I – INTRODUCTION TO TRUSTS

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 expressed in Article 1445 of the Civil Code when it provides that “No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust.

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

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

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

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

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

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

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.)

x x x .

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

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

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

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

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.

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 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.

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?

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 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 ArrangementsWe 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. 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 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 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 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.)

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 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 one mistakenly retains property which rightfully belongs to another, a constructive trust is the proper remedial device to correct the situation. (at p. 257.

e. Confusion or Merger of Legal Title and Beneficial Title in the Same Person

When the trustee of an existing trust becomes the beneficiary thereof, or vice versa, the trust relation is ipso jure extinguished, for it is difficult to see how a person can owe fiduciary duties to himself. 

 f. Breach of Trust

When a trustee breaches his duty of loyalty, it would constitute legal basis by which to terminate the trust.

Thus, in Martinez v. Graño, 42 Phil. 35 (1921), the Court held that when a person administering the property in the character of a trustee 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 the unfaithful trustee. 

—oOo—

III.  IMPLIED TRUSTS

1. Nature and Types of Implied Trusts 

          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. 

          Art. 1442. The principles of the general law of trusts, insofar as they are not in conflict with this [Civil] Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted. 

           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.

According to the Report of the Code Commission, the underlying doctrine of 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 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 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).

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 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. 

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 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) 

x x x . 

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 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

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. 

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 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 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 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 — 

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 held liable, any obligation, such as that of transferring to plaintiffs the estate in question. (at p. 593).” Nonetheless, the Court affirmed that “This specific relief [of reconveyance], however, has already come to be applied in this 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.”

 (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) 

(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 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) 

(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 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)