Professional Documents
Culture Documents
* even if contributions have not yet been made the firm 1. the warranty in case of eviction refers to specific
CAPITALIST – INDUSTRIALIST PARTNER
already exists, for partnership is a consensual contract and determinate things already contributed one who contributes BOTH CAPITAL and INDUSTRY
** while an INDUSTRIAL PARTNER is exempted by law from RULE on UNUSUAL ACTS EQUITABLE INTEREST
LOSSES as between the partners, he is NOT EXEMPTED from one or more but less than all the partners HAVE NO -BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
liability insofar as third persons are concerned AUTHORITY TO:
he may recover what he has paid from the CAPITALIST [AP, DG, AI, CJ, EC, SA, RC] *RULE on ADMISSION or REPRESENTATION MADE by a
partners 1. ASSIGN the PARTNERS PROPERTY PARTNER
2. DISPOSE of GOODWILL an admission by a partner is an admission against the
* under the law the liability of the partners is subsidiary and partnersip,under the following conditions:
joint NOT principal and solidary 1. the admissions must concern partnership affairs
7
2. must be within the scope of his authority
2. if the act or omission is NOT WRONGFUL
RESTRICTIONS ON THE RULE: * he shall be liable for all the obligations of the partnership
1. admissions made BEFORE DISSOLUTION are 3. if the act or omission, although wrongful did not BUT his liability will extend only to his share in the
binding only when the partner has authority to act make the partner concern liable partnership property
on the particular matter - DAMNUN ABSQUE INSURIA
* his own individual property shall be excluded
2.
4. if the wrongful act or omission was committed
admissions made AFTER DISSOLUTION are binding after the firm had been dissolved and the same * same liability of a limited partner
only if the admissions were necessary to WIND UP was not in connection with the process of winding
the business up. PREFERENCE of PARTNERSHIP CREDITORS
RULE:
3. an admission made by a former partner made LIABILITY of PARTNERSHIP for MISAPPROPRIATION – * the creditors of the partnership shall be preferred to
after he has RETIRED from the partnership is not (SOLIDARY LIABILITY) those of such partner as regards the partnership property
evidence against the firm 1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROPRIATES without prejudice to this right
EFFECT of NOTICE to a PARTNER - money or property in custody of the private creditors of each partner may ask the
notice to a partner is notice to the partnership partnership attachment and public sale of the share of the latter in the
partnership assets
*notice to a partner, given while already a partner is a PARTNER BY ESTOPPEL
notice to the partnership PROVIDED it relates to partnership a person who represents himself or consents to another / **IF a partner sells his share to a third party, BUT the firm
affairs others representing him to anyone as a partner either in an itself still remains SOLVENT, partnership creditors CANNOT
existing partnership or in one that is fictitious or apparent assail the validity of the sale by alleging that it is made in
EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE WAS fraud of them, since they have not really been prejudiced
GIVEN: PARTNERSHIP BY ESTOPPEL
when all the members of the existing partnership consent DISSOLUTION AND WINDING UP
* knowledge of the partner is also knowledge of the firm to such representation of a partner by estoppel the change in the relation of the partners caused by any
PROVIDED THAT: partner causing to be associated in the carrying on of the
1. the knowledge was acquired by a partner who is RULES AND SITUATIONS: business
acting in the particular matter involved;and 1. if a third person is misled and acts because of it is the point of time the partners cease to carry on the
2. the partner having knowledge, had reason to such misrepresentation business together
believe that the fact related to a matter which the deceiver is a partner by estoppel
had some possibility of being the subject of the WINDING UP
partnership business AND he was so situated that 2. if the partnership consented to such the process settling business affairs after dissolution
he could communicate it to the partner acting on misrepresentation
that particular matter partnership liability results TERMINATION
the point in time after all the partnership affairs have
* SERVICE of PLEADINGS on the partner in a law firm is also 3. if the firm had not consented been wound up
service on the whole firm and the other partners no partnership liability results BUT the deceiver
is considered still as a “partner by estoppel” with RULE ON DISSOLUTION
all the obligations but not the rights of a partner * on dissolution the partnership is not terminated BUT
continues until the winding up of partnership affairs is
4. when a person represents himself as a partner of completed
a NON-EXISTENT partnership
NO partnership liability results BUT the deceiver *EFFECT on OBLIGATIONS
and all persons who may have aided him in the 1. just because a partnership is dissolved this does
LOSS OR INJURY misrepresentation are still liable not necessarily mean that a partner can evade
liability would be JOINT or PRO-RATA previous obligations entered into by the
RULE on WRONGFUL ACT or OMISSION of a PARTNER
(SOLIDARY LIABILITY) partnership
* when although there is misrepresentation, if the third
* the partnership is solidarily liable with the partner if the
party is not deceived, the doctrine of estoppel does not 2. dissolution saves the former partners from new
wrongful act or omission apply obligations to which they have not expressly or
1. the partner is acting in the ordinary course of
impliedly consented UNLESS the same be essential
business of the partnership OR BURDEN of PROOF for winding up
2. with authority of his co-partners
the creditor or whoever alleges the existence of a partner
or partnership by estoppel has the burden of proving the
* innocent partners have right to recover from the guilty
existence of the MISREPRESENTATION AND INNOCENT
partner RELIANCE on it *CAUSES OF DISSOLUTION
1. without VIOLATION of the AGREEMENT between
* When the firm and other partners not liable: ENTRY OF A NEW PARTNER into an EXISTING the partners
1. if the wrongful act or omission was NOT DONE PARTNERSHIP A) TERMINATION of the DEFINITE TERM or
A) within scope of partnership business RULE: PARTICULAR UNDERTAKING
B) with authority of the other co-partners
8
B) EXPRESS WILL or ANY PARTY in GOOD RULE:
FAITH (PARTNERSHIP by WILL) * when the firm is dissolved, a partner can no longer bind
C) EXPRESS WILL of ALL of the PARTNERS the partnership RULE:
except those who have (interests) * the dissolution of the partnership does not itself
ASSIGNED or whose interests have been * a dissolved partnership still has the personality for the discharge the “existing liability” of any partner
(separate debts) CHARGED winding up of its affairs NEED for an AGREEMENT BETWEEN
D) EXPULSION in good faith of a member the firm is still allowed to collect previously acquired 1. partner concerned
2. in CONTRAVENTION of the agreement between the 2. other partners
credits
partners 3. creditors
the firm is still bound to pay of its debts
by the EXPRESS WILL of ANY PARTNER at any
time DISSOLUTION CAUSED by A-I-D
3. UNLAWFULNESS of the BUSINESS RULE:
RULE: (STILL BOUND) – as to each partners
4. LOSS – thing promised * the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall
A) SPECIFIC THING – PERISHES before be liable for all obligations of the partnership incurred while
G.R. where the dissolution is caused by the ACT,
delivery he was a partner BUT subject to prior payments of his
INSOLVENCY or DEATH of a partner, each partner is liable to
B) USUFRUCT is lost EXCEPT if ownership separate debts
his co-partners for his share of any liability created by any
had been transferred to the partnership
partner acting for the partnership
5. DEATH of ANY partner * IF there be a NOVATION of the OLD PARTNERSHIP DEBTS
EXCEPTION: - individual liabilities
6. INSOLVENCY of any partner or of the partnership and such novation is done after one of the partners has
1. if dissolution by ACT
7. CIVIL INTERDICTION of any partner “retired” and without the consent of such partner
the partner acting for the partnership HAD
8. DECREE of COURT said partner cannot be held liable by creditors who
KNOWLEDGE of the dissolution OR
made the novation with knowledge of the firms dissolution
2. if dissolution by DEATH or INSOLVENCY
*** if the cause is not justified or no cause was given, the
the partner acting for the partnership HAD
withdrawing partner is liable for DAMAGES BUT in no case EXTRAJUDUCIAL AND JUDICIAL WINDING-UP
can he be compelled to remain in the firm “knowledge or notice” of the death or insolvency
EXTRAJUDICIAL:
* the insolvency need not be judicially declared, it is * only the partner acting assumes liability 1. by the partners who have not wrongfully dissolved
enough that the assets be less than the liabilities the partnership
*AFTER DISSOLUTION, a partner can still “bind” the 2. by the legal representative of the last surviving
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED: PARTNERSHIP partners
(I, UM, I-PP, C, PB, BL, OC) (WU, UT, TB)
1. partner declared “insane” in any judicial 1. By any ACT appropriate for WINDING UP JUDICIAL:
proceeding or is shown to be of UNSOUND MIND partnership affairs under the control and direction of the court, upon proper
2. partner becomes INCAPABLE of performing his part cause that is shown to the court
of the partnership contract 2. By COMPLETING transactions UNFINISHED at
3. partner has been guilty of such CONDUCT as tends dissolution
* profits that will actually enter the firm after dissolution as
to affect prejudicially the business a consequence of transactions already made before
4. partners PERSISTENT BREACH of agreement 3. By any TRANSACTION which could bind the
dissolution are included because they are considered as
5. the business of the partnership can only be denied partnership IF dissolution had not taken place
PROVIDED the other party is: profits existing at the time of dissolution
on at a loss
6. other circumstances which render dissolution A) PREVIOUS CREDITOR and had NO
KNOWLEDGE or NOTICE of the * any other income earned after the time, like interest or
equitable dividends on stock owned by the partners or partnership at
dissolution OR
B) NOT a PREVIOUS CREDITOR, had NO the time of dissolution should not be distributed as profits
IN CASE OF PURCHASER of PARTNERS INTEREST BUT as merely additional income to the capital
1. after the termination of the specified term or KNOWLEDGE or NOTICE and dissolution
particular undertaking was NOT PUBLISHED
* if there was publication of the dissolution it is BETTER RIGHTS of INNOCENT PARTNERS
2. AT ANY TIME, if the partnership was a “partnership innocent partners have better rights than guilty partners
at will” when the interest was assigned or when presumed he already knows, regardless of actual
knowledge on non knowledge and that the guilty partners are required to indemnify for the
the charging ordered was issued
damages caused
* proof as to the existence of the firm must first be given WHEN is the PARTNERSHIP NOT BOUND
1. new business with third parties who are in bad
faith * RIGHT of INOCENT PARTNERS TO CONTINUE the
* even if a partner has not yet been previously declared BUSINESS
2. firm dissolved because UNLAWFUL except for acts
insane by the court, dissolution may be asked, as long as the in essence this is a new partnership
of winding up
insanity is duly proved in court can use the same firm name
3. partner who acted became INSOLVENT
4. partner not authorized to wind up EXCEPT if can ask new members to join
* in a suit for dissolution, the court may appoint a customer in good faith BUT shall: for protection of guilty partners
RECEIVER at its discretion 1. give a BOND approved by the court
* if after dissolution, if a stranger will represent himself as 2. to PAY guilty partners his interests at the time of
a partner although he is not one he will be a partner by dissolution MINUS DAMAGES
estoppel
EFFECTS OF DISSOLUTION
9
* a guilty partner who is EXCLUDED will be indemnified 5. after wrongful dissolution, remaining partners
against all present or future partnership liabilities continue the business without liquidation
6. when partner expelled and remaining partners
RIGHT TO GET CASH continue the business without liquidation * PARTNERSHIPS – includes a SYNDICATE, GROUP, POOL,
in case on non-continuance of the business, the interest of JOINT VENTURE, or other unincorporated organization,
* liability of third person becoming a partner in the through or by the means of which any business, financial
the partner should if he desires be given in cash
partnership continuing the business to the creditors of the operation, or venture is carried on
assets may be sold
dissolved partnership shall be satisfied out of the partnership
property ONLY * a joint venture need not be undertaken in any of the
a guilty partner, in ascertaining the value of his interest is
standard forms,
not entitled to a proportional share of the value of GOOD WIL
G.R. – when a partner retires, he is entitled what is due him or in conformity with the usual requirements of the law on
after liquidation BUT no liquidation is needed if there is partnerships, in order that one could be deemed constituted
already a settlement at the date of dissolution for purposes of the TAX on corporations
*When creditors of the dissolved partnership are also ESSENTIAL ELEMENTS of a PARTNERSHIP * in order to constitute a PARTNERSHIP INTER SESE
creditors of the partnership continuing business: 1. an agreement to CONTRIBUTE money, property, or there must be:
1. new partner is admitted without liquidation industry to a COMMON FUND A) an intent to form the same
2. a partner retires and assigns his rights IF the 2. intent to divide the profits among the contracting B) generally participating in both profits
business is continued without liquidation of the parties and losses AND
partnership affairs C) such a community of interest, as far as
3. all but one partner retire without liquidation * when our internal Revenue Code includes “partnerships” third persons are concerned as enables
4. when all partner assign their right to a person who among the entities subject to the tax on “corporations”, said each party to make a contract, manage
will assume their debt code which are not necessarily “partnerships” in the the business, and dispose of the whole
technical sense of the term property
10
whenever immovable property is contributed
* the common ownership of property does not itself create thereto, if “inventory” of said property is not made, signed
a partnership between the owners, though they may use it by the parties and attached to the public instrument
for the purpose of making gains AND they may without
becoming partners, agree among themselves as to the EVANGELISTA vs. ABAD SANTOS
management and use of such property and the application of * an INDUSTRIAL PARTNER cannot engage in BUSINESS
the proceeds therefrom FOR HIMSELF, UNLESS the partnership expressly permits him
to do so
* the sharing of returns does not in itself establish a IF HE SHOULD DO SO, the capitalist partners may either:
partnership within the persons sharing therein have a joint or 1. EXCLUDE him from the firm OR
common right or interest in the property 2. AVAIL themselves of the benefits which he may
there must be: have obtained in violation of this provision
1. clear intent to form a partnership with a right to DAMAGES in either case
2. the existence of a juridical personality different
from the individual partners AND * the prohibition against an industrial partner engaging in
3. the freedom of each party to transfer or assign the business for himself seeks to prevent any conflict of interest
whole property between the industrial partner and the partnership and to
ensure faithful compliance by said partner with his prostation
* the subsequent marriage of the partners could not 1. Definition and Objective of Agency
operate to dissolve the partnership because it is not one of
the causes provided for dissolution by law with regards to
limited partnerships Article 1868 of the Civil Code defines the contract of agency
as one whereby “a person binds himself to render some
* partnership has distinct and separate personality from service or to do something in representation or on behalf of
that of its partners another, with the consent or authority of the latter.” [1]
• Notice to the agent is notice to the principal. Air France v. relationship in the principal’s name with a third party, the
Court of Appeals , 126 SCRA 448 (1983). resulting contract is voidable and subject to annulment. On (a) Consent, express or implied, of the parties to establish
the other hand, if the principal has legal capacity, and it is the relationship;
the agent that has no legal capacity to contract, the
12
(b) Object, which is the execution of a juridical act in relation In the same manner, Dominion Insurance Corp. v. Court of
to third parties; Appeals, 376 SCRA 239 (2002), held that since the basis for
agency is representation, then there must be, on the part of compensation aside from the use and occupation of the
the principal, an actual intention to appoint or an intention houses of the deceased, it cannot be explained how the
(c) Agent acts as a representative and not for himself; and naturally inferable from his words or actions; on the part of agent could have rendered services as he did for eight years
the agent, there must be an intention to accept the without receiving and claiming any compensation from the
appointment and act on it; and in the absence of such intent, deceased.” (at p. 632) If Aguna were decided under the New
(d) Agent acts within the scope of his authority.[4] Civil Code, then under Article 1875, which mandates that
there is generally no agency.
every contract of agency is deemed to be for compensation,
then the result would have been quite the opposite.
The element not included in the Rallos enumeration is the
Perhaps the only exception to this rule is “agency by
cause or consideration of every contract of agency. Under
estoppel,” but even then it is by the separate acts of the
Article 1875 of the Civil Code, every agency is presumed to d. Entitlement of Agent to Commission Anchored on
purported principal and purported agent, by which they are
be for compensation, unless there is proof to the contrary. In the Rendering of Service
brought into the relationship insofar as third parties acting in
other words, it is clear that there can be a valid agency
good faith are concerned. More discussions on the essential
contract which is supported by consideration of liberality on
element of consent shall take place in the section on The compensation that the principal agrees to pay to the
the part of the agent; that although agency contracts are
essential characteristic of consensuality of contracts of agent is part of the terms of the contract of agency upon
primarily onerous, they may also be constituted as
agency. which their minds meet. Therefore, the extent and manner
gratuitous contracts. The value that Article 1875 of the Civil
Code brings into the Law on Agency is that the presumption by which the agent would be entitled to receive
is that every agency contract entered into is for valuable b. Object or Subject Matter compensation or commission is based on the terms of the
consideration—that the agency serves for the benefit of the contract.
principal expecting to be compensated for his efforts. It is
the party who avers that the agency was gratuitous—that The object of every contract of agency is service, which
the agent agreed to serve gratuitously. particularly is the legal undertaking of the agent to enter into Sometimes, the terms are not that clear, and decisions have
juridical acts with third persons on behalf of the principal. had to deal with the issue of when an agent has merited the
right to receive the compensation either stipulated or
The last two elements included in the Rallos enumeration implied from the terms of the contract. The doctrine that
should not be understood to be essential elements for the Items (b), (c) and (d) in the enumerated elements of Rallos may be derived from the various decisions on the matter are
perfection and validity of the contract of agency, for indeed can actually be summarized into the object of every contract anchored on the nature of the contract of agency as a
they are matters that do not go into perfection, but rather of agency to be that of service, i.e., the undertaking species of contracts of services in general. When the
into the performance stage of the agency relationship. The (obligation) of the agent to enter into a juridical act with rendering of service alone, and not the results, is the
non-existence of the two purported essential elements (i.e., third parties on behalf of the principal and within the scope primordial basis for which the compensation is given, then
that the agent acted for herself and/or the agent acted of his authority. the proof that services have been rendered should entitle
beyond the scope of her authority), does not affect the the agent to the compensation agreed upon. On the other
validity of the existing agency relationship, but rather the hand, if the nature of the service to be compensated is
legality of the contracts entered into by the agent on behalf c. Consideration understood by the results to be achieved, e.g., that a
of the principal. particular contract with a third party is entered into in behalf
of the principal, then mere rendering of service without
The cause or consideration in agency is the compensation or
achievement of the results agreed upon to be achieved
Thus, under Article 1883 of the Civil Code, “If an agent acts commission that the principal agreed or committed to be
would not entitle the agent to the compensation agreed
in his own name, the principal has no right of actions against paid to the agent for the latter’s services. Under Article 1875
upon.
the person with whom the agent has contracted; neither of the Civil Code, agency is presumed to be for
have such persons against the principal.” Under Article 1898 compensation, unless there is proof to the contrary. In other
of the Civil Code, “If the agent contracts in the name of the words, liberality may be the proper cause or consideration Thus, in Inland Realty v. Court of Appeals, 273 SCRA 70
principal, exceeding the scope of his authority, and the for an agency contract only when it is so expressly agreed (1997), the Court held that —
principal does not ratify the contract, it shall be void” as to upon. Unless otherwise stipulated, therefore, every agent is
the principal. entitled to remuneration or compensation for the services
performed under the contract of agency. Although the ultimate buyer was introduced by the agent to
the principal during the term of the agency, nevertheless,
a. Consent the lapse of the period of more than one (1) year and five (5)
The old decision in Aguna v. Larena, 57 Phil 630 (1932), did months between the expiration of petitioners’ authority to
not reflect the general rule of agency-is-for-compensation sell and the consummation of the sale, cannot authorize
The essential element of consent is manifest from the reflected subsequently in Article 1875 of the Civil Code. compelling the principal to pay the stipulated broker’s fee,
principle that “No person may be represented by another In Aguna, although the agent had rendered service to the since the agent was not longer entitled thereto.
without his will; and that no person can be compelled principal covering collection of rentals from the various
against his will to represent another.” tenants of the principal, and in spite of the agreement that
principal would pay for the agent’s service, nevertheless, the The Court takes into strong consideration that utter lack of
principal allowed the agent to occupy one of his parcels of evidence of the agent showing any further involvement in
Thus, the Supreme Court held in Litonjua, Jr. v. Eternit Corp., land and to build his house thereon. The Court held that the the negotiations between principal and buyer during that
490 SCRA 204 (2006), held that consent of both the principal service rendered by the agent was deemed to be gratuitous, period and in the subsequent processing of the documents
and the agent is necessary to create an agency: The apart from the occupation of some of the house of the pertinent to said sale. (at p. 79)
principal must intend that the agent shall act for him; the deceased by the plaintiff and his family, “for if it were true
agent must intend to accept the authority and act on it, and that the agent and the deceased principal had an
the intention of the parties must find expression either in understanding to the effect that the agent was to receive In contrast, in Manotok Bros. Inc. v. Court of Appeals, 221
words or conduct between them. SCRA 224 (1993), the Court held that although the sale of
13
the object of the agency to sell was perfected three days Ordinarily, an agency is onerous in nature, where the agency
after the expiration of the agency period, the agent was still expects compensation for his services in the form of
be entitled to receive the commission stipulated based on commissions. However, Article 1875 recognizes that an that consequently one of the strongest feature of a true
the doctrine held in Prats v. Court of Appeals, 81 SCRA 360 agency may be supported by pure liberality, and thus would contract of agency is that of “control” — that the agent is
(1978), that when the agent was the efficient procuring be gratuitous, but the burden of proof would be to show that under the control and instruction of the principal. Thus,
cause in bringing about the sale that the agent was entitled the agency was constituted gratuitously. in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA
to compensation. In essence, the Court ruled that when 663 (2000), it was ruled —
there is a close, proximate and causal connection between
the agent’s efforts and labor and the principal’s sale of his When it is gratuitous, the contract of agency is unilateral
contract because it only creates an obligation on the part of It is clear from Article 1868 that the basis of agency is
property, the agent is entitled to a commission. representation.[6] On the part of the principal, there must be
the agent. But even when it is supported by a valuable
consideration (i.e.,compensated or onerous agency), it would an actual intention to appoint or an intention naturally
The matter pertaining to entitlement to commission will be still be characterized as a unilateral contract, because it is inferable from his words or actions; and on the part of the
discussed in greater details in the section that distinguishes only the fulfillment of the primary obligations of the agent to agent, there must be an intention to accept the appointment
a contract of agency from that of a broker’s contract. render some service upon which the subordinate obligation and act on it, and in the absence of such intent, there is
of the principal to pay the compensation agreed upon arises. generally no agency. One factor which most clearly
distinguishes agency from other legal concepts is control;
4. Essential Characteristics of Agency one person — the agent — agrees to act under the control or
When an agent accepts the agency position without direction of another — the principal. Indeed, the very word
compensation, he assumes the same responsibility to carry “agency” has come to connote control by the principal.[7]
a. Nominate and Principal out the agency and therefore incurs the same liability when The control factor, more than any other, has caused the
he fails to fulfill his obligations to the principal. It is therefore courts to put contracts between principal and agent in a
rather strange that Article 1909 of the Civil Code provides separate category. . . .
Not only is the contract of agency specifically named as such
that “The agent is responsible not only for fraud, but also for
under the Civil Code, it is a principal contract because it can
negligence, which shall be judged with more or less rigor by
stand on its own without need of another contract to validate xxx
the courts, according to whether the agency was or was not
it.
for a compensation.”
In the instant case, it appears plain to us that private
The real value of the contract of agency being a “nominate respondent CSC was a buyer of the SLDFR form, and not an
d. Preparatory and Representative
and principal” contract is that it has been so set apart by law agent of STM. Private respondent CSC was not subject to
and provided with its own set of rules and legal STM’s control. The question of whether a contract is one of
consequences, that any other arrangement that essentially There is no doubt that agency is a species of the broad sale or agency depends on the intention of the parties as
falls within its terms shall be considered as an agency grouping of what we call the “service contracts”, which gathered from the whole scope and effect of the language
arrangement and shall be governed by the Law on Agency, includes employment contract, management contract and employed. That the authorization given to CSC contained the
notwithstanding any intention of the parties to the contrary. contract-for-a piece of work. There are also special service phrase “for and in our (STM’s) behalf” did not establish an
After all, a contract is what the law says it is, and not what contracts which include the rendering of professional service agency. Ultimately, what is decisive is the intention of the
the parties call it. (e.g., doctors and lawyers), and consultancy work. But it is parties. That no agency was meant to be established by the
the characteristic of “representation” that is the most CSC and STM is clearly shown by CSC’s communication to
distinguishing mark of agency when compared with other petitioner that SLDR No. 1214M had been “sold and
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if
service contracts, in that the main purpose is to allow the endorsed” to it. The use of the words “sold and endorsed”
an act done by one person in behalf of another is in its
agent to enter into contracts with third parties on behalf of, means that STM and CSC intended a contract of sale, and
essential nature one of agency, the former is the agent of
and which would bind on, the principal. not an agency. (at pp. 676-677)
the latter notwithstanding he or she is not so called—it will
be an agency whether the parties understood the exact
nature of the relation or not. A contract of agency does not exist for its own purpose; it is In Doles v. Angeles, 492 SCRA 607 (2006), it was held that
a preparatory contract entered into for other purposes that for an agency to arise, it is not necessary that the principal
deal with the public. This characteristic of an agency is personally encounter the third person with whom the agent
b. Consensual
reflected in various provisions in the Law on Agency and in interacts – precisely, the purpose of agency is to extend the
case-law, that seek to protect the validity and enforceability personality of the principal through the facility of the agent.
The contract of agency is perfected by mere consent. Under of contracts entered into pursuant to the agency
Article 1869, an agency may be expressed or implied from arrangement, even when to do so would contravene strict
agency principles. In another way of putting it, an agency In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA
the act of the principal, from his silence or lack of action, or
contract is merely a tool allowed to be resorted to achieve a 584 (2007), the Court held —
failure to repudiate the agency; agency may be oral, unless
the law requires a specific form.[5] greater objective to enter into juridical relations on behalf of
the principal; considerations that pertain merely to the tool It is said that the basis of agency is representation, that is,
certainly cannot outweigh considerations that pertain to the the agent acts for and on behalf of the principal on matters
Under Article 1870 of the Civil Code, acceptance by the main objects of the agency. within the scope of his authority and said acts have the
agent may also be express, or implied from his acts which
same legal effect as if they were personally executed by the
carry out the agency, of from his silence or inaction
In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 principal. By this legal fiction, the actual or real absence of
according to the circumstances.
(2005), the Court decreed that “In a bevy of cases as the the principal is converted into his legal or juridical presence –
avuncular case ofVictorias Milling Co., Inc. v. Court Appeals, qui facit per alium facit per se. (at p. 593)
c. Unilateral and Primarily Onerous [333 SCRA 663 (2000)], the Court decreed from Article 1868
that the basis of agency is representation,” (at p. 560), and
14
Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81 (3) The person claiming the benefit of the rule colludes with
SCRA 251 (1978), the Court held that “Agency is basically the agent to defraud the principal (De Leon & De Leon, at p.
personal, representative, and derivative in nature. The 367,citing TELLER, at p.150) Unless:
authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the (i) There is and express consent on the part of the principal
principal if done within the scope of the authority. Qui facit Thus, in Eurotech Industrial Technologies, Inc. v. Cuizon, 521
SCRA 584 (2007), the Court held — (Cui v. Cui, 100 Phil. 913 (1957); or
per alium facit per se. ‘He who acts through another acts
himself.’” (at p. 259)
Article 1897 reinforces the familiar doctrine that an agent, (ii) If the agent purchases after the agency is terminated
who acts as such, is not personally liable to the party with (Valera v. Velasco, 51 Phil. 695 (1928).
(1) Principles Flowing from Agency Characteristics of
“Prepartatory and Representative” whom he contracts. The same provision, however, presents
two instances when an agent becomes personally liable to a In Republic v. Evangelista, 466 SCRA 544 (2005), the Court
third person. The first is when he expressly binds himself to held that generally, the agency may be revoked by the
The following principles flow from the application of the the obligation and the second is when he exceeds his principal at will, since it is a personal contract of
essential characteristics of an agency being “preparatory authority. In the last instance, the agent can be held liable if representation based on trust and confidence reposed by the
and representative” contract, thus: he does not give the third party sufficient notice of his principal on his agent. As the power of the agent to act
powers. (at p. 593) depends on the will and license of the principal he
(a) The contract entered into with third persons pertains to represents, the power of the agent ceases when the will or
the principal and not to the agent; the agent is a stranger to In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court permission is withdrawn by the principal.
said contract although he physically was the one who held that the right of inspection given to a stockholder under
entered into it in a representative capacity; the law can be exercised either by himself or by any proper In Orient Air Services v. Court of Appeals, 197 SCRA 645
representative or attorney in fact, and either with or without (1991), it was held that the decision of the lower court
the attendance of the stockholder. This is in conformity with ordering the principal airline company to “reinstate
• the agent has neither rights or obligations from the the general rule that what a man may do in person he may
resulting contract; defendant as its general sales agent for passenger
do through another. transportation in the Philippines in accordance with said GSA
Agreement,” was unlawful since courts have no authority to
• the agent has no legal standing to sue upon said contract e. Derivative, Fiduciary and Revocable compel the principal to reinstate a contract of agency it has
terminated with the agent:
(b) The liabilities incurred shall pertain to the principal and A contract of agency creates a legal relationship of
not the agent; representation by the agent on behalf of the principal, where Such would be violative of the principles and essence of
the powers of the agent are essentially derived from the agency, defined by law as a contract whereby “a person
principal, and consequently, it is fiduciary in nature. One of binds himself to render some service or to do something in
(c) Generally, all acts that the principal can do in person, he representation or on behalf of another, WITH THE CONSENT
the legal consequences of the fiduciary nature of the
may do through an agent, except those which under public OR AUTHORITY OF THE LATTER.” In an agent-principal
contract of agency is that it is essentially revocable: neither
policy are strictly personal to the person of the principal. relationship, the personality of the principal is extended
the principal nor the agent can be legally made to remain in
the relationship when they choose to have it terminated. through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all
(d) The agent who acts as such is not personality liable to
acts which the latter would have him do. Such a relationship
the party with whom he contracts, unless he expressly binds
Severino v. Severino, 44 Phil. 343 (1923), held that the can only be effected with the consent of the principal, which
himself or exceeds the limits of his authority without giving
relations of an agent to his principal are fiduciary in must not, in any way, be compelled by law or by any court.
such party sufficient notice of his powers. (Art. 1897)
character because they are based on trust and confidence, The Agreement itself between the parties states that “either
which must flow from the essential nature a contract of party may terminate the Agreement without cause by giving
(e) Notice to the agent should always be construed as notice agency that makes the agent the representative of the the other 30 days notice by letter, telegram or cable.[8] (at
binding on the principal, even when in fact the principal principal. Consequently: p. 656)
never became aware thereof. Air France v. Court of Appeals,
126 SCRA 448 (1983)
(a) As regards property forming the subject matter of the 5. Distinguished from Similar Contracts
agency, the agent is estopped from asserting or acquiring a
(f) Knowledge of the agent is equivalent to knowledge of the title adverse to that of the principal. (Art. 1435);
a. From the Employment Contract
principal.
(b) In a conflict-of-interest situation, the agent cannot choose
a course that favors herself to the detriment of the principal; Unlike agency relationship which is essentially contractual in
EXCEPT WHERE:
she must choose to the best advantage of the nature, an employment contract under Article 1700 of the
principal. Thomas v. Pineda, 89 Phil. 312 (1951); Palma v. Civil Code is “The relationship between capital and labor
(1) Agent’s interests are adverse to those of the principal; Cristobal, 77 Phil. 712 (1946); and [which] are not merely contractual. They are so impressed
with public interest that labor contracts must yield to the
common good. Therefore, such contracts are subject to the
(2) Agent’s duty is not to disclose the information, as where (c) The agent cannot purchase for herself the property of the special laws on labor unions, collective bargaining, strikes
he is informed by way of confidential information; and principal which has been given to her management for sale and lockouts, closed shop, wages, working conditions, hours
or disposition (Art. 1491[2]); of labor and similar subjects.” More specifically, the purpose
of an employer-employee relationship is for the employee to
15
render service for the direct benefit of the employer or of the of work or services the basis is employment. The lessor of
business of the employer; while agency relationship is services does not represent his employer, while the agent
entered into to enter into juridical relationship on behalf of represents his principal. x x x . There is another obvious matter, or the buyer’s obligation on the payment of the
the principal with third parties. There is, therefore, no distinction between agency and lease of services. Agency is price.
representation in a contract of employment. a preparatory contract, as agency “does not stop with the
agency because the purpose is to enter into other In Quiroga v. Parsons, 38 Phil. 501 (1918), although the
contracts.” The most characteristic feature of an agency parties designated the arrangement as an agency
In Dela Cruz v. Northern Theatrical Enterprises, 95 Phil 739 relationship is the agent’s power to bring about business
(1954), the Court held that the relationship between the agreement, the Court found the arrangement to be one of
relations between his principal and third persons. “The agent sale since the essential clause provided that “Payment was
corporation which owns and operates a theatre, and the is destine to execute juridical acts (creation, modification or
individual it hires as a security guard to maintain the peace to be made at the end of sixty days, or before, at the
extinction of relations with third parties). Lease of services [principal’s] request, or in cash, if the [agent] so preferred,
and order at the entrance of the theatre is not that of contemplate only material (non-juridical) acts.[9]”
principal and agent, because the principle of representation and in these last two cases an additional discount was to be
was in no way involved. The security guard was not allowed for prompt payment.” These conditions to the Court
employed to represent the defendant corporation in its The Court also held in Nielson & Co. that where the principal were “precisely the essential features of a contract of
dealings with third parties; he was a mere employee hired to and paramount undertaking of the “manager” under a purchase and sale” because there was the obligation on the
perform a certain specific duty or task, that of acting as Management Contract was the operation and development part of the purported principal to supply the beds, and, on
special guard and staying at the main entrance of the movie of the mine and the operation of the mill, and all other the part of the purported agent, to pay their price, thus:
house to stop gate crashers and to maintain peace and order undertakings mentioned in the contract are necessary or
within the premises. incidental to the principal undertaking—these other These features exclude the legal conception of an agency or
undertakings being dependent upon the work on the order to sell whereby the mandatory or agent received the
development of the mine and the operation of the mill. In the thing to sell it, and does not pay its price, but delivers to the
b. From the Contract for a Piece-of-Work performance of this principal undertaking the manager was principal the price he obtains from the sale of the thing to a
not in any way executing juridical acts for the principal, third person, and if he does not succeed in selling it, he
destined to create, modify or extinguish business relations returns it. By virtue of the contract between the plaintiff and
Under Article 1713 of the Civil Code, “By the contract for a
between the principal and third person. In other words, in the defendant, the latter, on receiving the beds, was
piece of work the contractor binds himself to execute a piece
performing its principal undertaking the manager was not necessarily obliged to pay their price within the term fixed,
of work for the employer, in consideration of a certain price
acting as an agent of the principal, in the sense that the without any other consideration and regardless as to
or compensation. The contractor may either employ only his
term agent is interpreted under the law of agency, but as whether he had or had not sold the beds. (at p. 505)
labor or skill, or also furnish the material.” Under a contract
one who was performing material acts for an employer, for
for a piece of work, the contractor is not an agent of the
compensation. Consequently, the management contract not
“principal” (i.e., the client), and the contractor has no
being an agency cannot be revoked at will and was binding As a consequence, the “revocation” sought to be made by
authority to represent the principal in entering into juridical
to its full contracted period. the principal on the purported agency arrangement was
acts with third parties. The essence of every contract-for-a-
piece-of-work is that the services rendered must give rise to denied by the Court, the relationship being one of sale, and
the manufacture or production of the object agreed upon. the power to rescind is available only when the purported
In Shell Co. v. Firemen’s Insurance of Newark, 100 Phil. 757 principal is able to show substantial breach on the part of the
(1957), in ruling that the operator was an agent of the Shell purported agent.
company, the Court took into consideration the following
In Fressel v. Mariano Uy Chaco Sons & Co., 34 Phil. 122
facts: (a) that the operator owed his position to the company
(1915), it was held that where the contract entered into is
and the latter could remove him or terminate his services at Quiroga further ruled that when the terms of the agreement
one where the individual undertook and agreed to build for
will; (b) that the service station belonged to the company compels the purported agent to pay for the products
the other party a costly edifice, the underlying contract is
and bore its tradename and the operator sold only the received from the purported principal within the stipulated
one for a contract for a piece of work, and not a principal and
products of the company; that the equipment used by the period, even when there has been no sale thereof to the
agency relation. Consequently, the contract is authorized to
operator belonged to the company and were just loaned to public, the underlying relationship is not one of contract of
do the work according to his own method and without being
the operator and the company took charge of their repair agency to sell, but one of actual sale. A true agent does not
subject to the client’s control, except as to the result of the
and maintenance; (c) that an employee of the company assume personal responsibility for the payment of the price
work; he could purchase his materials and supplies from
supervised the operator and conducted periodic inspection of the object of the agency; his obligation is merely to turn-
whom he pleased and at such prices as he desired to pay.
of the company’s gasoline and service station; and (d) that over to the principal the proceeds of the sale once he
And the mere fact that it was stipulated in the contract that
the price of the products sold by the operator was fixed by receives them from the buyer. Consequently, since the
the client could take possession of the work site upon the
the company and not by the operator. underlying agreement is not an agency agreement, it cannot
happening of specified contingencies did not make the
relation into that of an agency. Consequently, when the be revoked except for cause.
client did take over the unfinished works, he did not assume d. From the Contract of Sale
any direct liability to the suppliers of the contractor. In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company,
72 Phil. 402 (1941), which covered a purported agency
Under Article 1466 of the Civil Code, “In construing a contract to purchase, the Court looked into the provisions of
c. From the Management Agreement contract containing provisions characteristic of both the their contract, and found that the letters between the parties
contract of sale and of the contract of agency to sell, the clearly stipulated for fixed prices on the equipment ordered,
essential clauses of the whole instrument shall be which “admitted no other interpretation than that the
In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26
considered.” Jurisprudence has indicated what the “essential [principal] agreed to purchase from the [agent] the
SCRA 540, 546-547 (1968), the Court held that in both
clauses” that should indicate whether it is one of sale or equipment in question at the prices indicated which are fixed
agency and lease of services, one of the parties binds
agency to sell/purchase, refers to stipulations in the contract and determinate.” (at p. 407). The Court held that “whatever
himself to render some service to the other party. Agency,
which places obligations on the part of the purported unforeseen events might have taken place unfavorable to
however, is distinguished from lease of work or services in
“agent” having to do with what should be a seller’ obligation the [agent], such as change in prices, mistake in their
that the basis of agency is representation, while in the lease
to transfer ownership and deliver possession of the subject
16
quotation, loss of the goods not covered by insurance or sole distributor of the article within a certain territory.” (at p.
failure of the Starr Piano Company to properly fill the orders 792)
as per specifications, the [principal] might still legally hold the price, and terms, demand and receive the proceeds less
the [agent] to the prices fixed.” (at p. 407). It was ruled that the agent’s commission upon sales made. (at p. 530)
the true relationship between the parties was in effect a The reasoning in Pearl Island is wrong, of course, since as
contract of sale. Consequently, the demand by the purported early as inQuiroga v. Parson, the Court had already ruled that
appointing one as “agent” or “distributor”, when in fact such In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
principal of all discounts and benefits obtained by the (2000), the Court held that an authorization given to the
purported agent from the American suppliers under the appointee assumes the responsibilities of a buyer of the
goods, does not make the relationship one of agency, but buyer of goods to obtain them from the bailee “for and in
theory that all benefits received by the agent under the behalf” of the bailor-seller does not necessarily establish an
transactions were to be accounted for the benefit of the that of sale. Perhaps the best way to understand the ruling
in Pearl Island was that the suit was not between the buyer agency, since the intention of the parties was for the buyer
principal, was denied by the Court. to take possession and ownership over the goods with the
and seller, but by the seller against the surety of the buyer
who had secured the shipment of the wax to the buyer, and decisive language in the authorization being “sold and
Gonzalo Puyat also ruled that when under the terms of the the true characterization of the contract between the buyer endorsed.”
agreement, the purported agent becomes responsible for and seller was not the essential criteria by which to fix the
any changes in the acquisition cost of the object he has been liability of the surety, thus — In Lim v. Court of Appeals, 254 SCRA 170 (1996), it was held
authorized to purchase from a supplier in the United States, that as a general rule, an agency to sell on commission basis
the underlying agreement is not an contract of agency to does not belong to any of the contracts covered by Articles
buy, since an agent does not bear any risk relating to the True, the contract (Exhibit A) is not entirely clear. It is in
some respects, even confusing. While it speaks of sale of 1357 and 1358 of the Civil Code requiring them to be in a
subject matter or the price. Being truly a contract of sale, particular form, and not one enumerated under the Statutes
any profits realized by the purported agent from discounts Bee Wax to Tong and his responsibility for the payment of
the value of every shipment so purchased, at the same time of Frauds in Article 1403. Hence, unlike a sale contract which
received from the American supplier, pertain to it with no must comply with the Statute of Frauds for enforceability, a
obligation to account for it, much less to turn it over, to the it appoints him sole distributor within a certain area, the
plaintiff undertaking is not to appoint any other agent or contract of agency to sell is valid and enforceable in
purported principal. Reiterated in Far Eastern Export & whatever form it may be entered into.
Import Co., v. Lim Tech Suan, 97 Phil. 171 (1955). distributor within the same area. Anyway, it seems to have
been the sole concern and interest of the plaintiff to be sure
that it was paid the value of all shipments of Bee Wax to The old decision in National Rice and Corn Corp. v. Court of
In Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 Tong and the Surety Company by its bond, guaranteed in the Appeals, 91 SCRA 437 (1979), presents an interesting
(1950), where a local importing company was contracted to final analysis said payment by Tong, either as purchaser or situation where it is possible for a party to enter into an
purchase from the United States several boxes of oranges, as agent. . . . (at p. 793) arrangement, where a portion thereof is as agent, and the
most of which were lost in transit, the purchaser sought to other portion would be as buyer, and still be able to
recover the advance purchased price paid, which were distinguish and set apart to the two transactions to
refused by the local importing company on the ground that it In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a
contract of distributorship, it was specifically stipulated in determine the rights and liabilities of the parties.
merely imported the oranges as agent of the purchaser for
which it could not be held liable for their loss in transit. The the contract that “all goods on consignment shall remain the
Court, in reviewing the terms and conditions of the property of the Company until sold by the Distributor to the In National Rice a formal contract was entered into between
agreement between the parties, held that the arrangement purchaser or purchasers, but all sales made by the the National Rice & Corn Corp. (NARIC) and the Davao
was a sale rather than a contract of agency to purchase on Distributor shall be in his name;” and that the Company “at Merchandising Corp. (DAMERCO), where they agreed that
the following grounds: (a) no commission was paid by the its own expense, was to keep the consigned stock fully DAMERCO would act as an agent of NARIC “in exporting the
purchaser to the local importing company; (b) the local insured against loss or damage by fire or as a result of fire, quantity and kind of corn and rice” mentioned in the contract
importing company was given the option to “resell” the the policy of such insurance to be payable to it in the event (Exhibit “A”), “as well as in importing the collateral goods
oranges if the balance of the purchase price was not paid of loss.” It was further stipulated that the contract “does not that will be imported thru barter on a back to back letter of
within 48 hours from notification, which clearly implies that constitute the Distributor the agent or legal representative of credit or no-dollar remittance basis;” and with DAMERCO
the local importing company did in fact “sell” the oranges to the Company for any purpose whatsoever. Distributor is not agreeing “to buy the aforementioned collateral goods.”
the purchaser; (c) the local importing company placed order granted any right or authority to assume or to create any Although the corn grains were duly exported, the
for the oranges a lower the price agreed upon with the obligation or responsibility, express or implied in behalf of or Government had issued rules banning the barter of goods
purchaser which “it could not properly do” if indeed it were in the name of the Company, or to bind the Company in any from abroad. NARIC then brought suit against DAMERCO
merely acting as an agent; (d) the local importing company manner or thing whatsoever.” In spite of such stipulations, seeking recovery of the price of the exported grains. The
charged the purchaser with a sales tax, showing that the the Court did find the relationship to be one of agency, Court ruled that insofar as the exporting of the grains was
arrangement was indeed a sale; and (e) when the losses because it did not transfer ownership of the merchandise to concerned, DAMERCO acted merely as agent of NARIC for
occurred, the local importing company made claims against the purported distributor, even though it was supposed to which it cannot be held personally liable for the shortfall
the insurance company in its own name, indicating that he enter into sales agreements in the Philippines in its own considering that it had acted within the scope of its authority.
imported the oranges as his own products, and not merely as name, thus: The Court had agreed that indeed the other half of the
agent of the local purchaser. agreement whereby DAMERCO bound itself “as the
The transfer of title or agreement to transfer it for a price purchaser of the collateral goods to be imported from the
paid or promised is the essence of sale. If such transfer puts proceeds of the sale of the corn and rice,” was a valid and
In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. binding contract of sale, but for which DAMERCO could not
789 (1957), the Supreme Court was unsure of its footing the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed be made to pay the purchase price, because NARIC itself was
when it tried to characterize a contract of sale (“Contract of no longer in a position to import any of such goods into the
Purchase and Sale”) between the manufacturer of wax and price, and not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while the country, by reason of force majeure, thus —
its appointed distributor in the Visayan area, as still being
within a contract of agency in that “while providing for sale essence of an agency to sell is the delivery to an agent, not
of Bee Wax from the plaintiff to Tong and purchase of the as his property, but as the property of the principal, who It is clear that if after DAMERCO had spent big sums incident
same by Tong from the plaintiff, also designates Tong as the remains the owner and has the right to control the sale, fix to carrying out the purpose of the contract, the importation
17
of the remaining collateral goods worth about It must be noted though that a broker may at the same time
US$480,000.00 could not be effected due to suspension by be an agent. When he acts in his behalf in dealing with the
the government under a new administration of barter public, even when he handles things pertaining to the contract with the client, then it is not enough that the broker
transactions, the NARIC (now Rice and Corn Administration) principal, he is a mere broker. On the other hand, if he is duly found the prospective buyer, but he must spend efforts at
ought to make the necessary representations with the authorized to act in the name of the principal, there is no negotiating with the said person that leads him to enter into
government to enable DAMERCO to import the said doubt that the broker is also an agent. Thus, in Abacus a contract with the client, otherwise mere finding would not
remaining collateral goods. The contract, Exhibit “A”, has Securities Corp. v. Ampil, 483 SCRA 315 (2006), it was held entitle the broker to the fee’s agreed upon.
reciprocal stipulations which must be given force and effect. that since in that case the brokerage relationship was
(at p. 449) necessary a contract for the employment of an agent, (2) Broker Is Not Legally Incapacitated to Purchase
principles of contract law also govern the broker-principal Property of the Principal
relationship.
Although it is clear from the decision that DAMERCO had
assumed also the position of being a buyer of goods from In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was
NARIC, the Court inNational Rice was able to segregate his In the same manner, in Domingo v. Domingo, 42 SCRA 131 held that the prohibition in Article 1491(2) of the Civil Code
role as merely an agent of NARIC insofar as the export of the (1971), the Court held that the duties and liabilities of a which renders an agent legally incapable of buying the
grains was concerned, and apply the doctrine that an agent broker to his employer are essentially those which an agent properties of his principal connotes the idea of trust and
does not assume any personal obligation with respect to the owes to his principal. In such a situation, the decisive legal “confidence; and so where the relationship does not involve
subject matter of the agency nor of the proceeds thereof, his provisions to determine whether a broker has violated his considerations of good faith and integrity the prohibition
obligation being merely to turn-over the proceeds to the duty or obligation] are found in Articles 1891 and 1909 of the should not and does not apply. To come under the
principal whenever he receives them. National Rice also New Civil Code, whereby every agent is bound to render an prohibition, the agent must be in a fiduciary relation with his
demonstrate the “progressive nature” of every contract of account of his transactions and to deliver to the principal principal.”
agency, in that it presents a pliable legal relationship which whatever he may have received by virtue of the agency,
may be adopted into other relationships, such a contract of even though it may not be owning to the principal; and that
sale, to be able to achieve commercial ends. an agent is responsible not only for fraud, but also for The Court held that a broker does not come within the
negligence.[10] On the other hand, the Court also held meaning of Article 1492, because he is nothing more than a
in Domingo that “The duty embodied in Article 1891 of the go-between or middleman between the defendant and the
e. From Broker New Civil Code will not apply if the agent or broker acted purchaser, bringing them together to make the contract
only as a middleman with the task of merely bringing themselves. There is no confidence to be betrayed, since a
together the vendor and vendee, who themselves thereafter broker is not authorized to make a binding contract for the
A broker is best defined in Schmid and Oberly, Inc. v. RJL
will negotiate on the terms and conditions of the purported principal; he is not sell the property, but only to
Martinez, 166 SCRA 493 (1988), where the Court held that a
transaction.” (at p. 140) look for a buyer and the owner is to make the sale; he was
broker is “one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of not to fix the price of the sale because the price had to be
which he has no concern; the negotiator between other already fixed in his commission; he is not to make the terms
(1) Broker Has No Authority To Enter into Contract in of payment because these, too, would be clearly specified in
parties, never acting in his own name but in the name of the Name of the Principal
those who employed him. . . . a broker is one whose his commission. In fine, a broker is left no power or discretion
occupation is to bring the parties together, in matters of whatsoever, which he could abuse to his advantage and to
trade, commerce or navigation.” (at p. 501) In other words, In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was the owner’s prejudice.
the services of a broker is to find third parties who may be held that a real estate broker is one who negotiates the sale
interested in entering into contracts with other parties over of real properties; his business, generally speaking, is only to (3) Broker’s Entitlement to Commission
particular matter, and may include negotiating in behalf of find a purchaser who is willing to buy the land upon terms
both parties the perfection of a contract, but that the actual fixed by the owner. He has no authority to bind the principal
perfection must still be done by the parties represented. A by signing a contract of sale. Indeed, an authority to find a In quite a number of decisions, the Supreme Court has held
broker essentially is not an extension of the persons of the purchaser of real property does not include an authority to that the determination of whether one is an agent or a
parties he is negotiating for. sell. Thus, when the seller himself closes the sale with the broker constitutes a critical factor of whether he would be
purchaser located by the broker, the seller is bound to pay entitled to the commission stipulated in the contract.
the commission he has contracted with the broker for merely
In Reyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004), finding the buyer.
the Court held that unlike an agent who must act in the Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from
name of the principal, a broker is one who is engaged for Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., 166 SCRA
others on a commission to negotiate between other parties, It must be noted that the ruling in Litonjua, Jr. does not 493 (1988), it defined a “broker” as “one who is engaged, for
never acting in his own name but in the name of those who provide for a strict rule on compensability of a broker, but others, on a commission, negotiating contracts relative to
employed him. like any other contract, its perfection is subject to the terms property with the custody of which he has no concern; the
and conditions that have been agreed upon. The essence of negotiator between other parties, never acting in his own
the ruling in Litonjua, Jr. is that the main service for which name but in the name of those who employed him. x x x a
In Pacific Commercial Co. v. Yatco, 63 Phil. 398 (1936), the the broker was contracted for is “to find” a prospective broker is one whose occupation is to bring the parties
Court ruled that a broker has no relation with the thing he buyer, then if the seller on his own closes the deal with the together, in matters of trade, commerce or navigation.” (at
has been retained to buy or to sell; he is merely an buyer found by the broker, the latter has earned his p. 339) The Court then held that “An agent receives a
intermediary between the purchaser and the vendor. He “finder’s” fee. commission upon the successful conclusion of a sale. On the
acquires neither the custody nor the possession of the thing other hand, a broker earns his pay merely by bringing the
he sells; his only office is to bring together the parties to the buyer and the seller together, even if no sale is eventually
transaction. On the other hand, it is possible that the terms of the made.” . . . Clearly, therefore, petitioners, as brokers, should
broker’s contract is that it is not enough for the broker to find be entitled to the commission whether or not the sale of the
the prospective buyer, but that his services must include
efforts to “negotiate”, i.e., convince him to enter into a
18
property subject matter of the contract was concluded v. Nolting and Garcia , 35 Phil. 274 (1916), where the Court
through their efforts.” (at p. 341) held –
[3]DE LEON AND DE LEON, COMMENT AND CASES ON
PARTNERSHIP AGENCY AND TRUSTS, 2005 ed., at p. 356;
Also, in Hahn v. Court of Appeals, 266 SCRA 537 (1997), the A broker is generally defined as one who is engaged, for hereinafter referred to as “DE LEONS”.
Court held that “Contrary to the appellate court’s conclusion, others, on a commission, negotiating contracts relative to
this arrangement shows an agency. An agent receives a property with the custody of which he has no concern; the
commission upon the successful conclusion of a sale. On the negotiation between other parties, never acting in his own [4]Reiterated in Eurotech Industrial Technologies, Inc. v.
other hand, a broker earns his pay merely by bringing the name but in the name of those who employed him; he is Cuizon, 521 SCRA 584 (2007).
buyer and the seller together, even if no sale is eventually strictly a middleman and for some purpose the agent of both
made.” (at p. 549) parties. (19 Cyc., 186; Henderson vs. The State, 50 Ind., 234; [5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
Black’s Law Dictionary.) A broker is one whose occupation it (2006).
is to bring parties together to bargain, or to bargain for
It must be noted that the entitlement of a broker or an agent them, in matters of trade, commerce or navigation. (Mechem
to the commission depends really on the wordings of the on Agency, sec. 13; Wharton on Agency, sec. 695). Judge [6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997).
contract between them, and not really whether one is a Storey, in his work on Agency, defines a broker as an agent
“broker” or “agent”. employed to make bargains and contracts between other
persons, in matters of trade, commerce or navigation, for [7]ROSCOE T. STEFFEN, AGENCY-PARTNERSHIP IN A
compensation commonly called brokerage. (Storey on NUSTSHELL (1977) 30-31.
In Phil. Health-Care Providers (Maxicare) v. Estrada, 542
Agency, sec. 28) (at p. 279-280)
SCRA 616 (2008), the Court held that the term “procuring
cause” in describing a broker’s activity, refers to a cause [8]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
originating a series of events which, without break in their Note therefore that “broker” is considered a commercial (2006).
continuity, result in the accomplishment of the prime term for a person engaged as a middleman to bring parties
objective of the employment of the broker—producing a together in matters pertaining to trade, commerce or
purchaser ready, willing and able to buy on the owner’s [9]Quoting from REYES AND PUNO, AN OUTLINE OF
navigation. If the person has not been given the power to
terms. To be regarded as the “procuring cause” of a sale as PHILIPPINE CIVIL LAW, Vol. V, p. 277.
enter into the contract or commerce in behalf of the parties,
to be entitled to a commission, a broker’s efforts must have then he is a “broker” in the sense that his job mainly is “to
been the foundation on which the negotiations resulting in a bring parties together to bargain,” and even then he may not [10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d
sale began. Again, this ruling is correct only if it is clear that be entitled to his commission if the bargaining between the 987; Brown vs. Coates, 67 ALR 2d 943; Haymes vs.
the agreement on the services of the broker, for which he parties does not result in a contract being perfected. But in Rogers, 17 ALR 2d 896;Moore vs. Turner, 32 ALR 2d 713.
would be entitled to his fees, is not merely of “finding the this sense, the broker does not assume the role of an agent
prospective buyer.” because he has no power to enter into a contract in behalf of
any of the parties; he also assumes no fiduciary obligations – End of Footnotes –
to either or both parties, since they are expected to use their
But truly, since both a brokerage arrangement and an
own judgment in deciding to bind or not to bind themselves
agency agreement are inherently contractual relations, the II. FORM REQUIRED FOR CONTRACTS OF AGENCY
to a contract.
entitlement of a broker or agent to the compensation or
commission stipulated would have to depend upon the
contractual clause covering the same. In other words, it may On the other hand, if the person has been given the power to
well be stipulated in a true brokerage arrangement that the enter into a contract or commerce on behalf of any, or even 2. Forms Required of Agency
broker would be entitled to a commission only when a sale is for both the parties, he is truly an agent. In which case, he
eventually made. In the same manner, the agency contract assumes fiduciary obligations to the person who is therefore
may well stipulate that the agent shall be entitled to earn a. How Agency May Be Constituted
legally his principal. In such case, he is entitled to a
commission by merely bringing the buyer and the seller commission if his efforts (i.e., the services he rendered)
together, even when the actual sale of the person referred to where the efficient cause for the eventual perfection and Article 1869 of the Civil Code emphasizes the consensual
by the agent happens long after the agency relationship has consummation of the contract that was the object for nature of the contract of agency, as it provides that “Agency
terminated. appointing him broker/agent. may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate
To illustrate, in Guardex v. NLRC, 191 SCRA 487 (1990), the the agency, knowing that another person is acting on his
—oOo—
Court held that when the terms of the agency arrangement behalf without authority. Agency may be oral, unless the law
is to the effect that entitlement to the commission was requires a specific form.” This principle is reiterated under
contingent on the purchase by a customer of a fire truck, the ________________________________________ Article 1870, which provides that “Acceptance by the agent
implicit condition being that the agent would earn the [1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 may also be express, or implied from his acts which carry out
commission if he was instrumental in bringing the sale (1995);Shopper’s Paradise Realty v. Roque, 419 SCRA 93 the agency, or from his silence or inaction according to the
about. Since the agent had nothing to do with the sale of the (2004); Dominion Insurance Corp. v. Court of Appeals, 426 circumstances.
fire truck, and is not therefore entitled to any commission at SCRA 620, 626 (2002);Republic v. Evangelista, 466 SCRA 544
all. (2005); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), held that an
(2006); Eurotech Industrial Technologies, Inc. v. Cuizon, 521
agency may be express but it may also be implied from the
SCRA 584 (2007).
Although Schmid & Oberly, Inc. is now credited with laying acts of the principal, from his silence, or lack of action or his
down the definition of a broker, the decision shows that it failure to repudiate the agency knowing that another person
quoted from the early decision of Behn, Meyer and Co., Ltd. [2]Citing Orient Air Services and Hotel Representatives v. is acting on his behalf without authority. Likewise,
Court of Appeals, 274 Phil. 927, 939 (1991). acceptance by the agent may also be express, although it
19
may also be implied from his acts which carry out the On the other hand, under Article 1872 of the Civil Code,
agency, or from his silence or inaction according to the when the constitution of the agency is made with the
circumstances. Thus, when a law firm allowed the employee principal and agent not being physically present in one place specifically provided in said article that “[t]he power [of the
of its client to occasionally receive its mail, and not having (i.e., “Between persons who are absent”), then there can be agent] shall continue to be in full force until the notice is
formally objected to the receipt by said employee of a court no implied acceptance of the agency from the silence or rescinded in the same manner in which it was given.”
process, or taken any steps to put a stop to it, it was inaction of the agent, except in two instances:
construed to mean that an agency relationship had been Thus, under Article 1921 of the Civil Code, if the agency has
established, to which receipt of the court process by said been entrusted for the purpose of contracting with specific
employee was legally deemed to be service to the law firm. (a) When the principal transmit his power of attorney to the
agent (i.e., it is in writing?), who receives it without any persons (referred to as “special agency”), the revocation of
objection; or the agency shall not prejudice the latter if they were not
In Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court given notice thereof. Under Article 1922, if the agent had
noted that there are some provisions of law which require been granted general powers (referred to as “general
certain formalities for particular contract: the first is when (b) When the principal entrusts to the agent by letter or agency”), the revocation of the agency will not prejudice
the form is required for the validity of the contract; the telegram a power of attorney with respect to the business in third persons who acted in good faith and without knowledge
second is when it is required to make the contract effective which he is habitually engaged as an agent, and he did not of the revocation; however, notice of the revocation in a
as against third parties such as those mentioned in Article reply to the letter or telegram. newspaper of general circulation constitutes sufficient notice
1357 and 1358 of the Civil Code; and the third is when the to bind third persons.
form is required for the purpose of proving the existence of
The languages used in Articles 1871 and 1872 indicate that
the contract, such as those provide in the Statute of Frauds In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a
the “power of attorney” must constitute a written
in Article 1403. Since a contract of agency to sell pieces of long-standing client, acting in good faith and without
instruments, because in both cases the articles refer to
jewelry on commission does not fall into any of the three knowledge, having sent goods to sell on commission to the
situations where “the principal delivers his power of attorney
categories, it was considered valid and enforceable in former agent of the defendant, could recover from the
to the agent,” and when “the principal transmits his power of
whatever form it may have been entered into. defendant, when no previous notice of the termination of
attorney to the agent,” which requires that it must be in
writing, which today would include texting and electronic agency was given said client. The Court emphasized that
(1) From the Side of the Principal mail, which are considered to be equivalent to a written having advertised the fact that Collantes was his agent and
instrument under the Electronic Commerce Law. having given special notice to the plaintiff of that fact, and
Consequently, when the other provisions of the Law on having given them a special invitation to deal with such
On the side of the principal, Article 1869 of the Civil Code Agency refer to “general power of attorney” and “special agent, it was the duty of the defendant on the termination of
provides that an agency is impliedly constituted power of attorney,” does the law mean that they conform to the relationship of principal and agent to give due and timely
(i.e., principal has given his consent to the agency the rudimentary requirement that they be in writing? notice thereof to the plaintiffs. Failing to do so, the defendant
arrangement) from his acts formally adopting it, or from his was held responsible to them for whatever goods may have
silence or inaction, or particularly from his failure to been in good faith and without negligence sent to the agent
repudiate the agency knowing someone is acting in his (4) From the Side of Third Parties/Public without knowledge, actual or constructive, of the termination
name. Certainly, the ideal form by which the principal is of such relationship.
deemed to have entered into a contract of agency is when
The previous rules on when a contract of agency is deemed
he issues a written power of attorney to the person constituted (i.e., perfected) are taken from the intramural In Conde v. Court of Appeals, 119 SCRA 245 (1982), the
designated as agent.
point of view: as between the parties to the contract of Court held that when the right of redemption by sellers-a-
agency. However, a contract of agency is merely a retro is exercised by their son-in-law who was given no
(2) From the Side of the Agent preparatory contract, and is meant to achieve goals beyond express authority to do so, and the buyer-a-retro accepted
its own “being”; consequently, the Law on Agency contained the exercise and done nothing for the next ten years to clear
in the Civil Code provides for additional rule that addresses their title of the annotated right of repurchase on their title,
On the side of the agent, Article 1870 of the Civil Code most essentially the targets of every contract of agency: the and possession had been given to the sellers-a-retro during
provides that his acceptance of the agency (i.e., agent has third parties intended to be contracted with by the agent in the same period, then “an implied agency must be held to
given his consent to the agency arrangement) may be behalf of the principal. have been created from their silence or lack of action, or
expressed, or implied from his acts which carry out the their failure to repudiate the agency.”
agency, or from his silence or inaction according to the
circumstances. Under Article 1873 of the Civil Code, when the principal
informs another person that he has given a power of (5) Agency Not Presumed to Exist
attorney to a third person (the agent), the latter thereby
(3) Various Instances of Perfection of the Contract of becomes a duly authorized agent with respect to the person
Agency who received the special information. The clear implication is Although an agency contract is consensual in nature and
that even when in fact there has been no meeting of the generally requires no formality, the Court has stressed that
minds between the purported principal and agent (i.e., there an agency arrangement is never presumed. Lopez v. Tan
Under Article 1871 of the Civil Code, which describes the is strictly speaking no contract of agency), there is deemed Tioco, 8 Phil. 693 (1907). In other words, the declaration of
most ideal form of perfection of the contract of to have arisen one with respect to the third party who has one that he is an agent of another is never to be accepted at
agency, when the constitution of the agency is made with been so informed by the principal. face value, except in those cases where an agency arises by
both principal and agent being physically present at the time express provision of law. Compania Maritima v. Limson, 141
of perfection of the contract of agency (i.e., “Between SCRA 407 (1986).
persons who are present”), the acceptance of the agency On the other hand, when the principal states by public
may be implied if the principal delivers his power of attorney advertisement that he has given a power of attorney to a
to the agent and the latter receives it without objection. particular individual (the agent), the latter thereby becomes In People v. Yabut, 76 SCRA 624 (1977), it was held that
a duly authorized agent with regard to any person. And it is although the perfection of a contract of agency may take an
20
implied form, the existence of an agency relationship is unaware), insofar as the person to whom such declaration
never presumed. The relationship of principal and agent has been made. What is clear therefore is that third parties
cannot be inferred from mere family relationship; for the must never take the words or representation of the of a principal-agency relation, and the purported principal
relation to exist, there must be consent by both parties. The purported agent at face value; they are mandated to apprise did nothing to correct the third person’s impression, an
law makes no presumption of agency; it must exist as a fact. themselves of the commission and extent of powers of the “agency by estoppel is deemed to have been constituted,
This principle was reiterated in Reiterated in Lim v. Court of purported agent. On the other hand, third parties (to the and the rule is clear: one who clothes another with apparent
Appeals, 251 SCRA 408 (1995). contract of agency) can take the word, declaration and authority as his agent, and holds him out to the public as
representation of the purported principal with respect to the such, cannot be permitted to deny the authority of such
appointment of, and extent of powers, of the purported person to act as his agent, to the prejudice of innocent third
In Harry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922), agent. The principle is self-evident from the nature of agency parties dealing with such person in good faith, and in the
the Court ruled that a third person must act with ordinary as a relation of representation – that an agent acts as though honest belief that he is what he appears to be.” (at p. 599)
prudence and reasonable diligence to ascertain whether the he were the principal – and therefore if the principal himself
agent is acting and dealing with him within the scope of his says so, then it is taken at face value as a contractual
powers. Obviously, if he knows or has good reason to believe In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the
commitment. Court held that for an agency by estoppel to exist, the
that the agent is exceeding his authority, he cannot claim
protection. So, if the character assumed by the agent is of following must be established:
such a suspicious or unreasonable nature, or if the authority b. Agency by Estoppel
which he seeks is of such an unusual or improbable (a) the principal manifested a representation of the agent’s
character, as would suffice to put an ordinarily prudent man authority or knowingly allowed the agent to assume such
upon his guard, the party dealing with him may not shut his Under Article 1873 of the Civil Code, if a person specially
informs another or states by public advertisement that he authority;
eyes to the real state of the case but should withal refuse to
deal with the agent at all, or should ascertain from the has given a power of attorney to a third person, the latter
principal the true condition of affairs. thereby becomes a duly authorized agent, even if previously (b) the third person, in good faith, relied upon such
there was never a meeting of minds between them. representation;
In Bordador v. Luz, 283 SCRA 374 (1997), the Court held that
— Under Article 1911 of the Civil Code, even when the agent (c) relying upon such representation, such third person has
has exceeded his authority (i.e., he acts without authority changed his position to his detriment. An agency by
from the principal), the principal shall be solidarily with the estoppel, which is similar to the doctrine of apparent
The basis for agency is representation. Here, there is no agent if he allowed the agent to act as though he had full authority, requires proof of reliance upon the
showing that Brigida consented to the acts of Deganos or powers. representations, and that, in turn, needs proof that the
authorized him to act on her behalf, much less with respect representations predated the action taken in reliance.
to the particular transactions involved. Petitioners’ attempt
to foist liability on respondent spouses through the supposed In Macke v. Camps, 7 Phil 553 (1907), where the owner of a
agency relation with Deganos is groundless and ill-advised. hotel/cafe business allowed a person to use the title
Besides, it was grossly and inexcusably negligent of “managing agent” and during his prolonged absences
petitioners to entrust to Deganos, not once or twice but on at allowed such person to take charge of the business,
least six occasions as evidenced by six receipts, several performing the duties usually entrusted to managing agent,
pieces of jewelry of substantial value without requiring a then such owner is bound by the act of such person. The
written authorization from his alleged principal. A person Court held that –
dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. (at p. 382) One who clothes another apparent authority as his agent,
and holds him out to the public as such, can not be
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court permitted to deny the authority of such person to act as his
held that a co-owner does not become an agent of the other agent, to the prejudice of innocent third parties dealing with
co-owners, and therefore, any exercise of an option to buy a such person in good faith and in the following pre-
piece of land transacted with one co-owner does not bind the assumptions or deductions, which the law expressly directs
other co-owners of the land. The basis for agency is to be made from particular facts, are deemed conclusive. (at
representation and a person dealing with an agent is put p. 555)
upon inquiry and must discover upon his peril the authority
of the agent. Since there was no showing that the other co- The hotel owner was deemed bound by the contracts
owners consented to the act of one co-owner nor authorized
entered into by said managing agent that are within the
her to act on their behalf with regard to her transaction with scope of authority pertinent to such position, including the
purported buyer. The most prudent thing the purported
purchasing such reasonable quantities of supplies as might
buyer should have done was to ascertain the extent of the from time to time be necessary in carrying on the business
authority said co-owner; being negligent in this regard, the
of hotel bar.
purported buyer cannot seek relief on the basis of a
supposed agency.
In Naguiat v. Court of Appeals, 412 SCRA 592 (2003), the
Court applied the provisions of Article 1873 of the Civil Code
On the other hand, under Article 1873 of the Civil Code to rule that if by the interaction between a purported
provides that the declaration of a person that he has
principal and a purported agent in the presence of a third
appointed another as his agent is deem to have constituted person, the latter was given the impression of the existence
the person alluded to as an agent (even when the latter is
21
the Philippine legal system will be
amplified and will be rendered more
suited to a just and equitable solution of When it comes to express trusts, for example, equity
many questions. (at p. 60, Malolos and consideration is expressed in Article 1445 of the Civil Code
Martin, Report of the Code Commission, when it provides that “No trust shall fail because the trustee
Domerte Book Supply, 2116 Azcarraga, appointed declines the designation, unless the contrary
Manila, Philippines, 1951 ed.) should appear in the instrument constituting the trust.
Other than the foregoing, the Code Commission provided for Under the aegis of the New Civil Code, the Court reiterated
no further explanations or amplifications on the Law on the equity basis of trusts when it held in Deluao v. Casteel,
Trusts, and most of what is commented, found expression in 22 SCRA 231 (1962), that as a legal consequence of trust
the few provisions of the New Civil Code. 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
What is clear from the brief comments of the Code policy.
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 In Miguel v. Court of Appeals, 29 SCRA 760 (1969), the Court
Supreme Court. held that –
a. Philippine Trusts Rooted on American Law on Trusts Furthermore, because the case presents
problems not directly covered by
statutory provisions or by Spanish or
TRUST Trusts, the doctrines and principles that arise from their local precedents, resort for their solution
establishment, are rooted in the Philippine legal system must be had to the underlying principles
based on American Law principles on Trusts. Thus, Article of the law on the subject. Besides, our
I – INTRODUCTION TO TRUSTS 1442 of the New Civil Code now provides: Civil Code itself [Article 1442] directs
the adoption of the principles of the
1. Trusts under the New Civil Code Art. 1442. The principles of the general law of general law of trust, insofar as they are
trusts, insofar as they are not in conflict with this not in conflict with said Code, the Code
Code, the Code of Commerce, the Rules of Court and of Commerce, the Rules of Court and
Title V in the New Civil Code on “TRUSTS” has no counterpart special laws. (at pp. 775-776).
special laws are hereby adopted.
in the old Civil Code. On this matter, the Code Commission
reported as follows —
The foundation of Article 1442 may be drawn from the In other words, application of implied trusts principles on
decision in Government v. Abadilla, 46 Phil. 642 (1924), given transactions covering proprietary relations are
The law on trusts is comprehensive in mandated not by specific reference to statutory provisions,
where the Court held —
American law. Trusts are divided into but by seeking equitable solutions to render justice to the
express and implied. The former are parties involved or affected by the transaction.
constituted by the intention of the As the law of trusts has been much
trustor or of the parties. Implied trusts more frequently applied in England and
come into being by operation of law. in the United States than it has in Spain, Later, in Salao v. Salao, 70 SCRA 65 (1976), the Court
we may draw freely upon American characterized the equity nature of trusts, as follows —
precedents in determining the effect of
The doctrine of implied trust is founded
the testamentary trust here under “In its technical legal sense, a trust is
upon equity. The principle is applied in
consideration, especially so as the trusts defined as the right, enforceable solely
the American legal system to numerous
known to American and English equity in equity, to the beneficial enjoyment of
cases where an injustice would result if
jurisprudence are derived from the fidei property, the legal title to which is
the legal estate or title were to prevail
commissa of the Roman law and are vested in another, but the word ‘trust’ is
over the equitable right of the
based entirely upon Civil Law frequently employed to indicate duties,
beneficiary. A number of instances of
principles. (at pp. 646-647.) relations, and responsibilities which are
implied trusts are specified in the Project
of Civil Code, but this enumeration does not strictly technical trusts” (89 C.J.S.
not exclude other cases established by 2. The “Equity” Essence of Implied Trusts 712).
the general law on trust.
Express trusts are founded on the intention of the trustor or “A person who establishes a trust is
In article 1462 [now Article 1442 of the the intentions of the parties to the trust which bring about called the trustor; one in whom
New Civil Code] the principle of the the application of principles applicable to contractual confidence is reposed as regards
general law on trusts insofar as they are relationships (i.e., consensuality, mutuality, and relativity). property for the benefit of another
not in conflict with the proposed Civil On the other hand, implied trusts, are created by operation person is known as the trustee; and the
Code, the Code of Commerce, the Rules of law based on equity principles. Nonetheless, both types of person for whose benefit the trust has
of Court and special laws are adopted. trusts are deemed to be vested with equitable been created is referred to as the
This article incorporates a large part of considerations. beneficiary” (Art. 1440, Civil Code).
the American Law on trusts and thereby There is a fiduciary relation between the
22
trustee and the cestui que trust as accordance with the “clean hands”
regards certain property, real, personal, doctrine. The courts generally refuses to
money or choses in action. Pacheco v. give aid to claims from rights arising out legal personality,” (at p. 467) and therefore the earnings
Arro, 85 Phil. 505 (at p. 80). of an illegal transaction, such as where pertained to the employees and should be credited as
the payor could not lawfully take title to income of DBP.
land in his own name and he used the
The equity nature of a trust supports the proposition that the
grantee as a mere dummy to hold for While DBP v. COA characterized an “employees’ trust” as “a
intention of the trustor to create a trust for the benefit of
him and enable him to evade the land trust maintained by an employer to provide retirement,
intended beneficiary should as much as possible be realized.
laws, i.e., an alien who is ineligible to pension or other benefits to its employees . . . [and ] is a
Thus, Article 1444 provides that “No particular words are
hold title to land, who pays for it and has separate taxable entity established for the exclusive benefit
required for the creation of an express trust, it being
the title put in the name of a citizen. of the employees,” (at p. 473) still the Court did not
sufficient that a trust is clearly intended.” An application of
Otherwise stated, as an exception to the consider the such employees’ trust as a separate juridical
this doctrine (not the article) can be found in Government v.
law on trust, “[a] trust or a provision in person. The Court ruled that “The principal and income of
Abadilla, 46 Phil. 642 (1924), where after holding that the
the terms of a trust is invalid if the the Fund [of employees’ trust] would be separate and
testamentary trust was “very unskillfully drawn; its language
enforcement of the trust or provision distinct from the funds of DBP, on the ground that DBP as
is ungrammatical and at first blush seems to somewhat
would be against public policy, even trustor already conveyed legal title thereto to the Board of
obscure,” the Court nonetheless held: “but on closer
though its performance does not involve Trustees of the employees’ trust, and with DBP officers and
examination it sufficiently reveals the purpose of the
the commission of a criminal or tortious employees having beneficial title thereto,” thus:
testator. And if its provisions are not in contravention of
act by the trustee.” (at p. 361, quoting
some established rule of laws or public policy, they must be
from Restatement (Second) of Trusts 62
respected and given effect.” (at p. 646.) In a trust, one person has an equitable
[1959].)
ownership in the property while another
In applying the equity nature of trusts, Abadilla held that the person owns the legal title to such
3. Trusts Do Not Create a Separate Juridical Entity, property, the equitable ownership of the
intention of the trustor is the more essential consideration,
But the Naked Title of the Trustee Divorces the Trust former entitling him to the performance
and that –
Properties from the Rest of the Trustee’s Estate of certain duties and the exercise of
certain powers by the latter. . .
“In regard to private trusts it is not
It should be noted that there is no statutory provision or
always necessary that the cestui que
case-law which recognizes a trust relationship as creating a In the present case, DBP, as the trustor,
trust should be named, or even be in
separate juridical entity. Indeed, the essence of what vested in the trustees of the Fund legal
esse at the time the trust is created in
constitute a trust is the recognition that the trustee holds title over the Fund as well as control
his favor. (Citing Flint on Trusts and
directly legal or naked title to the trust over the investment of the money and
Trustees, section 25; citing Frazier v.
properties. Nevertheless, the naked or legal title held by the assets of the Fund. The powers and
Frazier, 2 Hill Ch., 305; Ashurst v. Given,
trustee should be looked upon as held “in his official capacity duties granted to the trustees of the
5 Watts & S., 329; Carson v. Carson, 1
as trustee” and cannot be deemed included in his estate to Fund under the Agreement were plainly
Wins [N.C.], 24.) . . . Thus a devise to a
which he has full ownership and by which he owes no more than just administrative [but
father in trust for accumulation for his
fiduciary duties. included the power of control, the right
children lawfully begotten at the time of
his death has been held to be good to hold legal title, and the power to
although the father had no children at These principles are best exemplified in Development Bank invest and reinvest] . . . (at p. 474.)
the time of the vesting of the funds in of the Philippines v. COA, 422 SCRA 465 (2004), where the
him as trustee. In charitable trusts such DBP contributed funds into a retirement plan for its officers xxx.
as the one here under discussion, the and employees, and constituted a board of trustees vesting
rule is still further relaxed. (Citing Perry it with the control and administration of the fund.
on Trusts, 5th ed., section 66.)” (at Augmentation to the retirement fund were made through Clearly, the trustees received and
p.647.) loans extended to the qualified officers and employees, collected any income and profit derived
which were invested in shares of stocks and other from the Fund, and they maintained
marketable securities, and the earnings from which were separate books of account for this
In Ramos v. Court of Appeals, 232 SCRA 348 (1994), where purpose. The principal and income of
directed to be distributed to the beneficiaries even before
the payor of the purchase price of the property had intended the Fund will not revert to DBP even if
they have retired.
that it be held by purported trustee for her because she was the trust is subsequently modified or
not qualified to hold such parcel of land, although a resulting terminated. The Agreement states that
trust should have arisen under the provisions of Article 1448 The COA objected to the distribution of the earnings from the the principal and income must be used
of the Civil Code, nonetheless, the Court refused to grant to investments made through the retirement fund on the to satisfy all of the liabilities to the
the payor the relief of compelling the purported trustee to ground that is was contrary to an express provision of law beneficiary officials and employees
convey the land to her, ruling that – which prohibits the distribution of retirement benefits to under the Gratuity Plan . . . (at p. 475.)
government employees prior to their actual retirement. COA
also directed that the earnings from the investment be
However, if the purpose of the payor of On the issue that the DBP officials and employees had no
included in DBP’s books of account as part of its own
the consideration in having title title right to the fund nor to the income earned until they actually
earnings, since the retirement and its income were actually
placed in the name of another was to retire, which therefore did not qualify them to be considered
owned by DBP having made the contributions thereto. DBP
evade some rule of the common or cestui que trust or beneficiary, and therefore the same
objected to the COA resolution on the ground “the express
statute law, the courts will not assist the should still accrue to DBP, the Court ruled –
trust created for the benefit of qualified DBP employees
payor in achieving his improper purpose
under the Trust Agreement . . . gave the Fund a separate
by enforcing a resulting trust for him in
23
The beneficiaries or cestui que trust of to hold it for the benefit of another
the Fund are the DBP officials and person or pursuant to a clear
employees who will retire x x x . arrangement with another person as the heir who exercised fraud, was void and the rules on implied
beneficiary, then an express trust at trust to limit the period to file an action for reconveyance to
best, or resulting trust at least, has been ten (10) years was deemed inapplicable.
As COA correctly observed, the right of
constituted; or
the employees to claim their gratuities
from the Fund is still inchoate. [The law],
does not allow employees to receive (c) When full title to the property has
their gratutities until they retire. been acquired by a person under 5. Kinds of Trust
However, this does not invalidate the circumstances that the law or equity
trust created by DBP or the concomitant imposes upon him the obligation to
transfer of legal title to the trustees. As convey it to another person who has a Art. 1441. Trusts are either
far back as in Government v. Abadilla, better claim to such property, in which express or implied. Express trusts
the Court held that “it is not always case a constructive trust is deemed are created by the intention of the
necessary that the cestui que trust constituted by force of law. trustor or of the parties. Implied
should be named, or even be in esse at trusts come into being by operation
the time the trust is created in his of law.
This has been confirmed by the Supreme Court in Cañezo v.
favor.” It is enough that the beneficiaries
Rojas, 538 SCRA 242 (2007), where it held —
are sufficiently certain or identifiable. Article 1441 of the Civil Code expressly recognizes the
(at pp. 476-477.) following kinds of trust, thus:
What distinguishes a trust from other
relations is the separation of the legal
The Court resolved in DBP v. COA, that “The Agreement Express Trust – which is created by the
title and equitable ownership of the
indisputably transferred legal title over the income and intention of the trustor or of the parties;
property. In a trust relation, legal title is
properties of the Fund to the Fund’s trustees. Thus, COA’s
vested in the fiduciary while equitable
directive to recored the income of the Fund in DBP’s books of
ownership is vest in a cestui que trust. Implied Trust – which comes into being
account as the miscellaneous income of DBP constitutes
Such is not true in this case. The by operation of law.
grave abuse of discretion. The income of the Fund does not
petitioner alleged in her complaint that
form part of the revenues or profits of DBP, and DBP may not
the tax declaration of the land was
use such income for its own benefit. The principal and In turn, jurisprudence has distinguished between two types
transferred to the name of [the
income of the Fund together constitute the res or subject of implied trusts, namely: (a) Resulting Trusts; and (b)
purported trustee] Crispulos without her
matter of the trust. The Agreement established the Fund Constructive Trusts.
consent. Had it been her intention to
precisely so that it would eventually be sufficient to pay for
create a trust and make Crispulo her
the retirement benefits of DBP employees under [the law]
trustee, she would not have made an Express trusts are the product of contractual intents; they
without additional outlay from DBP. COA itself acknowledged
issue out of this because in a trust are essentially creatures of Contract Law, and therefore are
the authority of DBP to set up the Fund. However, COA’s
agreement, legal title is vested in the animated by the agreed intentions of the parties under the
subsequent directive would divest the Fund of income, and
trustee. The trustee would necessarily principle of autonomy or the “freedom to contract” doctrine.
defeat the purpose for the Fund’s creation.” (at p. 477.)
have the right to transfer the tax
declaration in his name and to pay the
Ramos v. Ramos, 61 SCRA 284 (1974), defined express trusts
4. Essence of “Trust” Is Anchored on Splitting or taxes on the property. These acts would
as “those which are created by the direct and positive acts of
Intention to Split the Naked Title and Beneficial Title be treated as beneficial to the cestui
the parties, by some writing or deed, or will, or by words
of the Res or Trust Property que trust and would not amount to an
either expressly or impliedly evincing an intention to create a
adverse possession. (at p. 255.)
trust” (quoting from 89 C.J.S. 122.)
The essence of trusts, whether express or resulting, is that
the fiduciary relationship or the enforcement of equity The existence of valid title in the person of the trustee for
Lately, in Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,
principles is built upon property relations; unless, the dispute the benefit of the cestui que trust is so essential that in
587 SCRA 417 (2009), the Court held that “Trust is the right
involved claims arising from property rights, then trusts cases where the title of the purported trustee was void, the
to the beneficial enjoyment of property, the legal title to
principles do not apply. In other words, there is no real trust Supreme Court has refused to apply trust principles at all.
which is vested in another. It is a fiduciary relationship that
relationship based only on the meeting of the minds, and Thus, in Ferrer v. Bautista, 231 SCRA 257 (1994), where the
obliges the trustee to deal with the property for the benefit
that the trustee does not even begin to assume fiduciary free patent and original certificate of title issued in the name
of the beneficiary. Trust relations between parties may either
duties towards the beneficiary, unless and until title to the of the occupant of a strip of land that had arisen by accretion
be express or implied. An express trust is created by the
res is transferred to him in either of three ways: was held to be void, the Court refused to apply the principle
intention of the trustor or of the parties. An implied trust
that an action for reconveyance on an implied trust
comes into being by operation of law.” (at p. 418.)
prescribes in ten years after the issuance of the title, on the
(a) When only naked title is given to him
ground that no implied trust could arise from a void title held
(i.e., he is registered as the naked or
by the purported trustee, and hence the action to reconvey On the other hand, implied trusts, particularly constructive
legal title holder or “trustee” for the
was deemed imprescriptible. trusts, are creatures of the law; they exist in circumstances
benefit of an identified beneficiary),
where the law mandates it so, and in all similar situations
then an express trust has been
where justice or equity has to be achieved. Implied trusts are
constituted; or Likewise, in Macababbad, Jr. V. Masirag, 576 SCRA 70 (2009),
essentially a product of equitable consideration.
where the title to the registered land was obtained through
forging the signatures of the heirs in the purported
(b) When full title has been registered in
extrajudicial settlement of estate, the Court held title by the Ramos defined implied trusts as “those which, without being
his name, but with a clear undertaking
24
expressed, are deducible from the nature of the transaction trustee that he holds the trust property for the benefit of the created is referred to as the
as matters of intent, or which are superinduced on the beneficiary, his possession thereof is not adverse to, nor in beneficiary.
transaction by operation of law as matters of equity, repudiation of, the rights and beneficial title of the
independently of the particular intention of the parties.” beneficiary. Consequently, the long passage of time cannot
Art. 1441. Trusts are either
(quoting from 89 C.J.S. 724.) give rise to either prescription, much less laches; there must
express or implied. Express trust
be an express repudiation of the trust arrangement by the
are created by the intention of the
trustee, and notice to the beneficiary that he now holds title
The difference in legal effects between an express trust and trustors or of the parties. Implied
adverse to the beneficiary, for prescription or laches to begin
an implied trust, according to Ramos, was that the former is trusts come into being by operation
commencing.
not susceptible to charges of prescription or laches, whereas of law.
in the latter, it is possible that the cause of action of the
cestui que trust may be extinguished by prescription or On the other hand, under an implied trust arrangement,
Title V of the New Civil Code does not contain a particular
laches. where there is really no implied acceptance of a trust
definition of “Trust”, but its first article – Article 1440 –
obligation on the purported trustee, the mere fact that title
defines the persons who constitute the parties in a trust
has been registered in the name of the purported trustee
In Philippine National Bank v. Court of Appeals, 217 SCRA relationship, thus:
and he holds possession thereof for his own benefit is
347 (1993), the Court applied the principles of constructive
constituted as a repudiation of any trust arrangement that
trust under Article 1456 of the Civil Code to rule on a
the purported beneficiary may expect from the arrangement. Trustor – the person who establishes a
situation where a bank had mistakenly credited to the
Consequently, the mere passage of time with the purported trust (referred to as “grantor”, “settlor”,
account of a person an amount not due to the depositor
trustee exercising dominion over the purported trust or “founder” in common-law parlance);
(although the Court held that the primary resolution of the
properties for his own benefit, without need of express
issues was under quasi-contract on solutio indebiti).
repudiation could eventually lead to successfully claiming Trustee – the person in whom
Although money or other forms of legal tender do not
the effects of prescription or laches on the part of the confidence is reposed as regards the
constitute “property” for the holder thereof can claim
trustee, to the detriment of the beneficiary. property placed in trust (referred to as
ownership, the commercial value they represent is a
proprietary interest where trust principles can be made to the “corpus”); it is the trustee who
apply. Indeed, it is not unusual that trust agreements are This critical distinction has been blurred in the years since assumes certain duties relating to the
executed with the trust departments of banks, where a good the Ramos decision, with both kinds of trusts being the res with respect to the person for
part of the corpus would constitute large sum of money. considered capable of being subject to the defense of whose benefit the trust is created; and
prescription or laches, with the difference remaining on
whether there is a need for express repudiation, and the Beneficiary – the person for whose
Earlier, under the old Civil Code, in Diaz v. Gorricho and
nature required for any of such repudiation to take effect. benefit the trust has been created (the
Aguado, 103 Phil. 261 (1958), the Court held that –
The matter is better discussed in the last chapter. “cestui que trust”).
“The reason for the difference in
One other distinction between express trusts and implied We can therefore define trust under the terms of Article 1440
treatment is obvious. In express trusts,
trusts, is that express trusts over an immovable property as a legal relationship based primarily on the parties’
the delay of the beneficiary is directly
cannot be enforced by parol evidence, but must be properly relationship to the property that constitutes the corpus or
attributable to the trustee who
supported by a written instrument, whereas, implied trusts, the trust estate, whereby a person, called the “trustor”,
undertakes to hold the property for the
regardless of the nature of the trust property, may always be conveys the naked or legal title to a property to another
former, or who is linked to the
enforced even when constituted orally. In other words, person, called the “trustee”, who takes title thereto under a
beneficiary by confidential or fiduciary
implied trusts are not within the operative cover of the fiduciary obligation to administer, manage and dispose
relations. The trustee’s possession is,
Statute of Frauds, as expressed succinctly in Article 1457: of the property for the benefit of another person, called the
therefore, not adverse to the
“An implied trust may be proved by oral evidence.” “beneficiary”, to whom therefore beneficial or equitable title
beneficiary, until and unless the latter is
made aware that the trust has been pertains.
repudiated. But in constructive trusts Although express trusts and implied trusts are governed by
(that are imposed by law), there is different principles, the common denominator between them Quoting from American legal literature, Tolentino defines
neither promise nor fiduciary relation; is that they are legal relationships built upon property rights; trust as “the legal relationship between one person having
the so-called trustee does not recognize there can be no express or implied trusts among individuals an equitable ownership in property and another person
any trust and has no intent to hold for unless some property lies in the middle of such relationship. owning the legal title to such property, the equitable
the beneficiary; therefore, the latter is ownership of the former entitling him to the performance of
not justified in delaying action to certain duties and exercise of certain powers by the latter.”
recover his property. It is his fault if he (Tolentino, Civil Code of the Philippines, Vol. IV, at p. 669,
II. THE LAW ON EXPRESS TRUSTS
delays; hence, he may be estopped by citing 54 Am. Jur. 21, hereinafter referred to as “Tolentino”;
his own laches.” (at p. 266.) reiterated in Morales v. Court of Appeals, 274 SCRA 282, 297
1. Definition and Nature of Express Trusts
[1997].)
As will be discussed in the last chapter, it used to be the
judicial position that under an express trust arrangement, Art. 1440. A person who
In Barretto v. Tuason, 50 Phil. 888 (1926), the Supreme Court
the trustee can never claim either acquisitive prescription in establishes a trust is called the
noted that “trust” is known as fideicomiso under Spanish
his favor to obtain title to the property held in trust, or the trustor; one in whom confidence is
legal system, with the trustee being designated as the
benefit of extinctive prescription in order to defeat the right reposed as regards property for the
fiduciario, and the beneficiary referred to as the
of the beneficiary to demand the exercise of his rights. The benefit of another person is known
fidecomisario or the cestui que trustant.
reason was that in an express trust arrangement, which is as the trustee; and the person for
created only by the express or implied acceptance by the whose benefit the trust has been
25
In Philippine National Bank v. Court of Appeals, 217 SCRA and perhaps even to resulting trusts, but not to constructive
347 (1993), the Court described a “typical trust” (as trust arrangements, since it has already been held by the
distinguished from a constructive trust under Article 1456 of Supreme Court that technically speaking, the purported declines the designation, unless the contrary should appear
the Civil Code) as one wherein “confidence is reposed in one trustee in a constructive trust actually owes no fiduciary duty in the instrument constituting the trust.” Read plainly, Article
person who is named a trustee for the benefit of another or obligation to the cestui que trust, and certainly a 1445 seems to imply that the element of “consent” or
who is called the cestui que trust, respecting property which constructive trust arises by “operation of law” and not “as a “meeting of minds,” so essential for a valid contract to arise,
is held by the trustee for the benefit of the cestui que trust. result of a manifestation of intention to create the does not pertain to express trust and thus may lead to the
A constructive trust, unlike an express trust, does not relationship.” conclusion that express trusts are not necessarily contractual
emanate from, or generate a fiduciary relation. While in an relationships. Such impression would be wrong, as will be
express trust, a beneficiary and a trustee are linked by explained in the sections below discussing the characteristic
a. Express Trusts Are Essentially Contractual in of express trust as being a real and preparatory contract.
confidential or fiduciary relations; in a constructive trust,
Character
there is neither a promise nor any fiduciary relation to speak
of and the so-called trustee neither accepts any trust or In other words, there can be no denying the legal truism that
intends holding the property for the beneficiary.” (at pp. Art. 1445. No trust shall fail an express trust constitutes essentially a contractual
353-354; italics supplied.) because the trustee appointed relationship between and among the parties thereto. This is
declines the designation, unless the supported by Article 1446 which states that “Acceptance by
contrary should appear in the the beneficiary is necessary,” and that if the trust does not
In addition, PNB distinguished between the obligations of the
instrument constituting the trust. impose any onerous condition upon the beneficiary, then
trustee in an express trust from that in a constructive trust:
“Under American Law, a court of equity does not consider a “his acceptance shall be presumed, if there is no proof to the
constructive trustee for all purposes as though he were in Art. 1446. Acceptance by the contrary.”
reality a trustee; although it will force him to return the beneficiary is necessary.
property, it will not impose upon him the numerous fiduciary Nevertheless, if the trust imposes It should be noted, however, that the nexus of the
obligations ordinarily demanded from a trustee of an express no onerous condition upon the contractual meeting of the minds in an express trust is that
trust. It must be borne in mind that in an express trust, the beneficiary, his acceptance shall be between the trustor and the trustee, and the acceptance of
trustee has active duties of management while in a presumed, if there is no proof to the benefits by the beneficiary under the trust arrangement
constructive trust, the duty is merely to surrender the the contrary. would constitute normally merely stipulation pour autrui.
property.” (at p. 356.) Although the proper identification of the beneficiary
Generally speaking, an express trust is essentially constitutes an essential element of a valid trust, as it
2. Essential Characteristics of Express Trusts contractual in character because it can only be constituted determines the nature and extent of the fiduciary duties and
through contractual intention on the part of the trustor to obligations of the trustee, acceptance of the benefits by the
dispose of his property by dividing its full ownership between beneficiary is generally not an essential element of a valid
In Morales v. Court of Appeals, 274 SCRA 282 (1997), after trust. This is the reason why the lack of acceptance by the
the trustee and the beneficiary, and requires generally the
adopting Tolentino’s definition of trusts, the Court beneficiary does not generally render the trust void. The
full acceptance of the naked title and fiduciary obligations on
enumerated the following “essential characteristics” of trust provisions of the law mandating acceptance by the
the part of the trustee, and the concomitant obligations that
as enumerated in the esteemed author’s book: beneficiary, whether express or implied, or presumed, are
go with it. This is the reason why Morales indicates that one
of the essential characteristic of a trust that “it arises as a meant to cover the principle of law that nobody can be
(a) It is a relationship; result of a manifestation of intention to create the compelled to accept the gift or charity of another person
relationship.” (at p. 298.) without his consent.
A good example of a retirement trust is that discussed in (2) Trustee Must Have Legal Capacity to Accept the
It is possible that under an express trust, the trustor Trust
Development Bank of the Philippines v. Commission on
transfers naked or legal title to properties to the trustee, but
Audit, 422 SCRA 459 (2004), which the Court described as
with the trustor designated as the beneficiary.
follows: It is to the trustee that naked or legal title to the trust
properties is transferred. Consequently, the trustee must
In the present case, the DBP Board of also have legal capacity to accept the trust, especially when
Governors’ (now Board of Directors) upon acceptance of the trust, he binds himself to certain
Resolution No. 794 and the agreement (2) Trustor Must Have Legal Capacity to Convey Trust obligations.
executed by former DBP Chairman Property
Rafael Sison and the trustees of the Plan (3) When Trustee Declines the Designation
created an express trust, specifically, an Gayondato v. Treasurer of the P.I., 49 Phil. 244 (1926),
employees’ trust. An employees’ trust is distinguishes an express trust from an implied trust in the
a trust maintained by an employer to Article 1445 of the Civil Code provides that “No trust shall
sense that in an express trust, the trustor must have legal fail because the trustee appointed declines the designation,
provide retirement, prson or other capacity to create the trust, which effectively requires the
benefits to its employees. It is a unless the contrary should appear in the instrument
ability to convey naked or legal title in the trust property to constituting the trust.” On this matter, Tolentino wrote –
separate taxable entity established for the trustee to be held by the latter for the benefit of the
the exclsuivse benefit of the employees. beneficiary. The Court held –
Resolution No. 794 shows that DBP Want of Trustee. — The principle that equity will not allow
intended to establish a trust fund to a trust to fail for want of a trustee is clearly established.
cover the retirement benefits of certain Bouvier defines a trust in its technical Where a trust has once been created and the trustee dies,
employees under Republic Act No. 1616 sense as “a right of property, real or becomes insane or subject to some other legal incapacity, or
(“RA 1616″). The principal and income of personal, held by one party for the resigns or is removed, the trust does not fail, but a new
the Fund would be separate and distinct benefit of another.” In the present case trustee will be appointed. Such an appointment will be made
from the funds of DBP. . . (at p. 473.) we have this situation: The plaintiff was by the proper court unless by the terms of the trust other
a minor at the time of the registration of provision is made for the appointment of a successor
the land and had no legal guardian. It is trustee. The reason why a trust does not fail for want of a
Although the Supreme Court held that the principal and true that her mother in whose name the
income of the fund no longer pertained in ownership to DBP, trustee is that to permit it to fail for this reason would be
land was registered was the natural contrary to the intention of the trustor in creating the trust.
since naked title has been devolved to the trustees of the guardian of her person, but that
Fund, and that beneficial interest was with the qualified The trustor is primarily interested in the disposition of the
guardianship did not extend to the beneficial interest in the property, and the matter of its
officers and employees of DBP, nonetheless it found that property of the minor and conferred no
DBP, as trustor, has legal standing to sue on matters relating administration is a subsidiary consideration.
right to the administration of the
to the Fund, thus: same . . . and the plaintiff, being a minor
and under disability, could not create a x x x.
As a party to the Agreement and a technical trust of any kind. Applying
trustor of the Fund, DBP has a material Bouvier’s definition to this state of facts, There are cases, however, in which it may appear that the
interest in the implementation of the it is clear that there was no trust in its trustor intended the trust to continue only so long as the
Agreement, and in the operation of the technical signification. The mother had person designated by him as trustee should continue as
Gratuity Plan and the Fund as prescribed no right of property or administration in such. It may be so provided by the terms of the trust, or it
in the Agreement. The DBP also her daughter’s estate and was nothing may appear that the purposes of the trust cannot be carried
possesses a real interest in upholding but a mere trespasser. . . . (at p. 250) out unless the person named as trustee continues to act. In
the legitimacy of the policies and such a case, the trust will fail, if the trustee resigns, dies, is
programs approved by its Board of In effect, capacity of the parties is not essential in implied removed, or otherwise ceased to be a trustee. (Tolentino,
Directors for the benefit of DBP trusts, because the arrangement is imposed by operation of Civil Code of the Philippines, Vol. IV, at pp. 676-677 [1991
employees. . . (at p. 472.) law; whereas, in an express trust, capacity to transfer title on ed.].)
the trust properties, in order to have legal title held by the
7. Capacities, Rights, Duties and Obligations of the trustee, is critical. Want of Trustee.
Parties to the Express Trust — The principle that equity
b. The Trustee will not allow a trust to fail
34
for want of a trustee is and interest of the beneficiary. He cannot appropriate for
clearly established. Where himself any opportunity which in the course of his functions
a trust has once been as trustee should pertain to the beneficiary. He has the duty trustee without indicating that he holds it as trustee. That
created and the trustee to account t the beneficiary for the affairs of the trust. And would then later authorize him to claim the property as his
dies, becomes insane or he cannot convert the use of the trust properties, and the own, in breach of his duties of loyalty.
subject to some other legal incomes, fruits and proceeds for his own benefit. Every
incapacity, or resigns or is trustee has the common law duty of loyalty. (v) Duties and Responsibilities of the Trustees under
removed, the trust does the Rules of Court
not fail, but a new trustee
Perez v. Araneta, 4 SCRA 434 (1962), held that although the
will be appointed. Such an
beneficiaries may be entitled to receive the income flowing Rule 98 of the Rules of Court grants the court authority to
appointment will be made
from the trust estate, the profits realized in the sale of trust appoint a trustee when “necessary to carry into effect the
by the proper court unless
properties are part of the capital held in trust, to which the provisions of a will or a written instrument.” (Section 1), and
by the terms of the trust
beneficiaries are entitled to receive as income. that title to the trust estate will vest in the trustee thus
other provision is made for
the appointment of a appointed by the courts (Section 2).
successor trustee. The De Leon v. Molo-Peckson, 6 SCRA 978 (1962), held that the
reason why a trust does other duties of the trustee, which flow out of the main duty In particular, Section 3 of Rule 98, provides that –
not fail for want of a of loyalty, would be the duty to account to the beneficiary of
trustee is that to permit it the trust estate. It would be the duty of the trustee also to
to fail for this reason would deliver the property in trust to the cestui que trust , when it “When a trustee under a written
be contrary to the is time to so do it, free all liens and encumbrances. instrument declines, resigns, dies, or is
intention of the trustor in removed before the objects of the trust
creating the trust. The are accomplished, and no adequate
Under Article 1455, when the trustee uses trust funds for the provision is made in such instrument for
trustor is primarily purchase of property and causes the conveyance to be made
interested in the supplying the vacancy, the proper
in his name or a third person, a trust is established in favor [Regional Trial Court] may, after due
disposition of the of the beneficiary.
beneficial interest in the notice to all persons interested, appoint
property, and the matter a new trustee to act alone or jointly with
of its administration is a A violation of the duties of the trustee may constitute a the others, as the case may be. Such
subsidiary consideration. “breach of trust” that would be the legal basis by which the new trustee shall have and exercise the
trustee may be removed, or the trust revoked entirely. same powers, rights, and duties as if he
The principle that the law will not allow a trust to fail due had been originally appointed, and the
non-acceptance, resignation, incapacity or death of the trust estate shall vest in him in like
(iii) Trustee is Prohibited from Donating Trust manner as it had vested or would have
designated trustee in recognized under our Rules of Court Property
which provide for the duties of the trustee and the manner of vested, in the trustee in whose place he
appointment or replacement, as discussed hereunder. is substituted; and the court may order
Under Article 736 of the Civil Code, “trustees cannot donate such conveyance to be made by the
the property entrusted to them.” Such prohibition is in former trustee or his representatives, or
(4) Obligations of the Trustee accordance with the fiduciary duty of loyalty of a trustee, by the other remaining trustees, as may
that the holds the trust property for the benefit of the be necessary or proper to vest the trust
(i) Contractually Stated Duties and Obligations of the beneficiary. He therefore cannot exercise acts of beneficence estate in the new trustee, either alone
Trustee employing the property that he holds for the benefit of or jointly with others.”
another person. (see Araneta v. Perez, 5 SCRA 338 [1962].)
An express trust constituted under a trust agreement The provisions of Rule 38 of the Rules of Court are meant to
normally provides for the powers and functions of the (iv) Trustee Cannot Use Funds of the Trust to Acquire implement the rule in this jurisdiction that the non-
trustee, and would enumerate such powers which under the Property for Himself acceptance, death, civil interdiction, insanity, insolvency, or
law need to be covered by a special power of attorney to even the resignation of a designated trustee, shall not of
remove any doubt as to the duties of the trustee, and itself prevent a trust from coming into fruition or extinguish
Under Article 1455 of the Civil Code (on implied trusts), one that has been already constituted. The doctrine flows
provide for the parameters of his obligations as well. “When any trustee . . . uses trust funds for the purchase of from the equity nature of the trust as a legal institution in
property and causes the conveyance to be made to him or to the Philippines.
(ii) Common Law Duties of the Trustee 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 An example of the application of this principle is in the
The position of trustee being fiduciary in nature, a trustee is decision in Lorenzo v. Pasadas, 64 Phil. 353 (1937), where
that every trustee owes to the beneficiary—that the trustee
expected to carry out the trust using the diligence of a good the will of the decedent never used the term “trust”, but
is obliged to use the funds of the trust estate for the sole
father of a family. The trustee becomes personally liable for nevertheless the intention to create one was deemed implicit
benefit of the beneficiary.
gross negligence committed even when it is in the pursuit of to the Court, thus –
the trust arrangement; for negligence which causes damage
to another person constitutes a wrong committed by the Every trustee in express trust, being the naked title holder,
tortfeasor for which he can be held personally liable. Every of course has the power to use funds of the trust estate to “The appointment of P.J.M. Moore as
trustee has the common law duty of diligence. acquire properties to be placed in his name, but that would trustee was made by the trial court in
have to be officially as “trustee”. Article 1455 applies in a conformity with the wishes of the
situation where the property is placed in the name of the testator as expressed in his will. It is
In addition, the trustee is expected to be loyal to the affairs
35
true that the word ‘trust’ is not effective as against defendants and in
mentioned or used in the will but the favor of the beneficiary thereof, plaintiff
intention to create one is clear. No Victoria Julio, who accepted it in the Although a trustee enters upon the fulfillment of his duties
particular or technical words are document itself.” (at pp. 550-551) by his own name, and not in the name of the trustor or the
required to create a testamentary trust beneficiary, nonetheless, it should be understood that the
(69 C.J., p. 711). The words ‘trust’ and performance of the functions of the trustee and the contracts
Under Sections 5 and 6 of Rule 98, the following are the entered into in pursuit of the trust, as performed under
‘trustee’, though apt for the purpose,
duties and responsibilities of the trustee appointed by the “official capacity” as a trustee. Consequently, the liabilities
are not necessary. In fact, the use of
courts: assumed by the trustee is such capacity can only be
these two words is not conclusive on the
question that a trust is created (69 C.J., enforced to the extent of the trust properties. In other words,
p. 714). ‘To create a trust by will the (a) Before entering on the duties of his the trustee, unless he so stipulates, does not become
testator must indicate in the will his trust, a trustee shall file a bond with the personally liable to his separate properties outside of the
intention so to do by using language court conditioned upon compliance with trust properties, for contracts and transactions arising from
sufficient to separate the legal from the his duties; the trust and entered into in his official capacity as trustee.
equitable estate, and with sufficient
certainty designate the beneficiaries, (b) To make and return to the court, at Thus, in Tan Senguan and Co. v. Phil. Trust Co., 58 Phil. 700
their interest in the trust, the purpose or such time as it may order, a true (1933), where the properties for which the trust company
object of the trust, and the property or inventory of all the real and personal had entered into transaction were received not in a trustee
subject matter thereof. Stated estate belonging to him as trustee, capacity, the Court held that the trustee would be liable for
otherwise, to constitute a valid which at the time of the making of such such transactions in its personal capacity, and not as a
testamentary trust there must be inventory shall have come to his trustee.
concurrence of three circumstances: (1) possession or knowledge;
Sufficient words to raise a trust; (2) a
definite subject; (3) a certain or A trustee who acts within the scope of the trust therefore,
ascertained object; statutes in some (c) To manage and dispose of all such has a right to charge to the trust estate the expenses
jurisdictions expressly or in effect so estate, and faithfully discharge his trust incurred by reason thereof.
providing.’ (69 C. J., pp. 705, 705.) There in relation thereto, according to law and
is no doubt that the testator intended to the will of the testator or the provisions On the other hand, a trustee is expected to exercise due
create a trust. He ordered in his will that of the instrument or order under which diligence in the pursuit of the trust, and when he acts with
certain of this properties be kept he is appointed; fraud or gross negligence, he becomes personally liable for
together undisposed during a fixed his own separate properties, as to all persons who suffer
period, for a stated purpose. The (d) To render upon oath at least once a damage by reason of such fraud or negligence.
probate court certainly exercised sound year until his trust is fulfilled, unless he
judgment in appointing a trustee to is excused therefrom in any year by the
carry into effect the provisions of the (viii) Trustee is Entitled to Compensation for
court, a true account of the property in Management of the Trust Estate
will. (see sec. 582, Code of Civil his hands and of the management and
Procedure).” (at pp. 368-369). disposition thereof, and will render such
other account as the court may order; In Lorenzo v. Pasadas, 64 Phil. 353 (1937), the Court held
Following up on this principle, the Supreme Court held in and that as a matter of general proposition, “A trustee, no doubt,
Julio v. Dalandan, 21 SCRA 543 (1967), that – is entitled to receive a fair compensation for his services.”
(at p. 365, citing Barney v. Saunders, 16 How., 535, 14 Law.
(e) Upon the expiration of his trust, he Ed., 1047.)
“For, technical or particular forms of will settle his accounts in court and pay
words or phrases are not essential to the over and deliver all the estate remaining
manifestation of intention to create a in his hands, or due from him on such Under Section 7 of Rule 98 of the Rules of Court, if the
trust or to the establishment thereof. settlement, to the person or persons compensation of the trustee is not determined in the
Nor would the use of some such words entitled thereto. instrument creating the trust, his compensation shall be
as ‘trust’ or ‘trustee’ essential to the fixed by the court that appointed him.
constitution of a trust as we have held in (vi) Proper Proceedings for Sale or Encumbrance of
Lorenzo v. Posadas, 64 Phil. 453, 368. Trust Estate In Araneta v. Perez, 7 SCRA 258 (1962), the Court held that
Conversely, the mere fact that the word the reasonableness of fees of a trustees should be
‘trust’ or ‘trustee’ was employed would determined in advance, but must be determined at the time
not necessarily prove an intention to Under Section 9 of Rule 98 of the Rules of Court, when the he files a claim for the same, since reasonableness depends
create a trust. What is important is sale or encumbrance of any real or personal estate held in upon variable circumstances, such as the character and
whether the trustor manifested an trust is necessary or expedient, the Regional Trial Court (RTC) powers of the trusteeship, the risk and responsibility
intention to create the kind of having proper jurisdiction of the trust may, on petition and assumed, the time and labor and skill required in the
relationship which in law is known as a after due notice and hearing, order such sale or administration of the trust, as well as the care and
trust. Is it important that the trustor encumbrance to be made, and the reinvestment and management of the estate. The Court also held that the
should know that the relationship which application of the proceeds thereof in such manner as will trustee may be indemnified out of the trust estate for the
intents to create is called a trust, and best effect the objects of the trust. expenses incurred in rendering and proving his accounts and
whether or not he knows the precise for the costs and counsel’s fees in connection therewith.
characteristics of the relationship which (vii) Trustee Does Not Assume Generally Personal
is called a trust. Here, that trust is Liability on the Trust (ix) Removal or Resignation of Trustee
36
Under Section 8 of Rule 98 of the Rules of Court, the proper The acceptance may be made in the same deed of donation
RTC may, upon petition of the parties beneficially interested or in a separate public document, but it shall not take effect
and after due notice to the trustee and hearing, remove a unless it is done during the lifetime of the donor. If the equity.
trustee if such removal appears essential in the interests of acceptance is made in a separate instrument, the donor
the petitioners. The RTC may also, after due notice to all shall be notified thereof in an authentic form, and this step a. Destruction of the Corpus
persons interested, remove a trustee who is insane or shall be noted in both instruments.”
otherwise incapable of discharging his trust or evidently
unsuitable therefore. When the entire trust estate is loss or destroyed, the trust is
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), relying upon extinguished since the underlying proprietary basis no longer
American jurisprudence, held that “The fact that the exists to warrant any legal relationship between the trustee
The section also recognizes that a trustee, whether beneficiaries [to a donation inter vivos] were not notified of and the beneficiary.
appointed by the court or under a written instrument, may the existence of the trust or that the latter have not been
resign his trust if it appears to the court that is it proper to given an opportunity to accept it is of no importance, for it is
allow such resignation. not essential to the existence of a valid trust and to the right b. Revocation by the Trustor
of the beneficiaries to enforce the same that they had
knowledge thereof at the time of its creation (Soehr v. Miller, In a revocable express trust, the trustee may simply invoke
c. The Beneficiary
296 F. 414). Neither is it necessary that the beneficiary the revocation or termination clause found in the deed of
should consent to the creation of the trust (Wockwire- trust thereby revoking the trust and conveying notice thereof
(1) Beneficiary Is the Passive Recipient of Benefits Spencer Steel Corporation v. United Springs Mfg. Co., 142 to the trustee. Unless there is reserved power to revoke, the
Flowing from the Trust N.E. 758, 247 Mass. 565). In fact it has been held that in general rule is that an express trust is irrevocable.
case of a voluntary trust the assent of the beneficiary is not
Under Article 1440 of the Civil Code, the “beneficiary” is the necessary to render it valid because as a general rule
acceptance by the beneficiary is presumed (Article 1446, In De Leon v. Molo-Peckson, 6 SCRA 978 (1962), the donee-
person for whose benefit the trust has been created. As a daughters had tried to revoke the Mutual Agreement they
general rule, the designation of the beneficiary, is a new Civil Code; Cristobal v. Gomez, 50 Phil. 810).” (at p. 985)
previously executed confirming the desires of the mother
gratuitous act, essentially an act of donation by which who donated to them that the ten parcels of land donated
beneficial or equitable title to the trust property is given to (2) Beneficiary Need Not Have Legal Capacity would be sold at nominal price to a designated cetui que
the beneficiary. However, when the trustor creates the trust trust. The Court held that although “It is true, as appellants
by designating a trustee to hold the trust properties for the contend, that the alleged declaration of trust was revoked,
It is posited that the beneficiary of an express trust need not
benefit of the trustor, there is no act of beneficence in this and having been revoked it cannot be accepted, but the
have legal capacity to be constituted as such in a trust
case, but constitutes more as a sense of estate planning. attemted revocation did not have any legal effect. The rule is
agreement, especially so when the designation is an act of
pure liberality. that in the absence of any reservation of the power to revoke
Under Article 1446 of the Civil Code, acceptance by the a voluntary trust is irrevocable without the consent of the
beneficiary of the express trust is necessary. Nevertheless, if beneficiary . . . It cannot be revoked by the creator alone,
Under Article 738 of the Civil Code, “All those who are not nor by the trustee.” (at p. 985, citing Allen v. Safe Depolsit
the trust imposes no onerous condition upon the beneficiary,
specially disqualified by law therefore may accept and Trust Co., of Balitmore, 7 A.2d 180, 177 Md. 26; Fricke v.
his acceptance shall be presumed, if there is no proof to the
donations,” which means that all persons regardless of legal Weber, C.A.A. Ohio, 145 F.2d 737; Hughes v. C.I.R., C.C.A. 9,
contrary. The situation does not cover the case when the
capacity, may be donees except only in those specific cases 104 F.2d 144; Ewing v. Shannahan, 20 S.W. 1065, 113 Mo.
trustor designates himself as the beneficiary.
where the donation to them cannot be made. Article 741 188; italics supplied)
provides that minors and others who cannot enter into a
Article 725 of the Civil Code defines donation as “an act of contract may become donees but acceptance shall be done
liberality whereby a person disposes gratuitously of a thing through their parents or legal representatives. Under Article c. Achievement of Objective, or Happening of the
or right in favor of another, who accepts it.” Since a person 742, donations may even be made to conceived and unborn Condition Provided for in the Trust Instrument
cannot be compelled to accept the generosity of another, it children and may be accepted by those persons who would
is provided under Article 1446 that “[a]cceptance by the legally represent them if they were already born. When the trust instrument provides the objective or the
beneficiary is necessary.” Although the Law on Donations condition upon which the trust shall be extinguished, say
provides for solemnities for the act of donation and its when the trust instrument provides that full ownership in the
In the case of express trust, Article 1446 of the Civil Code
acceptance, it has been held in Cristobal v. Gomez, 50 Phil. trust properties shall be consolidated in the person of the
provides that if the trust imposes no onerous condition upon
810 (1927), that the acceptance by the beneficiary of beneficiary once he reaches the age of majority, the
the beneficiary, his acceptance shall be presumed, if there is
gratuitous express trust is not subject to the rules for the happening of the condition shall terminate the trust.
no proof to the contrary.
formalities of donations.
The provisions do not cover also charitable trusts, or those d. Death or Legal Incapacity of the Trustee
Parenthetically, under Article 748, it is provided that “the
constituted upon a trustee who holds legal title to the trust
donation of a movable may be made orally or in writing. An
properties for the benefit of a general group of beneficiaries. Unless otherwise expressly stipulated in the trust instrument,
oral donation requires the simultaneous delivery of the thing
or the document representing the right donated. If the value the death, civil interdiction, insanity or insolvency of the
of he personal property donated exceeds five thousand trustee does not necessarily terminate the trust. Thus,
pesos, the donation and the acceptance shall be made in Tolentino writes:
writing. Otherwise, the donation shall be void.”
8. How Express Trust Extinguished or Terminated
The principle that equity will no allow a
Under Article 749 of the Civil Code, “in order that the trust to fail for want of a trustee is
Like any other legal relationship, express trust relationships clearly established. Where a trust has
donation of an immovable may be valid, it must e made in a
may be terminated by reason provided for in the trust once been created and the trustee dies,
public document, specifying therein the property donated
instrument itself, or upon grounds provided for by law or becomes insane or subject to some
and the value of the charges which the donee must satisfy.
37
other legal incapacity, or resigns or is that when a person administering the property in the
removed, the trust does not fail, but a character of a trustee inconsistently assumes to be holding it
new trustee will be appointed. Such an in his own right, this operates as a renunciation of the trust Ramos’ distinguishing principles were reiterated in Salao v.
appointment will be made by the and the persons interested as beneficiaries in the property Salao, 70 SCRA 65, 80 (1976).
property court unless by the terms of are entitled to maintain an action to declare their right and
the trust other provision is made for the remove the unfaithful trustee. Morales v. Court of Appeals, 274 SCRA 282 (1997) defined
appointment of a successor trustee. The implied trusts as those that “come into being by operation
reason why a trust does not fail for want of law, either through implication of an intention to create a
of a trustee is that to permit it to fail for trust as a matter of law or through the imposition of the trust
III. IMPLIED TRUSTS
this reason would be contrary to the irrespective of, and even contrary to, any such intention.” (at
intention of the trustor in creating the p. 298)
1. Nature and Types of Implied Trusts
trust. The trustor is primarily interested
in the disposition of the beneficial
interest in the property, and the matter Art. 1441. Trusts are either Therefore, implied trust which are “deductible from the
of its administration is a subsidiary express or implied. Express trusts nature of the transactions as matters of intent,” are referred
consideration. (Tolentino, at p. 676.) are created by the intention of the to as resulting trusts; and those which are superinduced “by
trustor or of the parties. Implied operation of law as matters of equity” are constructive
trusts come into being by operation trusts.
In Canezo v. Rojas, 538 SCRA 242 (2007), where the
of law.
daughter alleged that he had entrusted possession and title
to the property to her father Crispulo when she left Mindanao Morales gave the rationale for resulting trusts as
based on either an express trust or a resulting trust, the Art. 1442. The principles of being “based on the equitable doctrine that valuable
Supreme Court laid down the following legal effect on the the general law of trusts, insofar as consideration and not legal title determines the equitable
death of the trustee: they are not in conflict with this title or interest and are presumed to always to have been
[Civil] Code, the Code of Commerce, contemplated by the parties. They arise from the nature or
the Rules of Court and special laws circumstances of the consideration involved in a transaction
Assuming that such a relation existed, it whereby one person thereby becomes invested with legal
are hereby adopted.
terminated upon Crispulo’s death in title but is obligation in equity to hold his legal title for the
1978. A trust terminates upon the death benefit of another.” (at p. 298)
of the trustee where the trust is Art. 1445. The enumeration
personal to the trustee in the sense that of the following cases of implied
the trustor intended no other person to trust does not exclude others On the other hand, Morales defines constructive trusts as
administer it. If Crispulo was indeed established by the general law of those which “are created by the construction of equity in
appointed as trustee of the property, it trust, but the limitation laid down order to satisfy the demands of justice and prevent unjust
cannot be said that such appointment in Article 1442 shall be applicable. enrichment. They arise contrary to intention against one
was intedned to be conveyed to the who, by fraud, duress or abuse of confience, obtains or holds
respondents or any of Cripulo’s other the legal right to property which he ought not, in equity and
According to the Report of the Code Commission, the good conscience, to hold.” (at p. 298, citing Huang v. Court
heirs. Hence, after Crispulo’s death, the underlying doctrine of implied trusts is founded on equity,
respondent had no right to retain of Appeals, 236 SCRA 420 [1994]; Vda. De Esconde v. Court
derived from American decisions under a legal system where of Appeals, 253 SCRA 66 [1996]. Reiterated in Cañezo v.
possession of the property. At such injustice would result in which the legal estate or title were
point, a constructive trust would be Rojas, 538 SCRA 242 [2007]; Peñalber v. Ramos, 577
to prevail over the equitable right of the beneficiary. (Report SCRA 509 [2009]).
created over the property by operation of the Code Commission, p. 60)
of law. Where one mistakenly retains
property which rightfully belongs to In Philippine National Bank v. Court of Appeals, 217 SCRA
another, a constructive trust is the Under Article 1441 of the New Civil Code, as distinguished 347 (1993), the Court held that “the framers of our present
proper remedial device to correct the from express trust which are “created by the intention of the Civil Code incorporated implied trusts, which includes
situation. (at p. 257. trustor or of the parties,” implied trusts “come into being by constructive trusts, on top of quasi-contracts, both of which
operation of law.” This may imply that implied trusts are embody the principle of equity above strict legalism.” (at p.
essentially creatures of the law, and do not arise from the 356, italics supplied)
e. Confusion or Merger of Legal Title and Beneficial intentions of the parties bound by the trust relationship.
Title in the Same Person Although such an implication may be true of constructive
trusts, it does not accurately apply to resulting trusts, as b. Two Types of Implied Trusts Distinguished from
When the trustee of an existing trust becomes the explained hereunder. Express Trusts
beneficiary thereof, or vice versa, the trust relation is ipso
jure extinguished, for it is difficult to see how a person can a. Two Types of Implied Trusts: Resulting Trusts and Unlike an express trust, which essentially proceeds from a
owe fiduciary duties to himself. Constructive Trusts clear or direct contractual intention to dispose of trust
property to a trustee for the benefit of the beneficiary, in a
f. Breach of Trust resulting trust, no such intention is apparent, but merely
In Ramos v. Ramos, 61 SCRA 284 (1974), the Supreme Court presumed by law from the nature of the transaction. In
defined and characterized implied trusts as “those which, essence, express trusts are creatures of the parties’ express
When a trustee breaches his duty of loyalty, it would without being expressed, are deducible from the nature of intent usually manifested by devolving naked or legal title to
constitute legal basis by which to terminate the trust. the transactions as matters of intent, or which are the trustee of the res, whereas resulting trusts are implied by
superinduced on the transaction by operation of law as law from the implied intentions of the parties as derived from
matters of equity, independently of the particular intention the nature of their transactions.
Thus, in Martinez v. Graño, 42 Phil. 35 (1921), the Court held
of the parties (89 C.J.S. 724).” (at p. 298; italics supplied)
38
When it comes to constructive trusts, no such intention at all recognition by such owner of the alleged be established upon testimony
is drawn from the nature of the transaction, and the purpose rights of his brothers and sisters to consisting in large part of insecure
of the law in imbuing the relationship with trust share in the produce of the land. (at pp. surmises based on ancient hearsay.
characteristics is to achieve equity demanded by the 503-504) (Syllabus, Santa Juana vs. Del Rosario,
situation. In fact, Ramos holds that constructive trust may 50 Phil. 110).
be constituted by force of law “independently of the
Under Article 1457 of the New Civil Code, an implied trust,
particular intentions of the parties.”
whether resulting or constructive, may be proved by oral In Salao, the Court noted its earlier decision in Yumul v.
evidence, without distinction on whether it involves a Rivera and Dizon, 64 Phil. 13 (1937), where it held that when
Express trusts over immovables can be proved by parol movable or an immovable property. Article 1457 therefore it comes to registered land, “A certificate of title is conclusive
evidence, in both types of implied trusts, they may be contains the rationale for implied trusts as reported by the evidence of the ownership of the land referred to therein
proved and enforced by parol evidence. Code Commission that “the underlying doctrine of implied (sec. 47, Act No. 496). x x x. But a strong presumption
trusts is founded on equity . . . under a legal system where exists that Torrens certificates of title have been regularly
injustice would result in which the legal estate or title were issued and are valid and, in order to maintain an action in
Since the trust relationship in constructive trusts is imposed
to prevail over the equitable right of the beneficiary.” This is personam for reconveyance…, proof as to the fiduciary
by law, then there is really no fiduciary relationship existing
in contrast to Article 1443, which provides that an relation of the parties and of the breach of trust must be
between the purported trustee and the purported cestui que
express trust over immovables or any interest therein can clear and convincing.” (at pp. 17-18) It also referred to its
trust; whereas, in both express trusts and resulting trusts,
only be constituted in writing, and cannot be proved by parol decision in Legarda and Prieto v. Saleeby, 31 Phil. 590, 593
the trustee assumes fiduciary duties to the cestui que trust.
evidence, which embodies the public policy that when it (1915), where it held that the purpose of the Torrens system
comes to registered land, generally parol evidence cannot is to quiet title to land: “Once a title is registered, the owner
Consequently, while express trusts (also in resulting trusts) derogate the title of the registered owner. may rest secure, without the necessity of waiting in the
may be subject to laches or defenses of prescription only portals of the court, or sitting in the mirador de su casa, to
when there has been a previous clear repudiation by the avoid the possibility of losing his land.” (at pp. 83-84)
In Salao v. Salao, 70 SCRA 65 (1976), where the Court
trustee made known to the beneficiary; in constructive
refused to enforce the claims of the plaintiffs under a cause
trusts, no such repudiation need be made for prescription to
of action based on an express trust over immovable property The Court in Salao also referred to its decision in Legarda
begin to run.
unsupported by a written instrument, next proceeded to and Prieto v. Saleeby, 31 Phil. 590, 593 (1915), where it held
address the issue “Is plaintiffs’ massive oral evidence that the purpose of the Torrens system is to quiet title to
2. Rules of Enforceability of Implied Trusts sufficient to prove an implied trust, resulting or constructive, land: “Once a title is registered, the owner may rest secure,
regarding the two fishponds?” (at p. 81). The Court held that without the necessity of waiting in the portals of the court, or
Art. 1457. An implied trust may be proved by indeed if the principles of express trust cannot be applied for sitting in the mirador de su casa, to avoid the possibility of
oral evidence. lack of written evidence to sustain a trust over immovables, losing his land.” (at pp. 83-84)
then the oral evidence can be accepted by the courts to
support a claim of implied trusts.
The discussions hereunder are based on the legal premise The Court then concluded in Salao that “There was no
that trusts relationships, whether express or implied, are resulting trust in this case because there never was any
built on existing property relations and that at the center of But the Court in Salao also held that although oral evidence intention on the part of the parties involved to create any
the legal issue involves property that has been transferred in may be adduced to prove an implied trust over immovables, trust. There was [also] no constructive trust because the
the name of, or in ownership to, the purported trustee. it held that in order to be recognized such oral evidence registration of the two fishponds . . . was not vitiated by
Issues pertaining to the enforceability of trusts relations, and must measure up to the yardstick that a trust must be fraud or mistake. This is not a case where to satisfy the
the nature of the evidence that is legally allowed to prove proven by clear, satisfactory and convincing evidence, and demands of justice it is necessary to consider the . . .
such trust relations, are pursued only when such property cannot rest on vague and uncertain evidence or on loose, fishponds as being held in trust.” (at p. 84).
relations are in place. Morales has in fact considered as one equivocal or indefinite declarations. (at p. 83, citing De Leon
of the essential characteristics of every trust that “it is a v. Molo-Peckson, 116 Phil. 1267 [1962]) The Court quoted
The Salao doctrines therefore show the close kinship
relationship with respect to property, not one involving the following authorities —
between express trusts and resulting trusts and that
merely personal duties.” (at p. 298) Such a legal premise treatment can move from one to the other in order to
follows the principle that trusts contracts (i.e., express and Trusts; Trust and trustee; establishment of trust by achieve equity.
resulting trusts) have the essential characteristic of real as parol evidence; certainty of proof. Where a trust is
distinguished from consensual or formal. to be established by oral proof, the testimony
In Municipality of Victorias v. Court of Appeals, 149 SCRA 32
supporting it must be sufficiently strong to prove
(1987), it was held that the existence of public records other
Under the old Civil Code, the syllabus appearing at the the right of the alleged beneficiary with as much
than the Torrens title indicating a proper description of the
beginning in the decision in Gamboa v. Gamboa, 52 Phil. 503 certainty as if a document proving the trust were
land, and not the technical description thereof, and clearly
(1928), affirmed the nature of proof that must be satisfied in shown. A trust cannot be established, contrary to
indicating the intention to create a trust, was considered
order to prove implied trusts, thus — the recitals of a Torrens title, upon vague and
sufficient proof to support the claim of the cestui que trust.
inconclusive proof. (Syllabus, Suarez vs.
Tirambulo, 59 Phil. 303).
1. Trusts; Proof Insufficient to Show Title In Ong Ching Po v. Court of Appeals, 239 SCRA 341 (1994),
of Land to Have Been Held in Trust.–A where the Court held that although an implied trust may be
person who has held legal title to land, Trust evidence needed to establish trust
proved orally, “the evidence to prove it must be
coupled with possession and beneficial on parol testimony. In order to establish
trustworthy and received by the courts with extreme caution,
use of the property for more than ten a trust in real property by parol
and should not be made to rest on loose, equivocal and
years, will not be declared to have been evidence, the proof should be as fully
indefinite declarations.” (at p. 347)
holding such title as trustee for himself convincing as if the act giving rise to the
and his brothers and sisters upon trust obligation were proven by an
authentic document. Such a trust cannot Lately, in Booc v. Five Stars Marketing Co., Inc., 538 SCRA 42
doubtful oral proof tending to show a
39
(2007), the Court reiterated the doctrine it laid down in parties, the intention as to which is to be found in the nature
Morales v. Court of Appeals, 274 SCRA 282 (1997), and Tigno of their transaction, but not expressed in the deed or
v. Court of Appeals, 280 SCRA 262 (1997), that “As a rule, instrument of conveyance (quoting from 89 C.J.S. 725; italics Discussions on this issue will start with the early decision
the burden of proving the existence of a trust is on the party supplied). Examples of resulting trusts are found in article in Martinez v. Graño, 42 Phil. 35 (1921), were the facts
asserting its existence and such proof must be clear and 1448, [1449, and] 1455 of the Civil Code.” (at p. 298). showed that previously the heirs of the deceased spouses
satisfactorily show the existence of the trust and its Martinez had sold under a sale a retro the parcels of land
elements.” Booc held that an affidavit of the fact of resulting inherited from the deceased spouses in order to cover the
This characterization of resulting trust was reiterated in debts of the estates; and that in order to expedite the
trust against contrary affidavits presented by other
Salao v. Salao, 70 SCRA 65, 80-81 (1976). obtaining of a large loan from a savings association to
witnesses, as well as the transfer certificates of title and tax
declarations to the contrary, do not support clearly the prevent the consolidation of title to the buyer a retro , the
existence of trust. a. Burden of Proof in Resulting Trusts heirs had agreed to allow one of their own to effect
redemption and deal directly with the savings association.
The conclusion one gets from reading the foregoing The essence of resulting trusts is the implication drawn out
decisions is that, faced with a Torrens title that shows no by law from the nature of the transactions covered; and Martinez decision narrated that “The person chosen as the
trust relationship assumed by the registered owner, and necessarily, the enumerated cases, being merely implied repository of this trust was Clemencia Graño,” (at p. 39) who
there is no other written evidence to show an intention to trust from the law’s perceived intentions of the parties, executed a notarial declaration “in which she states, among
create a trust, then generally oral evidence is unavailable to constitute disputable presumptions of trust, and evidence other things, that she had intervened in the aforementioned
overcome the registered title of the purported trustee who may thus be adduced to show that no trust was intended nor transactions in behalf of all the Martinez heirs.” (at p. 40)
denies the existence of any trust. The reliable evidence to contemplated by the parties. Correctly interpreted, since it But “[i]n consideration of the responsibility thus to be
indicate a resulting trust relationship against a clean title is the law that imbues certain transactions with the assumed by Clemencia Graño, as borrower, all of the adult
registered in the name of the purported trustee can only be characteristics of resulting trusts, the cestui que trust need Martinez heirs personally and the guardians of the minor
a written document signed by said purported trustee only prove the facts that would constitute the covered heirs executed a document jointly with Clemencia Graño . . .
acknowledging that he holds title for the benefit of another transaction and the legal presumption that there exists a in which it was agreed that Clemencia Graño should have
party, or from the nature of the transaction duly proven resulting trust would arise from the very nature of the exclusive possession of all the land pertaining to the
indicating how title was acquired by the registered owner, transaction proven; immediately, the burden of proof would Martinez estate and administer the same for the purpose of
and shows that there was a clear agreement or intention to be on the part of the purported trustee to show that no such raising the necessary revenue to meet her obligations” (at p.
hold it for the benefit of another person. trust relationship was intended. 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
Perhaps the best way to end this section is to invoke the b. Blurring of the Distinction Between Express Trusts denied that the other Martinez heirs had any interest
decision in Cañezo v. Rojas, 538 SCRA 242 (2007), which and Resulting Trusts whatsoever therein.
held that –
If we go by the jurisprudential definition of resulting trust, The Supreme Court held in Martinez that the properties
While implied trust may be proved by the presumed intention of the parties bounded by the trust redeemed from the buyer a retro and mortgaged with the
oral evidence, the evidence must be relationship is drawn from the nature of the transaction, and savings associations were “held in trust by the said
trustworthy and received by the courts not from the words, acts or omissions of the parties. Thus, Clemencia Graño for the benefit of the said heirs . . . subject,
with extreme caution, and should not be when the intention is derived, not only from the nature of the however, to the mortgage in favor” of the savings
made to rest on loose, equivocal or transactions, but from the verbal expressions of the parties, association. The Court did not characterize what type of trust
indefinite declarations. Trustworthy then the relationship is one of express trust, not resulting was created by the transaction since the decision was
evidence is required because oral trust, since under Article 1441 of the Civil Code, express rendered under the Spanish Civil Code, but it held that the
evidence can easily be fabricated. In trust are “created by the intention of the trustor or of the Martinez heirs were entitled to accounting from the said
order to establish an implied trust in real parties.” Only recently, in Cañezo v. Rojas, 538 SCRA 242 Clemencia Graño of all the proceeds obtained from her
property by parol evidence, the proof (2007), the Court characterized express trusts as “those administration of the properties, that any amount
should be as fully convincing as if the which are created by the direct and positive acts of the appropriated by her for her own benefit and not applied to
acts giving rise to the trust obligation parties, by some writing or deed, or will, or by words the payment of the mortgage loan would have to be
are proven by an authentic document. evincing an intention to create a trust,” (at pp. 251-252, reimbursed; and that “it being manifestly improper that a
An implied trust, in fine, cannot be italics supplied, citing Buan Vda. De Esconde v. Court of person in the hostile attitude occupied by Clemencia Graño
established upon vague and Appeals, 253 SCRA 66, 73 [‘1996]), as distinguished from towards the Martinez heirs should be allowed to administer
inconclusive proof. In the present case, implied trusts (which would include resulting trusts) “which, the property in question, it results that the receivership
there was no evidence of any without being expressed, are deducible from the nature of [previously ordered by the trial court] should be reinstated.”
transaction between the petitioner and the transaction as matters of intent or, independently, of the (at p. 49). Martinez is a prime example of the application of
her father form which it can be inferred particular intention of the parties, as being superinduced on trusts principles under the old Civil Code, purely based on
that a resulting trust was intended. (at the transaction by operation of law basically by reason of equity principles and without statutory support.
p. 256) equity.” (at p. 252)
The principle was reiterated under the aegis of the New Civil
3. Resulting Trusts Yet, as shown by the discussions hereunder, the rules on Code in Heirs of Candelaria v. Romero, 109 Phil. 500
implied trusts (particularly resulting trusts) have been made (1960), where the proven facts showed that one brother
to apply to situations which are considered as express trusts (Emilio) had taken over the installment payments over a
In Ramos v. Ramos, 61 SCRA 284 (1974), the Court held that
because the intentions of the parties are deducible “by the purchased subdivision lot of another brother (Lucas) who had
“‘A resulting trust is broadly defined as a trust which is
direct and positive acts of the parties, by some writing or fallen ill, until the whole purchase price had been fully
raised or created by the act or construction of law, but in its
deed, or will, or by words evincing an intention to create a satisfied under the arrangement “that although Lucas
more restricted sense it is a trust raised by implication of law
trust.” Candelaria had no more interest over the lot, the subsequent
and presumed always to have been contemplated by the
40
payments made by Emilio Candelaria until fully paid were a resulting trust may, therefore, without prejudice to his right
made in the name of Lucas Candelaria, with the to enforce the trust, prefer the trust to persist and demand a
understanding that the necessary documents of transfer will conveyance from the trustee.” (at p. 504) The Court also In the chapter on express trusts, the question has been
be made later, the reason that the transaction being from ruled that “It being alleged in the complaint that Lucas held asked whether for express trust to exist, as distinguished
brother to brother.” (at p. 501). Years later, when the the title to the lot in question merely in trust for Emilio and from resulting trust, it is necessary that naked title is
certificate of title was issued in the name of Lucas, his heirs that this fact was acknowledged not only by him but also by formally registered in the name of the trustee who expressly
refused to reconvey the property to the heirs of Emilio. In an his heirs, herein defendants—which allegation is assumes fiduciary obligations to an identified beneficiary.
action for reconveyance filed by the heirs of Emilio, the trial hypothetically admitted—we are not prepared to rule that The implication is that a written undertaking by the title
court dismissed the complaint holding “that an express and plaintiff’s action is already barred by lapse of time. On the holder of a property, especially registered land, holding the
not an implied trust was created as may be gleaned from the contrary, we think the interest of justice would be better property for the benefit of another only creates a resulting
facts alleged in the complaint, which in unenforceable served if she and her alleged co-heirs were to be given an trust and not an express trust.
without any writing, and that since [the title] covering the opportunity to be heard and allowed to present proof in
land in question had been issued to Lucas Cadelaria way- support of their claim.” (at p. 504) The latest decision on the matter, Heirs of Tranquilino
back in 1918 or 38 years before the filing of the complaint, Labiste v. Heirs of Jose Labieste, 587 SCRA 417 (2009), is to
the action has already prescribed.” (at p. 502) On appeal, the effect that a written undertaking by the registered owner
Although Candelaria refers to the ruling in Martinez to have
the Supreme Court held that – to hold the property for the benefit of another would
recognized the constitution of a “resulting trust” even
though in Martinez the agreement was covered in three constitute an express trust, even when title registered in the
The trust alleged to have been created, notarized documents, what may be learned from Candelaria name of the purported trustee is full title.
in our opinion, is an implied trust. As is that when the arrangement is covered merely by verbal
held, in effect, by this Court in the case agreement, the trust relationship constituted over In Labiste, Epifanio Labiste, representing the heirs of Jose
of Martinez vs. Graño (42 Phil., 35), immovables would then be characterized as being a Labiste, and his uncle, Tranquilino Labiste, obtained joint
where real property is taken by a person “resulting trust” in order to achieve equity and be able to registration as co-owners of a large tract of land which they
under an agreement to hold it for, or move around the requirement under Article 1443 of the Civl bought from the Bureau of Lands. Subsequently, the heirs of
convey it to another or the grantor, a Code that “No express trusts concerning an immovable or Tranquilino also bought the one-half interest of the Jose heirs
resulting or implied trust arises in favor any interest therein may be proved by parol evidence.” Thus, and took over full possession of the property. After the war,
of the person for whose benefit the in Candelaria, having resolved that what was constituted was the Jose heirs filed a petition for the reconstitution of title to
property was intended. Such implied a resulting trust, the Court directed the case to be remanded the property with a agreement with the Tranquilino heirs that
trust is enforceable even when the to the trial court to allow the heirs of the cestui que trust to the latter’s claims would be litigated after the reconstitution
agreement is not in writing, and is not prove their allegations which would include parol evidence. of the title. The reconstituted title was issued over the
an express trust which requires that it property in the name of Epifanio Labiste as representing the
be in writing to be enforceable. This Jose heirs, who thereafter refused to honor the rights of the
In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court
rule, which has been incorporated in the Tranquilino heirs. When suit was filed seeking reconveyance
held that “The concept of implied trusts is that from the facts
new Civil Code in Art. 1453 thereof, is of the title to the property to the Tranquilino heirs, it was
and circumstances of a given case the existence of a trust
founded upon equity. The rule is the ruled by the trial court that the action had prescribed having
relationship is inferred in order to effect the presumed (in
same in the United States, particularly been filed beyond the 10-year period from the registration of
this case it is even expressed) intention of the parties or to
where, on the faith of the agreement or title as mandated for a resulting trust.
satisfy the demands of justice or to protect against fraud.”
understanding, the grantee is enable to
(at p. 179)
gain an advantage in the purchase of
the property or where the consideration The Supreme Court ruled that the situation constituted an
or part thereof has been furnished by or Only lately, in Cañezo v. Rojas, 538 SCRA 242 (2007), the express trust, and not a resulting trust, and that
for such other. . . . It is also the rule Court held that – consequently “prescription and laches will run only from the
there that an implied trust arises where time the express trust is repudiated,” continuing that —
a person purchases land with his own “A resulting trust is a species of implied
money and takes a conveyance thereof trust that is presumed always to have . . . The Court has held that for
in the name of another. In such a case, been contemplated by the parties, the acquisitive prescription to bar the action
the property is held on a resulting trust intention as to which can be found in the of the beneficiary against the trustee in
in favor of the one furnishing the nature of their transaction although not an express trust for the recovery of the
consideration for the transfer, unless a expressed in a deed or instrument of property held in trust it must be shown
different intention or understanding conveyance. A resulting trust is based that: (a) the trustee has performed
appears. The trust which results under on the equitable doctrine that it is the unequivocal acts of repudiation
such circumstances does not arise from more valuable consideration than the amounting to an ouster of the cestui que
contract or agreement of the parties, legal title that determines the equitable trust; (b) such positive acts of
but from the facts and circumstances, interests in property.” (at p. 256; italics repudiation have been made known to
that is to say, it results because of supplied.) the cestui que trust, and (c) the
equity and arises by implication or evidence thereon is clear and
operation of law. (at pp. 502-503; conclusive. Respondents cannot rely on
italics supplied) It seems therefore that when the intention of the parties the fact that the Torrens title was issued
bound by the trust relationship is found expressed in a deed in the name of Epifanio and the other
or instrument, it covers an express trust; whereas, when the heirs of Jose. It has been held that a
Finding that a resulting trust was duly constituted, the Court same intention is merely verbal or can be proved by parol
applied the principle that “Continuous recognition of a trustee who obtains a Torrens title over
evidence, it may be considered as a resulting trust. property held in trust by him for another
resulting trust, however, precludes any defense of laches in
a suit to declare and enforce the trust. . . . The beneficiary of cannot repudiate the trust by relying on
the registration. The rule requires a
41
clear repudiation of the trust duly The existence of express trust
communicated to the beneficiary. The concerning real property may not be
only act that can be construed as established by parol evidence. It must the beneficiary.”
repudiation was when respondents filed be proven by some writing or deed. In
the petition for reconstitution in October this case, the only evidence to support In Geronimo and Isidoro v. Nava and Aquino, 105 Phil. 145
1993. And since petitioners filed their the claim that an express trust existed (1959), a constructive trust was held to have arisen upon a
complaint in January 1995, their cause between the petitioner and her father trial court’s decision becoming final and executory which
of action has not yet prescribed, laches was the self-serving testimony of the held that defendants-spouses’ right to redeem the property
cannot be attributed to them. (at p. petitioner. Bare allegations do not in litigation and ordered the plaintiffs-spouses to make the
426) constitute evidence adequate to support resale, in the sense that although the plaintiffs-spouses were
a conclusion. They are not equivalent to the registered owners of the property they possessed only
proof under the Rules of Court. (at p. naked title thereto which they were to hold in trust for the
The Court noted in Labiste that “Under Article 1444 of the
253) defendants-spouses to redeem, subject to the payment of
Civil Code, ‘[n]o particular words are required for the
creation of an express trust, it being sufficient that a trust is the redemption price. However, the Court held in that
clearly intended.’” (at pp. 425-426) It therefore concluded, The best evidence of an express trust, would be a Deed of decision that “In the latter instance of constructive trust,
that what was involved was not an implied trust, but rather Trust, which describes the trust properties, and conveys prescription may apply only where the trustee asserts a right
an express trust since “The Affidavit of Epifanio is in the naked or legal title thereto to the trustee under terms and adverse to that of the cestui que trust, such as, asserting
nature of a trust agreement. Epifanio affirmed that the lot conditions that indicate the powers, duties and acts of ownership over the property being held in trust,” (at
brought in his name was co-owned by him, as one of the responsibilities of the trustee to the indicated beneficiary. A p. 153), which is contrary to its ruling that in a constructive
heirs of Jose, and his uncle Tranquilino. And by agreement, deed of trusts is usually acknowledged and subscribed by trust, since there is really no fiduciary relationship, no act of
each of them has been in possession of half of the property. both the trustor and the trustee. In Labiste, where there was repudiation need to be made by the trustee for prescription
Their arrangement was corroborated by the subdivision plan no such deed of trust, but the Court allowed sworn to run.
prepared by Engr. Bunagan and approved by Jose P. Dans, statements to constitute as the written evidence to prove
Acting Director of Lands.” (at p. 426). the existence of an express trust; whereas, in Cañezo, such Ramos v. Ramos, 61 SCRA 284 (1974), characterized
sworn statement was deemed to be insufficient to prove constructive trust as –
either an express or a resulting trust. The lesson learned
Compare the ruling in Labiste, with that in Cañezo v. Rojas,
from a comparison of the Labiste and the Cañezo rulings is
538 SCRA 242 (2007), where the petitioning daughter sought “. . . a trust raised by construction of
that, outside of a formal deed of trust, written or sworn
to recover a parcel of land from her stepmother which the law, or arising by operation of law. In a
statements narrating the purported trust, in order to support
latter inherited from the deceased husband. The daughter more restricted sense and as
the conclusion that there is such a trust relationship, must
alleged that she was the one who purchased the contradistinguished from a resulting
contain the signature of “the party sought to be bound” (a
unregistered land from the Bureau of Lands, but that when trust, a constructive trust is a trust not
term used for the requisite memorandum under the Statute
she had to leave Mindanao, she placed it in the care of her created by any words, either expressly
of Frauds), i.e., the signature of the trustee, who under any
father who verbally agreed to hold title on her behalf. The or impliedly evincing a direct intention
trust relationship, is really the party who assumes
father eventually obtained a tax declaration to the land in his to create a trust, but by the construction
obligations and fiduciary duties relative to the property held
name and paid the real property taxes thereon also in his of equity in order to satisfy the demands
in trust.
name. After the father died, the stepmother took over the of justice. It does not arise by
title to the land. The daughter sought a reconveyance of title agreement or intention, but by operation
to the land on the ground of a trust was created thereon in b. Rule of Prescriptibility of Resulting Trusts of law. (89 C.J.S. 726-727). If a person
her favor. The daughter executed a sworn statement to obtains legal title to property by fraud or
prove the existence of an express trusts or a resulting trusts concealment, courts of equity will
Since a resulting trust is much akin to an express trust under
on the theory that prescription or laches cannot be poised impress upon the title a so-called
the consideration that it arises from the presumed or
against her claims on the property. The Court ruled against constructive trust in favor of the
sometimes merely orally expressed intention of the parties,
the daughter as follows: defrauded party. A constructive trust is
the Supreme Court has held in Ramos v. Ramos, 61 SCRA
284 (1974), that the rule of imprescriptibility of an action to not a trust in the technical sense.” (at p.
It is true that in express trusts and recover property held in express trust, may possible apply to 298-299; citing Article 1456 of the Civil
resulting trusts, a trustee cannot acquire a resulting trust as long as the trustee has not repudiated Code; and Gayondato v. Treasurer of the
by prescription a property entrusted to the trust. P.I., 49 Phil. 244 [1926]).
him unless he repudiates the trust. x x
x . (at p. 252) The ruling has been reiterated in Salao v. Salao, 70 SCRA
Therefore, the rules on acquisitive prescription when it
comes to resulting trusts, would be the same rules 65, 81 (1976); Guy v. Court of Appeals, 539 SCRA 584
As a rule, however, the burden of pertaining to express trusts. The matter is dealt more in (2007).
proving the existence of a trust is on the detail in the last chapter.
party asserting its existence, and such a. Distinguishing from Resulting Trusts
proof must be clear and satisfactorily
4. Constructive Trusts
show the existence of the trust and its
elements. . . . Accordingly, it was Unlike resulting trusts that draw their essence from the
incumbent upon petitioner [daughter] to In Diaz v. Gorricho and Aguado, 103 Phil. 261, 266 (1958), perceived intention of the parties as taken from the structure
prove the existence of the trust and Carantes v. Court of Appeals, 76 SCRA 514, 524 of the transactions covered, constructive trusts draw their
relationship. And petitioner sadly failed (1977), the Court characterized constructive trust as one essence from the need to impose a fiduciary duty on a
to discharge that burden. “which is imposed by law . . . [and] there is neither promise person who takes title to a property to achieve justice or
nor fiduciary relations; the so-called trustee does not equity on behalf of another person who would otherwise be
recognize any trust and has no intent to hold the property for adversely affected by the fact that such title remains with, or
42
has been conveyed to, another person. A constructive trust is created, not by
any word evincing a direct intention to
create a trust, but by operation of law in In PNB, the drawee-bank had mistakenly credited double
In Philippine National Bank v. Court of Appeals, 217 SCRA payments into the account of the payee Mata, which it
order to satisfy the demands of justice
347 (1993), the Court distinguished an express trust from discovered only six years later, at which time it made a
and to prevent unjust enrichment. It is
the constructive trust in the following manner, thus – formal demand upon the payee to refund the overpayment.
raised by equity in respect of property,
which has been acquired by fraud, or When the payee did not comply with the demand, the
In analyzing the law on trust, it would be where although acquired originally petitioner drawee-bank filed a collection case “based on a
instructive to refer to Anglo-American without fraud, it is against equity that it constructive trust under Article 1456 of the Civil Code, it has
jurisprudence on the subject. Under should be retained by the person a right to recover the said amount it erronenously credited to
American Law, a court of equity does holding it. Constructive trusts are respondent Mata.” (at p. 351).
not consider a constructive trustee for illustrated in Arts. 1450, 1454, 1455 and
all purposes as though he were in reality 1456. (at p. 27) The drawee-bank did not seek to recover based on solutio
a trustee; although it will force him to indebiti since under Article 1145(2) of the Civil Code, it has
return the property, it will not impose exceed the statute of limitation of 6 years. The trial court
Lately, in Cañezo v. Rojas, 538 SCRA 242 (2007), the Court
upon him the numerous fiduciary rendered judgment dismissing the complaint ruling that “the
held that –
obligations ordinarily demanded from a instant case falls squarely under Article 2154 on solutio
trustee of an express trust. It must be indebiti and not under Article 1456 on constructive trust. In
borne in mind that in an express trust, A constructive trust is one created not affirming the lower court, the appellate court added in its
the trustee has active duties of by any word or phrase, either expressly opinion that under Article 2154 on solutio indebiti, the
management while in a constructive or impliedly, evincing a direct intention person who makes the payment is one who commits the
trust, the duty is merely to surrender the to create a trust, but one which arises in mistake vis-a-vis the recipient who is unaware of such a
property. (at p. 356) order to satisfy the demands of justice. mistake.” (at p. 351)
It does not come about by agreement or
intention but in the main by operation of
In Aznar Brothers Realty Company v. Aying, 458 SCRA 496 The Supreme Court noted that “Petitioner [drawee-bank]
law, construed as against one who, by
(2005), the Court distinguished a resulting trust from a naturally opts for an interpretation under constructive trust
fraud, duress or abuse of confidence,
constructive trust, as follows — as its action . . . can still prosper [i.e, implied trust], as it is
obtains or holds the legal right to
property which he ought not, in equity well within the prescriptive period of ten (10) years as
Resulting trusts are based on the and good conscience, to hold. (at p. provided by Article 1144, paragraph 2 of the Civil Code.” (at
equitable doctrine that valuable 258) p. 352) In contrasting an express trust from an implied trust,
consideration and not legal title the Court held in PNB –
determines the equitable title or interest
b. Constructive Trusts Similar in Purpose to Quasi-
and are presumed always to have been A deeper analysis of Article 1456 reveals
Contract of Solutio Indebiti
contemplated by the parties. They arise that it is not a trust in the technical
from the nature of circumstances of the sense for in a typical trust, confidence is
consideration involved in a transaction It is quite interesting to note that in Philippine National Bank reposed in one person who is name a
whereby one person thereby becomes v. Court of Appeals, 217 SCRA 347 (1993), the Supreme trustee for the benefit of another who is
invested with legal title but is obliged in Court discussed the similarity in the nature and equity called the cestui qui trust, respecting
equity to hold his legal title for the considerations of constructive trusts and the quasi-contract property which is held by the trustee for
benefit of another. On the other hand, of solutio indebiti, thus: the benefit of the cestui qui trust. A
constructive trusts are created by the constructive trust, unlike an express
construction of equity in order to satisfy trust, does not emanate from, or
Rarely in this Court confronted with a
the demands of justice and prevent generate a fiduciary relation. While in an
case calling for the delineation in broad
unjust enrichment. They arise contrary express trust, a beneficiary and a
strokes of the distinctions between such
to intention against one who, by fraud, trustee are linked by confidential or
closely allied concepts as the quasi-
duress or abuse of confidence, obtains fiduciary relations, in a constructive
contract called “solutio indebiti” under
or holds the legal right to property which trust, there is neither a promise nor any
the venerable Spanish Civil Code and
he ought not, in equity and good fiduciary relation to speak of and the so-
the species of implied trust
conscience, to hold. (at pp. 508-509) called trustee neither accepts any trust
denominated “constructive trust,”
commonly regarded as of Anglo- nor intends holding the property for the
The principle was reiterated in Lopez v. Court of Appeals, 574 American origin. Such a case is the one beneficiary.” (at pp. 353-354)
SCRA 26 (2008), where the Court further held that — presented to us now which has
highlighted more of the affinity and less xxx.
of the dissimilarity between the two
A resulting trust is presumed to have
concepts as to lead the legal scholar
been contemplated by the parties, the In analyzing the law on trust, it would be
into the error of interchanging the two.
intention as to which is to be found in instructive to refer to Anglo-American
Presented below are the factual
the nature of their transaction but not jurisprudence on the subject. Under
circumstances that brought into
expressed in the deed itself. Specific American Law, a court of equity does
juxtaposition the twin institutions of the
examples of resulting trusts may be not consider a constructive trustee for
Civil Law quasi-contract and the Anglo-
found in the Civil Code, particularly Arts. all purposes as though he were in reality
American trust. (at p. 350)
1448, 1449, 1451, 1452 and 1453. a trustee; although it will force him to
43
return the property, it will not impose Art. 1445. The enumeration
upon him the numerous fiduciary of the following cases of implied
obligations ordinarily demanded from a trust does not exclude others 26 (2008).
trustee of an express trust. It must be established by the general law of
borne in mind that in an express trust, trust, but the limitation laid down In Morales v. Court of Appeals, 274 SCRA 282 (1997), the
the trustee has active duties of in Article 1442 shall be applicable. Court referred to the implied trust covered under Article
management while in a constructive 1448 as “purchase money resulting trust.” (citing 76 Am.Jur.
trust, the duty is merely to surrender the 2d Trusts §179), thus:
Article 1447 of the Civil Code expressly provides that the
property.
enumeration in the subsequent articles of the cases of
implied trust does not exclude others established by the The trust is created in order to
Still applying American case law, quasi- general law of trust, but that the limitation laid down in effectuate what the law presumes to
contractual obligations give rise to a Article 1442 shall be applicable, i.e., so long as those have been the intention of the parties in
personal liability ordinarily enforceable principles do not conflict with the Civil Code, the Code of the circumstances that the person to
by an action at law, while constructive Commerce, the Rules of Court and special laws. whom the land was conveyed holds it as
trusts are enforceable by a proceeding trustee for the person who supplied the
in equity to compel the defendant to purchase money. (at p. 299)
The discussions in this section would ultimately show that
surrender specific property. To be sure,
strictly speaking the enumerated implied trusts are
the distinction is more procedural than
essentially resulting trusts (Articles 1448 to 1455), and that The reason why the situation described under Article 1448 is
substantive. (at p. 356)
the only true constructive trusts are those covered by Article an implied trust is that unlike in express trust, the person
1456, which actually embodies the general principle for who takes title to the purchased property does not expressly
In drawing the parallelism between solutio indebiti and constructive trusts. bound himself to hold or administer the same for the benefit
trusts, the Court noted that “While the principle of undue of any person. The presumption of a resulting trust arises
enrichment or solutio indebiti, is not new, having been from the fact of a sale transaction where the evidence shows
a. Purchase of Property Where Title Placed in One
incorporated in the subject on quasi-contracts in Title XVI of that title is placed in the name of one person, while the
Person, But Price Paid by Another Person
Book IV of the Spanish Civil Code . . . the chapter on Trusts is purchase price was paid by the other.
fairly recent, having been introduced by the Code
Commission in 1949. Although the concept of trusts is Art. 1448. There is an
nowhere to be found in the Spanish Civil Code, the framers implied trust when property is sold, The other reason why there is only an implied or resulting
of our present Civil Code incorporated implied trusts, which and the legal estate is granted to trust is that full title, not just naked or legal title, is placed in
includes constructive trust, on top of quasi-contracts, both of one party but the price is paid by the name of a person who is not referred to formally as
which embody the principle of equity above strict legalism.” another for the purpose of having “trustee” nor is the other person who paid for the purchase
(at pp. 355-356, italics supplied). In addition, the Court the beneficial interest of the price referred to formally as a “beneficiary”. This is to
held – property. The former is the trustee, emphasize the point that the most distinguishing
while the latter is the beneficiary. mark between an express trust and a resulting trust is that in
the former the parties bound by the trust are formally
Further reflection on these concepts constituted with naked or legal title placed in the trustee and
reveals that constructive “trust” is as However, if the person to whom the beneficial title pertains to the beneficiary, or that the trustee
much a misnomer as a “quasi-contract”, title is conveyed is a child, (whatever he may be called) is expressly given title to the
so far removed are they from trusts and legitimate or illegitimate, of the property with obligations to hold it for the benefit of another
contracts proper, respectively. In the one paying the price of the sale, no party (whatever he may be called).
case of a constructive trust, as in the trust is implied by law, it being
case of quasi-contract, a relationship is disputably presumed that there is a
“forced” by operation of law upon the gift in favor of the child. The situation covered under Article 1448 of the Civil Code is
parties, not because of any intention on meant to address the observation made in the early decision
their part but in order to prevent unjust in Martinez v. Martinez, 1 Phil. 647 (1903), where the facts
Under Article 1448 of the Civil Code, there is an implied trust showed that it was the father who expended the sums for
enrichment, thus giving rise to certain when property is bought, and the legal estate is granted to
obligations not within the contemplation the purchase of two vessels which were registered in the
one party but the price is paid by another for the purpose of name of his son, who was then of legal age, where the Court
of the parties. (at p. 356) having the beneficial interest of the property. The person in held —
whose name the property is registered is the trustee, while
In ruling that the drawee-bank had a right to invoke the the person who paid for the price shall be the beneficiary.
principles of constructive trust under Article 1456 of the Civil The presumption of resulting trust arises from the truism It may be true that the laws in some of
Code, the Court held that “We agree with petitioner’s stand expressed in Uy Aloc v. Cho Jan Jing, 19 Phil. 202 (1911), that the United States would in this case
that under Article 1456, the law does not make any one of who pays for something usually does so for his own raise a resulting trust in favor of the
distinction since mutual mistake is a possibility on either side benefit. plaintiff [the father]. But such laws are
—on the side of either the grantor or the grantee. Thus, it not in force here; and whatever other
was error to conclude that in a constructive trust, only the right the plaintiff may have against the
Truly, Article 1448 covers a resulting trust that bases itself defendant [son], either for the recovery
person obtaining the property commits a mistake. This is from the implied intentions of the trustor-beneficiary and the
because it is also possible that a grantor, like PNB in the case of the money paid or for damages, it is
acceptance of the obligation by the trustee who is fully clear that such payment gave him no
at hand, may commit the mistake.” (at p. 357). Nonetheless, aware that property is registered in his name for which he
the drawee-bank lost the case on the ground of laches. title either legal or equitable to these
never paid the price. See Ramos v. Ramos, 61 SCRA 284 vessels. (at p. 649)
(1974), Philippine National Bank v. Court of Appeals, 217
5. Implied Trusts Particularly Constituted by Law SCRA 347 (1993), and Lopez v. Court of Appeals, 574 SCRA
44
In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court person who paid the money.” (at p. 649). The exception
applied the provisions of Article 1448 to impute a resulting under Article 1448 is merely a disputable presumption,
trust where pursuant to a special arrangement with the GSIS which means that it can still be shown that indeed the cannot apply in a situation where property is bought by the
which had foreclosed the mortgaged property and the right parents had placed property bought by them in the name of father in his own name, using the money of the child.
of redemption had already expired, the mortgagors-spouses their child to impose an obligation on the part of the child to Resulting trusts under Article 1448 comes from the
had effected the sale thereof to the purported trustee with administer the same for the benefit of the parents, especially presumed intention of the trustor who supplied the money to
the undertaking that the latter would use funds supplied by when the child reaches the age of majority. have beneficial on trust in the property. In Ty, the presumed
the spouses to buy-back the property on behalf of the intention was coming from the father and could not be
spouses. The Court observed that “The concept of implied presumed to come from a child.
In Morales v. Court of Appeals, 274 SCRA 282 (1997), the
trusts is that from the facts and circumstances of a given
Court recognized three exceptions to the establishment of an
case the existence of a trust relationship is inferred in order (3) When a Contrary Intention Is Proved
implied resulting trust under Article 1448, “The first is stated
to effect the presumed (in this case it is even expressed)
in the last part of Article 1448 itself. Thus, where A pays the
intention of the parties or to satisfy the demands of justice or
purchase money and title is conveyed by absolute deed to Morales v. Court of Appeals, 274 SCRA 282 (1997), held that
to protect against fraud.” (at p. 179).
A’s child or to a person to whom A stands in loco parentis “Another exception [to the establishment of an implied
and who makes no express promise, a trust does not result, resulting trust under Article 1448] is, of course, that in which
One will notice from Padilla, that although there is an express the presumption being that a gift was intended.” (at p. 299.) an actual contrary intention is proved.” (at p. 299.) The
agreement on the part of the trustee to hold the property for It is only with respect to a minor child that a parent stands in ruling emphasizes the fact that the implied trusts
the benefit of the spouses, it would still constitute an implied loco parentis. superinduced by law under the various provisions in the Title
or resulting trust, when by definition under Article 1441, it V in the new Civil Code constitute merely disputable
ought to be an express trust. Do we hold therefore that when presumptions, and the burden of proof is on the party
Only lately in Ty v. Ty, 553 SCRA 306 (2008), where the
it comes to registered land, where full title (as contrasted alleging that there is no implied trust constituted on each of
evidence showed that the father had paid for the price of the
from title registered “as trustee”) in placed in the name of the transactions specifically covered by law. Yet, in Morales,
purchase of a valuable tract of land along EDSA, but where
the purported trustee, it cannot be express trust because the the immediate ruling of the Court tended to apply the
the title was placed in the name of a son, it was held by the
Torrens title does not show naked or legal title in the general rule that “the burden of proving the existence of a
Court that no express trust could be deemed constituted
registered owner, much less does it indicate the beneficiary? trust is on the party asserting its existence,” thus:
because there was no writing to prove the same as required
And if the trust relationship was expressed in an instrument
under Article 1443 of the Civil Code when it comes to trust
not registered in the Torrens titles, would the arrangement
being constituted over immovable properties. Although, the There are recognized exceptions to the
now be an express trust, rather than an implied trust?
Court did concede that it was still possible to prove the establishment of an implied resulting
existence of an implied trust, nevertheless, it ruled that the trust. . . Another exception is, of course,
(1) When Title Is Placed in the Name of a Child provisions of Article 1448 expressly provide that no implied that in which an actual contrary
trust is deemed to have been established if the person to intention is proved. . . (at p. 299)
whom the title is conveyed is the child of the one paying the
Article 1448 expressly provides that there is no presumption
price of the sale, and instead a donation is disputably
of resulting trust, if the person to whom the title is conveyed As a rule, the burden of proving the
presumed in favor of the child. In Ty, the successors of the
is a child, legitimate or illegitimate, of the one paying the existence of a trust is on the party
deceased father had not shown that no such donation was
price of the sale, it being disputably presumed that there is a asserting its existence, and such proof
intended.
gift in favor of the child. must be clear and satisfactorily show
the existence of the trust and its
(2) When It Is the Child that Supplies the Purchase elements. While implied trust may be
In De los Santos v. Reyes, 205 SCRA 437 (1992), the Court
Price proved by oral evidence, the evidence
held that if the person to whom the title is conveyed is a
child, legitimate or illegitimate, of the one paying the price of must be trustworthy and received by the
the sale, no trust is implied by law, it being disputably A good illustration where no implied trust arises can be courts with extreme caution, and should
presumed that there is a gift in favor of the child. found in Trinidad v. Ricafort, 7 Phil. 449 (1907), where the not be made to rest on loose, equivocal
evidence showed that the father had repurchased the or indefinite declarations. Trustworthy
property he sold to a third party using the money of his son; evidence is required because oral
As a general rule, it cannot be expected that a parent evidence can easily be fabricated. (at p.
yet the implied trust arrangement imbued by the trial court
placing property he bought in the name of the child intended 300)
to justify the taking over of title by the son after the death of
any form of trust, since it cannot be normally expected that
the father, was overturned by the Supreme Court —
a child would administer property for the benefit of the
parents. Should Article 1448 be interpreted to mean, when it (4) When Purchase Price Extended as a Loan
uses the word “child” to cover a situation where title to the It plainly appears from all of the
property is placed by the parent in the name of a child who evidence in the case that at the time of If it is shown that the person who paid for the amount of the
then was a minor? I believe that this is a reasonable the death of [the father] he was still the purchase price did so as a loan or as an advance to the
presumption, as bolstered by the decisions discussed owner of whatever interest was acquired person in whose name the title to the property is transferred,
hereunder. by the repurchase of this property in then no implied trust should also result because of the lack
1894, and that if the 2,600 pesos of intention on the part of the person supplying the money to
furnished by [the son] to his father for have beneficial interest in the property bought.
In Martinez v. Martinez, 1 Phil. 647 (1903), the Court alluded
that purpose it was so furnished by way
to the provision of then Article 161 of the old Civil Code,
of a loan and did not transfer to [the
relating to minors, that the ownership or enjoyment of Such situation is in contrast with the situation covered in
son] any interest in the property. (at p.
property acquired by a minor child with funds of his parents, Article 1450 of the Civil Code (discussed immediately
452)
pertain to the latter [parents], which the Court observed was hereunder), where the title to the property is placed in the
“the only provision which the we have found anywhere in the name of the person who advanced or loan the amount,
laws now in force that declares the property to belong to the In other words, the equity principles under Article 1448
45
which is considered to be a form of implied trust, but may The implied trust situation covered under Article 1450 is akin
properly be treated as an equitable mortgage. to an equitable mortgage arrangement, since title to the
property intended for the borrower is placed in the name of possession and enjoys the property bought, and pays for the
the lender to secure the payment of the debt. real property taxes due thereon. Such an arrangement would
(5) Exception: When the Purchase Is Made in Violation constitute badges of equitable mortgage under Article 1602
of an Existing Statute of the Law on Sales under the Civil Code.
In Raymundo v. Bandong, 526 SCRA 514 (2007), the
Supreme Court reiterated the long-standing definition of
Morales v. Court of Appeals, 274 SCRA 282 (1997), held that When the borrower-beneficiary fails or refuses to redeem the
equitable mortgage “as one which although lacking in some
another exception to the establishment of an implied property (i.e., pay the principal obligation), and the lender
formality or form or words, or other requisites demanded by
resulting trust under Article 1448 is “where the purchase is brings an action for collection, can the trust property be
a statute, nevertheless reveals the intention of the parties to
made in violation of an existing statute and in evasion of its levied upon for the payment of the judgment debt, contrary
charge real property as security for a debt, and contains
express provision, [since] no trust can result in favor of the to his duty of loyalty as a implied trustee? The answer would
nothing impossible or contrary to law.” (at p. 525.) That is
party who is guilty of fraud.” (at p. 299, citing 4 Tolentino of course be in the affirmative.
the reason why the Article 1450 expressly provides that the
679,-680.)\
borrower may redeem the property and compel the lender to
convey the property to him. Indeed, in an equitable mortgage situation, even when title
This particular ruling in Morales reiterates the principle laid is registered in the name of the lender, it is considered void
down in Deluao v. Casteel, 22 SCRA 231 (1962), that since for being in violation of the public policy against pactum
It should be noted, however, that the arrangement provided
implied trusts are essentially founded on equity principles, commissorium. In a situation where the borrower has
under Article 1450 is not the typical equitable mortgage
no trust can be held valid and enforceable when it is defaulted on his loan, the remedy of the lender is not to
arrangement found in the Law on Sale, since under such
violative of the law, morals or public policy. appropriate title to the property but rather bring an action
arrangement, the equitable mortgage is constituted between
the purported seller (borrower-mortgagor) and buyer (lender- for foreclosure (Briones-Vazquez v. Court of Appeals, 450
b. Purchase of Property Where Title Is Placed in the mortgagee) in the contract of sale with a right of repurchase, SCRA 644 [2005]), or to bring a simple collection suit (Binga
Name of Person Who Loaned the Purchase Price where the purpose of the sale is really to secure a principal v. Bello, 471 SCRA 653 [2005].).
obligation, usually a loan, between the purported seller and
Art. 1450. If the price of a purported buyer. Under Article 1450, the equitable mortgage It should be emphasized, though that when the principal
sale of property is loaned or paid by is constituted by the sale of a third party of his property to a contract has been extinguished with full payment thereof,
one person for the benefit of purported buyer (the lender-mortgagee) who takes titles to then necessarily the accessory contract of equitable
another and the conveyance is secure his loan or advance made to the cestui que trust, who mortgage is also extinguished, which then allows the
made to the lender or payor to is a stranger to the contract of sale. borrower to recover any and all properties given as security
secure the payment of the debt, a for the loan.
trust arises by operation of law in The characterization of the situation as an implied trust,
favor of the person to whom the would impose upon the lender-buyer the fiduciary obligations c. When Absolute Conveyance of Property Effected
money is loaned or for whom it is of the trustee. When the borrower fails to pay the loan or Only as a Means to Secure Performance of Obligation
paid. The latter may redeem the obligation, it would be anomalous for the lender-buyer to of the Grantor
property and compel a conveyance bring a collection case, for indeed he has already in his name
thereof to him. the property bought as security the loan; otherwise, it would
amount to unjust enrichment. But if the lender does nothing Art. 1454. If an absolute
because he is deemed to be fully paid with the property conveyance of property is made in
Under Article 1450 of the Civil Code, if the price of a property order to secure the performance of
bought is loaned or paid by one person for the benefit of already secured in his name, that would constitute pactum
commissorium prohibited under Article 2088 of the Civil an obligation of the grantor toward
another and the conveyance is made to the lender or payor the grantee, a trust by virtue of law
“to secure the payment of the debt,” an implied trust arises Code, and the title of the lender would be void ab initio.
Without the right to redeem granted under Article 1450 of is established. If the fulfillment of
by operation of law in favor of the person to whom the the obligation is offered by the
money is loaned or for whom it is paid. The beneficiary is the Civil Code, could the borrower, who is a stranger to the
contract of sale effected between a third-party and the grantor when it becomes due, he
expressly empowered to redeem the property and compel a may demand the reconveyance of
conveyance thereof to him. lender seek recovery of the property by way of redemption?
Fortunately, with Article 1450 in place, there is no doubt the property to him.
that the borrower has the ability to redeem the property by
While, Philippine National Bank v. Court of Appeals, 217 paying his loan to, or advances from, the lender-trustee. Under Article 1454 of the Civil Code, if an absolute
SCRA 347 (1993), enumerates the arrangement under Article conveyance of property is made in order to secure the
1450 as a resulting trust, Lopez v. Court of Appeals, 574 performance of an obligation of the grantor toward the
SCRA 26 (2008,) holds the implied trust arrangement to be a But even without Article 1450 in the statute books, it is our
position that indeed the borrower may seek redemption of grantee, a trust by virtue of law is established. If the
constructive trust. We agree with the PNB characterization, fulfillment of the obligation is offered by the grantor when it
since it can be deduced from the very essence of the the property bought by and placed in the name of the lender.
It has already been held by the Supreme Court that in spite becomes due, he may demand the reconveyance of the
described transaction that the buyer took title to the property to him.
property as security for the loan or advance given to the of the best evidence rule, a written contract may be proved
cestui que trust, and such trustee therefore holds title by parol evidence to be an equitable mortgage, because the
subject to the intention of the cestui que trust to pay for the public policy against pactum commissorium takes The principle embodied in Article 1454 of the New Civil Code
principal as a means to secure title to the property that was precedence. (Cuyugan v. Santos, 34 Phil. 100 [1916]; were applied under the old Civil Code in De Ocampo v.
bought in his behalf in the first placed. Mariano v. Court of Appeals, 220 SCRA 716 (1993); Rosales v. Zaporteza, 53 Phil. 442 (1929), where a deed of sale with
Suba, 408 SCRA 664 [2003]). It is usual in such right of repurchase was really intended to cover a loan made
arrangements that although the property bought is placed in by the purported seller from the purported buyer and title to
(1) Akin to an Equitable Mortgage Arrangement the name of the lender, it is the borrower who takes the subject matter was placed in the name of the buyer. The
46
Supreme Court held that the “application must here be mortgage arrangement), save when formal foreclosure
made of the doctrines upheld in the cases of Uy Aloc vs. Cho proceedings have been brought by the lender-buyer, or if the
Jan Ling (19 Phil., 202); Camacho vs. Municipality of Baliaug property has passed a third party buyer in good faith and for 1452 shows that it covers an express trust arrangement,
(28 Phil., 46); and Severino vs. Severino (44 Phil., 343), to value. since it says that is covers as situation where “two or more
the effect that the defendants [buyer] only hold the persons agree to purchase property” and that “by common
certificate of transfer in trust for the plaintiffs with respect to consent the legal title is taken in the one of one of them for
d. Two or More Persons Purchase Property Jointly, But the benefit of all.” In other words, a trust arrangement is
the portion of the lot planted with 1,300 coconut trees, and
Places Title in One of Them created not “by force of law”, but by the intentions clearly
they are therefore bound to execute a deed in favor of the
plaintiffs, transferring to them said portion planted with expressed by the parties through their “agreement” and
1,300 coconut trees.” (at p. 445.) Art. 1452. If two or more “common consent”, and therefore falls with the definition
persons agree to purchase property under Article 1441 that “Express trust are created by the
and by common consent the legal intention of the trustor or of the parties.”
While PNB enumerates the arrangement under Article 1454
title is taken in the name of one of
as one of the resulting trusts, Lopez holds the implied trust
them for the benefit of all, a trust is The only reason we see why the law would treat the
arrangement to be a constructive trust. We tend to agree
created by force of law in favor of arrangement under Article 1452 not as an express trust is
with the PNB characterization.
the others in proportion to the because full title, not just naked or legal title is placed in the
interest of each. name of the trustee, which means that insofar as the world
The situation covered under Article 1454 really constitutes is concerned he appears to be the full owner, rather than as
an equitable mortgage arrangement thoroughly covered a trustee. This is especially true when it comes to registered
Under Article 1452 of the Civil Code, if two or more persons
under Article 1602 to 1605 of the Law on Sales in the Civil land where full title is placed in the name of the trustee (i.e.,
agree to purchase property and by common consent the
Code. Indeed, the “absolute conveyance of property” he is not registered as “trustee” in the certificate of title),
legal title is taken in the name of one of them for the benefit
described in Article 1454 is nothing more than a “deed of and therefore, the trust arrangement can only be “implied”
of all, a trust is created by force of law in favor of the others
absolute sale;” and Article 1604 embodies a doctrine long- from other source.
in proportion to the interest of each. Both PNB and Lopez
established in Philippine jurisprudence that “The provisions
classify the arrangement under Article 1452 as a resulting
of article 1602 [on badges of equitable mortgage] shall also
trust, to which characterization we agree with. e. Property Conveyed to Person Merely as Holder
apply to a contract purporting to be an absolute sale.”
(Zamora v. Court of Appeals, 260 SCRA 10 [1996]; Tuazon v. Thereof
Court of Appeals 341 SCRA 07 [2000].) 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. Art. 1453. When property is
284 (1911), where the title to certain parcels of land appear conveyed to a person in reliance
If one would wonder why the matter has to be covered by
to have been drawn up only in the name of one of the two upon his declared intention to hold
the principles of implied trusts under Article 1454 of the New
parties who formed a partnership and combined their capital it for, or transfer it to another or
Civil Code, the plausible answer is that Articles 1604 and
to acquire the properties. Nonetheless, there was drawn up the grantor, there is an implied
1605 in the Law on Sales, expressly allows the purported
between them a private document that described their trust in favor of the person whose
seller to ask for the reformation of the deed of absolute sale
arrangements, which has never been impugned by the party benefit is contemplated.
to reflect its true nature as a mortgage contract, but
in whose names the titles to the land had been placed. The
nowhere expressly grants the right to the seller to redeem
Court held that the parties were really co-owners, and the
the property sold. The power of the purported seller in an Under Article 1453 of the Civil Code, when property is
party in whose names appear the titles to the land, being in
equitable-mortgage-cum-deed-of-absolute-sale to redeem conveyed to a person in reliance upon his declared intention
possession of only half of the parcels of land, was not
the property in the absence of a right of redemption clause is to hold it for, or transfer it to another or the grantor, there is
entitled to claim possession of the other half held by the
expressly provided for in Article 1454. an implied trust in favor of the person whose benefit is
heirs of the deceased co-owner.
contemplated. Both PNB and Lopez characterize the
Frankly, it would have been far better to transfer the right to arrangement under Article 1453 as resulting trust.
In Uy Aloc v. Cho Jan Jing, 19 Phil. 202 (1911), where a
redeem under Article 1454 to be part of Article 1605 of the
number of Chinese merchants raised a fund by voluntary
Civil Code, instead of treating the matter under implied As in the case of Article 1452, the situation covered by
subscription with which they purchased a valuable tract of
trusts. A good reason we give for this advocacy is that since Article 1453 covers really an express trust, because title to
land and erected a large building to be used as a sort of club
the contract or arrangement defined under Article 1454 is property is taken by the trustee under a clear agreement to
house for the mutual benefit of the subscribers to the fund;
considered a constructive trust, it would be susceptible hold it for another person. The only difference is that there
but since the association was not registered as a juridical
under current jurisprudence to the defense of prescription, may be a situation where the person sought to be benefited
person, it was agreed to have the title to the property placed
especially when it comes to registered land. Under the Law by the grantor has not yet given formal acceptance of the
in the name of one of their members, who accepted the
on Sales, the arrangement would clearly be an equitable benefit. Even such a situation is not critical, since under
trust, and agreed to hold the property as agent and trustee
mortgage since the disposition contract is really a security Article 1446, if the trust imposes no onerous conditions upon
of the members of the association. When the title holder
arrangement for a principal obligation. Since property given the beneficiary, his acceptance is presumed. Jurisprudence
refused to account for the rentals earned from the property,
as security has in fact been placed in the name of the has also affirmed the validity of a trust established for a
and in fact set up title in himself, the members brought suit
obligee, this would be contrary to the public policy against person who is not yet existing, such as an unborn child.
to have title conveyed to them. The Court held in Uy Aloc
pactum commissorium under Article 2088 of the Civil Code
that there was an implied trust constituted and the
which provides that the creditor cannot appropriate the
registered owner held it under an obligation, both express The points raised in the foregoing paragraph seemed to have
things given by way of pledge or mortgage, or dispose of
and implied, to deal with it exclusively for the benefit of the been affirmed by the Supreme Court in Cuaycong v.
them; that any stipulation to the contrary is null and void;
members of the association and subject to their will. Cuaycong, 21 SCRA 1192 (1967), but with opposite results.
and the right of the borrower-seller to redeem the property
purportedly sold in really imprescriptible (i.e., for as long as In Cuaycong, the Court denied the application of the
the buyer can fully pay the principal obligation, which brings One has to wonder why the arrangement described under provisions of Article 1453 to establish an implied trust: “Said
about the extinguishment of the accessory equitable Article 1452 of the Civil Code should even be considered an arguments are untenable, even considering the whole
“implied trust” arrangement; the very language of Article complaint. The intention of the trustor to establish the
47
alleged trust may be seen in paragraphs 5 and 6. Article part thereof has been furnished by or for
1453 would apply if the person conveying the property did such other. Thus, it has been held that
not expressly state that he was establishing the trust, unlike where the grantee takes the property other half would be held by her for the benefit of a younger
the case at bar where he was alleged to have expressed under an agreement to convey to brother, coupled with a deed of waiver later on executed by
such intent. Consequently, the lower court did not err in another on certain conditions, a trust the daughter that she held the land for the common benefit
dismissing the complaint,” (at p. 1198) on the ground that results for the benefit of such other or of her brother, the Court held that the arrangement created
since the complaint sought to recover an express trust over his heirs, which equity will enforce an implied trust in favor of the brother under Article 1449 of
immovables, then under Article 1443 of the Civil Code, the according to the agreement. (189 C.J.S. the Civil Code.
same may not be proved by parol evidence. 960). It is also the rule there that an
implied trust arises where a person Adaza is quite a curious ruling for two reasons. Firstly, if the
purchases land with his own money and donation to the daughter was made by the father with the
An example of the situation covered by Article 1453 may be
takes a conveyance thereof in the name express directive that the daughter would take title for her
found in the decision in Pacheco v. Arro, 85 Phil. 505 (1950),
of another. In such a case, the property benefit and that of her younger brother, would that not
where the claims of respondents in cadastral case were
is held on a resulting trust in favor of the constitute an express trust, or one that is created by the
withdrawn relying upon the assurance and promise made in
one furnishing the consideration for the express intention of the father? Secondly, did not the waiver
open court by petitioners’ predecessor-in-interests that upon
transfer, unless a different intention or constitute a written acknowledgment on the part of the
obtaining title to the properties subject to the petition, he
understanding appears. The trust which trustee that the took title for the benefit of the brother
would convey and assign the lots to the respondents in
results under such circumstances does also, and thereby constitute competent evidence to support
accordance with their respective claims. In an action for
not arise from contract or agreement of an express trust arrangement?
specific performance filed to compel the petitioner to assign
the parties, but from the facts and
and convey the lots covered, the Court held: “When the
circumstances, that is to say, it results
claim to the lots in the cadastral case was withdrawn by the g. Land Passes By Succession But Heir Places Title
because of equity and arises by
respondents relying upon the assurance and promise made into a Trustee
implication or operation of law. (See 89
in open court by . . . the predecessor-in-interests of the
C.J.S. 964-968). (at pp. 502-503)
petitioners, a trust or a fiduciary relation between them
arose, or resulted therefrom, or was created thereby.” (at pp. Art. 1451. When land passes by
514-515) Consequently, the Court held that such trustee f. Donation of Property to a Donee Who Shall Have No succession to any person and he
cannot invoke the statute of limitations to bar the action and Beneficial Title causes the legal title to be put in
defeat the right of the cestuis que trust. the name of another, a trust is
established by implication of law
Art. 1449. There is also an for the benefit of the true owner.
Earlier, in Martinez vs. Graño, 42 Phil. 35 (1921), the Court implied trust when a donation is
held that a person who, before consolidation of property in made to a person but it appears
the purchaser under a contract of sale with pacto de retro, that although the legal estate is Under Article 1451 of the Civil Code, when land passes by
agrees with the vendors to buy and administer the property transmitted to the donee, he succession to any person and he causes the legal title to be
until all debts constituting an encumbrance thereon shall be nevertheless is either to have no placed in the name of another, a trust is established by
paid, after which the property shall be turned back to the beneficial interest or only a part implication of law for the benefit of the true owner.
original owner, is bound by such agreement, and becomes in thereof.
effect a trustee to hold and administer the property in such Both PNB and Lopez characterize the implied trust
character. The principle was reiterated in Cristobal v. Gomez, arrangement covered under Article 1451 as resulting trust.
Under Article 1449 of the Civil Code, there is an implied trust
50 Phil. 810 (1927). We agree with such characterization.
when a donation is made to a person but it appears that
although the legal estate is transmitted to the donee, he
In reiterating the Martinez ruling, the Court in Heirs of Emilio nevertheless is either to have no beneficial interest or only a The language of Article 1451, as it limits its application to
Candelaria v. Romero, 109 Phil. 500 (1960), held — part thereof. In such a situation, the donor is deemed to have land, may be taken to mean that no such implied trust arises
become the beneficiary under an implied trust arrangement. when it comes to other types of property, especially as to
Lopez and PNB classify the arrangement under Article 1449 movable properties, when the prevailing doctrine is that he
The trust alleged to have been created,
as a resulting trust; for obvious reasons, we agree with such who possess movable is presumed to be the rightful owner.
in our opinion, is an implied trust. As
a position. That would perhaps be an erroneous conclusion for the
held, in effect, by this Court in the case
of Martinez vs. Grano (42 Phil., 35), following reasons: Firstly, Article 1451 limits its application to
where property is taken by a person In has been opined that the resulting trust covered under land because the principal of implied trust it embodies is
under an agreement to hold it for, or Article 1449 is analogous to, but should not be confused most appropriate to registered land, where title issued in the
convey it to another or the grantor, a with, the fideicommissary substitution under Article 863 of name of the trustee, without indication that he holds the
resulting or implied trust arises in favor the Civil Code, wherein the testator designates a person as same under fiduciary undertakings, can be an occasion to
of the person for whose benefit the an heir charging him to deliver to another person the whole abuse. Secondly, the enumeration of the applicability of
property was intended. This rule, which or part of the inheritance. (Coquia, Jorge R., The Doctrine of implied trust under Article 1451 and those of other articles,
has been incorporated in the new Civil Implied Trust, 310 SCRA 486, 492). Yet, under the old Civil is not deemed to be on an exclusive basis as clearly
Code in Art. 1453 thereof, is founded Code, it was observed by the Court in Perez v. Garchitorena expressed in the language of Article 1447: “The enumeration
upon equity. The rule is the same in the and Casimiro, 54 Phil. 431(1930), that a fideicommissary of the following cases of implied trust does not exclude
United States, particularly where, on the substitution is not equivalent to the English trust. others established by the general law of trust.”
faith of the agreement or understanding,
the grantee is enabled to gain an Article 1451 should be read to cover the situation when the
Under the New Civil Code, in Adaza v. Court of Appeals, 171
advantage in the purchase of the property inherited is registered in another’s name as full
SCRA 369 (1989), where the father donated a piece of land
property or where the consideration or owner rather than as “trustee”, for in the latter case that
in the name of the daughter but with verbal notice that the
48
would clearly be an express trust. into between the applicant and his co-heirs that should put made to him or to a third person, a
the title in his name subject to the condition that he was trust is established by operation of
merely to act as a trustee of his co-heirs, and a partition of law in favor of the person to whom
Article 1451 should also be distinguished from the situations
the property would later be effected between him and his co- the funds belong.
covered by Article 1456 where property is acquired through
heirs, the Court held that there was created a relationship of
fraud or mistake (discussed hereunder), because under
trust between the applicant and his co-heirs which gives to
Article 1451, the placing of title in the name of another (the Under Article 1455 of the Civil Code, when any trustee,
the latter the right to recover their share in the property
trustee) is done purportedly with the knowledge and consent guardian or other person holding a fiduciary relationship
unimpaired by the defense of prescription.
of the cestui que trust. What makes the arrangement under uses trust funds for the purchase of property and causes the
Article 1451 an implied trust arrangement is the lack of clear conveyance to be made to him or to a third person, a trust is
purpose or intention on why the heir caused legal title to be In Custodia v. Casiano, 9 SCRA 841 (1963), where the established by operation of law in favor of the person to
put in another person’s name. Article 1451 does not cover a predecessor-in-interest had bought a large tract of land on whom the funds belong.
situation where the person takes title to the inherited land installments, which devolved to the heirs upon his death, but
acknowledging clearly that he does so for the benefit of the upon full payment thereof, the only male heir had caused
While Ramos and PNB characterize the arrangement covered
heir, for that would be an express trust, except for the fact the title to be issued in his name with the understanding
under Article 1455 as constituting a resulting trust, Lopez
that title in registered fully in the name of such person, and with his co-heir that he would act as trustee, the Court held
holds that it is a form of constructive trust. I believe that the
not expressly as “trustee”. that there being no evidence that the trust relation had even
better position is to treat such a situation as constituting a
been repudiated by said trustee, then the relationship of co-
resulting trust, since it comes about in breach of fiduciary
ownership had existed between such trustee and his sisters
The doctrine covered in Article 1451 has for its basis the duty of loyalty that is brought about that a pre-existing
and the right of the successors in interest of the said sister
decisions of the Supreme Court under the old Civil Code that contractual relationship, i.e., agency or express trust.
to bring an action for the recovery of their shares against the
did not contain provisions on trusts. Thus, in Bargayo v.
successor-in-interest of the said trustee cannot be barred by
Camumot, 40 Phil. 857 (1920), the Court held that that the
prescription, despite the lapse of 25 years from the date of Article 1455 is the operative provision governing the duty of
co-owner or co-heir who is in possession of an inheritance
registration of the land in the trustee’s name. loyalty of the agent to the principal, as well as the trustee to
pro indiviso for himself and in representation of his co-
the beneficiary. A trustee is duty-bound to handle the affairs
owners or co-heirs, if, as such owner, he administers or takes
of the trust and to apply all the properties in the trust estate
care of the rest thereof with the obligation of delivery it to The decision in Mariano v. Judge De Vega, 148 SCRA 342
for the sole benefit of the beneficiary. In a situation where
his co-owners or co-heirs, is under the same situation as a (1987), reminds us that the principles of implied trust under
there is a conflict between the interests of the trustee and
trustee. Bargayo however recognized the principle that when Article 1451 do not apply when the real property is
the beneficiary, it is the duty of the trustee to prefer that of
a co-owner or co-heir refutes the co-ownership and takes unregistered land and no title has been issued in the name
the beneficiary. A violation of the duty of loyalty makes the
adverse possession of the property for himself alone, then of one of the co-owners, and the situation only shows that he
trustee personally liable to the beneficiary for the resulting
acquisitive prescription may arise in his favor to the has possession and enjoyment of the property subject of the
damages. An appropriation of any business or interest that
detriment of the other co-heirs or co-owners. Bargayo co-ownership. No implied trust could be ascribed to the
should be for the account of the beneficiary would require
distinguished between the rule of imprescriptibility of the situation according to the Court in that: “The existence of
that the trustee to reimburse the profits or turn-over the
action for partition among co-owners, from the doctrine of the co-ownership here argues against theory of implied trust,
benefits to the estate trust. The principle laid down in Article
acquisitive prescription that allows a person to obtain title to for then a co-owner possesses co-owned property not in
1455 covering the fiduciary duty of loyalty of the trustee is
property by open, adverse possession. behalf of the other co-owners but in his own behalf,” (at p.
applicable to express trusts and implied trusts.
346) in accordance with the truism that possession by a co-
owner of the property owned in common is not necessarily
In Castro v. Castro, 57 Phil. 675 (1932), the Court held that
adverse possession against the other co-owners for “[a]fter In Camacho v. Municipality of Baliwag, 28 Phil. 466 (1914),
one who acquires a Torrens title in his own name to property
all, co-owners are entitled to be in possession of the where evidence showed that a municipal officer received
which he is administering for himself and his siblings as heirs
premises, and it would not also constitute a clear repudiation funds from the members of the community to bid on behalf
in common by descent from a common ancestor may be
of the co-ownership itself.” (at p. 346) of the municipality at a public auction of the land that was
compelled to surrender to each of his co-heirs his
taken over by the national government, and who after many
appropriate share, and a proceedings for partition is an
years claimed title in his own name, the Court held —
appropriate remedy by which to enforce such right. With In Ting Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008), where a
respect to the legal position taken by the brother who had Chinese resident had caused land to be placed in the name
title registered in his name that he had repudiated the trust of the trustee who was bound to hold the same for the There have been a number of cases
more than ten years before the action for partition had been benefit of the trustor and his family in the event of death, before this court in which a title to real
filed by his siblings, and thus had acquired title by adverse the application of the doctrine of a resulting trust under property was acquired by a person in his
possession, the Court did not dispute the theory of Article 1451 by the heirs of the trustor could not be upheld own name while acting in a fiduciary
acquisitive prescription being available in such a situation by the Court: “This contention must fail because the capacity, and who afterwards sought to
but held that it could not be applied on the basis that this prohibition against an alien from owning lands of the public take advantage of the confidence
supposed repudiation of the trust first took place before domain is absolute and not even an implied trust can be reposed in him by claiming the
[brother cestui que trust] had reached his majority. The Court permitted to arise on equity consideration.” (at p. 434) ownership of the property for himself.
held “we are unable to see how a minor with whom another This court has invariably held such
is in trust relation can be prejudiced by repudiation of the evidence competent as between the
h. When Trust Fund Used to Purchase Property Which
trust addressed to him by the person who is subject to the fiduciary and the cestui que trust. (at
is Registered in Trustee’s Name
trust obligation. The defendant in our opinion is not entitled pp. 468-469)
to the benefit of prescription from his supposed repudiation
of the trust.” (at p. 685) Art. 1455. When any trustee,
The Court went further to summarize the development of the
guardian or other person holding a
doctrine, thus —
fiduciary relationship uses trust
In Mabana v. Mendoza, 105 Phil. 260 (1959), where title to a
funds for the purchase of property
homestead was obtained pursuant to an agreement entered In Uy Aloc vs. Cho Jan Ling (19 Phil. Rep.,
and causes the conveyance to be
49
202), the members of a Chinese club because the rights of an innocent third jactura locupletari; nemo ex suo delicto
agreed to purchase some real property purchaser intervened. But in the first meliorem suam conditionem facera
and for that purpose subscribed a fund case the injured persons were held potest. It is an illicit act committed with
and placed it in the hands of the entitled to damages, provided they were culpa and therefore, its agent is liable
defendant, who made the purchase in able to establish the same. In the (art. 1089, Civil Code), for the damage
his own name. Subsequently, he refused second case, however, the court caused (art. 1902, ibidem). Not
to account for the rents on the property presumed a waiver of their claims by identical, but similar, to this infidelity is
and claimed it as his own. This court reason of other evidence of record. The the abuse of confidence sanctioned in
held parol proof of the trust sufficient to fact that the parol evidence relied upon our Penal Code as a generic
overcome the case in favor of the in the cases cited in this paragraph to circumstance, nay as specific
defendant by reason of his registered defeat the documents of title was aggravating one, and even as an
documents of title, and decreed that a carefully considered by the court, essential element of certain crimes.
conveyance be made by the defendant impliedly admits its competency. It failed
to the members of the association. in its purpose in these cases merely
Such principle, however, in case of this
because it was not sufficiently strong to
nature is generally recognized in our
overcome the case in favor of the
In Taguinot vs. Municipality of Tanay (9 laws, since in the case of commercial
holders of the registered titles. (at pp.
Phil. Rep., 396), the plaintiffs, as heirs of agents (factores) it is expressly
469)
their father, sought to recover established. Undoubtedly, formerly
possession of a parcel of land held by under the circumstances then prevailing
the municipality on the strength of a The Court concluded in Camacho that “We hold, therefore, such sanction was not necessary in the
Spanish patent issued to him. It was that the parol evidence introduced by the defendant field of civil law, because its sphere of
proved (largely by parol evidence) that municipality was competent to defeat the terms of the action is the general relations of society;
their father acted on behalf and at the plaintiff’s deed. It need only be added that in all such cases but even then it was deemed necessary
expense of the municipality in securing as the present we have required and shall continue to expressly to protect with such sanction
the patent. The patent was retained by require that the proof contradicting such documents must be the commercial relations wherein the
the gobernadorcillo, a copy only being clear and convincing. These qualities are apparent in the question of gain was involved, which is
issued to the patentee. The latter also proof offered by the defendant municipality in the case at sometimes so imperative as to ignore
drew up a private document engaging to bar.” (at p. 470) everything, even the very principles of
execute a conveyance to the loyalty, honesty, and fidelity. (at pp.
municipality, the same being offered in 592-593)
In Sing Joco v. Sunyantung, 43 Phil. 589 (1922), where a
evidence. The municipality had
trusted or confidential employee of the company directly
continuously occupied the land since the
employed fraud to induce the company to forfeit it option to A confidential employee who, knowing
issuance of the title. The judgment of
purchase a valuable large tract of land, and thereafter that his principal was negotiating with
the court below dismissing the
caused his wife to purchase the same. In affirming the the owner of some land for the purchase
complaint was affirmed.
decision of the trial court which decreed the reconveyance of thereof, surreptitiously succeeds in
the property to the company, the Court then admitted that buying it in the name of his wife,
In the following cases of a similar from statutory law point of view only a recovery of damages commits an act of disloyalty and
character, parol evidence was held not against the employee was allowed, thus: “This reparation infidelity to his principal, and is liable for
sufficient to overcome the case made provided for in the Civil Code and applied to the case of bar damage. The reparation of the damage
out by the holder of the registered title: seems to be limited to the indemnification of damages, as must consist in respecting the contract
Belen vs. Belen (13 Phil. Rep., 202); we are not aware of any express provision in said Code which was about to be concluded, and
Garen vs. Pilar (17 Phil. Rep., 132); which imposes upon the person thus held liable, any transferring the said land for the same
Balatian vs. Agra (17 Phil. Rep., 501). obligation, such as that of transferring to plaintiffs the estate price and upon the same terms as those
Agonoy vs. Ruiz (11 Phil. Rep., 204), and in question. (at p. 593).” Nonetheless, the Court affirmed on which the purchase was made for the
Madariaga vs. Castro (20 Phil. Rep., that “This specific relief [of reconveyance], however, has land sold to the wife of said employee
563), were both cases wherein one already come to be applied in this jurisdiction in similar passed to them as what might be
person was delegated by a community cases, among which can be cited that of Camacho vs. regarded as equitable trust, by virtue of
of property owners to secure in his own Municipality of Baliuag (28 Phil., 466.) And in the North which the thing thus acquired by an
name a patent from the Spanish American law such sanction is expressly recognized, and a employee is deemed to have been
Government covering all their lands, the transaction of this nature might be regarded as an ‘equitable acquired not for his own benefit or that
object being to save the expense of trust’ by virtue of which the thing acquired by an employee of any other person but for his principal
obtaining individual patents in the name is deemed not to have been acquired for his own benefit or and held in trust for the latter. (at p.
of each. After securing these patents, that of any other person but for his principal, and held in 593)
the therein grantees ejected their trust for the latter.” (at p. 593, citing 21 R. C. L., 825; 2
neighbors from the land covered by the Corpus Juris, 353). In justifying such a resolution, the Court
In Severino v. Severino, 44 Phil. 343 (1923), the Court held
patents and respectively claimed the held —
—
land as their own. The evidence tending
to establish these facts was considered
Such an act of infidelity committed by a
by the court in both cases relief by The relations of an agent to his principal
trusted employee calculated to redound
reformation of the patent or a are fiduciary and it is an elementary and
to his own benefit and to the detriment
compulsory conveyance to the injured very old rule that in regard to property
of his employers cannot pass without
persons was denied in each case, forming the subject-matter of the
legal sanction. Nemo debet aliena
50
agency, he is estopped from acquiring implied trust for the benefit of the therefore.
or asserting a title adverse to that of the person from whom the property
principal. His position is analogous to comes.
The second part of Article 559 offers the same principle of
that of a trustee and he cannot
recovery on the part of the true owner of a movable that is
consistently, with the principles of good
Under Article 1456 of the Civil Code, if property is acquired similar to the implied trust doctrine under Article 1456:
faith, be allowed to create in himself an
through mistake or fraud, the person obtaining it is, by force “Nevertheless, one who has lost any movable or has been
interest in opposition to that of his
of law, considered a trustee under a implied trust unlawfully deprived thereof, may recover it from the person
principal or cestui que trust. Upon this
arrangement for the benefit of the person from whom the in possession of the same.”
ground, and substantially in harmony
property comes.
with the principles of the Civil Law (see
sentence of the supreme court of Spain (1) Application of Principle under the Old Civil Code
of May 1, 1900), the English Chancellors Lopez affirms that Article 1456 covers a form of constructive
held that in general whatever a trustee trust. Philippine National Bank v. Court of Appeals, 217 SCRA
Lopez affirms that Article 1456 covers a form of constructive
does for the advantage of the trust 347 (1993), also confirms the arrangement covered under
trust. Philippine National Bank v. Court of Appeals, 217 SCRA
estate inures to the benefit of the cestui Article 1456 as a constructive trust, thus —
347 (1993), also confirms the arrangement covered under
que trust. (Greenlaw vs. King, 5 Jur., 18; Article 1456 as a constructive trust, thus —
Ex parte Burnell, 7 Jur., 116; Ex parte A deeper analysis of Article 1456 reveals
Hughes, 6 Ves., 617; Ex parte James, 8 that it is not a trust in the technical
Ves., 337; Oliver vs. Court, 8 price, 127.) A deeper analysis of Article 1456 reveals
sense[,] for in a typical trust, confidence
The same principle has been that it is not a trust in the technical
is reposed in one person who is named a
consistently adhered to in so many sense[,] for in a typical trust, confidence
trustee for the benefit of another who is
American cases and is so well is reposed in one person who is named a
called the cestui que trust, respecting
established that exhaustive citations of trustee for the benefit of another who is
property which is held by the trustee for
authorities are superfluous and we shall called the cestui que trust, respecting
the benefit of the cestui que trust. A
therefore limit ourselves to quoting a property which is held by the trustee for
constructive trust, unlike an express
few of the numerous judicial expressions the benefit of the cestui que trust. A
trust, does not emanate from, or general
upon the subject. The principle is well constructive trust, unlike an express
a fiduciary relation. While in an express
stated in the case of Gilber vs. trust, does not emanate from, or general
trust, a beneficiary and a trustee are
Hewetson (79 Minn., 326) — a fiduciary relation. While in an express
linked by confidential or fiduciary
trust, a beneficiary and a trustee are
relations, in a constructive trust, there is
linked by confidential or fiduciary
“A receiver, trustee, attorney, agent, or neither a promise nor any fiduciary
relations, in a constructive trust, there is
any other person occupying fiduciary relation to speak of and the so-called
neither a promise nor any fiduciary
relations respecting property or persons, trustee neither accepts any trust nor
relation to speak of and the so-called
is utterly disabled from acquiring for his intends holding the property for the
trustee neither accepts any trust nor
own benefit the property committed to beneficiary. (at pp. 353-354)
intends holding the property for the
his custody for management. This rule is beneficiary. (at pp. 353-354)
entirely independent of the fact whether By its language Article 1456 covers all types of property,
any fraud has intervened. No fraud in whether movable or immovable. Yet the cases that have
fact need be shown, and no excuse will (1) Application of Principle under the Old Civil Code
applied the principle in Article 1456 have often involved
be heard from the trustee. It is to avoid immovable, specially registered parcels of land, where the
the necessity of any such inquiry that public policy is that the operative key to determine who has The equity principle now expressed in Article 1456 first found
the rule takes so general a form. The title to the property is registration. When it comes to expression in Gayondato v. Insular Treasurer, 49 Phil. 244
rule stands on the moral obligation to movable property, the operation of an implied trust under (1926). In Gayondato, where a mother and her minor
refrain from placing one’s self in Article 1456 must contend with the public policy covered in daughter inherited a large tract of land, and had it applied
positions which ordinarily excite conflicts Article 559 of the Civil Code that possession of movable for cadastral survey, but title was mistakenly issued only in
between self-interest and integrity. It property acquired in good faith is equivalent to title, thus – the name of the mother, the Court held that courts of equity
seeks to remove the temptation that will impress upon the title, a condition which is generally in a
might arise out of such a relation to broad sense termed “constructive trust” in favor of the
serve one’s self-interest at the expense Art. 559. The possession of
defrauded party, but the use of the word “trust” in this sense
of one’s integrity and duty to another, movable property acquired in good
is not technically accurate and is not the kind of trust.
by making it impossible to profit by faith in equivalent to a title.
yielding to temptation. It applies Nevertheless, one who has lost any
universally to all who come within its movable or has been unlawfully In the application of the underlying equity principle now
principle.” (at pp. 350-351) deprived thereof, may recover it contained in Article 1456, the Court has always emphasized
from the person in possession of that in spite of the proceedings under the Torrens system of
the same. registration being in rem, and the title issued thereto being
i. When Property is Acquired Through considered imprescriptible and indefeasible, the Torrens
Mistake or Fraud system does not prevent the cestui que trust under an
If the possessor of a movable lost
implied trust to sue for the recovery of the land in the action
or of which the owner has been
Art. 1456. If property is for reconveyance, whenever the property is acquired through
unlawfully deprived, has acquired it
acquired through mistake or fraud, mistake or fraud, since the person obtaining the registered
in good faith at a public sale, the
the person obtaining it is, by force title is, by force of law, considered a trustee of an implied
owner cannot obtain its return
of law, considered a trustee of an trust for the benefit of the person from whom the property
without reimbursing the price paid
51
comes. nothing. (at pp. 254-255) trustee in the sense that the trustor
intended no other person to administer
it. If Crispulo was indeed appointed as
In Severino v. Severino, 44 Phil. 343 (1923), where the uncle In De Ocampo v. Zaporteza, 53 Phil. 442 (1929), where it was
trustee of the property, it cannot be said
who was acting as agent or administrator of the property determined that an instrument, which did not express the
that such appointment was intended to
belonging to a niece, had procured through fraud a Torrens true contract between the parties, but which nevertheless
be conveyed to the respondents or any
title over said property in his name, it was held that the became the basis upon which the defendants obtained the
of Crispulo’s other heirs. Hence, after
uncle was obliged to surrender the property to the niece and amendment of the decree of adjudication by which they
Crispulo’s death, the respondent had no
transfer title to her. received a certificate of transfer of title covering more than
right to retain possession of the
the number of lots due them, the Court held that
property. At such point, a constructive
“application must here be made of the doctrines upheld in
In Laureano v. Stevenson, 45 Phil. 252 (1923), a certificate of trust would be created over the property
the cases of Uy Aloc vs. Cho Jan Ling (19 Phil., 202);
title under the Torrens system was mistakenly issued in favor by operation of law. Where one
Camacho vs. Municipality of Baliuag (28 Phil., 466); and
of petitioner Kilayko covering not only the parcel of land he mistakenly retains property which
Severino vs. Severino (44 Phil., 343), to the effect that the
bought from Laureano, but including another adjacent land rightfully belongs to another, a
defendants only hold the certificate of transfer in trust for
which remained the property of his seller. When the creditors constructive trust is the proper remedial
the plaintiffs with respect to the portion of the lot planted
of Kilayko had levied upon all the properties covered by the device to correct the situation. (at p.
with 1,300 coconut trees; and they are therefore bound to
title to enforce a judgment debt obtained against Kilayko, 257)
execute a deed in favor of the plaintiff, transferring to them
Laureano then learned of the mistake committed during the
said portion planted with 1,300 coconut trees.” (at p. 445)
registration proceedings which had become final and
In Sevilla v. De los Angeles, 97 Phil. 875 (1955), one of the
executory. In determining whether Laureano could legally
heirs of decedent Felix Sevilla, through fraudulent
prevent the public sale of properties registered under the In Escobar v. Locsin, 74 Phil. 86 (1943), the designated
representation, succeeded in having the original certificate
Torrens system in the name of Kilayko, the Court held — agent, taking advantage of the illiteracy of the principal,
of title issued in the name of the “heirs of Felix Sevilla”
claimed for himself the property which he was designated to
cancelled and a new one issued in her name only and
claim for the principal and managed to have it registered in
The fundamental principles governing thereby enabling her to possess the land and appropriate the
his own name and became part of his estate when the agent
the Torrens system are well known. produce therefor. The Court held that “This was of acquiring
died. The Court held that the estate was in equity bound to
Ordinarily if one tasks no steps to title creates what is called ‘constructive trust” in favor of the
execute the deed of conveyance of the lot to the cestui que
protect his property interests at the time defrauded party and grants to the latter a right to vindicate
trust: “A trust—such as that which was created between the
of the cadastral survey, he is estopped the property regardless of the lapse of time.” (at p. 879;
plaintiff and Domingo Sumangil—is sacred and inviolable.
to dispute the title. He has one year italics supplied)
The Courts have therefore shielded fiduciary relations
from the issuance of the decree to
against every manner of chicanery or detestable designed
allege and prove fraud. But he may not
cloaked by legal technicalities. The Torrens system was (2) Application under the New Civil Code
wait longer than this period to assert his
never calculated to foment betrayal in the performance of a
rights. And were this an ordinary
trust.” (at p. 87).
registration case, we would reach a In Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958), the
conclusion satisfactory to the Supreme Court recognized that Article 1456 “merely
appellants. But we think that there is In Pacheco v. Arro, 85 Phil. 505 (1950), the Court held that expresses a rule already recognized by our courts [first
more to the case than this. “When the claim to the lots in the cadastral case was enunciated in Gayondato v. Insular Treasurer, 49 Phil. 244
withdrawn by the respondents relying upon the assurance (1926)] prior to the [New Civil] Code’s promulgation.” (at p.
and promise made in open court by . . . the predecessor-in- 264)
It must not be forgotten that Kilayco
interest of the petitioners, a trust or fiduciary relation
never laid claim to this property; that
between them arose, or resulted therefrom, or was created
the two lots Nos. 4267 and 4289 Shortly thereafter, in Avecilla v. Yatco, 103 Phil. 666 (1958),
thereby. The trustee cannot invoke the statute of limitations
covered by the certificate of title No. the Court held that the implied trust arrangement imposed
to bar the action and defeat the right of the cestui que
830 were mistakenly registered in the by Article 1456 allows the aggrieved party a remedy to seek
trustent.” (at pp. 514-515)
name of Eugenio Kilayco; that the court reconveyance against the party who has employed fraud,
did not have jurisdiction to confirm the thus —
title of said two lots either in favor of The reason why Pacheco is covered under Article 1456,
Eugenio Kilayco or of anybody else, for rather than under Article 1453 (“When property is conveyed
But the right of action in this
the reason that no petition for title was to a person in reliance to his declared intention to hold it for,
constructive trust should be exercised
filed, no trial was held, no evidence was or transfer is to another or the grantor”) is because the
against the trustee, who caused the
presented, and no judgment was action for reconveyance was being filed against the
fraud, and not against an innocent
rendered regarding these two lots in the successors-in-interest of the person who gave such a
purchaser for value, as the Susana
land registration proceedings; that declaration, and consequently, the property held in trust
Realty, Inc. This right may also be
Kilayco never asserted any right of passed to the heirs by way mistake, and rightfully covered
exercised against Santiago Cruz who
ownership over the property; that the under Article 1456. This state of things was acknowledged
also obtained title to the land with
rent was paid to Laureano; and that years later by the Supreme Court in Canezo v. Rojas, 538
knowledge of the fraud, but not with
judgment was obtained in the courts in SCRA 242 (2007), where it held:
regard to Susana Realty, Inc. which, as
favor of Laureano through the
already stated, has bought the property
acquiescence and consent of Kilayco.
Assuming that such a[n express trust] in good faith. The remedy in this case of
Kilayco was, in effect, merely holding
relation existed, it terminated upon the defrauded heirs is to bring an action
the title of the property in trust for
Cripulo’s death in 1978. A trust for damages against those who caused
Laureano. The creditors of Kilayco had in
terminates upon the death of the trustee the fraud or were instrumental in
the property, which, in this case, was
where the trust is personal to the depriving them of the property. Their
52
action cannot reach an innocent who took possession thereof, but the Municipality of Victorias, it is logical
purchaser for value who is protected by subsequently, the father managed to to conclude that the latter can neither
law. (at p. 670) obtain a free patent over the same be deprived of its possession nor be
property in the name of the son to made to pay rentals thereof. Private
whom an original certificate of title was respondent is in equity bound to
Likewise, under the New Civil Code, the Court reiterated the
issued. reconvey the subject land to the cestui
principle that public policy demands that a person guilty of
que trust, the Municipality of Victorias.
fraud or at least, of breach of trust, should not be allowed to
← In Fabian v. Fabian, 22 SCRA The Torrens system was never
use a Torrens title as a shield against the consequences of
231 (1968), where co-heirs entered into calculated to foment betrayal in the
his own wrongdoing. In Vda. de Jacinto v. Vda. de Jacinto, 5
an extrajudicial settlement of the estate performance of a trust.” (at p. 45)
SCRA 370 (1962), the Supreme Court held —
of the decedent, excluding therefrom
some of the other forced heirs, and ← In Adille v. Court of Appeals,
Even in the absence of fraud in subsequently obtaining original and 157 SCRA 455 (1988), where one of the
obtaining registration or even after the transfer certificates of title in their co-owners exercised for himself alone
lease of one year after the issuance of a names, the co-heirs who obtained title the right to redeem the property sold
decree of registration, a co-owner of through fraud were considered trustees under a sale a retro and placed title
land who applied for and secured its under an implied trust for the benefit of solely in his name, he was held to have
adjudication and registration in his name the other co-heirs. taken title as trustee under an implied
knowing that it had not been allotted to trust governed under Article 1456.
him in the partition, may be compelled ← In Buena v. Reyes, 27 SCRA
to convey the same to whoever received 1179 (1969), where the husband of one ← Pajarillo v. Intermediate
it in the apportionment, so long as no of the co-heirs was designated by all the Appellate Court, 176 SCRA 340 (1989),
innocent third party had acquired rights heirs of the decedent to file an answer where the mother had previously validly
therein, in the meantime for a valuable in the cadastral proceedings and to donated the land to a daughter, and
consideration. “Indeed, any rule to the obtain title to the property left by the latter sold it again to a son who knew of
contrary would sanction one’s decedent in behalf of all heirs, but the donation, the latter having received
enrichment at the expense of another. instead only obtained title in his name title thereto as a trustee of an implied
Public policy demands that a person and his two brothers, the Court ruled the trust under Article 1456.
guilty of fraud or, at least, of breach of creation of a constructive trust.
trust, should not be allowed to use a ←
Torrens title as a shield against the ← In Magallon v. Montejo, 146 Yet, the Supreme Court has not been consistent in its
consequences of his wrongdoing SCRA 282 (1986), where conjugal position. Let us first take the decision in Heirs of Tanak
(Cabanos vs. Register of Deeds, etc., 40 property was adjudicated entirely in the Pangaaran Patiwayon v. Martinez, 142 SCRA 252 (1986),
Phil. 620; Severino vs. Severino, 41 Phil. name of the surviving husband and where the decedent during his lifetime had married
343). leaving out the children from their legitimately three successive times, but without liquidation
successional rights to one-half of the of the conjugal partnerships formed during the first and
property pertaining to their deceased second marriages. The only male issue managed to convince
Lastly, the claim of the heirs of Pedro
mother, the Court held that a his co-heirs that he should act as administrator of the
Jacinto that the latter had acquired
constructive trust under Article 1456 properties left by the decedent, but instead obtained a
ownership of the property in litigation by
had been duly constituted with the certificate of title in his own name to the valuable piece of
prescription, is likewise untenable. As
surviving father “as the trustee of a property of the estate. It was held by the Court that where
we had recently held in Juan, et a. vs.
constructive trust, [with] an obligation to the son, through fraud was able to secure a title in his own
Zuñiga, G.R. No. L-17044, April 28, 1962,
convey to the private respondents that name to the exclusion of his co-heirs who equally have the
an action to enforce a trust is
part of the land in question to which she right to a share of the land covered by the title, an implied
imprescriptible. Consequently, a co-heir
now claims an ostensible title, said trust was created in favor of said co-heirs, and that said son
who, through fraud, succeeds in
portion rightfully pertaining to the was deemed to merely hold the property for their and his
obtaining a certificate of title in his
respondents’ deceased mother as her benefit:
name to the prejudice of his coheirs, is
share in the conjugal partnership.” (at p.
deemed to hold the land in trust for the
290)
latter, and the action by them to recover The rules are well-settled that when a
the property does not prescribe. (at pp. person through fraud succeeds in
← In Municipality of Victorias v.
376-377) registering the property in his name, the
Court of Appeals, 149 SCRA 32 (1987),
law creates what is called a
where registered land previously sold to
“constructive or implied trust” in favor
The Court has since then re-affirmed under the New Civil the municipal corporation, but which
of the defrauded party and grants the
Code the principle that registration of property by one failed to duly register the sale, was
latter the right o recover the property
person in his name, whether by mistake or fraud, the real erroneously passed by intestate
fraudulently registered within a period of
owner being another person, impresses upon the title so succession to the heirs of the seller, it
ten years. (See Ruiz v. Court of Appeals,
acquired the character of a constructive trust for the real was held that notwithstanding the
79 SCRA 525, 537). (at p. 261, citing
owner, which would justify an action for reconveyance — irrevocability of the Torrens title the
Gonzales v. Jimenez, Sr., 13 SCRA 80, 82
trustee and his successors-in-interest
[1965])
← In Gonzales v. Jimenez, 13 were bound to execute the deed of
SCRA 80 (1965), where unregistered reconveyance: “As the land in dispute is
held by private respondents in trust for Just a few months later, in Mariano v. Judge De Vega, 148
land was sold by the father to a buyer
53
SCRA 342 (1987), where the children of the decedent by his whom the property comes.
second marriage had taken over properties of the estate,
excluding therefrom grandchildren of the decedent by his the husband as sole heir, the Court ruled that “On the
In Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 premise that the disputed properties are the paraphernal
first marriage, the Court held that the situation is one that is
(2007), the Court held that “An action for reconveyance properties of Juliana which should have been included in the
governed by the rules of co-ownership under Article 494 of
respects the decree of registration as incontrovertible but Fideiocomiso, their registration in the name of Jose would be
the Civil Code which provides that no prescription shall run in
seeks the transfer of property, which has been wrongfully or erroneous and Jose’s possession would be that of a trustee in
favor of a co-owner or co-heir against his co-owners or co-
erroneously registered in other person’s names, to its rightful an implied trust . . . [which from] the factual milieu of this
heirs so long as he expressly or impliedly recognizes the co-
and legal owners, or to those who claim to have a better case is provided in Article 1456 of the Civil Code. . . . The
ownership. In view of a clear repudiation of the co-ownership
right. There is no special ground for an action for apparent mistake in the adjudication of the disputed
duly communicated to the co-heirs, no prescription occurred
reconveyance. It is enough that the aggrieved party has a properties to Jose created mere implied trust of the
and the filing of the action for partition and delivery of
legal claim on the property superior to that of the registered constructive variety in favor of the beneficiaries of the
possession covering their corresponding shares 28 years
owner and that the property has not yet passed to the hands Fideicomiso.” (at pp. 38)
after the death of the decedent was deemed not filed out of
of an innocent purchaser for value.” (at pp. 13-14).
time.
Recently, in Luna, Jr. v. Cabales, 608 SCRA 206 the court held
Lumocso also held that cases brought under Article 1456 that “The registration of a property in one’s name, whether
In Tomas v. Court of Appeals, 185 SCRA 627 (1990), while a
“may also be considered as actions to remove cloud on one’s by mistake or fraud, the real owner being another, impresses
large tract of land was still unregistered land, the owners
title as they are intended to procure the cancellation of an upon the title so acquired the character of a constructive
sold portions thereof to the vendees covered by tax
instrument constituting a claim on petitioners’ alleged title trust for the real owner. The person in whose name the land
declarations, and possession and control thereof was
which was used to injure or vex them in the enjoyment of is registered holds it as a mere trustee, and the real owner is
transferred to the vendees. Yet when the owners had sought
their alleged title.” (at p. 15) entitled to file an action for reconveyance of the property.
registration of the property under the Torrens system, they
included the portions already sold and obtained title thereto The Torrens system does not protect a usurper from the true
in their names. Upon discovery thereof, the vendees filed an Pasiño v. Monterroyo, 560 SCRA 739 (2008), held that “Under owner.” (at p. 206)
action for reconveyance to which the registered owner the principle of constructive trust, registration of property by
pleaded finality of the decree of registration. The Court held one person in his name, whether by mistake or fraud, the
that an implied trust was constituted under Article 1456 real owner being another person, impresses upon the title so
thus: “In the present case, prescription will not lie in favor of acquired the character of a constructive trust for the real
the petitioners [owners-sellers] who are not even in owner, which would justify an action for reconveyance.
possession of the disputed land. “ (at p. 633). (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
In Noel v. Court of Appeals, 240 SCRA 78 (1995), where the owner or to one with a better right. (Ibid) If the registration
surviving wife sold the entirety of a parcel of land bought of the land is fraudulent, the person in whose name the land
during the marriage, without the authority from the forced is registered holds it as a mere trustee, and the real owner is
heirs of the deceased husband, the Court in ruling that that entitled to file an action for reconveyance of the property.
the sale of the other half constituted the buyer as trustee (citing Mendizabel v. Apao, 482 SCRA 587 [2006])” (at p.
under an implied trust under Article 1456, held — 751)