TRUSTS ARTICLE 1440

‘Trust’ Parties to a ‘Trust’

(a) It is the right to the beneficial enjoyment (a) trustor or settler — he establishes the
of property, the legal title to which is vested trust
in another. (b) trustee — holds the property in trust for
(b) It is a fiduciary relationship concerning the benefit of another
property which obliges the person holding it (c) beneficiary or cestui que trust — the
to deal with the property for the benefit of person for whose benefit the trust has been
another. The person holding, in view of his created
equitable title, is allowed to exercise certain (NOTE: The trustor may at the same time be
powers belonging to the owner of the legal also the beneficiary.)
title.
Elements of a ‘Trust’
Characteristics of a ‘Trust’ (a) Parties to the trust
(a) It is a fiduciary relationship. (b) The trust property or the trust estate or
(b) Created by law or by agreement. the subject matter of the trust
(c) Where the legal title is held by one, and
the equitable title or beneficial title is held by ARTICLE 1441
another. Classifi cation of Trusts
(a) Express trust — created by the parties, or
‘Trust’ Distinguished from ‘Guardianship’ or by the intention of the trustor. (Art. 1441).
‘Executorship’ (b) Implied trust — created by operation of
In a trust, the trustee or holder has LEGAL law (“trust by operation of law”).
TITLE to the property; a guardian,
administrator, or executor does not have. [NOTE: There are two kinds of implied trusts:
1) Resulting trust — (also called bare or
‘Trust’ Distinguished from a ‘Stipulation Pour passive trust) — Here, there is an intent to
Autrui’ create a trust but it is not effective as an
(a) A trust may exist because of a legal express trust.
provision or because of an agreement; a Example: Art. 1451, where a person who
stipulation pour autrui can arise only in the inherits property registers the same in
case of contracts. another’s name, whom he does not intend to
(b) A trust refers to specific property; a have any beneficial interest therein for he
stipulation pour autrui refers to specific wants this for himself.
property or to other things. 2) Constructive trust — Here, no intention to
create a trust is present, but a trust is
Co-Ownership as a ‘Trust’ nevertheless created by law to prevent
A co-ownership is a form of trust, with each unjust enrichment or oppression.
co-owner being a trustee for each of the Example: If a person acquires property by
others. mistake, he is considered by the law as a
trustee while he holds the same. (Art. 1456,
Civil Code).
 ARTICLE 1442 Rizal Surety & Insurance Co. v. CA
Suppletory Effect of the General Law of 73 SCAD 606
Trusts The so-called adversary positions of the
The principles of the general law of trusts are parties had no effect on the trust as it never
merely suppletory. changed the position of the parties in
relation to each other and to the dollar
Comment of the Code Commission proceeds.
This Article incorporates a large part of the The Loss and Subrogation Receipt did
American law on trusts, and thereby the not exculpate petitioner from its liability for
Philippine legal system will be amplified and the accrued interest as this obligation arose
will be rendered more suited to a just and in connection with its role as trustee. The
equitable solution of many questions. signing of said receipt was a valid pre-
condition before petitioner could be
Anglo-American Precedents compelled to turn over the whole amount of
As the law of trust has been much more the insurance to the two insured. It is grossly
frequently applied in the U.S. and in England unfair for anyone to earn income on the
than it has in Spain, such may be drawn money of another and still refuse to share
freely upon Anglo-American precedents. This any part of that income with the latter.
is particularly so, because Anglo-American
trusts are derived from Roma and Civil Law EXPRESS TRUSTS
nations.

Gelano v. Court of Appeals ARTICLE 1443

L-39050, Feb. 24, 1981 Formalities Re Express Trusts
A lawyer who has been defending the The law says that “no express trusts
interest of a corporation may, in the case of a concerning an immovable or any interest
litigation in court still pending after the therein may be proved by parol (oral)
expiration of the three-year period after evidence.”
dissolution, still continue as TRUSTEE of the Therefore:
corporation at least with respect to the (a) the requirement that the express trust be
matter in litigation. This would be in written is only for enforceability, not for
substantial compliance with the Corporation validity between the parties. Hence, this
Code which allows the conveyance of the Article may by analogy be included under the
properties of a corporation to a trustee to Statute of Frauds.
enable it to prosecute and defend suits by or (b) By implication, for a trust over personal
against the corporation beyond the three property an oral agreement is valid and
years period. enforceable between the parties.
(c) Regarding third persons, the trust must
be: in a public instrument and REGISTERED in
the Registry of Property, if it concerns REAL
PROPERTY.

Distinguished from the Formalities of an

Implied Trust immediately.
An implied trust (whether real or personal This promise was accepted by the creditor.
property is involved) may be proved by oral The present case was instituted by the
evidence. creditor to declare him owner of the land,
and to fi x the period for the delivery of the
ARTICLE 1444 land to him. A motion to dismiss was filed on
How an Express Trust Is Created the ground of prescription, more than 10
(a) By conveyance to the trustee by an act years having elapsed.
inter vivos or mortis causa (as in a will). ISSUE: Has the action by the creditor
(b) By admission of the trustee that he holds prescribed?
the property, only as trustee. HELD: No, the action has not prescribed.
(a) In the first place, the case involves an
[In the case of Geronimo & Isidro v. Nava & express trust. Under Art. 1444 of the Civil
Aquino, the Supreme Court held that where, Code, no particular words are needed for the
pursuant to a court decision, the plaintiff not creation of an express trust. In this case the
only allowed but even directed the tenant to naked ownership of the land passed to the
pay the rentals to the defendants, and creditor, while the usufruct remained with
permitted the latter to occupy and take the children of the deceased affiant for an
possession of the property when the tenant undetermined period of time. The children
disoccupied it, such acts should be construed are deemed to have held the land as trustees
as a recognition of the fact that the property, of the creditor.
though still in the former’s name, was to be In view of the creation of the express
held in trust for the defendant, to be trust, it is clear that no period of prescription
conveyed to him on payment of the purchase is involved, the recovery being
price, and such trust is an EXPRESS one.] imprescriptible.
(b) In the second place, assuming that there
Julio v. Dalandan is no trust involved in this case, the period of
L-19012, Oct. 20, 1967 prescription is, under the facts, a term of 30
FACTS: The deceased father of the years.
defendants executed on Sept. 8, 1950 an affi
davit attesting to the following facts: Observations on the Julio v. Dalandan case:
(a) that he owed someone a sum of money; (a) It is doubtful whether a trust was
(b) that as security thereof, he gave a parcel intended in this case. While it is true that no
of land to the creditor; particular words are needed for the creation
(c) that in view of his failure to pay the debt, of an express trust, still there must be an
the mortgage was foreclosed; INTENT to create a fi duciary relationship
(d) that he felt bound by such foreclosure; with respect to the property. No such
(e) that he therefore promises to replace said relationship was contemplated in this case.
land by another lot or farm of approximately (b) Indeed, if it is true that the naked
the same area on the condition that his ownership was immediately transferred to
children should not be forced to give the the creditor, and the children were the
harvest, and on the further condition that usufructuaries, it is the creditor who would
substitution should not be required be the trustee and the children would be the
usufructuary — beneficiaries or the cestui
que trust — not the other way around. 6[a], Rule 98, Rules of Court).
(c) It is impossible to regard the creditor as (c) The trustee must manage and dispose of
the naked owner, for the affidavit (which was the estate and faithfully discharge his trust in
conformed to by the creditor) clearly relation thereto, according to law or
stipulated that the substitution (of the land according to the terms of the trust
for the debt) would not be required instrument as long as they are legal and
immediately. possible. (Sec. 6[b], Rules 98, Rules of Court).
(d) The alleged “substitution” was really in (d) The trustee must render a true and clear
the form of a dation in payment or account. (Sec. 6[c], Rule 98, Rules of Court).
assignment to take place in the future. (e) The trustee cannot acquire the property
Therefore, to determine whether the held in trust by prescription as long as the
creditor’s right had already prescribed, what trust is admitted. (If he repudiates, and this is
the court should have done was to first fix a made known to the party involved,
period for the transfer of the property. Later, prescription is permitted).
the court could determine if more than 10
years (not 30 years) had elapsed from the NOTE: In Escobar v. Locsin, the Court had
date the transfer should have been done. occasion to rule that a trust is sacred and
inviolable, and the courts should therefore
Clear Intent shield fi duciary relations against every
There must be a CLEAR INTENTION to create manner of chicanery.
a trust. (Thus, no particular or technical
words are required.) QUERY: May a trustee of a trust estate be
personally liable?
Capacity HELD: In the absence of an express
(a) The trustor must be capacitated to stipulation in a contract entered into by a
convey property. [Hence, it has been held trustee for a corporation that the trust estate
that a minor cannot create an express or and not the trustee should be liable on the
conventional trust of any kind. However, a contract, the trustee is liable in its individual
joint owner of a thing may be a trustor and capacity.
the other a trustee of one’s share.
(b) The trustee must be capacitated to hold QUERY: When may a trustee sue as such?
property and to enter into contracts. HELD: Before a trustee may sue or be sued
(c) The beneficiary must be capacitated to alone as such, it is essential that his trust be
receive gratuitously from the trustor. EXPRESS, that is, a trust created by the direct
(Therefore, if he is incapacitated to be the and positive acts of the parties, by some
trustor’s donee, heir or legatee, or devisee, writing, deed, or will or by proceedings in
he cannot become a beneficiary of a court.
gratuitous trust.)

Administration of the Trust

(a) The trustee must file a bond. (Sec. 5, Rule
98, Rules of Court). ARTICLE 1445
(b) The trustee must make an inventory of Effect if Trustee Declines
the real and personal property in trust. (Sec.
The trust ordinarily continues even if the (b) Expiration of the term
trustee declines. (c) Fulfillment of the resolutory condition
Reason — the court will appoint a new (d) Rescission or annulment (as in other
trustee, unless otherwise provided for in the contracts)
trust instrument. (Sec. 3, Rule 98, Rules of (e) Loss of subject matter of the trust
Court). A new trustee has to be appointed, (physical loss or legal impossibility)
otherwise the trust will not exist. (f) Order of the court (as when the purpose
of the trust is being frustrated)
NOTE: As between the mother and the uncle (g) Merger
of a minor, the former ought to be preferred (h) Accomplishment of the purpose of the
as trustee of the proceeds of an insurance trust
policy of the deceased father in the absence
of evidence that would reveal the NOTE: A testamentary trust for the
incompetence of the mother. administration and eventual sale of certain
properties of the testator ends not at the
ARTICLE 1446 time the trustee’s petition for the sale of the
Necessity of Acceptance by the Beneficiary property is approved by the court, but at the
For the trust to be effective, the beneficiary time said sale is actually made and the
must accept: proceeds thereof distributed to the proper
(a) expressly, recipients.
(b) or impliedly,
(c) or presumably. IMPLIED TRUSTS
The doctrine of implied trust is founded on
When Acceptance Is Presumed equity. The principle is applied in the
If the granting of benefit is PURELY American legal system to numerous cases
GRATUITOUS (no onerous condition), the where an injustice would result if the legal
acceptance by the beneficiary is presumed. estate or title were to prevail over the
Exception: If there is proof that he really did equitable right of the beneficiary. Even
NOT accept. though there has been no fraud or
immorality involved, still there is a mutual
NOTE: Acceptance by the beneficiary of a antagonism between the trustee and the
gratuitous trust is NOT subject to the rules benefi ciary. Fair dealing demands the
for the formalities of donations. Therefore, establishment of the relation.
even if real property is involved, acceptance
by the beneficiary need not be in a public ARTICLE 1447
instrument. Here, the court held that mere Enumeration of Instances of Implied Trust
acquiescence in the formation of the trust, The enumeration is not exclusive. But trusts
and acceptance under the second paragraph are recognized only if not in confl ict with:
of Art. 1311 (regarding a stipulation pour (a) the Civil Code,
autrui) are sufficient. (b) the Code of Commerce,
(c) the Rules of Court,
How Express Trusts Are ENDED (d) Special Laws.
(a) Mutual agreement by all the parties
 Rabuco v. Hon. Antonio Villegas predecessor-in-interest.
L-24661, Feb. 28, 1974 When she applied for registration of the
The City of Manila only holds in trust, for the disputed land, she had no legal right to do so
National Government, lands reserved for as she had no ownership of the land since
communal or community property. land registration is not a mode of acquiring
Therefore, if the national government ownership but only of confirming ownership
decides to sell the parcels of land to their of the land. The Torrens system was not
occupants, it cannot be said that the City of established as a means for the acquisition of
Manila is being deprived of property without title to private land. It is intended merely to
due process of law. confi rm and register the title which one may
already have on the land. Where the
Victorias v. Leuenberger and CA applicant possesses no title or ownership
GR 31189, Mar. 31, 1989 over the parcel of land, he cannot acquire
FACTS: In 1934, SG, the administratrix of the one under the Torrens system of registration.
property left by her husband and of the While an inherently defective Torrens Title
conjugal partnership property, sold Lot A and may not ordinarily be cancelled even after
Lot B, a 4-hectare portion of Lot 140, to the proof of its defect, the law nevertheless
Municipality of Victorias. Said municipality safeguards the rightful party’s interest in the
used this lot as cemetery. Unfortunately, titled land from fraud and improper use of
Victorias failed to register the deed of sale. technicalities by allowing such party, in
When SG died in 1942, NL, the appropriate cases, to judicially seek
granddaughter claimed to have inherited the reconveyance to him of whatever he has
land from the former. In 1963, she had the been deprived of as long as the land has not
property relocated and registered in her been transferred or conveyed to a purchaser
name. But the municipality prevented her in good faith.
from cultivating a portion of the lot, Lots A The land in dispute is held by NL in trust
and B, because the same had been sold to for the Municipality of Victorias, which can
the municipality. So, NL sued the neither be deprived of its possession nor be
municipality to recover the portion occupied made to pay rentals on it. NL is, in equity,
by the latter. bound to reconvey the land to the cestui que
HELD: As registered owner, NL is entitled to trust, the Municipality of Victorias. The
the protection afforded to a holder of a Torrens system was never calculated to
Torrens Title. Under the Torrens system, foment betrayal in the performance of a
every person receiving a certifi cate of title in trust.
pursuance of a decree of registration shall
hold the same free of all encumbrances ARTICLE 1448
except those noted in said certificate. (Sec. Purchase of Property Where Title Is Not
39, Art. 496, now Sec. 43, PD 1529). In the Given to Payer but to Another
instant case, however, NL admitted that she (a) This is a resulting trust (because a trust is
inherited the land from her grandmother, intended).
who had already sold the land to the (b) Reason: One who pays for something
municipality in 1934. Hence, she merely usually does so for his own benefit.
stepped into the shoes of her grandmother (c) Example of the Article: A buys a piece of
and she cannot claim a better right than her
land from B. A pays the price so that he (A) (a) This is a “constructive trust,” the reason
may have the beneficial interest in the land of the law being to prevent unjust
BUT the legal title is given to C. C is the enrichment.
trustee and A is the beneficiary. (b) Example:
Jose wants to buy a piece of land from Pedro,
Suppose in the preceding example C was the but Jose has no money. So Jose asks Carlos to
legitimate or illegitimate child of A, is an pay for the land. The land is then given in
implied trust still presumed in this case? Carlos’ name. This is supposed to be Carlos’
ANS.: No. Here, no trust is implied by law, it security until the debt of Jose is paid. Here an
being disputably presumed that there is a gift implied trust has been created. Carlos is only
in favor of the child. (1st sentence, Art. a trustee, the beneficiary being Jose. When
1448). Jose has the money, he may redeem the
[NOTE: It would seem that inasmuch as a property from Carlos and compel a
presumption (re the existence of a donation) conveyance thereof to him (Jose). The trust
has been made by law, the formalities of a here is implied, hence it exists even if in the
donation (indicated in Arts. 748 and 749 of title taken by Carlos, there is no mention of
the Civil Code) are NOT REQUIRED, for if the the interest of Jose or of his right to redeem.
formalities are to be still complied with, (NOTE: Do not confuse the above example
there would be no need for the with the case; Jose borrows money from
presumption.] Carlos, and Jose later buys land in his own
name. Jose then executes a mortgage on the
Rule if Document Expresses a Different Intent land in favor of Carlos. This is NOT an implied
There is no implied trust if the document trust. It is clearly a case of MORTGAGE.)
expresses a different intention.
Example: Carantes v. Court of Appeals
A paid the money for the purchase of land, 76 SCRA 514
but title was given to B. It was proved that A No fiduciary relationship exists between the
paid because A was lending the amount to B. so-called “trustor” and the so-called
“trustee” in a constructive trust.
ARTICLE 1449
When Donee Does Not Get Full Ownership of Trust Receipt
Benefit In connection with Art. 1450, mention may
This is again a “resulting trust,” where the be made of what was referred to in Phil. Nat.
“donee” becomes the trustee of the real Bank v. Vda. y Hijos de Angel Jose, 63 Phil.
beneficiary. 814, as a “trust receipt.” The Court said: “A
Example: trust receipt, as a contract, partakes of the
A donated land to B. But it was agreed that B nature of a conditional sale the importer
is supposed to have only one-third of the becoming the absolute owner of the
products of said land. There is a trust here, imported merchandise as soon as he has paid
with B as the trustee. its price; until the owner or the person who
advanced payment has been paid in full, or if
ARTICLE 1450 the merchandise has already been sold, the
Conveyance of Property so That It May Serve proceeds turned over to him, the ownership
as Security continues to be vested in such person.”
 Rule in Co-Ownership
‘Trust Receipt’ If a co-owner or co-heir possesses certain
A trust receipt is a security transaction property owned in common by him and
intended to aid in financing importers and others, he is under the same situation as a
retail dealers who do not have sufficient trustee insofar as the shares of the other co-
funds or resources to finance the importation owners are concerned.
or purchase of merchandise, and who may
not be able to acquire credit except Mariano v. Judge De Vera
thru utilization, as collateral, of the GR 59974, Mar. 9, 1987
FACTS: H and W owned, as conjugal property, during
merchandise imported or purchased. their lifetime, 29 parcels of unregistered land. W died
intestate in 1903 and without debts. She left her
Default or Failure of Entrustee to Comply husband H, and their two legitimate children M and G
with Terms of Trust Agreement: Cancellation as her only forced heirs. In 1952, H died also intestate
of Trust Not Absolutely Necessary and without debts, leaving as his only compulsory
heirs the children of G who, together with her sister
In the event of default by the entrustee M, had predeceased their father and his (H’s)
on his obligations under a trust receipt legitimate children with his second wife.
agreement, it is not absolutely necessary that In 1981 or 29 years after H’s death, the children
the entruster cancel the trust and take of G (grandchildren of H) sued the children of H
possession of the goods to be able to enforce (begotten of the second wife) for partition. Plaintiffs
alleged that defendants had taken possession of the
his rights thereunder. whole conjugal property and appropriated to
Signifi cantly the law (PD 115) uses the themselves (to the exclusion of plaintiffs) the products
word “may” in granting to the entruster the of said property. On motion of defendants, the trial
right to cancel the trust and take possession judge dismissed the complaint saying that the right of
of the goods. Consequently, petitioner has action to enforce an implied or constructive trust
prescribes in ten years.
the discretion to avail of such right or seek HELD: The order of the trial court dismissing the
any alternative action, such as a third party complaint on the ground of prescription under Section
claim or a separate civil actions which it 40 of Act 190 is wrong. This case is governed by the
deems best to protect its right, at any time rules on co-ownership, since the parties are co-owners
upon default or failure of the entrustee to of the disputed properties, having
inherited the same from a common ancestor. The
comply with any of the terms and conditions existence of co-ownership argues against the theory
of the trust agreement. of implied trust. Since defendants had not clearly
repudiated the co-ownership, nor had they
communicated such repudiation, if any, to plaintiffs,
ARTICLE 1451 the former cannot acquire the shares of the latter by
When Title to Inherited Land Is Not in prescription.
Owner’s Name
(a) This is a “resulting trust,” for a trust is Paraphernal Properties Registered Under the
intended. Husband’s Name
(b) Example: A inherited a piece of land from If properties inherited by a wife are
his father, but A caused the legal title to be registered under the husband’s name, she
put in the name of X, a brother. Here a trust can claim them as her own upon his death
is impliedly established, with X as trustee and even if she does not refer to the situation as
A as the beneficiary. a trust.
Reason: Here clearly a trust was intended. In
Severino v. Severino, 44 Phil. with a house on it so that the same could be
343, it was clearly ruled that the registration used as their clubhouse. The property was
of property in the name of one who holds in registered under the name of only one of
a trust character does not extinguish the them. The registered owner leased the
trust or destroy the rights of the beneficiary. property, collected rents therefor, and when
asked for an accounting, refused to so
Title in the Name of the Surviving Husband account on the ground that he was the
In Flores v. Flores, 48 Phil. 288, it was owner thereof.
held that “as long as the surviving husband HELD: He is a mere trustee, and is therefore
retains the property of the conjugal estate obliged to render proper accounting. The
itself, or its place, if sold, he holds it in the beneficiaries are all the members of the club.
character of administrator and is virtually a
trustee (except with reference to his share) Presumption That Shares Are Equal
for those interested in the conjugal The shares or interest of co-owners are
partnership. Nor does the obtaining of a presumed to be equal.
Torrens Title in any way change the
situation.” ARTICLE 1453
When a Person Declares His Intent to Hold
Right of Co-heirs Property for Someone Else
In Castro v. Castro, the Supreme Court (a) This is a “resulting trust” in view of the
observed that: “One who acquires a Torrens owner’s intention to create a trust.
Title in his own name to property which he is (b) Example: Jose bought from Pedro a parcel
administering for himself and his brother and of land and it was conveyed to him (Jose) on
sisters as heirs from a common ancestor, and Jose’s statement or declaration that he
in common descent, may be compelled to would hold it in behalf of Carlos. Here, Jose is
surrender to each of his co-heirs his merely the trustee, while Carlos is the
appropriate share; and a proceeding for beneficiary.
partition is an appropriate remedy by which (c) Suppose in the preceding example Jose
to enforce this right.” asserts that he is really the owner, would he
be allowed to do this?
ARTICLE 1452 ANS.: No, for he would be in estoppel. (See
When Property Is in the Name of Only One of Art. 1431, Civil Code).
the Co-Buyers (c) If a person promises to temporarily hold
(a) This is a resulting trust in view of the property and administer the same 'til it be
intent to create a trust. freed from all debts and encumbrances, he is
a mere trustee and must later on return the
property.

(b) Example: Heirs of Emilio Candelaria v. Lucia Romero, et al.

Uy Aloc v. Cho Jan Jing L-12149, Sept. 30, 1960
FACTS: Two brothers, Emilio and Lucas Candelaria,
19 Phil. 202 each purchased a lot on installment. Due to his
FACTS: Some Chinese merchants bought a lot inability to pay, Lucas
sold his interest therein to Emilio, who continued the agent inure to the benefit of his
payment of Lucas’ lot in the name of Lucas until the principal).
entire price was paid, with the understanding that the
necessary documents would be made later. In 1918 a
Transfer Certifi cate of Title for the lot was issued in Example
the name of Lucas. Lucas and his heirs acknowledged An agent using his principal’s money
the fact that they held the title merely in trust for purchases land in his own name. He also
Emilio. In 1956, Emilio’s heirs sued for reconveyance registers it under his name. Here, he will be
of the title to them. Lucas’ heirs refused, fi rstly, on
the ground that the trust was an express one and
considered only a trustee, and the principal is
therefore not enforceable because it was oral; and the beneficiary.
secondly, on the ground of prescription (38 years). The principal can bring an action for
HELD: Emilio’s heirs are entitled to the reconveyance. conveyance of the property to himself, so
Firstly, this is not express trust but an implied one long as the rights of innocent third persons
under Art. 1453 and, therefore, may be proved by
parol evidence. Secondly, while implied trusts may
are not adversely affected.
indeed prescribe, in the instant case, there was a
continuous acknowledgment on the part of Lucas and Reasons for the Rule
his heirs; hence, there was no prescription. (a) fiduciary or trust relations
(b) estoppel
ARTICLE 1454 (c) to remove the temptation to place self-
Absolute Conveyance Made for Security interest above all other things, and at the
Purpose expense of one’s integrity and duty to
(a) This is a “constructive trust,” the purpose another.
of the law being to prevent unjust
enrichment to the prejudice of the true Sing Joco v. Sunyantung, et al.
owner. 43 Phil. 589
FACTS: A was a confi dential employee of B. B
(b) Example: Marlene was indebted to Susan. intended to purchase an hacienda and he told A about
For the sole purpose of guaranteeing her it and of his option to buy the same. Thinking that the
debt, Marlene sold her parcel of land to purchase seems good, A, in his wife’s name, bought
Susan. Here, a trust has been created. If the hacienda, to the prejudice of B.
Marlene pays her debt when it becomes due, Issue:
Can B sue A for damages?
Marlene may demand the resale of the HELD: Yes, in view of the breach of trust.
property to her.
Escobar v. Locsin
74 Phil. 86
ARTICLE 1455 FACTS: Locsin was helping an illiterate owner in his
Use of Trust Funds claim for a parcel of land involved in certain cadastral
This is a “constructive trust” because again, proceedings.
the purpose is to prevent unjust enrichment. Locsin’s help was at the request of the illiterate
Applicability of Article owner. Instead of really helping her, Locsin claimed
the land for himself. The claim of Locsin was
The Article applies to: successful and he was awarded the land. May he be
(a) any trustee ordered to convey the land to the real owner?
(b) guardian HELD: Yes, for after all, there was a clear breach of
(c) or other person holding a fi duciary trust here.
relationship (Art. 1455)
(like an agent; therefore the acquisitions of ARTICLE 1456
Property Acquired Thru Mistake or Fraud Against Whom the Right Must Be Exercised
(a) This is another example of a constructive The right of action in an implied or
trust. constructive trust should be exercised
(b) Example: against the trustee, who may have caused
Bella was given a car by Mina although it the fraud and not against an innocent
should have been given to Erlinda. Bella is purchaser for value. The action based on the
considered as merely the trustee of the car trust should be filed within four years from
for the benefit of Erlinda. the discovery of the fraud. Of course, if the
alleged fraudulent deed was recorded in the
Laureano v. Stevenson Registry of Property, it is essential to count
45 Phil. 252 the four-year period from the date of the
FACTS: By mistake, a piece of land, belonging registration inasmuch as said registration
to his neighbor Laureano, was registered operates as a notice to the whole
under the Torrens system (cadastral survey) world.
under Kilayco’s name, although Kilayco never
claimed the land. Kilayco’s creditors wanted When the Article Does Not Apply
to sell this land belonging to Laureano. Issue: Ongsiako, et al. v. Ongsiako, et al.
Can they do so? L-7510, Mar. 10, 1957
Art. 1456 does not apply to a donation of
HELD: No. Since Kilayco never claimed the property which the donee has acquired thru
land, the court had no jurisdiction to order its a legal donation, even if she breaks an
registration in Kilayco’s name. Kilayco in important condition thereof. Thus, even with
effect was only holding the property in trust the breach condition, she does not become a
for Laureano. trustee. It is still hers, subject to an action for
(NOTE here that in case of a trust, the true revocation. If the action to revoke has
owner is preferred over the registered prescribed, the property cannot be taken
owner.) away from her. If prescription runs even in a
[NOTE: It has been held that a trustee may case of an implied trust, prescription
be compelled to execute a deed of certainly runs with greater reason in a case
reconveyance of property that has bee like this, where as we have seen, no trust
obtained improperly provided, of course, ever existed or was created.
that the true owner is not barred because of
prescription or because of laches.] Tiburcio Samonte v. CA, et al.
GR 104223, Jul. 12, 2001
Nature of the Mistake or Fraud FACTS: Petitioner, as successor-in-interest of
(a) The mistake referred to in Art. 1456 is a the Jadol spouses, argues that the
mistake made by a third person, not that respondents’ action for recoveyance, filed
made by a party to the contract. For if made only in 1975, had long prescribed considering
by a party, no trust is created. that the Jadol spouses caused the
(b) Similarly, the fraud referred to in Art. registration of a portion of the subject lot in
1456 is extra-contractual fraud and the their names way back in August 8, 1957. It is
effects are those as mentioned in Comment petitioner’s contention that since 18 years
No. 4. (Gemora v. Yap Tico, 52 Phil. 616). had already lapsed from the issuance of TCT
RT-476 until the time when respondents filed
the action in the court a quo in 1975, the Thus, in citing Adille, the Supreme Court said
same was time-barred. As it had been that in the instant case, the CA rightfully
indubitably established that fraud attended ruled that respondents action for
the registration of a portion of the subject reconveyance had not yet prescribed.
property, the Jadol spouses were trustees
thereof, on behalf of the surviving heirs of Query — Do Trusts Prescribe?
Abao. An action based on implied or (a) Express trusts do NOT prescribe as long as
constructive trust prescribes in 10 yrs. from they have not been repudiated.
the time of its creation or upon the alleged (b) The rule on implied trusts is, however,
fraudulent registration of the property. CONFUSING.
HELD: Petitioner’s defense of prescription is In Diaz, et al. v. Garricho and Agriado, the
untenable. The general rule that the Court gave the reason why, as a rule, express
discovery of fraud is deemed to have taken trusts are not subject to prescription, while
place upon the registration of real property constructive trusts may be barred by lapse of
because it is “considered a constructive time. And the reason is that in the express
notice to all persons’’ (Sec. 51 of Act 496, as trust, there is a promise or a fi duciary
amended by Sec. 52 of PD 1529) does not relation, hence the possession of the trustee
apply in this case. Instead the Court of is NOT ADVERSE until and unless the
Appeals (CA) correctly applied the ruling in beneficiary is made aware that the trust has
Adille v. CA (57 SCRA 455 [1988]), which is been repudiated.
quite apropos to the instant case, thus: “It is But in the constructive trust, imposed as
true that registration under the Torrens it is by law, there is no promise or fi duciary
system is constructive notice of title, but it relation; the so-called trustee does not
has likewise been our holding that the recognize any trust and has no intent to hold
Torrens title does not furnish a shield for for the benefi ciary; therefore, the benefi
fraud. It is, therefore, no argument to say ciary is not justifi ed in delaying the action to
that the act of registration is equivalent to recover his property. It is his fault if he
notice of repudiation, assuming there was delays; hence, he may be estopped by his
one, notwithstanding the long standing rule own laches.
that registration operates as a universal However, in Cordova, et al. v. Cordova,
notice of title.’’ In Adille, petitioner therein et al., L-9936, Jan. 14, 1958, the Court in an
executed a deed of extrajudicial partition obiter made the statement that in a
misrepresenting himself to be the sole heir of constructive trust (as in the case of co-
his mother when, in fact, she had other heirship where one heir or co-owner
children. As a consequence, petitioner fraudulently deprives the rest of their
therein was able to secure title to the land in shares), prescription does not run. This
his nam alone. His siblings then fi led a case doctrine of imprescriptibility of a
for partition on the ground that said constructive trust was reiterated in Juan v.
petitioner was only a trustee on an implied Zuñiga, L-17044, April 28, 1962 and in Jacinto
trust of the property. Among the issues v. Jacinto, L-17955, L-17957, May 31, 1962,
resolved by the Court in that case was but is directly AT VARIANCE with the rule
prescription. Said petitioner registered the stated in J.M. Tuason and Co. v. Macapagal,
property in 1955 and the claim of private L-15539, Jan. 30, 1962, and in the case of
respondents therein was presented in 1974. Cornelio Alzona, et al. v. Gregoria Capunitan,
et al., L-10228, Feb. 28, 1962, where the means that the beneficiary or cestui que
Supreme Court held that indeed prescription trust can recover the property anytime.
RUNS in a constructive trust. Reason for the rule — the possession of an
A decision of the Supreme Court express trustee is not adverse.
reiterates this rule that a constructive trust is [NOTE: Exception to the rule — even an
affected by prescription. Thus, in Gerona, et express trust may prescribe if there has been
al. v. Carmen de Guzman, et al., L-19060, repudiation of the same
May 29, 1964, the Supreme Court stated that
although there are some decisions to the (2) With respect to implied trusts, a
contrary, it is already settled that an action distinction must be made:
for reconveyance of real property based
upon a constructive or implied trust, (a) resulting trusts (those presumed to have
resulting from fraud, may be BARRED by been contemplated by the parties, but not so
prescription. expressed in the instrument of conveyance)
The period is 4 years from the discovery (examples: those referred to in Arts. 1448 to
of the fraud. The Court apparently 1455, Civil Code) generally also do not
overlooked the fact that exactly one month prescribe (after all there was the intent to
prior to said decision, it had ruled in Caladiao create an express trust).
v. Vda. de Blas, L-19063, Apr. 29, 1964, that Exception — recovery from the trustee may
an action to compel reconveyance of prescribe if the trustee has expressly
property with a Torrens Title does not repudiated the trust;
prescribe if the registered owner had
obtained registration in bad faith, and the (b) constructive trusts (justified merely by
property is still in the latter’s name. The equity to satisfy the demands of justice, and
reason is that the registration is in the nature therefore are not really trusts in the technical
of a continuing and subsisting trust. sense) do prescribe, and this rule is well-
Similarly, it has been held that settled. (NOTE: Whether resulting or
prescription cannot be set up as a defense in constructive, its enforcement may be barred
an action that seeks to recover property held by LACHES.)
expressly in trust for the benefi t of another;
neither can laches, it being similar to Escay v. Court of Appeals
prescription. L-37504, Dec. 18, 1974
FACTS: Emilio Escay mortgaged his estate to
the Philippine National Bank. However, in
1924, he died, with his debt still existing. His
brother, Jose Escay, agreed to assume the
debt so that there would be no foreclosure,
so the ownership of the property was
transferred to Jose in consideration of his
Ramos, et al. v. Gregoria Ramos, et al. assumption of the mortgage indebtedness
L-19372, Dec. 3, 1974 but there was a proviso granting the heirs of
ISSUE: Do trusts prescribe? Emilio the right to redeem the property
HELD: within 5 years after Jose shall have fully paid
(1) Express trusts do not prescribe. This the PNB. This agreement was approved by
the probate court in 1934, the approval of all All that they presented was oral
parties having been obtained, including the testimony to the effect that in the partition
approval by the heirs of Emilio thru Emilio’s of his (Valentin’s) grandfather’s estate, said fi
wife. Many years later, Emilio’s children shpond had been assigned to him. Issues: (1)
brought the action to recover the estate Was there an express trust? (2) Was there an
from Jose, stating that: implied trust? (3) Assuming there was an
(a) their previous consent has not been implied trust, has the action for
obtained re the transfer of the property to reconveyance prescribed?
Jose, (b) the probate court has no power to HELD:
authorize the transfer as, in effect, this would (1) There was no express trust. Oral or parol
be the same as foreclosure, and (c) Jose evidence cannot prove an express trust. (Art.
refused to allow the heirs to redeem. 1443, Civil Code).
HELD: (2) There was no implied trust, whether
(a) The heirs may be said to have consented, resulting trust or constructive trust. There
thru their mother (their guardian ad litem). was no resulting trust for there was never
(b) The probate court had the power to any intention to create a trust and there was
approve the agreement, even if the same no constructive trust, because the
amounted to a foreclosure, for after all registration of the fi shpond under the
procedural rules cannot impair substantive Torrens system was not initiated by fraud or
rights of property owners to sell what mistake.
belongs to them. (3) Assuming that there was an implied trust,
(c) More than 25 years have elapsed since the action is already barred by prescription
Jose took adverse possession of the property. or laches. The action was filed only in 1952 or
It is clear that the action has prescribed. forty-one (41) years after the registration.
Under an express trust, if repudiated, may The plaintiffs, and their predecessor in
end after 10 years (or 30 years), as the case interest (Valentin Salao), slept on their rights,
may be. if they had any rights at all. Vigilanti
prospiciunt jura (“The law protects him who
is watchful of his rights”). Further, there was
How To Prove Trusts laches or unreasonable delay in trying to
Salao, et al. v. Salao enforce a right. If there be laches, this is not
L-26699, Mar. 16, 1976 only persuasive of a want of merit, but may,
FACTS: Ambrosia Salao and Juan Salao (sister according to the circumstances, be
and brother) purchased from the heirs of destructive of the right itself.
Engracio Santiago the Calunuran fishpond,
and were granted a Torrens Title over said NOTE: However, although prescription and
property in 1917. After Ambrosia’s death, the laches may defeat an implied trust, there is
heirs of Valentin Salao, the nephew of the one exception to the rule. Movables acquired
two co-owners, sued in 1952 for thru a crime cannot be acquired by the
reconveyance of the fishpond which they offende thru prescription. (Art. 1133, Civil
claimed had been held in trust for their Code).]
father by the two registered co-owners. But [NOTE: While Art. 1456 is not retroactive in
no documentary evidence was presented to character, still it merely expresses a rule
prove the existence of an express trust. already recognized by our Courts even prior
to the promulgation of the New Civil Code.

How ‘Creative Trusts’ Are Created

This is by way of equity to prevent unjust
enrichment, arising against one who, by
fraud, duress or abuse of confi dence,
obtains or holds the legal right to property
which he ought not, in equity and good
conscience, to hold.

ARTICLE 1457
Proof of Implied Trust
(a) This Article applies whether the property
is real or personal.
(b) The rule in Art. 1457 is different from that
enunciated in Art. 1443 which states that “no
express trust concerning an immovable or
any interest therein may be proved by parol
evidence.”

Oral Evidence for Trust Must Be Trustworthy

Salao v. Salao
L-26699, Mar. 16, 1976
While an implied trust may be proved by oral
evidence, still, said evidence must be a
trustworthy oral evidence, for oral evidence
may be easily fabricated.