Do you Trust me? Trusts in the Philippines

A trust is the legal relationship between one person having an equitable ownership of property (trustor) and another person owning the legal title to such property (trustee). The trustor is entitled to expect the performance of certain duties and obligations from the trustee.

In a case decided by the Supreme Court, Margarita owned three parcels of unregistered land in La Union, each measuring 4,512 square meters, 1,986 square meters and 3,454 square meters, all of which properties did not have certificates of titles but were covered by tax declarations in the name of Margarita.
(Estate of Cabagungan vs. Laigo, et al. GR 175073, August 15, 2011)

Margarita’s son, Roberto, wanted to apply for a visa to visit America and, to show he had financial capacity, he asked his mother to transfer the properties in his name. Margarita agreed and in 1968 executed an Affidavit of Transfer of Real Property where she donated the properties to Roberto.

READ: Transfers of shares held in trust are not subject to tax

Roberto’s visa was granted, he went to America and returned to the Philippines.

In 1990 he sold one of the properties to the Sps. Campos and the other two to Pedro and Marilou, his adopted children, in 1992.

Margarita claims that it was only after Roberto died that she discovered that he had sold the properties. She filed a complaint to void the sales and to recover her properties claiming that she only accommodated her son’s request for help and did not intend to relinquish ownership over her properties.

Sps. Campos settled the case with Margarita while Marilou and Pedro did not. They claimed to be innocent purchasers for value in good faith and sought dismissal of the complaint of Margarita on the ground of prescription as it was filed more than 10 after the Affidavit of Transfer.

The lower courts dismissed the case holding that there was a simple transfer of property between Margarita and Roberto there being no document showing that a trust was created and that Roberto was obligated to return the properties. Further the court declared that, even if a trust relationship was created, Margarita’s complaint in 1996 was barred prescription and laches for being filed past 10 years or for an extended period of time since the transfer to Roberto in 1968.

The Supreme Court reversed the decisions and declared that there was an implied trust created, that prescription had not set in, and ordered that the properties be returned to Margarita and her heirs.

The decision of the Supreme Court contained several important legal points.

Laches & Prescription

The Supreme Court declared that there was no laches (which is the failure to act within a reasonable time which bars a claim) since being family, Margarita trusted Roberto which could explain her delay in enforcing her claim.

The action of Margarita filed in 1996 did not prescribe yet as the counting of the 10 year prescription period should start in 1992, or the date when Roberto had repudiated the trust by selling the properties to Marilou and Pedro.

Rule on Innocent Purchaser for Value

The rule concerning innocent purchasers for value applies primarily to registered land. Since the properties in question were unregistered, i.e. covered by tax declarations and not certificates of titles with the Registry of Deeds. Accordingly, Marilou and Pedro purchased the properties at their own risk and peril and could not claim protection as innocent purchasers if their seller, Roberto, had no right to sell them.

Trusts

There are different types of trusts. Trusts are either express or implied.

An Express Trust is created by the direct and positive acts of the parties, by some writing or deed, will, or by oral declaration in words showing the intent to create a trust.

Implied Trusts arise by legal implication based on the presumed intention of the parties or on equitable principles independent of the particular intention of the parties. They are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or, independently of the particular intention of the parties, as being inferred from the transaction by operation of law basically by reason of equity.

Implied Trusts are further classified into Constructive Trusts and Resulting Trusts.

A Constructive Trust arises by operation of law and not by agreement or intention. It is imposed by equity to satisfy justice and to defeat wrong such that it is sometimes referred to as “fraud-rectifying trust”.

Some examples:

1. If the price of a property is loaned or paid by one for the benefit of another and conveyance is made to the lender or person paying to secure the payment of the debt, a trust is created and the person to whom the money was loaned or for whom payment was for may redeem the property;
2. When a property is transferred to secure an obligation, when the obligation if fulfilled, the transfer of the property to the one who has performed the obligation may be compelled;
3. When a trustee, guardian or person uses funds held in trust for the purchase of property in its name, a trust is established in favor of the person to whom the money belongs; and
4. When a property is acquired through mistake or fraud, the person obtaining the property is considered a trustee holding the property for the benefit of the person from whom the property comes from.

An Implied Trust can also be a Resulting Trust due to the nature or circumstances of the consideration involved in a transaction where one person becomes invested with legal title but is obligated in equity to hold his title for the benefit of another. This is also known as “intention enforcing trust” as the trust is interpreted based on the intention of the parties.

Some examples:

a. When a property is sold and registered in the name of another while the price is paid by someone else who has the beneficial interest on the property;

b. In a donation of property where the donee has no beneficial or only a part interest in the property;

c. When a person causes legal title to be placed in the name of another;

d. When 2 or more persons purchase a property for their benefit but title is placed in the name of only one; and

e. When property is transferred to another who has declared that he shall hold it for or transfer it to another.

Intent as an indispensable element and the Courts will receive evidence to establish this intention of the parties.

In the case of Margarita, the Supreme Court found that the testimonies of Margarita’s daughter and niece were sufficient to establish that an Implied Trust was created. Margarita did not intend to relinquish ownership over the properties as she merely lent them to Roberto for his visa application and expected them to be returned to her.

When Roberto sold the properties he repudiated the Implied Trust.

Repudiation of the trust

Repudiation of a trust may be done when a trustee performs acts of repudiation amounting to an ouster of the trustor and, that such acts of repudiation, which are clear and conclusive, have been made known to the trustor.

In Express and Resulting Implied Trusts, a trustee may acquire by prescription the thing held in trust only if he repudiates the trust. This is because in such types of trust, there is the acceptance and intention to create a trust between the trustor and trustee.

There is no need for repudiation in Constructive Trusts as there is no promise or fiduciary relation between the trustee and trustor. A trustee in a Constructive Trust is always considered to hold the property in trust adverse to the trustor. (Canezo v. Rojas, GR 148788, November 23, 2007)

It is clear that the decision of the Sps. Campos to settle with Margarita was the correct decision.

On a final note, it is important that the outcome may have been different if the properties were titled or covered by a Certificate of Title registered with the Registry of Deeds and, not merely by tax declarations.

(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)