file an action for reconveyance of the property. The Torrens
system does not protect a usurper from the true owner.” (at p. 206)

(3) Recent Applications of Article 1456

Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401 (2007), paid lip
service to the principle embodied in Article 1456 that if property is acquired
through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from
whom the property comes.

In Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 (2007), the

Court held that “An action for reconveyance respects the decree of
registration as incontrovertible but seeks the transfer of property, which has
been wrongfully or erroneously registered in other person’s names, to its
rightful and legal owners, or to those who claim to have a better right. There
is no special ground for an action for reconveyance. It is enough that the
aggrieved party has a legal claim on the property superior to that of the
registered owner and that the property has not yet passed to the hands of
an innocent purchaser for value.” (at pp. 13-14).

Lumocso also held that cases brought under Article 1456 “may also be
considered as actions to remove cloud on one’s title as they are intended to
procure the cancellation of an instrument constituting a claim on petitioners’
alleged title which was used to injure or vex them in the enjoyment of their
alleged title.” (at p. 15)

Pasiño v. Monterroyo, 560 SCRA 739 (2008), held that “Under the principle
of constructive trust, registration of property by one person in his name,
whether by mistake or fraud, the real owner being another person,
impresses upon the title so acquired the character of a constructive trust for
the real owner, which would justify an action for reconveyance. (Citing Heirs
of Tabia v. Court of Appeals, 516 SCRA 431 [2007]) In the action for
reconveyance, the decree of registration is respected as incontrovertible but

31