PARTNERSHIP

the partnership has a PERSONALITY SEPARATE

and DISTINCT from that of each partner

PARTNERSHIP
it is a CONTRACT whereby two or more persons
(1) bind themselves to CONTRIBUTE money, property, or
industry to a COMMON FUND (2) with the intention of
dividing the PROFITS among themselves or in order to
EXERCISE a PROFESSION
a STATUS and a FIDUCIARY RELATION subsisting
between persons carrying on a business in common with a
view on profit
CHARACTERISTICS
PARTNERSHIP

OF

THE

CONTRACT

[C, C, L, I, AS, NP]

BUSINESS TRUSTS
when certain persons entrust their property or
money to others who will manage the same for the former
RULES ON CAPACITY TO BECOME A PARTNER
1.
a person capacitated to enter into contractual
relations may become a partner

3.

an UNEMANCIPATED MINOR CANNOT become a

partner UNLESS his parent or guardian consents
a MARRIED WOMAN, cannot contribute conjugal
funds as her contribution to the partnership
UNLESS she is permitted to do so by her husband
OR UNLESS she is the administrator of the
conjugal partnership, in which the COURT must
give its consent authority

4.

a PARTNERSHIP being a juridical person by itself

can form another partnership

5.

a CORPORATION cannot become a partner on

grounds of public policy
a partner shares not only in profits but also in
the losses of the firm

RULE:

2.

OF

1. CONSENSUAL
perfected by mere consent
2. CONTRIBUTION of money, property or industry to a
COMMON FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT among the PARTNERS
5. AFFECTIO SOCIETATIS
the desire to formulate an ACTIVE UNION, with
people among whom there
exist a mutual
CONFIDENCE and TRUSTS
6. NEW PERSONALITY
the object must be for profit and not merely for
the common enjoyment otherwise only a coownership has been formed. HOWEVER, pecuniary
profit need not be the only aim, it is enough that it
is the principal purpose

2.

CONSEQUENCES OF THE PARTNERSHIP BEING A

JURIDICAL ENTITY
1.
its juridical personality is SEPARATE and DISTINCT
from that of each partner

3.

the partnership CAN in GENERAL:

A) acquire and possess property of all kinds
B) incur obligations
C) bring civil and criminal actions
D) can be adjudged insolvent even if the
individual members be each financially
solvent

1
RULES TO DETERMINE
PARTNERSHIP

RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY

ORGANIZED AS PARTNERSHIP
1.
it possesses NO LEGAL PERSONALITY
it cannot sue as such HOWEVER, the partners in
their individual capacity CAN
2.
one who enters into a contract with a partnership
as such cannot when sued later on for recovery of
the debt, allege the lack of legal personality on the
part of the firm, even if indeed it had no
personality
ESTOPPEL
whether a partnership has a juridical personality
or not depends on its PERSONAL LAW of the partnership or
the law of the place where the partnership was organized
REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF,
JI]
1.
INTENTION to create a partnership
2.
COMMON FUND obtained from contributions
3.
JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
1.
mere co-ownership or co-possession
even with profit sharing
2.
mere sharing of GROSS returns
even with joint ownership of the properties
involved

EXISTENCE

OF

1.

persons who are not partners to each other are

not partners as to third persons
EXCEPTION:
PARTNERSHIP BY ESTOPPEL

2.

CO-OWNERSHIP of a property does not itself

establish a partnership, even though the coowners share in the profits derived from the
incident of joint ownership

3.

unless he is generally sued, a partner has no right

to make a separate appearance in court, if the
partnership being sued is already represented

LIMITATIONS ON ALIEN PARTNERSHIP

1) if 60% capital is not owned by Filipinos
the firm cannot acquire by purchase or otherwise
AGRICULTURAL Philippine lands
2) foreign partnership may lease lands provided the period
does not exceed 99 years
3) foreign partnership may be MORTGAGEES of land
period of 5 years, renewable for another 5 years
they cannot purchase it in a foreclosure sale

THE

4.

SHARING OF GROSS RETURNS ALONE does not

indicate a partnership whether or not the persons
sharing them have a joint or common right or
interest in any property from which the returns are
derived
the receipt of the share in the profits is a strong
presumptive evidence of partnership HOWEVER,
no such inference will be drawn if such profits
were received in payment
A) as a DEBT by installments or otherwise
B) as WAGES of an employee
C) as RENT to a landlord
D) as an ANNUITY to a widow or
representative of a deceased partner
E)
as INTEREST on a LOAN, though the
amount of payment vary with the profits
of the business
F)
as the CONSIDERATION for the sale of a
GOOD WILL of a business or other
property or otherwise
creditors are not partners, for their only
interest in the sharing of profits is the receipt
or payment of their credits
in a partnership, the partners are supposed
to trust and have confidence in all the
partners

PARTNERSHIP BY ESTOPPEL
IF 2 persons not partners represent themselves
as partners to strangers, a partnership by estoppel results
WHEN 2 persons, who are partners, in
connivance with a friend who is not a partner inform a
stranger that said friend is their partner, a partnership by
estoppel also result to the end that the stranger should not
be prejudiced
RULE: LAWFUL OBJECT or PURPOSE
a partnership must have LAWFUL OBJECT or
PURPOSE, and must be established for the common benefit
or interest of the partners
it must be within the commence of man, possible
and not contrary to law, morals, good customs, public order
or public policy

 IF a partnership has SEVERAL PURPOSES, one of

which is UNLAWFUL, the partnership can still validly exist so
long as the illegal purpose can be separated from the legal
purposes
NO need for JUDICIAL DECREE to dissolve an
unlawful partnership
VOID AB INITIO
one of the causes for the dissolution of a
partnership is any event which makes it unlawful for the
business of the partnership to be carried on
RULE:
when an UNLAWFUL PARTNERSHIP is dissolved by a judicial
decree, the PROFITS shall be CONFISCATED in FAVOR of the
STATE
G. R.
a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
1.
IMMOVABLE PROPERTY is contributed
2.
REAL RIGHTS are contributed
*

need for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the partnership contract

insofar as innocent third persons are
concerned the same must be REGISTERED if
REAL PROPERTIES are INVOLVED
a partnership contract is NOT CONVERED by the
STATUTE of FRAUDS
an AGREEMENT TO FORM a partnership does not
itself create a partnership
when there are conditions to be fulfilled or when a
certain period is to lapse, the partnership is not created till
after the fulfillment of the conditions or the arrival of the
term and this is true even if one of the parties has already
advanced his agreed share of the capital
RULE: if CAPITAL is P3,000 or more
REQUIRED:
1. PUBLIC INSTRUMENT
2. RECORDED S.E.C.
* FAILURE TO COMPLY shall not effect the liability of the
partnership and its members to third persons
** IF REAL PROPERTIES have been contributed,
REGARDLESS of the VALUE, a public instrument is needed for
the attainment of legal personality
REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY
IS CONTRIBUTED
1.
PUBLIC INSTRUMENT
2.
INVENTORY signed and attached to the P.I.
* applies regardless of the value of the real
property

* applies even if only real rights over the real

property are
contributed
* applies if aside from real property, cash or
personal property is
contributed
TRANSFER of land to the partnership must be duly
recorded in the ROD to make the transfer effective insofar
as third persons are concerned
RULE:
any immovable property or an interest therein maybe
acquired in the partnership
name
title so acquired can be conveyed only in the partnership
name
IF the partnership has ALIENS, it CANNOT OWN LANDS,
whether public or private or whether agricultural or
commercial EXCEPT through HEREDITARY SUCCESSION

LIMITATIONS ON ACQUISITION
1.
AGRICULTURAL LANDS 1024 HECTARES
2.
lease of public lands (GRAZING) 2000 HAS.
RULES
members

1.
2.
3.
4.
5.

IF

A) articles are kept secret among the

B) any one of the members may

contract in his own name
with
third persons
NOT a partnership NOT a LEGAL PERSON
it may be sued by third person under the common
name it uses
it cannot sue as such and cannot be ordinarily be a
party to a civil action
insofar as innocent third parties are concerned
the parities can be considered as members of a
partnership
as between themselves or insofar as third persons
are prejudiced
only the rules of co-ownership must apply

EFFECT OF CERTAIN TRANSACTIONS

1.
contracts entered into by a partner in his own
name may be sued upon still by him in his
individual capacity, not withstanding the absence
of a partnership
2.
when two or more individuals, having a common
interests in a business bring a court action, it
should be presumed that they prosecute the same
in their individual capacity as co-owners and not in
behalf of a partnership which does not exist in
legal contemplation
CLASSIFICATION OF PARTNERSHIPS
A) ACCORDING TO MANNER OF CREATION
1.
ORALLY constituted
2.
constituted in a PRIVATE INSTRUMENT
3.
constituted in a PUBLIC INSTRUMENT

2
4.
REGISTERED S.E.C.
B) ACCORDING TO OBJECT
1.
UNIVERSAL
2.
PARTICULAR
C) ACCORDING TO LIABILITY
1.
LIMITED PARTNERSHIP
2.
GENERAL PARTNERSHIP
D) ACCORDING TO LEGALITY
1.
LAWFUL OR LEGAL
2.
UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION
1.
for a SPECIFIC PEIOD or FIXED PERIOD
2.
PARTNERSHIP AT WILL
F) ACCORDING TO REPRESENTATION TO OTHERS
1.
ORDINARY PARTNERSHIP
2.
PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE
1.
DE JURE PARTNERSHIP
2.
DE FACTO PARTNERSHIP
H) AS TO PUBLICITY
1.
SECRET PARTNERSHIP
2.
NOTORIOUS / OPEN PARTNERSHIP
I) AS TO PURPSE
1.
COMMERCIAL / TRADING
2.
PROFESSIONAL / NON-TRADING
GENERAL PARTNERSHIP
one where all the partners are general partners
they are LIABLE even with respect to their individual
properties, after the assets of the partnership has been
exhausted
LIMITED PATNERSHIP
one where at least one partner is a general partner and the
others are limited partners
one whose liability is limited only up to the extent of his
contribution
a partnership where all the partners are limited partners
cannot exist as a limited partnership
REFUSED REGISTRATION
IF it continuous as such, it will be considered as a
general partnership and all the
partners will be general
partners
KINDS OF UNIVERSAL PARTNERSHIP
1.
PARTNERSHIP OF ALL PRESENT PROPERTY
2.
PARTNERSHIP OF ALL PROFITS
*UNIVERSAL
PARTNERSHIP
OF
ALL
PRESENT
PROPERTY
CONTRIBUTION of
1.
ALL the properties actually belonging to the
partners
2.
the PROFITS acquired with said property
BECOMES COMMON PROPERTY
EXCEPT all FUTURE PROPERTY

 FRUITS of FUTURE PROPERTY INCLUDED IF

STIPULATED UPON
*UNIVERSAL PARTNERSHIP OF PROFITS
comprises all that the partners may acquire by the
INDUSTRY or WORK of the partners become common
property regardless of within said profits were obtained
through the usufruct contributed
EXCEPT PRIZES and GIFTS
RULE:
articles of universal partnership, entered without
specification of its nature, only constitute a universal
partnership of PROFITS
RULE:
persons who are prohibited from giving each other any
donation or advantage cannot enter into universal
partnership
WHO:
1.
HUSBAND and WIFE
2.
those guilty of ADULTERY or CONCUBINAGE
3.
those guilty of the same criminal offense if the
partnership was entered into in consideration of
the same
while spouses cannot enter into a universal partnership,
they can enter into a particular partnership or be members
thereof
a universal partnership is virtually a donation to each other
of the partners properties or at least their usufruct

the

moment

3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]

1.
duty to CONTRIBUTE what had been promised
2.
duty to DELIVER the FRUITS of what should have
been delivered
3.
duty to WARRANT
RIULES ON THE DUTY TO CONTRIBUTE
1.
the contribution must be made at the time the
partnership is entered into UNLESS a different
period is stipulated
2.

no demand is needed to put the partner in default

3.

the partner must exercise due diligence in

preserving the property to be contributed before
he actually contributes the same

4.

a partner who promises to contribute to the

partnership becomes a promissory debtor of the
partnership

RULES ON THE DUTY TO DELIVER THE FRUITS

1.
IF property has been promised, the fruits thereof
should also be given
2.

the fruits referred to are those arising from the

time they should have been delivered, without a
need of any demand

3.

IF the partner is in BAD FAITH, he is liable not only

for the fruits actually produced, BUT also for those
that could have been produced
IF MONEY HAS BEEN PROMISED, INTEREST and
DAMAGES from the time he should have complied
with his obligation should be given

4.

PARTICULAR PARTNERSHIP
a particular partnership has for its OBJECT:
1.
DETERNMINATE THINGS their use or fruits
2.
SPECIFIC UNDERTAKING
3.
EXERCISE of a PROFESSION or VOCATION
OBLIGATIONS OF THE PARTNERS
RULE:
a PARTNERSHIP BEGINS from
EXECUTION of the CONTRACT

2 KINDS:
1.
when there is no term, express or implied
2.
when it is continued by the habitual managers
although the period has ended or the purpose has
been accomplished

of

the

* even if contributions have not yet been made the firm

already exists, for partnership is a consensual contract
DURATION OF PARTNERSHIP
UNLIMITED
* MAY BE AGREED UPON
1.
EXPRESSLY definite period
2.
IMPLIEDLY upon achievement of its purpose
PARTNERSHIP AT WILL

a partnership wherein its continued existence really

depends upon the will of the partners or even on the will of
any of them

5.

NO DEMAND is needed to put the partner in

default

6.

it is DELIVERY, actual
TRANSFERS OWNERSHIP

or

constructive

that

3
HOW APPRAISAL MADE
1.
as PRESCRIBED in the CONTRACT

2.

in default, by EXPERTS chosen by the partners,

and at CURRENT PRICES
* necessity of the INVENTORY APPRAISAL

RULE on RISK of LOSS

after goods have been contributed, the partnership
bears the risk of subsequent changes in the value
RULE:
a partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation
CAPITALIST PARTNER
one who FURNISHES CAPITAL
* NOT EXEMPTED from LOSSES
* he can engage in other business PROVIDED there is
no competition between
the partnership and his
business
* share in the profits according to agreements
INDUSTRIAL PARTNER
one who FURNISHES INDUSTRY or LABOR
* he is EXEMPTED from LOSSES as between the
partner BUT liable to strangers without prejudice to
reimbursement from the capitalist partner
* he CANNOT engage in any other BUSINESS
WITHOUT the express CONSENT of the other partners,
OTHERWISE
1.
he can be EXCLUDED from the firm
- plus damages
OR
2.
the BENEFITS he obtains from the other
businesses CAN BE AVAILED of by the other
partners
plus damages
whether or not there is COMPETITION
* in computing always look for ----- NET PROFITS
----- NET
LOSSES

RULES ON THE DUTY TO WARRANT

1.
2.

the warranty in case of eviction refers to specific

and determinate things already contributed
there is EVICTION whenever by a final judgment
based on a right prior to the sale or an act
imputable to the partner, the partnership is
deprived of the whole or a part of the thing
purchased

RULE WHEN CONTRIBUTION CONSISTS OF GOODS

APPRAISAL of VALUE is needed to determine how
much was contributed

CAPITALIST INDUSTRIALIST PARTNER

one who contributes BOTH CAPITAL and INDUSTRY
GENERAL PARTNER
one who is liable beyond the extent of his contribution
LIMITED PARTNER
one who is liable only to the extent of his contribution
*** an industrial partner can only be a
never a limited partner
MANAGING PARTNER

general partner,

 one who manages actively the firms affairs

SILENT PARTNER
one who does not participate in the management, though
he shares in the PROFITS or LOSSES
LIQUIDATING PARTNER
one who winds up or liquidates the affairs of the firm after
it has been dissolved
OSTENSIBLE PARTNER
one whose connection with the firm is public and open
SECRET PARTNER
one whose connection with the firm is concealed or kept
secret
DORMANT PARTNER
one who is both a secret (hidden) and silent (not
managing) partner
NOMINAL PARTNER
one who is not really a partner BUT who may become liable
as such insofar as third persons are concerned
RULE:
partners shall CONTRIBUTE EQUAL SHARES to the capital of
the partnership
* it is permissible to contribute UNEQUAL SHARES IF
there is a stipulation to this effect

4
* the sum thus collected shall be applied to the two
credits in
proportion to their amounts
RULE:
* where a partner receives his share in the partnership
credit
CONDITIONS:
1.
a partner has received his share in the
partnership credit in whole or in part
2.
the other partners have not collected their part of
the credit
3.
the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the
partnership
capital what he received even though he may have
given receipt for
his share only
* DOES NOT APPLY when
dissolution of the partnership

was

collected

after

RULE:
* every partner is responsible to the partnership for
damages suffered by it through his fault
* he cannot compensate them with the profits and
benefits, which he may have earned for the partnership by
his industry
* the courts may equitably lessen his responsibility

* in the absence of proof, the shares are presumed to be

equal
CONDITIONS before a capitalist partner is obliged to
sell his shares / interest to the other partners [IL, RC,
NA]

debt

RES PERIT DOMINO

*RULES ON WHO BEARS THE RISK OF LOSS

1.

if there is IMMINENT LOSS of the BUSINESS of the

partnership

if SPECIFIC and DETERMINATE THINGS NOT

FUNGIBLE whose USUFRUCT is enjoyed by a firm
the PARTNER who OWNS it bears the loss for
ownership was never transferred to the firm

2.

he REFUSES to
CONTRIBUTE an ADDITIONAL
SHARE to the CAPITAL

2.

3.

there is no agreement to the contrary

* INDUSTRIAL PARTNER IS EXEMPTED

1.

FUNGIBLE or DETERIORABLE
FIRM bears the loss for it is evident ownership was
transferred
3.

THINGS CONTRIBUTED to be SOLD

FIRM bears the loss for evidently the firm was
intended to be the owner
4.

*RULE if MANAGING PARTNER COLLECTS A CREDIT

CONTRIBUTED under APPRAISAL

FIRM bears the loss because this has the effect of
an implied sale

REQUISITES:

1.
2.
3.

existence of at least 2 debts ---- PARTNERSHIP

---- PARTNER
both sums are demandable
the collecting partner is the managing partner

RULE on RESPONSIBILITY of the FIRM

1.

to REFUND amounts disbursed on behalf of the

firm plus legal interest from the time expenses
where made

2.

to ANSWER to each partner for OBLIGATIONS he

may have entered into in good faith in the interest
of the partnership, as well as the risks in
consequence of its management

* REFUND must be made even in case of failure of the

enterprise entered into, provided the partner is not at fault
* AMOUNT DISBURSED does not refer to the ORIGINAL
CAPITAL
*HOW PROFITS ARE DISTRIBUTED
1.
according to AGREEMENT
2.
IF NONE, according to amount of CONTRIBUTION
*HOW LOSSES are DISTRIBUTED
1.
according to AGREEMENT as to losses
2.
IF NONE, according to agreement as to PROFITS
3.
IF NONE, according to amount of CONTRIBUTION
* an INDUSTRIAL PARTNER shall receive a JUST and
EQUITABLE share in the profits
*RULE on INDUSTRIAL PARTNERS LIABILITIES
- may be held liable by third persons BUT he may recover
what he has paid from the other capitalist partners
*RULE on DESIGNATION by THIRD PERSON of SHARES
in PROFITS and LOSSES
* third person is NOT a PARTNER -- appointed to only
distribute shares
* the designation of shares by third persons may be
IMPUGNED, IF it is MANIFESTLY INEQUITABLE
* the designation of shares by third persons CANNOT be
IMPUGNED EVEN IF MANIFESTLY INEQUITABLE IF:
1.
the aggrieved partner has already BEGUN to
EXECUTE the decision
2.
the aggrieved partner has not IMPUGNED the
distribution within 3 months he had knowledge
*RULE IF APPOINTMENT OTHER THAN in the ARTICLES
of PARTNERSHIP
1.
power to act may be REVOKED at ANY TIME with or
without just cause
REMOVAL should be done by the controlling interest
2.
EXTENT of POWER
as long as he remains manager, he can perform all
acts of administration
BUT if others oppose and he persists, he can be
removed
*RULE WHEN there are 2 or MORE MANAGERS
CONDITIONS:
1.
2 or more partners are managers
2.
there is no specification of respective duties
3.
there is no stipulation requiring UNANIMITY

 consent of all the other partners is NOT

REQUIRED
SPECIFIC RULES:
1.
each may separately execute
administration
UNLIMITED POWER to ADMINISTER

all

acts

of

2.

IF any of the managers OPPOSE

MAJORITY RULE
IN CASE OF A TIE
- persons owning controlling interest prevail
provided they are also managers
* right to oppose is not given to NON-MANAGERS
* OPPOSITION should be done BEFORE the acts produce
legal effects insofar as third persons are concerned
RULE WHEN UNANIMITY is REQUIRED
1.
the CONCURRENCE of all shall be necessary for
the validity of the acts
2.

the ABSENCE or DISABILITY of ANYONE of them

CANNOT BE ALLEGED UNLESS there is imminent
danger of grave or irreparable injury to the
partnership

RULE ON DUTY of THIRD PERSONS

third persons are not required to inquire as to whether or
not a partner with whom he transacts has the consent of all
the managers
*RULES to be observed when the manner of
management has not been agreed upon:
1.
all the partners are considered AGENTS
whatever any one of them may do alone shall not
bind the partnership

2.
3.
4.

5.

IF the acts of one are opposed by the rest, the

majority shall prevail
when a partner acts in his OWN NAME, he does not
bind the partnership
authority to bind the firm does not apply if
somebody else has been given authority to
manage in the articles of organization or through
some other means
ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is
prejudicial to the interest of the partnership
- COURTS INTERVENTION may be sought

RULES on ASSOCIATE of PARTNER

1.
every partner may associate another person with
him in his share
2.

for a partner to have an associate in his share

3.

at any reasonable hour, every partner shall have

access to and may inspect and copy any of them

DUTY of PARTNERS TO GIVE INFORMATION

good faith not only requires that a partner should not make
any FALSE CONCEALMENT, BUT he should abstain from all
concealment
DUTY to ACCOUNT [B, P, U-P]
every partner must account to the partnership
1.
any benefit acquired
2.
any profits received
3.
any use of partnership property
RIGHT TO DEMAND a FORMAL ACCOUNT
any partner shall have the right to a formal account as to
partnership affairs
1.
if wrongfully excluded from partnership BUSINESS
2.
if wrongfully excluded from partnership PROPERTY
by his co-partners
3.
if the right exists under the terms of agreement
4.
if the other partner receives other benefits, profits
or uses partnership property
5.
whenever other circumstances render it just and
reasonable
* the right to demand an accounting exists as long as the
partnership exists
* prescription begins to run only upon the dissolution of the
partnership when the final accounting is done
PROPERTY RIGHTS OF PARTNERS [P, I, M]
1.
rights in specific PARTNERSHIP PROPERTIES
2.
INTERESTS in the PARTNERSHIP
3.
right to PARTICIPATE in the MANAGEMENT
RULE:
* a partner is CO-OWNER with his partners of SPECIFIC
PARTNERSHIP PROPERTY
* RIGHTS of a PARTNER in SPECIFIC PARTNERSHIP
PROPERTY
1.

2.

he CANNOT ASSIGN his right to the property

EXCEPT if all the other partners assign their rights
in the same property

3.

his right to the property is NOT SUBJECT to

ATTACHMENT or EXECUTION, EXCEPT on a claim
against partnership

4.

his right to the property is NOT SUBJECT to LEGAL

SUPPORT

for the associate to become a partner

ALL MUST CONSENT

RULES on PARTNERSHIP BOOKS

1.
kept at the principal place of business of the
partnership
2.

he has equal rights with his partners to POSSESS

the property BUT only for PARTNERSHIP PURPOSES
he may possess such property for other purposes
PROVIDED the other partners expressly or
impliedly gives their CONSENT

* if there is PARTNERSHIP DEBT, the specific property can

be attached

RULE:
* a PARTNERS INTEREST in the partnership is his SHARE of
the PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
1.
ASSIGNED
2.
ATTACHED
3.
be subject to LEGAL SUPPORT
*EFFECTS of CONVEYANCE by PARTNER of his
INTEREST in the PARTNERSHIP
1.
IF he conveys his WHOLE INTEREST
A) partnership may still remain
B) partnership may be dissolved
* mere conveyance does not dissolve the
partnership
2.

the ASSIGNEE does not necessarily become a

partner
the ASSIGNOR is still the partner, with a right to
demand accounting and settlement

3.

the
ASSIGNEE
CANNOT
interfere
in
the
MANAGEMENT or ADMINISTRATION of the firm
the ASSIGNEE CANNOT also DEMAND [I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of partnership books

*** while a partners INTEREST in the firm may be CHARGED

or LEVIED upon, his INTEREST in a specific firm PROPERTY
CANNOT be attached.
RIGHTS of the ASSIGNEE
1.
to get whatever profits the assignor-partner would
have obtained
2.

to avail himself of the usual remedies in case of

fraud in the management

3.

to ask for ANNULMENT of the contract of

assignment IF:
A) he was induced to enter into it through any of
the vices of consent
OR
B) he himself was incapacitated to give consent

4.

to demand an accounting
partnership is dissolved

BUT

only

if

the

PREFERENTIAL RIGHTS of PARTNERSHIP CREDITORS

* partnership creditors are entitled to PRIORITY over
partnership assets, including the partners interest in the
profits
** SEPARATE or INDIVIDUAL creditors have PREFERENCE in
separate or individual properties
* when the CHARGING ORDER is applied for and granted,
the court may appoint a receiver of the partners share in the
profits
the receiver appointed is entitled to any relief necessary
to conserve the partnership assets for partnership purposes
* interest charged may be redeemed at any time before
foreclosure
* AFTER FORECLOSURE the interest may still be redeemed
by (without causing dissolution)
1. with separate property, by any one or more of the
partners
OR
2. with partnership property, by any one or more partners
with the consent of all the partners whose interests are not
so charged or sold
* consent of the delinquent partner not needed
RULE:
every partnership shall operate under a FIRM NAME
* the firm name may or may not include the name of one
or more of the partners
** STRANGERS who include their names in the firm are
liable as partners because of ESTOPPEL, BUT do NOT have
the RIGHTS of partners
** IF a LIMITED PARTNER includes his name in the firm
name, he has obligations BUT not the rights of a general
partner
RULE on LIABILITY for CONTRACTUAL OBLIGATIONS
* all partners, including industrial ones, shall be liable prorata with all their property and after all the partnership
assets have been exhausted
* NOT APPLICABLE for TORTS or CRIMES ----- LOSS
----- INJURY
-----
MISAPPROPRIATION
** while an INDUSTRIAL PARTNER is exempted by law from
LOSSES as between the partners, he is NOT EXEMPTED from
liability insofar as third persons are concerned
he may recover what he has paid from the CAPITALIST
partners
* under the law the liability of the partners is subsidiary and
joint NOT principal and solidary

*RULE on LIABILITY of a PARTNER who has

WITHDRAWN
1.
a partner who withdraws is not liable for liabilities
contracted after he has withdrawn
2.

if his interest has not yet been paid him

his right to the same is that of a mere creditor

** a stipulation exempting liability to third persons is VOID

* any partner may enter into a separate obligation to
perform a partnership contract
RULE:
* every partner is an agent of the partnership for the
purpose of its business
G.R.- the act of every partner for apparently carrying on in
the USUAL WAY the business of the partnership of which he
is member binds the partnership
EXCEPT:
1. if he has NO AUTHORITY
and
2. the person with whom he was dealing with HAS
KNOWLEDGE of the fact that he has no such authority

RULE:
an act of a partner which is not apparently for the carrying
on of business of the partnership in the usual way does not
bind the partnership UNLESS authorized by the other
partners
* a partnership is a CONTARCT of MUTUAL AGENCY, each
partner acting as a principal on his own behalf and as an
agent for his co-partners or the firm
REQUISITES on WHEN can a partner BIND the
partnership
1.
expressly or impliedly AUTHORIZED
2.
when he acts in BEHALF AND IN THE NAME of the
partnership
INSTANCES of IMPLIED AUTHORIZATION
1.
when the other partners DO NOT OBJECT,
although they have knowledge of the act
2.
when the act is for apparently carrying on in the
usual way the business of the partnership
* this is binding on the firm even if the partner was
not really authorized PROVIDED that the third party is in
GOOD FAITH
RULE on UNUSUAL ACTS
one or more but less than all the partners HAVE NO
AUTHORITY TO:
[AP, DG, AI, CJ, EC, SA, RC]
1.
ASSIGN the PARTNERS PROPERTY
2.
DISPOSE of GOODWILL

3.
4.
5.
6.
7.

do any other act which would make it impossible

to carry on the ordinary business of the
partnership
CONFESS a judgment
ENTER into a COMPROMISE
SUBMIT to ARBITRATION
RENOUNCE to CLAIM

*RULES on CONVEYANCE of REAL PROPERTY

1.

where title to real property is in the partnership

name
any partner may convey title to such property by
a conveyance executed in the partnership name

* PARTNERSHIP MAY RECOVER SUCH PROPERTY

EXCEPT:
1.
if the firm is engaged in the buying and
selling of land (USUAL BUSINESS)
2.
if property was conveyed to a HOLDER
for VALUE and who had NO KNOWLEDGE
of the partners LACK of AUTHORITY
2. where title is in the name of the partnership and
partner sold in his OWN NAME
IF DONE IN USUAL BUSINESS
buyer does not become owner BUT ACQUIRES
EQUITABLE INTEREST
IF NOT DONE IN USUAL BUSINESS
buyer does not become owner and is not even
entitled to equitable interest
3. where title is in the name of one or more BUT not all
the partners
partners in whose name the title is named MAY
CONVEY BUT the PARTNERSHIP may RECOVER such
property IF done not in its USUAL BUSINESS EXCEPT if
he had transferred it to a Holder for value
4. when property held in trust by partner
a sale only conveys EQUITABLE INTEREST
5.

when title is in the name of all partners

conveyance executed by all partners possess all

rights of such property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE by a
PARTNER
an admission by a partner is an admission against the
partnersip,under the following conditions:
1.
the admissions must concern partnership affairs

2.

RESTRICTIONS ON THE RULE:

1.
admissions made BEFORE DISSOLUTION are
binding only when the partner has authority to act
on the particular matter

2.
3.

must be within the scope of his authority

admissions made AFTER DISSOLUTION are binding

only if the admissions were necessary to WIND UP
the business
an admission made by a former partner made
after he has RETIRED from the partnership is not
evidence against the firm

EFFECT of NOTICE to a PARTNER

notice to a partner is notice to the partnership
*notice to a partner, given while already a partner is a
notice to the partnership PROVIDED it relates to partnership
affairs
EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE WAS
GIVEN:
* knowledge of the partner is also knowledge of the firm
PROVIDED THAT:
1.
the knowledge was acquired by a partner who is
acting in the particular matter involved;and
2.
the partner having knowledge, had reason to
believe that the fact related to a matter which
had some possibility of being the subject of the
partnership business AND he was so situated that
he could communicate it to the partner acting on
that particular matter
* SERVICE of PLEADINGS on the partner in a law firm is also
service on the whole firm and the other partners

2.

if the act or omission is NOT WRONGFUL

3.

if the act or omission, although wrongful did not

make the partner concern liable
- DAMNUN ABSQUE INSURIA

4.

if the wrongful act or omission was committed

after the firm had been dissolved and the same
was not in connection with the process of winding
up.

LIABILITY of PARTNERSHIP for MISAPPROPRIATION

(SOLIDARY LIABILITY)
1.
RECEIVING PARTY MISAPPROPRIATES
2.
ANY PARTNER MISAPPPROPRIATES
money or property in custody of
partnership
PARTNER BY ESTOPPEL
a person who represents himself or consents to another /
others representing him to anyone as a partner either in an
existing partnership or in one that is fictitious or apparent
PARTNERSHIP BY ESTOPPEL
when all the members of the existing partnership consent
to such representation of a partner by estoppel
RULES AND SITUATIONS:
1.
if a third person is misled and acts because of
such misrepresentation
the deceiver is a partner by estoppel
2.

if
the
partnership
consented
misrepresentation
partnership liability results

3.

if the firm had not consented

no partnership liability results BUT the deceiver
is considered still as a partner by estoppel with
all the obligations but not the rights of a partner

4.

LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a PARTNER
(SOLIDARY LIABILITY)
* the partnership is solidarily liable with the partner if the
wrongful act or omission
1.
the partner is acting in the ordinary course of
business of the partnership
OR
2.
with authority of his co-partners
* innocent partners have right to recover from the guilty
partner
* When the firm and other partners not liable:
1.
if the wrongful act or omission was NOT DONE
A) within scope of partnership business
B) with authority of the other co-partners

to

such

when a person represents himself as a partner of

a NON-EXISTENT partnership
NO partnership liability results BUT the deceiver
and all persons who may have aided him in the
misrepresentation are still liable
liability would be JOINT or PRO-RATA

* when although there is misrepresentation, if the third

party is not deceived, the doctrine of estoppel does not
apply
BURDEN of PROOF
the creditor or whoever alleges the existence of a partner
or partnership by estoppel has the burden of proving the
existence of the MISREPRESENTATION AND INNOCENT
RELIANCE on it
ENTRY OF A
PARTNERSHIP
RULE:

NEW

PARTNER

into

an

EXISTING

* he shall be liable for all the obligations of the partnership

BUT his liability will extend only to his share in the
partnership property
* his own individual property shall be excluded
* same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
* the creditors of the partnership shall be preferred to
those of such partner as regards the partnership property
without prejudice to this right
the private creditors of each partner may ask the
attachment and public sale of the share of the latter in the
partnership assets
**IF a partner sells his share to a third party, BUT the firm
itself still remains SOLVENT, partnership creditors CANNOT
assail the validity of the sale by alleging that it is made in
fraud of them, since they have not really been prejudiced
DISSOLUTION AND WINDING UP
the change in the relation of the partners caused by any
partner causing to be associated in the carrying on of the
business
it is the point of time the partners cease to carry on the
business together
WINDING UP
the process settling business affairs after dissolution
TERMINATION
the point in time after all the partnership affairs have
been wound up
RULE ON DISSOLUTION
* on dissolution the partnership is not terminated BUT
continues until the winding up of partnership affairs is
completed
*EFFECT on OBLIGATIONS
1.
just because a partnership is dissolved this does
not necessarily mean that a partner can evade
previous obligations entered into by the
partnership
2.

dissolution saves the former partners from new

obligations to which they have not expressly or
impliedly consented UNLESS the same be essential
for winding up

*CAUSES OF DISSOLUTION
1.
without VIOLATION of the AGREEMENT between
the partners
A) TERMINATION of the DEFINITE TERM or
PARTICULAR UNDERTAKING

B)

2.

3.
4.

5.
6.
7.
8.

EXPRESS WILL or ANY PARTY in GOOD

FAITH (PARTNERSHIP by WILL)
C) EXPRESS WILL of ALL of the PARTNERS
except those who have (interests)
ASSIGNED or whose interests have been
(separate debts) CHARGED
D) EXPULSION in good faith of a member
in CONTRAVENTION of the agreement between the
partners
by the EXPRESS WILL of ANY PARTNER at any
time
UNLAWFULNESS of the BUSINESS
LOSS thing promised
A) SPECIFIC THING PERISHES before
delivery
B) USUFRUCT is lost EXCEPT if ownership
had been transferred to the partnership
DEATH of ANY partner
INSOLVENCY of any partner or of the partnership
CIVIL INTERDICTION of any partner
DECREE of COURT

*** if the cause is not justified or no cause was given, the

withdrawing partner is liable for DAMAGES BUT in no case
can he be compelled to remain in the firm
* the insolvency need not be judicially declared, it is
enough that the assets be less than the liabilities
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:
(I, UM, I-PP, C, PB, BL, OC)
1.
partner declared insane in any judicial
proceeding or is shown to be of UNSOUND MIND
2.
partner becomes INCAPABLE of performing his part
of the partnership contract
3.
partner has been guilty of such CONDUCT as tends
to affect prejudicially the business
4.
partners PERSISTENT BREACH of agreement
5.
the business of the partnership can only be denied
on at a loss
6.
other circumstances which render dissolution
equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
1.
after the termination of the specified term or
particular undertaking
2.
AT ANY TIME, if the partnership was a partnership
at will when the interest was assigned or when
the charging ordered was issued
* proof as to the existence of the firm must first be given
* even if a partner has not yet been previously declared
insane by the court, dissolution may be asked, as long as the
insanity is duly proved in court
* in a suit for dissolution, the court may appoint a
RECEIVER at its discretion

RULE:
* when the firm is dissolved, a partner can no longer bind
the partnership
* a dissolved partnership still has the personality for the
winding up of its affairs
the firm is still allowed to collect previously acquired
credits
the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) as to each partners
G.R. where the dissolution is caused by the ACT,
INSOLVENCY or DEATH of a partner, each partner is liable to
his co-partners for his share of any liability created by any
partner acting for the partnership
EXCEPTION: - individual liabilities
1.
if dissolution by ACT
the partner acting for the partnership HAD
KNOWLEDGE of the dissolution
OR
2.
if dissolution by DEATH or INSOLVENCY
the partner acting for the partnership HAD
knowledge or notice of the death or insolvency
* only the partner acting assumes liability
*AFTER DISSOLUTION, a partner can still bind the
PARTNERSHIP
(WU, UT, TB)
1.
By any ACT appropriate for WINDING UP
partnership affairs
2.

By COMPLETING
dissolution

transactions

UNFINISHED

at

3.

By any TRANSACTION which could bind the

partnership IF dissolution had not taken place
PROVIDED the other party is:
A) PREVIOUS CREDITOR and had NO
KNOWLEDGE
or
NOTICE
of
the
dissolution
OR
B) NOT a PREVIOUS CREDITOR, had NO
KNOWLEDGE or NOTICE and dissolution
was NOT PUBLISHED
* if there was publication of the dissolution it is
presumed he already knows, regardless of actual
knowledge on non knowledge
WHEN is the PARTNERSHIP NOT BOUND
1.
new business with third parties who are in bad
faith
2.
firm dissolved because UNLAWFUL except for acts
of winding up
3.
partner who acted became INSOLVENT
4.
partner not authorized to wind up EXCEPT if
customer in good faith
* if after dissolution, if a stranger will represent himself as
a partner although he is not one he will be a partner by
estoppel

EFFECTS OF DISSOLUTION

8
RULE:
* the dissolution of the partnership does not itself
discharge the existing liability of any partner
NEED for an AGREEMENT BETWEEN
1.
partner concerned
2.
other partners
3.
creditors
RULE:
* the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall
be liable for all obligations of the partnership incurred while
he was a partner BUT subject to prior payments of his
separate debts
* IF there be a NOVATION of the OLD PARTNERSHIP DEBTS
and such novation is done after one of the partners has
retired and without the consent of such partner
said partner cannot be held liable by creditors who
made the novation with knowledge of the firms dissolution
EXTRAJUDUCIAL AND JUDICIAL WINDING-UP
EXTRAJUDICIAL:
1.
by the partners who have not wrongfully dissolved
the partnership
2.
by the legal representative of the last surviving
partners
JUDICIAL:
under the control and direction of the court, upon proper
cause that is shown to the court
* profits that will actually enter the firm after dissolution as
a consequence of transactions already made before
dissolution are included because they are considered as
profits existing at the time of dissolution
* any other income earned after the time, like interest or
dividends on stock owned by the partners or partnership at
the time of dissolution should not be distributed as profits
BUT as merely additional income to the capital
BETTER RIGHTS of INNOCENT PARTNERS
innocent partners have better rights than guilty partners
and that the guilty partners are required to indemnify for the
damages caused
* RIGHT of INOCENT PARTNERS TO CONTINUE the
BUSINESS
in essence this is a new partnership
can use the same firm name
can ask new members to join
BUT shall: for protection of guilty partners
1.
give a BOND approved by the court
2.
to PAY guilty partners his interests at the time of
dissolution MINUS DAMAGES

* a guilty partner who is EXCLUDED will be indemnified

against all present or future partnership liabilities
RIGHT TO GET CASH
in case on non-continuance of the business, the interest of
the partner should if he desires be given in cash
assets may be sold
a guilty partner, in ascertaining the value of his interest is
not entitled to a proportional share of the value of GOOD WIL

RIGHTS OF INNOCENT PARTNERS IN CASE of

RESCISSION
based
on
FRAUD
AND
MISREPRESENTATION
1. Right to LIEN or RETENTION SURPLUS
CAPITAL
ADVANCES
2. Right of SUBROGATION as creditor
3. Right of INDEMNIFICATION
*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP
LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
1.
those owing to creditors other than partners
2.
those owing to partners other than for capital or
profits REIMBURSEMENTS
3.
those owing to partners in respect to CAPITAL
4.
those owing to partners in respect to PROFITS
* IF the partnership assets are insufficient, the other
partners must contribute more money or property
PREFERENCE with RESPECT to the ASSETS
1.
regarding partnership property
partnership creditors have preference

6.

after wrongful dissolution,

continue the business without
when partner expelled and
continue the business without

remaining partners
liquidation
remaining partners
liquidation

* liability of third person becoming a partner in the

partnership continuing the business to the creditors of the
dissolved partnership shall be satisfied out of the partnership
property ONLY
G.R. when a partner retires, he is entitled what is due him
after liquidation BUT no liquidation is needed if there is
already a settlement at the date of dissolution

way

of

*When creditors of the dissolved partnership are also

creditors of the partnership continuing business:
1.
new partner is admitted without liquidation
2.
a partner retires and assigns his rights IF the
business is continued without liquidation of the
partnership affairs
3.
all but one partner retire without liquidation
4.
when all partner assign their right to a person who
will assume their debt

* PARTNERSHIPS includes a SYNDICATE, GROUP, POOL,

JOINT VENTURE, or other unincorporated organization,
through or by the means of which any business, financial
operation, or venture is carried on
* a joint venture need not be undertaken in any of the
standard forms,
or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted
for purposes of the TAX on corporations

JURISPRUDENCE
BASTIDA vs. MENZI
* articles of association by which 2 or more persons
obligate themselves to place in a common fund any
property, industry, or any of these things, in order to obtain
profit, shall be COMMERCIAL
BORJA vs. ADDISON
* a surviving husband may form a partnership with the
heirs of the deceased wife for the management and control
of the community property
BUT in the absence of the formalities prescribed by the
Civil Code, knowledge of the existence of the new
partnership or community of property must at least be
brought home to third persons dealing with the surviving
husband in regard to the community real property in order to
bind them by the community agreement

* the existence of a partnership cannot be established by

general reputation, rumor or hearsay

RULE if PARTNER is INSOLVENT

- How INDIVIDUAL PROPERTY is DISTRIBUTED

PASCUAL vs. C.I.R.

* co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property

KIEL vs. SABERT

* the declarations of one partner, not made in the
presence of his co-partner, are not competent to prove the
existence of a partnership between them as against such
partner

2.
regarding individual properties of partners
individual creditors are preferred

ORDER OF PREFERENCE:
1.
INDIVIDUAL or SEPARATE CREDITORS
2.
PARTNERSHIP CREDITORS
3.
those owing to other partners by
contribution

5.

EVENGELISTA vs. C.I.R.

* By the contract of partnership 2 or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves
ESSENTIAL ELEMENTS of a PARTNERSHIP
1.
an agreement to CONTRIBUTE money, property, or
industry to a COMMON FUND
2.
intent to divide the profits among the contracting
parties
* when our internal Revenue Code includes partnerships
among the entities subject to the tax on corporations, said
code which are not necessarily partnerships in the
technical sense of the term

* the sharing of gross returns does not itself establish a

partnership, within the persons sharing them have a joint or
common right or interest in any property from which the
returns are derived
* aside from the circumstances of profit, the presence of
other elements constituting partnership is necessary, such
as:
1.
the clear intent to form a partnership
2.
the existence of a juridical personality different
from that of the individual partners
AND
3.
the freedom to transfer or assign any interest in
the property by one with the consent of the others
* an isolated transaction whereby 2 or more persons
contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention
cannot be considered a partnership
* persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, BUT who
severally retain the title to their respective contribution, are
not thereby rendered partners
they have no common stock or capital and no
community of interest as principal proprietors in the business
itself which the proceeds derived
* a joint purchase of land, by two does not constitute a copartnership in respect thereto, NOR does an agreement to
share the profits and losses on the sale of land create a
partnership
* in order to constitute a PARTNERSHIP INTER SESE
there must be:
A) an intent to form the same
B) generally participating in both profits
and losses
AND
C) such a community of interest, as far as
third persons are concerned as enables
each party to make a contract, manage
the business, and dispose of the whole
property

* the common ownership of property does not itself create

a partnership between the owners, though they may use it
for the purpose of making gains AND they may without
becoming partners, agree among themselves as to the
management and use of such property and the application of
the proceeds therefrom
* the sharing of returns does not in itself establish a
partnership within the persons sharing therein have a joint or
common right or interest in the property
there must be:
1.
clear intent to form a partnership
2.
the existence of a juridical personality different
from the individual partners
AND
3.
the freedom of each party to transfer or assign the
whole property

10

whenever immovable property is contributed

thereto, if inventory of said property is not made, signed
by the parties and attached to the public instrument
EVANGELISTA vs. ABAD SANTOS
* an INDUSTRIAL PARTNER cannot engage in BUSINESS
FOR HIMSELF, UNLESS the partnership expressly permits him
to do so
IF HE SHOULD DO SO, the capitalist partners may either:
1.
EXCLUDE him from the firm
OR
2.
AVAIL themselves of the benefits which he may
have obtained in violation of this provision
with a right to DAMAGES in either case
* the prohibition against an industrial partner engaging in
business for himself seeks to prevent any conflict of interest
between the industrial partner and the partnership and to
ensure faithful compliance by said partner with his prostation

DUTERTE vs. RALLOS

* an agreement between 2 persons to operate a cockpit,
by which one is to contribute his services and the other to
provide the capital, the profits to be divided between them,
constitutes a partnership
DELUAO vs. CASTEEL
* a contract of partnership to exploit a fishpond pending its
award to any qualified party or applicant is VALID BUT a
contract of partnership to divide the fishpond after such
award is ILLEGAL
* one of the causes of dissolution is any event which
make it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership
C.I.R. vs. SUTER
* a UNIVERSAL PARTNERSHIP requires either that the
object of the association be:
1.
all the present property of the partners as
contributed by them to the common fund
OR
2.
all that the partners may acquire by their industry
or work during the existence of the partnership
* the subsequent marriage of the partners could not
operate to dissolve the partnership because it is not one of
the causes provided for dissolution by law with regards to
limited partnerships
* partnership has distinct and separate personality from
that of its partners
* a husband and wife may not enter into a contract of
general co-partnership/ UNIVERSAL partnership
ACOAD vs. MABATO
* a partnership may be constituted in any form EXCEPT
where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary
* A CONTRACT of PARTNERSHIP is VOID

AGENCY
NATURE, FORM AND KINDS OF AGENCY
I. DEFINITION AND OBJECTIVE OF AGENCY
1. Definition and Objective of Agency
Article 1868 of the Civil Code defines the contract of agency
as one whereby a person binds himself to render some
service or to do something in representation or on behalf of
another, with the consent or authority of the latter. [1]
In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA
584 (2007), the Supreme Court held that The underlying
principle of the contract of agency is to accomplish results
by using the services of others to do a great variety of
things like selling, buying, manufacturing, and transporting.
Its purpose is to extend the personality of the principal or the
party for whom another acts and from whom he or she
derives the authority to act. (at p. 592)

In Orient Air Service & Hotel Representatives v. Court of

Appeals, 197 SCRA 645 (1991), the Court held that the
purpose of every contract of agency is the ability, by legal
fiction, to extend the personality of the principal through the
facility of the agent; but the same can only be effected with
the consent of the principal.

Knowledge of the agent pertains to the principal

In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the

Court held that It bears stressing that in an agent-principal
relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any
court.[2] (at p. 223)

A suit against an agent in his personal capacity cannot,

without compelling reasons, be considered a suit against the
principal. Philippine National Bank v. Ritratto Groups, Inc.,
362 SCRA 216 (2001).

In Doles v. Angeles , 492 SCRA 607 (2006), the Court held

The CA is incorrect when it considered the fact that the
supposed friends of [petitioners], the actual borrowers, did
not present themselves to [respondent] as evidence that
negates the agency relationshipit is sufficient that
petitioner disclosed to respondent that the former was acting
in behalf of her principals, her friends whom she referred to
respondent. For an agency to arise, it is not necessary that
the principal personally encounter the third person with
whom the agent interacts. The law in fact contemplates, and
to a great degree, impersonal dealings where the principal
need not personally know or meet the third person with
whom her agent transacts; precisely, the purpose of agency
is to extend the personality of the principal through the
facility of the agent. (at p. 622)
Lately, in Philex Mining Corp. v. Commissioner of Internal
Revenue, 551 SCRA 428 (2008), the Court reiterated the
principle that the essence of an agency, even one that is
coupled with interest, is the agents ability to represent his
principal and bring about business relati0ns between the
latter and third persons.
When an agency relationship is established, and the agent
acts for the principal, he is insofar as the world is concerned
essentially the principal acting in the particular contract or
transaction on hand. Consequently, the acts of the agent on
behalf of the principal within the scope of the authority have
the same legal effect and consequence as though the
principal had been the one so acting in the given
situation. Rallos v. Felix Go Chan & Sons Realty Corp., 81
SCRA 251 (1978); Eurotech Industrial Technologies, Inc. v.
Cuizon, 521 SCRA 584 (2007).
Some of the legal consequences that flow from the doctrine
of representation in the contract of agency are that
Notice to the agent is notice to the principal. Air France v.
Court of Appeals , 126 SCRA 448 (1983).

When an agent purchases the property in bad faith, the

principal is deemed to be a purchaser in bad faith. Caram, Jr.
v. Laureta , 103 SCRA 7 (1981).

2. Parties to a Contract of Agency

The parties to a contract of agency are:
the PRINCIPAL the person represented
the AGENT the person who acts for and in
representation of another
The other terms used for the position of agent are attorneyin-fact, proxy, delegate, or representative.
Although Article 1868 of the Civil Code defines agency in
terms of being a contract, it should also be considered that
upon the perfection of the contract of agency, it creates
between the principal and an agent an on-going legal
relationship which imposes personal obligations on both
parties. This is in consonance with the progressive nature
of every contract of agency.
a. Capacity of the Parties
The principal must have capacity to contract (Arts. 1327 and
1329), and may either be a natural or juridical person (Art.
1919[4]).
There is legal literature that holds that since the agent
assumes no personal liability, she does not have to possess
full capacity to act insofar as third persons are concerned.[3]
Since a contract of agency is first and foremost a contract in
itself, the parties (both principal and agent) must have legal
capacities to validly enter into an agency. However, if one of
the parties has no legal capacity to contract, then the
contract of agency is not void, but merely voidable, which
means that it is valid until annulled.
Thus, a voidable agency will produce legal consequences,
when it is pursued to enter into juridical relations with third
parties. If the principal is the one who has no legal capacity
to contract, and his agent enters into a contractual
relationship in the principals name with a third party, the
resulting contract is voidable and subject to annulment. On
the other hand, if the principal has legal capacity, and it is
the agent that has no legal capacity to contract, the

11
underlying agency relationship is voidable; and when the
incapacitated agent enters into a contract with a third party,
the resulting contract would be valid, not voidable, for the
agents incapacity is irrelevant, the contract having been
entered into, for and in behalf of the principal, who has full
legal capacity.
The foregoing discussions support the fact that as a general
proposition the lack of legal capacity of the agent does not
affect the constitution of the agency relationship. And yet, it
is clear under Article 1919(3) of the Civil Code that if during
the term of the agency, the principal or agent is placed
under civil interdiction, or becomes insane or insolvent, the
agency is ipso jure extinguished. It is therefore only logical to
conclude that if the loss of legal capacity of the agent
extinguishes the agency, then necessarily any of those
cause that have the effect of removing legal capacity on
either or both the principal and agent at the time of
perfection would not bring about a contract of agency.
Obviously, there seems to be an incongruence when it
comes to principles involving the legal capacities of the
parties to a contract of agency. The reason for that is that
the principles actually occupy two different legal levels.
When it comes to creating and extinguishing the contractual
relationship of principal and agent, the provisions of law take
into consideration purely intramural matters pertaining to
the parties thereto under the principle of relativity. Since
agency is essentially a personal relationship based on the
purpose of representation, then when either the principal or
agent dies or becomes legally incapacitated, then the
agency relation should ipso jure cease. But a contract of
agency is merely a preparatory contract, where the main
purpose is to effect through the agent contracts and other
juridical relationships of the principal with third parties. The
public policy is that third parties who act in good faith with
an agent have a right to expect that their contracts would be
valid and binding on the principal. Therefore, even when by
legal cause an agency relationship has terminated, say with
the insanity of the principal, if the agent and a third party
enter into contract unaware of the situation, then the various
provisions on the Law on Agency would affirm the validity of
the contract. More on this point will be covered under the
section on the essential characteristics of agency.
3. Elements of the Contract of Agency
Like any other contract, agency is constituted of the
essential elements of (a) consent; (b) object or subject
matter; and (c) cause or consideration.
In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251
(1978), the Court held that the following are the essential
elements of the contract of agency:
(a) Consent, express or implied, of the parties to establish
the relationship;

(b) Object, which is the execution of a juridical act in relation

to third parties;
(c) Agent acts as a representative and not for himself; and
(d) Agent acts within the scope of his authority.[4]
The element not included in the Rallos enumeration is the
cause or consideration of every contract of agency. Under
Article 1875 of the Civil Code, every agency is presumed to
be for compensation, unless there is proof to the contrary. In
other words, it is clear that there can be a valid agency
contract which is supported by consideration of liberality on
the part of the agent; that although agency contracts are
primarily onerous, they may also be constituted as
gratuitous contracts. The value that Article 1875 of the Civil
Code brings into the Law on Agency is that the presumption
is that every agency contract entered into is for valuable
considerationthat the agency serves for the benefit of the
principal expecting to be compensated for his efforts. It is
the party who avers that the agency was gratuitousthat
the agent agreed to serve gratuitously.
The last two elements included in the Rallos enumeration
should not be understood to be essential elements for the
perfection and validity of the contract of agency, for indeed
they are matters that do not go into perfection, but rather
into the performance stage of the agency relationship. The
non-existence of the two purported essential elements (i.e.,
that the agent acted for herself and/or the agent acted
beyond the scope of her authority), does not affect the
validity of the existing agency relationship, but rather the
legality of the contracts entered into by the agent on behalf
of the principal.
Thus, under Article 1883 of the Civil Code, If an agent acts
in his own name, the principal has no right of actions against
the person with whom the agent has contracted; neither
have such persons against the principal. Under Article 1898
of the Civil Code, If the agent contracts in the name of the
principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void as to
the principal.
a. Consent
The essential element of consent is manifest from the
principle that No person may be represented by another
without his will; and that no person can be compelled
against his will to represent another.
Thus, the Supreme Court held in Litonjua, Jr. v. Eternit Corp.,
490 SCRA 204 (2006), held that consent of both the principal
and the agent is necessary to create an agency: The
principal must intend that the agent shall act for him; the
agent must intend to accept the authority and act on it, and
the intention of the parties must find expression either in
words or conduct between them.

In the same manner, Dominion Insurance Corp. v. Court of

Appeals, 376 SCRA 239 (2002), held that since the basis for
agency is representation, then there must be, on the part of
the principal, an actual intention to appoint or an intention
naturally inferable from his words or actions; on the part of
the agent, there must be an intention to accept the
appointment and act on it; and in the absence of such intent,
there is generally no agency.
Perhaps the only exception to this rule is agency by
estoppel, but even then it is by the separate acts of the
purported principal and purported agent, by which they are
brought into the relationship insofar as third parties acting in
good faith are concerned. More discussions on the essential
element of consent shall take place in the section on
essential characteristic of consensuality of contracts of
agency.
b. Object or Subject Matter
The object of every contract of agency is service, which
particularly is the legal undertaking of the agent to enter into
juridical acts with third persons on behalf of the principal.
Items (b), (c) and (d) in the enumerated elements of Rallos
can actually be summarized into the object of every contract
of agency to be that of service, i.e., the undertaking
(obligation) of the agent to enter into a juridical act with
third parties on behalf of the principal and within the scope
of his authority.
c. Consideration
The cause or consideration in agency is the compensation or
commission that the principal agreed or committed to be
paid to the agent for the latters services. Under Article 1875
of the Civil Code, agency is presumed to be for
compensation, unless there is proof to the contrary. In other
words, liberality may be the proper cause or consideration
for an agency contract only when it is so expressly agreed
upon. Unless otherwise stipulated, therefore, every agent is
entitled to remuneration or compensation for the services
performed under the contract of agency.
The old decision in Aguna v. Larena, 57 Phil 630 (1932), did
not reflect the general rule of agency-is-for-compensation
reflected subsequently in Article 1875 of the Civil Code.
In Aguna, although the agent had rendered service to the
principal covering collection of rentals from the various
tenants of the principal, and in spite of the agreement that
principal would pay for the agents service, nevertheless, the
principal allowed the agent to occupy one of his parcels of
land and to build his house thereon. The Court held that the
service rendered by the agent was deemed to be gratuitous,
apart from the occupation of some of the house of the
deceased by the plaintiff and his family, for if it were true
that the agent and the deceased principal had an
understanding to the effect that the agent was to receive

12
compensation aside from the use and occupation of the
houses of the deceased, it cannot be explained how the
agent could have rendered services as he did for eight years
without receiving and claiming any compensation from the
deceased. (at p. 632) If Aguna were decided under the New
Civil Code, then under Article 1875, which mandates that
every contract of agency is deemed to be for compensation,
then the result would have been quite the opposite.
d. Entitlement of Agent to Commission Anchored on
the Rendering of Service
The compensation that the principal agrees to pay to the
agent is part of the terms of the contract of agency upon
which their minds meet. Therefore, the extent and manner
by which the agent would be entitled to receive
compensation or commission is based on the terms of the
contract.
Sometimes, the terms are not that clear, and decisions have
had to deal with the issue of when an agent has merited the
right to receive the compensation either stipulated or
implied from the terms of the contract. The doctrine that
may be derived from the various decisions on the matter are
anchored on the nature of the contract of agency as a
species of contracts of services in general. When the
rendering of service alone, and not the results, is the
primordial basis for which the compensation is given, then
the proof that services have been rendered should entitle
the agent to the compensation agreed upon. On the other
hand, if the nature of the service to be compensated is
understood by the results to be achieved, e.g., that a
particular contract with a third party is entered into in behalf
of the principal, then mere rendering of service without
achievement of the results agreed upon to be achieved
would not entitle the agent to the compensation agreed
upon.
Thus, in Inland Realty v. Court of Appeals, 273 SCRA 70
(1997), the Court held that
Although the ultimate buyer was introduced by the agent to
the principal during the term of the agency, nevertheless,
the lapse of the period of more than one (1) year and five (5)
months between the expiration of petitioners authority to
sell and the consummation of the sale, cannot authorize
compelling the principal to pay the stipulated brokers fee,
since the agent was not longer entitled thereto.
The Court takes into strong consideration that utter lack of
evidence of the agent showing any further involvement in
the negotiations between principal and buyer during that
period and in the subsequent processing of the documents
pertinent to said sale. (at p. 79)
In contrast, in Manotok Bros. Inc. v. Court of Appeals, 221
SCRA 224 (1993), the Court held that although the sale of

the object of the agency to sell was perfected three days

after the expiration of the agency period, the agent was still
be entitled to receive the commission stipulated based on
the doctrine held in Prats v. Court of Appeals, 81 SCRA 360
(1978), that when the agent was the efficient procuring
cause in bringing about the sale that the agent was entitled
to compensation. In essence, the Court ruled that when
there is a close, proximate and causal connection between
the agents efforts and labor and the principals sale of his
property, the agent is entitled to a commission.
The matter pertaining to entitlement to commission will be
discussed in greater details in the section that distinguishes
a contract of agency from that of a brokers contract.
4. Essential Characteristics of Agency
a. Nominate and Principal
Not only is the contract of agency specifically named as such
under the Civil Code, it is a principal contract because it can
stand on its own without need of another contract to validate
it.
The real value of the contract of agency being a nominate
and principal contract is that it has been so set apart by law
and provided with its own set of rules and legal
consequences, that any other arrangement that essentially
falls within its terms shall be considered as an agency
arrangement and shall be governed by the Law on Agency,
notwithstanding any intention of the parties to the contrary.
After all, a contract is what the law says it is, and not what
the parties call it.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if
an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of
the latter notwithstanding he or she is not so calledit will
be an agency whether the parties understood the exact
nature of the relation or not.
b. Consensual
The contract of agency is perfected by mere consent. Under
Article 1869, an agency may be expressed or implied from
the act of the principal, from his silence or lack of action, or
failure to repudiate the agency; agency may be oral, unless
the law requires a specific form.[5]
Under Article 1870 of the Civil Code, acceptance by the
agent may also be express, or implied from his acts which
carry out the agency, of from his silence or inaction
according to the circumstances.
c. Unilateral and Primarily Onerous

Ordinarily, an agency is onerous in nature, where the agency

expects compensation for his services in the form of
commissions. However, Article 1875 recognizes that an
agency may be supported by pure liberality, and thus would
be gratuitous, but the burden of proof would be to show that
the agency was constituted gratuitously.
When it is gratuitous, the contract of agency is unilateral
contract because it only creates an obligation on the part of
the agent. But even when it is supported by a valuable
consideration (i.e.,compensated or onerous agency), it would
still be characterized as a unilateral contract, because it is
only the fulfillment of the primary obligations of the agent to
render some service upon which the subordinate obligation
of the principal to pay the compensation agreed upon arises.
When an agent accepts the agency position without
compensation, he assumes the same responsibility to carry
out the agency and therefore incurs the same liability when
he fails to fulfill his obligations to the principal. It is therefore
rather strange that Article 1909 of the Civil Code provides
that The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by
the courts, according to whether the agency was or was not
for a compensation.
d. Preparatory and Representative
There is no doubt that agency is a species of the broad
grouping of what we call the service contracts, which
includes employment contract, management contract and
contract-for-a piece of work. There are also special service
contracts which include the rendering of professional service
(e.g., doctors and lawyers), and consultancy work. But it is
the characteristic of representation that is the most
distinguishing mark of agency when compared with other
service contracts, in that the main purpose is to allow the
agent to enter into contracts with third parties on behalf of,
and which would bind on, the principal.
A contract of agency does not exist for its own purpose; it is
a preparatory contract entered into for other purposes that
deal with the public. This characteristic of an agency is
reflected in various provisions in the Law on Agency and in
case-law, that seek to protect the validity and enforceability
of contracts entered into pursuant to the agency
arrangement, even when to do so would contravene strict
agency principles. In another way of putting it, an agency
contract is merely a tool allowed to be resorted to achieve a
greater objective to enter into juridical relations on behalf of
the principal; considerations that pertain merely to the tool
certainly cannot outweigh considerations that pertain to the
main objects of the agency.
In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552
(2005), the Court decreed that In a bevy of cases as the
avuncular case ofVictorias Milling Co., Inc. v. Court Appeals,
[333 SCRA 663 (2000)], the Court decreed from Article 1868
that the basis of agency is representation, (at p. 560), and

13
that consequently one of the strongest feature of a true
contract of agency is that of control that the agent is
under the control and instruction of the principal. Thus,
in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA
663 (2000), it was ruled
It is clear from Article 1868 that the basis of agency is
representation.[6] On the part of the principal, there must be
an actual intention to appoint or an intention naturally
inferable from his words or actions; and on the part of the
agent, there must be an intention to accept the appointment
and act on it, and in the absence of such intent, there is
generally no agency. One factor which most clearly
distinguishes agency from other legal concepts is control;
one person the agent agrees to act under the control or
direction of another the principal. Indeed, the very word
agency has come to connote control by the principal.[7]
The control factor, more than any other, has caused the
courts to put contracts between principal and agent in a
separate category. . . .
xxx
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. Private respondent CSC was not subject to
STMs control. The question of whether a contract is one of
sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language
employed. That the authorization given to CSC contained the
phrase for and in our (STMs) behalf did not establish an
agency. Ultimately, what is decisive is the intention of the
parties. That no agency was meant to be established by the
CSC and STM is clearly shown by CSCs communication to
petitioner that SLDR No. 1214M had been sold and
endorsed to it. The use of the words sold and endorsed
means that STM and CSC intended a contract of sale, and
not an agency. (at pp. 676-677)
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that
for an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent
interacts precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent.
In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA
584 (2007), the Court held
It is said that the basis of agency is representation, that is,
the agent acts for and on behalf of the principal on matters
within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the
principal. By this legal fiction, the actual or real absence of
the principal is converted into his legal or juridical presence
qui facit per alium facit per se. (at p. 593)

Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81

SCRA 251 (1978), the Court held that Agency is basically
personal, representative, and derivative in nature. The
authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the
principal if done within the scope of the authority. Qui facit
per alium facit per se. He who acts through another acts
himself. (at p. 259)
(1) Principles Flowing from Agency Characteristics of
Prepartatory and Representative
The following principles flow from the application of the
essential characteristics of an agency being preparatory
and representative contract, thus:
(a) The contract entered into with third persons pertains to
the principal and not to the agent; the agent is a stranger to
said contract although he physically was the one who
entered into it in a representative capacity;

Unless:

Thus, in Eurotech Industrial Technologies, Inc. v. Cuizon, 521

SCRA 584 (2007), the Court held

(i) There is and express consent on the part of the principal

(Cui v. Cui, 100 Phil. 913 (1957); or

Article 1897 reinforces the familiar doctrine that an agent,

who acts as such, is not personally liable to the party with
whom he contracts. The same provision, however, presents
two instances when an agent becomes personally liable to a
third person. The first is when he expressly binds himself to
the obligation and the second is when he exceeds his
authority. In the last instance, the agent can be held liable if
he does not give the third party sufficient notice of his
powers. (at p. 593)

(ii) If the agent purchases after the agency is terminated

(Valera v. Velasco, 51 Phil. 695 (1928).

the agent has neither rights or obligations from the

resulting contract;

In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court

held that the right of inspection given to a stockholder under
the law can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without
the attendance of the stockholder. This is in conformity with
the general rule that what a man may do in person he may
do through another.

the agent has no legal standing to sue upon said contract

e. Derivative, Fiduciary and Revocable

(b) The liabilities incurred shall pertain to the principal and

not the agent;

A contract of agency creates a legal relationship of

representation by the agent on behalf of the principal, where
the powers of the agent are essentially derived from the
principal, and consequently, it is fiduciary in nature. One of
the legal consequences of the fiduciary nature of the
contract of agency is that it is essentially revocable: neither
the principal nor the agent can be legally made to remain in
the relationship when they choose to have it terminated.

(c) Generally, all acts that the principal can do in person, he

may do through an agent, except those which under public
policy are strictly personal to the person of the principal.
(d) The agent who acts as such is not personality liable to
the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers. (Art. 1897)
(e) Notice to the agent should always be construed as notice
binding on the principal, even when in fact the principal
never became aware thereof. Air France v. Court of Appeals,
126 SCRA 448 (1983)
(f) Knowledge of the agent is equivalent to knowledge of the
principal.
EXCEPT WHERE:
(1) Agents interests are adverse to those of the principal;
(2) Agents duty is not to disclose the information, as where
he is informed by way of confidential information; and

14

(3) The person claiming the benefit of the rule colludes with
the agent to defraud the principal (De Leon & De Leon, at p.
367,citing TELLER, at p.150)

Severino v. Severino, 44 Phil. 343 (1923), held that the

relations of an agent to his principal are fiduciary in
character because they are based on trust and confidence,
which must flow from the essential nature a contract of
agency that makes the agent the representative of the
principal. Consequently:
(a) As regards property forming the subject matter of the
agency, the agent is estopped from asserting or acquiring a
title adverse to that of the principal. (Art. 1435);
(b) In a conflict-of-interest situation, the agent cannot choose
a course that favors herself to the detriment of the principal;
she must choose to the best advantage of the
principal. Thomas v. Pineda, 89 Phil. 312 (1951); Palma v.
Cristobal, 77 Phil. 712 (1946); and
(c) The agent cannot purchase for herself the property of the
principal which has been given to her management for sale
or disposition (Art. 1491[2]);

In Republic v. Evangelista, 466 SCRA 544 (2005), the Court

held that generally, the agency may be revoked by the
principal at will, since it is a personal contract of
representation based on trust and confidence reposed by the
principal on his agent. As the power of the agent to act
depends on the will and license of the principal he
represents, the power of the agent ceases when the will or
permission is withdrawn by the principal.
In Orient Air Services v. Court of Appeals, 197 SCRA 645
(1991), it was held that the decision of the lower court
ordering the principal airline company to reinstate
defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA
Agreement, was unlawful since courts have no authority to
compel the principal to reinstate a contract of agency it has
terminated with the agent:
Such would be violative of the principles and essence of
agency, defined by law as a contract whereby a person
binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT
OR AUTHORITY OF THE LATTER. In an agent-principal
relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court.
The Agreement itself between the parties states that either
party may terminate the Agreement without cause by giving
the other 30 days notice by letter, telegram or cable.[8] (at
p. 656)
5. Distinguished from Similar Contracts
a. From the Employment Contract
Unlike agency relationship which is essentially contractual in
nature, an employment contract under Article 1700 of the
Civil Code is The relationship between capital and labor
[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
special laws on labor unions, collective bargaining, strikes
and lockouts, closed shop, wages, working conditions, hours
of labor and similar subjects. More specifically, the purpose
of an employer-employee relationship is for the employee to

render service for the direct benefit of the employer or of the

business of the employer; while agency relationship is
entered into to enter into juridical relationship on behalf of
the principal with third parties. There is, therefore, no
representation in a contract of employment.
In Dela Cruz v. Northern Theatrical Enterprises, 95 Phil 739
(1954), the Court held that the relationship between the
corporation which owns and operates a theatre, and the
individual it hires as a security guard to maintain the peace
and order at the entrance of the theatre is not that of
principal and agent, because the principle of representation
was in no way involved. The security guard was not
employed to represent the defendant corporation in its
dealings with third parties; he was a mere employee hired to
perform a certain specific duty or task, that of acting as
special guard and staying at the main entrance of the movie
house to stop gate crashers and to maintain peace and order
within the premises.
b. From the Contract for a Piece-of-Work
Under Article 1713 of the Civil Code, By the contract for a
piece of work the contractor binds himself to execute a piece
of work for the employer, in consideration of a certain price
or compensation. The contractor may either employ only his
labor or skill, or also furnish the material. Under a contract
for a piece of work, the contractor is not an agent of the
principal (i.e., the client), and the contractor has no
authority to represent the principal in entering into juridical
acts with third parties. The essence of every contract-for-apiece-of-work is that the services rendered must give rise to
the manufacture or production of the object agreed upon.
In Fressel v. Mariano Uy Chaco Sons & Co., 34 Phil. 122
(1915), it was held that where the contract entered into is
one where the individual undertook and agreed to build for
the other party a costly edifice, the underlying contract is
one for a contract for a piece of work, and not a principal and
agency relation. Consequently, the contract is authorized to
do the work according to his own method and without being
subject to the clients control, except as to the result of the
work; he could purchase his materials and supplies from
whom he pleased and at such prices as he desired to pay.
And the mere fact that it was stipulated in the contract that
the client could take possession of the work site upon the
happening of specified contingencies did not make the
relation into that of an agency. Consequently, when the
client did take over the unfinished works, he did not assume
any direct liability to the suppliers of the contractor.
c. From the Management Agreement
In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26
SCRA 540, 546-547 (1968), the Court held that in both
agency and lease of services, one of the parties binds
himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in
that the basis of agency is representation, while in the lease

of work or services the basis is employment. The lessor of

services does not represent his employer, while the agent
represents his principal. x x x . There is another obvious
distinction between agency and lease of services. Agency is
a preparatory contract, as agency does not stop with the
agency because the purpose is to enter into other
contracts. The most characteristic feature of an agency
relationship is the agents power to bring about business
relations between his principal and third persons. The agent
is destine to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease of services
contemplate only material (non-juridical) acts.[9]
The Court also held in Nielson & Co. that where the principal
and paramount undertaking of the manager under a
Management Contract was the operation and development
of the mine and the operation of the mill, and all other
undertakings mentioned in the contract are necessary or
incidental to the principal undertakingthese other
undertakings being dependent upon the work on the
development of the mine and the operation of the mill. In the
performance of this principal undertaking the manager was
not in any way executing juridical acts for the principal,
destined to create, modify or extinguish business relations
between the principal and third person. In other words, in
performing its principal undertaking the manager was not
acting as an agent of the principal, in the sense that the
term agent is interpreted under the law of agency, but as
one who was performing material acts for an employer, for
compensation. Consequently, the management contract not
being an agency cannot be revoked at will and was binding
to its full contracted period.
In Shell Co. v. Firemens Insurance of Newark, 100 Phil. 757
(1957), in ruling that the operator was an agent of the Shell
company, the Court took into consideration the following
facts: (a) that the operator owed his position to the company
and the latter could remove him or terminate his services at
will; (b) that the service station belonged to the company
and bore its tradename and the operator sold only the
products of the company; that the equipment used by the
operator belonged to the company and were just loaned to
the operator and the company took charge of their repair
and maintenance; (c) that an employee of the company
supervised the operator and conducted periodic inspection
of the companys gasoline and service station; and (d) that
the price of the products sold by the operator was fixed by
the company and not by the operator.

15
matter, or the buyers obligation on the payment of the
price.
In Quiroga v. Parsons, 38 Phil. 501 (1918), although the
parties designated the arrangement as an agency
agreement, the Court found the arrangement to be one of
sale since the essential clause provided that Payment was
to be made at the end of sixty days, or before, at the
[principals] request, or in cash, if the [agent] so preferred,
and in these last two cases an additional discount was to be
allowed for prompt payment. These conditions to the Court
were precisely the essential features of a contract of
purchase and sale because there was the obligation on the
part of the purported principal to supply the beds, and, on
the part of the purported agent, to pay their price, thus:
These features exclude the legal conception of an agency or
order to sell whereby the mandatory or agent received the
thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a
third person, and if he does not succeed in selling it, he
returns it. By virtue of the contract between the plaintiff and
the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed,
without any other consideration and regardless as to
whether he had or had not sold the beds. (at p. 505)
As a consequence, the revocation sought to be made by
the principal on the purported agency arrangement was
denied by the Court, the relationship being one of sale, and
the power to rescind is available only when the purported
principal is able to show substantial breach on the part of the
purported agent.
Quiroga further ruled that when the terms of the agreement
compels the purported agent to pay for the products
received from the purported principal within the stipulated
period, even when there has been no sale thereof to the
public, the underlying relationship is not one of contract of
agency to sell, but one of actual sale. A true agent does not
assume personal responsibility for the payment of the price
of the object of the agency; his obligation is merely to turnover to the principal the proceeds of the sale once he
receives them from the buyer. Consequently, since the
underlying agreement is not an agency agreement, it cannot
be revoked except for cause.

d. From the Contract of Sale

Under Article 1466 of the Civil Code, In construing a
contract containing provisions characteristic of both the
contract of sale and of the contract of agency to sell, the
essential clauses of the whole instrument shall be
considered. Jurisprudence has indicated what the essential
clauses that should indicate whether it is one of sale or
agency to sell/purchase, refers to stipulations in the contract
which places obligations on the part of the purported
agent having to do with what should be a seller obligation
to transfer ownership and deliver possession of the subject

In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company,

72 Phil. 402 (1941), which covered a purported agency
contract to purchase, the Court looked into the provisions of
their contract, and found that the letters between the parties
clearly stipulated for fixed prices on the equipment ordered,
which admitted no other interpretation than that the
[principal] agreed to purchase from the [agent] the
equipment in question at the prices indicated which are fixed
and determinate. (at p. 407). The Court held that whatever
unforeseen events might have taken place unfavorable to
the [agent], such as change in prices, mistake in their

quotation, loss of the goods not covered by insurance or

failure of the Starr Piano Company to properly fill the orders
as per specifications, the [principal] might still legally hold
the [agent] to the prices fixed. (at p. 407). It was ruled that
the true relationship between the parties was in effect a
contract of sale. Consequently, the demand by the purported
principal of all discounts and benefits obtained by the
purported agent from the American suppliers under the
theory that all benefits received by the agent under the
transactions were to be accounted for the benefit of the
principal, was denied by the Court.
Gonzalo Puyat also ruled that when under the terms of the
agreement, the purported agent becomes responsible for
any changes in the acquisition cost of the object he has been
authorized to purchase from a supplier in the United States,
the underlying agreement is not an contract of agency to
buy, since an agent does not bear any risk relating to the
subject matter or the price. Being truly a contract of sale,
any profits realized by the purported agent from discounts
received from the American supplier, pertain to it with no
obligation to account for it, much less to turn it over, to the
purported principal. Reiterated in Far Eastern Export &
Import Co., v. Lim Tech Suan, 97 Phil. 171 (1955).
In Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331
(1950), where a local importing company was contracted to
purchase from the United States several boxes of oranges,
most of which were lost in transit, the purchaser sought to
recover the advance purchased price paid, which were
refused by the local importing company on the ground that it
merely imported the oranges as agent of the purchaser for
which it could not be held liable for their loss in transit. The
Court, in reviewing the terms and conditions of the
agreement between the parties, held that the arrangement
was a sale rather than a contract of agency to purchase on
the following grounds: (a) no commission was paid by the
purchaser to the local importing company; (b) the local
importing company was given the option to resell the
oranges if the balance of the purchase price was not paid
within 48 hours from notification, which clearly implies that
the local importing company did in fact sell the oranges to
the purchaser; (c) the local importing company placed order
for the oranges a lower the price agreed upon with the
purchaser which it could not properly do if indeed it were
merely acting as an agent; (d) the local importing company
charged the purchaser with a sales tax, showing that the
arrangement was indeed a sale; and (e) when the losses
occurred, the local importing company made claims against
the insurance company in its own name, indicating that he
imported the oranges as his own products, and not merely as
agent of the local purchaser.
In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil.
789 (1957), the Supreme Court was unsure of its footing
when it tried to characterize a contract of sale (Contract of
Purchase and Sale) between the manufacturer of wax and
its appointed distributor in the Visayan area, as still being
within a contract of agency in that while providing for sale
of Bee Wax from the plaintiff to Tong and purchase of the
same by Tong from the plaintiff, also designates Tong as the

sole distributor of the article within a certain territory. (at p.

792)
The reasoning in Pearl Island is wrong, of course, since as
early as inQuiroga v. Parson, the Court had already ruled that
appointing one as agent or distributor, when in fact such
appointee assumes the responsibilities of a buyer of the
goods, does not make the relationship one of agency, but
that of sale. Perhaps the best way to understand the ruling
in Pearl Island was that the suit was not between the buyer
and seller, but by the seller against the surety of the buyer
who had secured the shipment of the wax to the buyer, and
the true characterization of the contract between the buyer
and seller was not the essential criteria by which to fix the
liability of the surety, thus
True, the contract (Exhibit A) is not entirely clear. It is in
some respects, even confusing. While it speaks of sale of
Bee Wax to Tong and his responsibility for the payment of
the value of every shipment so purchased, at the same time
it appoints him sole distributor within a certain area, the
plaintiff undertaking is not to appoint any other agent or
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
Tong and the Surety Company by its bond, guaranteed in the
final analysis said payment by Tong, either as purchaser or
as agent. . . . (at p. 793)
In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a
contract of distributorship, it was specifically stipulated in
the contract that all goods on consignment shall remain the
property of the Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the
Distributor shall be in his name; and that the Company at
its own expense, was to keep the consigned stock fully
insured against loss or damage by fire or as a result of fire,
the policy of such insurance to be payable to it in the event
of loss. It was further stipulated that the contract does not
constitute the Distributor the agent or legal representative of
the Company for any purpose whatsoever. Distributor is not
granted any right or authority to assume or to create any
obligation or responsibility, express or implied in behalf of or
in the name of the Company, or to bind the Company in any
manner or thing whatsoever. In spite of such stipulations,
the Court did find the relationship to be one of agency,
because it did not transfer ownership of the merchandise to
the purported distributor, even though it was supposed to
enter into sales agreements in the Philippines in its own
name, thus:
The transfer of title or agreement to transfer it for a price
paid or promised is the essence of sale. If such transfer puts
the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while the
essence of an agency to sell is the delivery to an agent, not
as his property, but as the property of the principal, who
remains the owner and has the right to control the sale, fix

16
the price, and terms, demand and receive the proceeds less
the agents commission upon sales made. (at p. 530)
In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
(2000), the Court held that an authorization given to the
buyer of goods to obtain them from the bailee for and in
behalf of the bailor-seller does not necessarily establish an
agency, since the intention of the parties was for the buyer
to take possession and ownership over the goods with the
decisive language in the authorization being sold and
endorsed.
In Lim v. Court of Appeals, 254 SCRA 170 (1996), it was held
that as a general rule, an agency to sell on commission basis
does not belong to any of the contracts covered by Articles
1357 and 1358 of the Civil Code requiring them to be in a
particular form, and not one enumerated under the Statutes
of Frauds in Article 1403. Hence, unlike a sale contract which
must comply with the Statute of Frauds for enforceability, a
contract of agency to sell is valid and enforceable in
whatever form it may be entered into.
The old decision in National Rice and Corn Corp. v. Court of
Appeals, 91 SCRA 437 (1979), presents an interesting
situation where it is possible for a party to enter into an
arrangement, where a portion thereof is as agent, and the
other portion would be as buyer, and still be able to
distinguish and set apart to the two transactions to
determine the rights and liabilities of the parties.
In National Rice a formal contract was entered into between
the National Rice & Corn Corp. (NARIC) and the Davao
Merchandising Corp. (DAMERCO), where they agreed that
DAMERCO would act as an agent of NARIC in exporting the
quantity and kind of corn and rice mentioned in the contract
(Exhibit A), as well as in importing the collateral goods
that will be imported thru barter on a back to back letter of
credit or no-dollar remittance basis; and with DAMERCO
agreeing to buy the aforementioned collateral goods.
Although the corn grains were duly exported, the
Government had issued rules banning the barter of goods
from abroad. NARIC then brought suit against DAMERCO
seeking recovery of the price of the exported grains. The
Court ruled that insofar as the exporting of the grains was
concerned, DAMERCO acted merely as agent of NARIC for
which it cannot be held personally liable for the shortfall
considering that it had acted within the scope of its authority.
The Court had agreed that indeed the other half of the
agreement whereby DAMERCO bound itself as the
purchaser of the collateral goods to be imported from the
proceeds of the sale of the corn and rice, was a valid and
binding contract of sale, but for which DAMERCO could not
be made to pay the purchase price, because NARIC itself was
no longer in a position to import any of such goods into the
country, by reason of force majeure, thus
It is clear that if after DAMERCO had spent big sums incident
to carrying out the purpose of the contract, the importation

of
the
remaining
collateral
goods
worth
about
US$480,000.00 could not be effected due to suspension by
the government under a new administration of barter
transactions, the NARIC (now Rice and Corn Administration)
ought to make the necessary representations with the
government to enable DAMERCO to import the said
remaining collateral goods. The contract, Exhibit A, has
reciprocal stipulations which must be given force and effect.
(at p. 449)
Although it is clear from the decision that DAMERCO had
assumed also the position of being a buyer of goods from
NARIC, the Court inNational Rice was able to segregate his
role as merely an agent of NARIC insofar as the export of the
grains was concerned, and apply the doctrine that an agent
does not assume any personal obligation with respect to the
subject matter of the agency nor of the proceeds thereof, his
obligation being merely to turn-over the proceeds to the
principal whenever he receives them. National Rice also
demonstrate the progressive nature of every contract of
agency, in that it presents a pliable legal relationship which
may be adopted into other relationships, such a contract of
sale, to be able to achieve commercial ends.
e. From Broker
A broker is best defined in Schmid and Oberly, Inc. v. RJL
Martinez, 166 SCRA 493 (1988), where the Court held that a
broker is one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of
which he has no concern; the negotiator between other
parties, never acting in his own name but in the name of
those who employed him. . . . a broker is one whose
occupation is to bring the parties together, in matters of
trade, commerce or navigation. (at p. 501) In other words,
the services of a broker is to find third parties who may be
interested in entering into contracts with other parties over
particular matter, and may include negotiating in behalf of
both parties the perfection of a contract, but that the actual
perfection must still be done by the parties represented. A
broker essentially is not an extension of the persons of the
parties he is negotiating for.
In Reyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004),
the Court held that unlike an agent who must act in the
name of the principal, a broker is one who is engaged for
others on a commission to negotiate between other parties,
never acting in his own name but in the name of those who
employed him.
In Pacific Commercial Co. v. Yatco, 63 Phil. 398 (1936), the
Court ruled that a broker has no relation with the thing he
has been retained to buy or to sell; he is merely an
intermediary between the purchaser and the vendor. He
acquires neither the custody nor the possession of the thing
he sells; his only office is to bring together the parties to the
transaction.

It must be noted though that a broker may at the same time

be an agent. When he acts in his behalf in dealing with the
public, even when he handles things pertaining to the
principal, he is a mere broker. On the other hand, if he is duly
authorized to act in the name of the principal, there is no
doubt that the broker is also an agent. Thus, in Abacus
Securities Corp. v. Ampil, 483 SCRA 315 (2006), it was held
that since in that case the brokerage relationship was
necessary a contract for the employment of an agent,
principles of contract law also govern the broker-principal
relationship.
In the same manner, in Domingo v. Domingo, 42 SCRA 131
(1971), the Court held that the duties and liabilities of a
broker to his employer are essentially those which an agent
owes to his principal. In such a situation, the decisive legal
provisions to determine whether a broker has violated his
duty or obligation] are found in Articles 1891 and 1909 of the
New Civil Code, whereby every agent is bound to render an
account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency,
even though it may not be owning to the principal; and that
an agent is responsible not only for fraud, but also for
negligence.[10] On the other hand, the Court also held
in Domingo that The duty embodied in Article 1891 of the
New Civil Code will not apply if the agent or broker acted
only as a middleman with the task of merely bringing
together the vendor and vendee, who themselves thereafter
will negotiate on the terms and conditions of the
transaction. (at p. 140)
(1) Broker Has No Authority To Enter into Contract in
the Name of the Principal
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was
held that a real estate broker is one who negotiates the sale
of real properties; his business, generally speaking, is only to
find a purchaser who is willing to buy the land upon terms
fixed by the owner. He has no authority to bind the principal
by signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to
sell. Thus, when the seller himself closes the sale with the
purchaser located by the broker, the seller is bound to pay
the commission he has contracted with the broker for merely
finding the buyer.
It must be noted that the ruling in Litonjua, Jr. does not
provide for a strict rule on compensability of a broker, but
like any other contract, its perfection is subject to the terms
and conditions that have been agreed upon. The essence of
the ruling in Litonjua, Jr. is that the main service for which
the broker was contracted for is to find a prospective
buyer, then if the seller on his own closes the deal with the
buyer found by the broker, the latter has earned his
finders fee.
On the other hand, it is possible that the terms of the
brokers contract is that it is not enough for the broker to find
the prospective buyer, but that his services must include
efforts to negotiate, i.e., convince him to enter into a

17
contract with the client, then it is not enough that the broker
found the prospective buyer, but he must spend efforts at
negotiating with the said person that leads him to enter into
a contract with the client, otherwise mere finding would not
entitle the broker to the fees agreed upon.
(2) Broker Is Not Legally Incapacitated to Purchase
Property of the Principal
In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was
held that the prohibition in Article 1491(2) of the Civil Code
which renders an agent legally incapable of buying the
properties of his principal connotes the idea of trust and
confidence; and so where the relationship does not involve
considerations of good faith and integrity the prohibition
should not and does not apply. To come under the
prohibition, the agent must be in a fiduciary relation with his
principal.
The Court held that a broker does not come within the
meaning of Article 1492, because he is nothing more than a
go-between or middleman between the defendant and the
purchaser, bringing them together to make the contract
themselves. There is no confidence to be betrayed, since a
broker is not authorized to make a binding contract for the
purported principal; he is not sell the property, but only to
look for a buyer and the owner is to make the sale; he was
not to fix the price of the sale because the price had to be
already fixed in his commission; he is not to make the terms
of payment because these, too, would be clearly specified in
his commission. In fine, a broker is left no power or discretion
whatsoever, which he could abuse to his advantage and to
the owners prejudice.
(3) Brokers Entitlement to Commission
In quite a number of decisions, the Supreme Court has held
that the determination of whether one is an agent or a
broker constitutes a critical factor of whether he would be
entitled to the commission stipulated in the contract.
Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from
Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., 166 SCRA
493 (1988), it defined a broker as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him. x x x a
broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation. (at
p. 339) The Court then held that An agent receives a
commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually
made. . . . Clearly, therefore, petitioners, as brokers, should
be entitled to the commission whether or not the sale of the

property subject matter of the contract was concluded

through their efforts. (at p. 341)

v. Nolting and Garcia , 35 Phil. 274 (1916), where the Court

held

Also, in Hahn v. Court of Appeals, 266 SCRA 537 (1997), the

Court held that Contrary to the appellate courts conclusion,
this arrangement shows an agency. An agent receives a
commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually
made. (at p. 549)

A broker is generally defined as one who is engaged, for

others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiation between other parties, never acting in his own
name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of both
parties. (19 Cyc., 186; Henderson vs. The State, 50 Ind., 234;
Blacks Law Dictionary.) A broker is one whose occupation it
is to bring parties together to bargain, or to bargain for
them, in matters of trade, commerce or navigation. (Mechem
on Agency, sec. 13; Wharton on Agency, sec. 695). Judge
Storey, in his work on Agency, defines a broker as an agent
employed to make bargains and contracts between other
persons, in matters of trade, commerce or navigation, for
compensation commonly called brokerage. (Storey on
Agency, sec. 28) (at p. 279-280)

It must be noted that the entitlement of a broker or an agent

to the commission depends really on the wordings of the
contract between them, and not really whether one is a
broker or agent.
In Phil. Health-Care Providers (Maxicare) v. Estrada, 542
SCRA 616 (2008), the Court held that the term procuring
cause in describing a brokers activity, refers to a cause
originating a series of events which, without break in their
continuity, result in the accomplishment of the prime
objective of the employment of the brokerproducing a
purchaser ready, willing and able to buy on the owners
terms. To be regarded as the procuring cause of a sale as
to be entitled to a commission, a brokers efforts must have
been the foundation on which the negotiations resulting in a
sale began. Again, this ruling is correct only if it is clear that
the agreement on the services of the broker, for which he
would be entitled to his fees, is not merely of finding the
prospective buyer.
But truly, since both a brokerage arrangement and an
agency agreement are inherently contractual relations, the
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
well be stipulated in a true brokerage arrangement that the
broker would be entitled to a commission only when a sale is
eventually made. In the same manner, the agency contract
may well stipulate that the agent shall be entitled to earn
commission by merely bringing the buyer and the seller
together, even when the actual sale of the person referred to
by the agent happens long after the agency relationship has
terminated.
To illustrate, in Guardex v. NLRC, 191 SCRA 487 (1990), the
Court held that when the terms of the agency arrangement
is to the effect that entitlement to the commission was
contingent on the purchase by a customer of a fire truck, the
implicit condition being that the agent would earn the
commission if he was instrumental in bringing the sale
about. Since the agent had nothing to do with the sale of the
fire truck, and is not therefore entitled to any commission at
all.
Although Schmid & Oberly, Inc. is now credited with laying
down the definition of a broker, the decision shows that it
quoted from the early decision of Behn, Meyer and Co., Ltd.

Note therefore that broker is considered a commercial

term for a person engaged as a middleman to bring parties
together in matters pertaining to trade, commerce or
navigation. If the person has not been given the power to
enter into the contract or commerce in behalf of the parties,
then he is a broker in the sense that his job mainly is to
bring parties together to bargain, and even then he may not
be entitled to his commission if the bargaining between the
parties does not result in a contract being perfected. But in
this sense, the broker does not assume the role of an agent
because he has no power to enter into a contract in behalf of
any of the parties; he also assumes no fiduciary obligations
to either or both parties, since they are expected to use their
own judgment in deciding to bind or not to bind themselves
to a contract.
On the other hand, if the person has been given the power to
enter into a contract or commerce on behalf of any, or even
for both the parties, he is truly an agent. In which case, he
assumes fiduciary obligations to the person who is therefore
legally his principal. In such case, he is entitled to a
commission if his efforts (i.e., the services he rendered)
where the efficient cause for the eventual perfection and
consummation of the contract that was the object for
appointing him broker/agent.
oOo
________________________________________
[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217
(1995);Shoppers Paradise Realty v. Roque, 419 SCRA 93
(2004); Dominion Insurance Corp. v. Court of Appeals, 426
SCRA 620, 626 (2002);Republic v. Evangelista, 466 SCRA 544
(2005); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
(2006); Eurotech Industrial Technologies, Inc. v. Cuizon, 521
SCRA 584 (2007).
[2]Citing Orient Air Services and Hotel Representatives v.
Court of Appeals, 274 Phil. 927, 939 (1991).

18
[3]DE LEON AND DE LEON, COMMENT AND CASES ON
PARTNERSHIP AGENCY AND TRUSTS, 2005 ed., at p. 356;
hereinafter referred to as DE LEONS.
[4]Reiterated in Eurotech Industrial Technologies, Inc. v.
Cuizon, 521 SCRA 584 (2007).
[5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
(2006).
[6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997).
[7]ROSCOE T. STEFFEN,
NUSTSHELL (1977) 30-31.

AGENCY-PARTNERSHIP

IN

[8]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204

(2006).
[9]Quoting from REYES AND PUNO,
PHILIPPINE CIVIL LAW, Vol. V, p. 277.

AN

OUTLINE

OF

[10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d

987; Brown vs. Coates, 67 ALR 2d 943; Haymes vs.
Rogers, 17 ALR 2d 896;Moore vs. Turner, 32 ALR 2d 713.
End of Footnotes
II. FORM REQUIRED FOR CONTRACTS OF AGENCY

2. Forms Required of Agency

a. How Agency May Be Constituted
Article 1869 of the Civil Code emphasizes the consensual
nature of the contract of agency, as it provides that Agency
may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate
the agency, knowing that another person is acting on his
behalf without authority. Agency may be oral, unless the law
requires a specific form. This principle is reiterated under
Article 1870, which provides that Acceptance by the agent
may also be express, or implied from his acts which carry out
the agency, or from his silence or inaction according to the
circumstances.
Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), held that an
agency may be express but it may also be implied from the
acts of the principal, from his silence, or lack of action or his
failure to repudiate the agency knowing that another person
is acting on his behalf without authority. Likewise,
acceptance by the agent may also be express, although it

may also be implied from his acts which carry out the
agency, or from his silence or inaction according to the
circumstances. Thus, when a law firm allowed the employee
of its client to occasionally receive its mail, and not having
formally objected to the receipt by said employee of a court
process, or taken any steps to put a stop to it, it was
construed to mean that an agency relationship had been
established, to which receipt of the court process by said
employee was legally deemed to be service to the law firm.
In Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court
noted that there are some provisions of law which require
certain formalities for particular contract: the first is when
the form is required for the validity of the contract; the
second is when it is required to make the contract effective
as against third parties such as those mentioned in Article
1357 and 1358 of the Civil Code; and the third is when the
form is required for the purpose of proving the existence of
the contract, such as those provide in the Statute of Frauds
in Article 1403. Since a contract of agency to sell pieces of
jewelry on commission does not fall into any of the three
categories, it was considered valid and enforceable in
whatever form it may have been entered into.
(1) From the Side of the Principal
On the side of the principal, Article 1869 of the Civil Code
provides that an agency is impliedly constituted
(i.e., principal has given his consent to the agency
arrangement) from his acts formally adopting it, or from his
silence or inaction, or particularly from his failure to
repudiate the agency knowing someone is acting in his
name. Certainly, the ideal form by which the principal is
deemed to have entered into a contract of agency is when
he issues a written power of attorney to the person
designated as agent.
(2) From the Side of the Agent
On the side of the agent, Article 1870 of the Civil Code
provides that his acceptance of the agency (i.e., agent has
given his consent to the agency arrangement) may be
expressed, or implied from his acts which carry out the
agency, or from his silence or inaction according to the
circumstances.
(3) Various Instances of Perfection of the Contract of
Agency
Under Article 1871 of the Civil Code, which describes the
most ideal form of perfection of the contract of
agency, when the constitution of the agency is made with
both principal and agent being physically present at the time
of perfection of the contract of agency (i.e., Between
persons who are present), the acceptance of the agency
may be implied if the principal delivers his power of attorney
to the agent and the latter receives it without objection.

On the other hand, under Article 1872 of the Civil Code,

when the constitution of the agency is made with the
principal and agent not being physically present in one place
(i.e., Between persons who are absent), then there can be
no implied acceptance of the agency from the silence or
inaction of the agent, except in two instances:
(a) When the principal transmit his power of attorney to the
agent (i.e., it is in writing?), who receives it without any
objection; or
(b) When the principal entrusts to the agent by letter or
telegram a power of attorney with respect to the business in
which he is habitually engaged as an agent, and he did not
reply to the letter or telegram.
The languages used in Articles 1871 and 1872 indicate that
the power of attorney must constitute a written
instruments, because in both cases the articles refer to
situations where the principal delivers his power of attorney
to the agent, and when the principal transmits his power of
attorney to the agent, which requires that it must be in
writing, which today would include texting and electronic
mail, which are considered to be equivalent to a written
instrument
under
the
Electronic
Commerce
Law.
Consequently, when the other provisions of the Law on
Agency refer to general power of attorney and special
power of attorney, does the law mean that they conform to
the rudimentary requirement that they be in writing?
(4) From the Side of Third Parties/Public
The previous rules on when a contract of agency is deemed
constituted (i.e., perfected) are taken from the intramural
point of view: as between the parties to the contract of
agency. However, a contract of agency is merely a
preparatory contract, and is meant to achieve goals beyond
its own being; consequently, the Law on Agency contained
in the Civil Code provides for additional rule that addresses
most essentially the targets of every contract of agency: the
third parties intended to be contracted with by the agent in
behalf of the principal.
Under Article 1873 of the Civil Code, when the principal
informs another person that he has given a power of
attorney to a third person (the agent), the latter thereby
becomes a duly authorized agent with respect to the person
who received the special information. The clear implication is
that even when in fact there has been no meeting of the
minds between the purported principal and agent (i.e., there
is strictly speaking no contract of agency), there is deemed
to have arisen one with respect to the third party who has
been so informed by the principal.
On the other hand, when the principal states by public
advertisement that he has given a power of attorney to a
particular individual (the agent), the latter thereby becomes
a duly authorized agent with regard to any person. And it is

19
specifically provided in said article that [t]he power [of the
agent] shall continue to be in full force until the notice is
rescinded in the same manner in which it was given.
Thus, under Article 1921 of the Civil Code, if the agency has
been entrusted for the purpose of contracting with specific
persons (referred to as special agency), the revocation of
the agency shall not prejudice the latter if they were not
given notice thereof. Under Article 1922, if the agent had
been granted general powers (referred to as general
agency), the revocation of the agency will not prejudice
third persons who acted in good faith and without knowledge
of the revocation; however, notice of the revocation in a
newspaper of general circulation constitutes sufficient notice
to bind third persons.
In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a
long-standing client, acting in good faith and without
knowledge, having sent goods to sell on commission to the
former agent of the defendant, could recover from the
defendant, when no previous notice of the termination of
agency was given said client. The Court emphasized that
having advertised the fact that Collantes was his agent and
having given special notice to the plaintiff of that fact, and
having given them a special invitation to deal with such
agent, it was the duty of the defendant on the termination of
the relationship of principal and agent to give due and timely
notice thereof to the plaintiffs. Failing to do so, the defendant
was held responsible to them for whatever goods may have
been in good faith and without negligence sent to the agent
without knowledge, actual or constructive, of the termination
of such relationship.
In Conde v. Court of Appeals, 119 SCRA 245 (1982), the
Court held that when the right of redemption by sellers-aretro is exercised by their son-in-law who was given no
express authority to do so, and the buyer-a-retro accepted
the exercise and done nothing for the next ten years to clear
their title of the annotated right of repurchase on their title,
and possession had been given to the sellers-a-retro during
the same period, then an implied agency must be held to
have been created from their silence or lack of action, or
their failure to repudiate the agency.
(5) Agency Not Presumed to Exist
Although an agency contract is consensual in nature and
generally requires no formality, the Court has stressed that
an agency arrangement is never presumed. Lopez v. Tan
Tioco, 8 Phil. 693 (1907). In other words, the declaration of
one that he is an agent of another is never to be accepted at
face value, except in those cases where an agency arises by
express provision of law. Compania Maritima v. Limson, 141
SCRA 407 (1986).
In People v. Yabut, 76 SCRA 624 (1977), it was held that
although the perfection of a contract of agency may take an

implied form, the existence of an agency relationship is

never presumed. The relationship of principal and agent
cannot be inferred from mere family relationship; for the
relation to exist, there must be consent by both parties. The
law makes no presumption of agency; it must exist as a fact.
This principle was reiterated in Reiterated in Lim v. Court of
Appeals, 251 SCRA 408 (1995).
In Harry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922),
the Court ruled that a third person must act with ordinary
prudence and reasonable diligence to ascertain whether the
agent is acting and dealing with him within the scope of his
powers. Obviously, if he knows or has good reason to believe
that the agent is exceeding his authority, he cannot claim
protection. So, if the character assumed by the agent is of
such a suspicious or unreasonable nature, or if the authority
which he seeks is of such an unusual or improbable
character, as would suffice to put an ordinarily prudent man
upon his guard, the party dealing with him may not shut his
eyes to the real state of the case but should withal refuse to
deal with the agent at all, or should ascertain from the
principal the true condition of affairs.
In Bordador v. Luz, 283 SCRA 374 (1997), the Court held that

The basis for agency is representation. Here, there is no

showing that Brigida consented to the acts of Deganos or
authorized him to act on her behalf, much less with respect
to the particular transactions involved. Petitioners attempt
to foist liability on respondent spouses through the supposed
agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of
petitioners to entrust to Deganos, not once or twice but on at
least six occasions as evidenced by six receipts, several
pieces of jewelry of substantial value without requiring a
written authorization from his alleged principal. A person
dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. (at p. 382)
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court
held that a co-owner does not become an agent of the other
co-owners, and therefore, any exercise of an option to buy a
piece of land transacted with one co-owner does not bind the
other co-owners of the land. The basis for agency is
representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority
of the agent. Since there was no showing that the other coowners consented to the act of one co-owner nor authorized
her to act on their behalf with regard to her transaction with
purported buyer. The most prudent thing the purported
buyer should have done was to ascertain the extent of the
authority said co-owner; being negligent in this regard, the
purported buyer cannot seek relief on the basis of a
supposed agency.
On the other hand, under Article 1873 of the Civil Code
provides that the declaration of a person that he has
appointed another as his agent is deem to have constituted
the person alluded to as an agent (even when the latter is

unaware), insofar as the person to whom such declaration

has been made. What is clear therefore is that third parties
must never take the words or representation of the
purported agent at face value; they are mandated to apprise
themselves of the commission and extent of powers of the
purported agent. On the other hand, third parties (to the
contract of agency) can take the word, declaration and
representation of the purported principal with respect to the
appointment of, and extent of powers, of the purported
agent. The principle is self-evident from the nature of agency
as a relation of representation that an agent acts as though
he were the principal and therefore if the principal himself
says so, then it is taken at face value as a contractual
commitment.

20
of a principal-agency relation, and the purported principal
did nothing to correct the third persons impression, an
agency by estoppel is deemed to have been constituted,
and the rule is clear: one who clothes another with apparent
authority as his agent, and holds him out to the public as
such, cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the
honest belief that he is what he appears to be. (at p. 599)
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the
Court held that for an agency by estoppel to exist, the
following must be established:

b. Agency by Estoppel
Under Article 1873 of the Civil Code, if a person specially
informs another or states by public advertisement that he
has given a power of attorney to a third person, the latter
thereby becomes a duly authorized agent, even if previously
there was never a meeting of minds between them.
Under Article 1911 of the Civil Code, even when the agent
has exceeded his authority (i.e., he acts without authority
from the principal), the principal shall be solidarily with the
agent if he allowed the agent to act as though he had full
powers.
In Macke v. Camps, 7 Phil 553 (1907), where the owner of a
hotel/cafe business allowed a person to use the title
managing agent and during his prolonged absences
allowed such person to take charge of the business,
performing the duties usually entrusted to managing agent,
then such owner is bound by the act of such person. The
Court held that
One who clothes another apparent authority as his agent,
and holds him out to the public as such, can not be
permitted to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties dealing with
such person in good faith and in the following preassumptions or deductions, which the law expressly directs
to be made from particular facts, are deemed conclusive. (at
p. 555)
The hotel owner was deemed bound by the contracts
entered into by said managing agent that are within the
scope of authority pertinent to such position, including the
purchasing such reasonable quantities of supplies as might
from time to time be necessary in carrying on the business
of hotel bar.
In Naguiat v. Court of Appeals, 412 SCRA 592 (2003), the
Court applied the provisions of Article 1873 of the Civil Code
to rule that if by the interaction between a purported
principal and a purported agent in the presence of a third
person, the latter was given the impression of the existence

(a) the principal manifested a representation of the agents

authority or knowingly allowed the agent to assume such
authority;
(b) the third person, in good faith, relied upon such
representation;
(c) relying upon such representation, such third person has
changed his position to his detriment. An agency by
estoppel, which is similar to the doctrine of apparent
authority,
requires
proof
of
reliance
upon
the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.

the Philippine legal system will be

amplified and will be rendered more
suited to a just and equitable solution of
many questions. (at p. 60, Malolos and
Martin, Report of the Code Commission,
Domerte Book Supply, 2116 Azcarraga,
Manila, Philippines, 1951 ed.)
Other than the foregoing, the Code Commission provided for
no further explanations or amplifications on the Law on
Trusts, and most of what is commented, found expression in
the few provisions of the New Civil Code.
What is clear from the brief comments of the Code
Commission is that the growth of Philippine Law on Trusts
will find its impetus from common law from where it was
derived, and expressed in jurisprudential rulings of the
Supreme Court.
a. Philippine Trusts Rooted on American Law on Trusts
TRUST
I INTRODUCTION TO TRUSTS
1. Trusts under the New Civil Code
Title V in the New Civil Code on TRUSTS has no counterpart
in the old Civil Code. On this matter, the Code Commission
reported as follows
The law on trusts is comprehensive in
American law. Trusts are divided into
express and implied. The former are
constituted by the intention of the
trustor or of the parties. Implied trusts
come into being by operation of law.
The doctrine of implied trust is founded
upon equity. The principle is applied in
the American legal system to numerous
cases where an injustice would result if
the legal estate or title were to prevail
over the equitable right of the
beneficiary. A number of instances of
implied trusts are specified in the Project
of Civil Code, but this enumeration does
not exclude other cases established by
the general law on trust.
In article 1462 [now Article 1442 of the
New Civil Code] the principle of the
general law on trusts insofar as they are
not in conflict with the proposed Civil
Code, the Code of Commerce, the Rules
of Court and special laws are adopted.
This article incorporates a large part of
the American Law on trusts and thereby

Trusts, the doctrines and principles that arise from their

establishment, are rooted in the Philippine legal system
based on American Law principles on Trusts. Thus, Article
1442 of the New Civil Code now provides:
Art. 1442. The principles of the general law of
trusts, insofar as they are not in conflict with this
Code, the Code of Commerce, the Rules of Court and
special laws are hereby adopted.
The foundation of Article 1442 may be drawn from the
decision in Government v. Abadilla, 46 Phil. 642 (1924),
where the Court held
As the law of trusts has been much
more frequently applied in England and
in the United States than it has in Spain,
we may draw freely upon American
precedents in determining the effect of
the testamentary trust here under
consideration, especially so as the trusts
known to American and English equity
jurisprudence are derived from the fidei
commissa of the Roman law and are
based
entirely
upon
Civil
Law
principles. (at pp. 646-647.)
2. The Equity Essence of Implied Trusts
Express trusts are founded on the intention of the trustor or
the intentions of the parties to the trust which bring about
the application of principles applicable to contractual
relationships (i.e., consensuality, mutuality, and relativity).
On the other hand, implied trusts, are created by operation
of law based on equity principles. Nonetheless, both types of
trusts are deemed to be vested with equitable
considerations.

21
When it comes to express trusts, for example, equity
consideration is expressed in Article 1445 of the Civil Code
when it provides that No trust shall fail because the trustee
appointed declines the designation, unless the contrary
should appear in the instrument constituting the trust.
Under the aegis of the New Civil Code, the Court reiterated
the equity basis of trusts when it held in Deluao v. Casteel,
22 SCRA 231 (1962), that as a legal consequence of trust
being essentially founded on equity principles, is that no
trust, whether express or implied, can be held valid and
enforceable when it is violative of the law, morals or public
policy.
In Miguel v. Court of Appeals, 29 SCRA 760 (1969), the Court
held that
Furthermore, because the case presents
problems not directly covered by
statutory provisions or by Spanish or
local precedents, resort for their solution
must be had to the underlying principles
of the law on the subject. Besides, our
Civil Code itself [Article 1442] directs
the adoption of the principles of the
general law of trust, insofar as they are
not in conflict with said Code, the Code
of Commerce, the Rules of Court and
special laws. (at pp. 775-776).
In other words, application of implied trusts principles on
given transactions covering proprietary relations are
mandated not by specific reference to statutory provisions,
but by seeking equitable solutions to render justice to the
parties involved or affected by the transaction.
Later, in Salao v. Salao, 70 SCRA 65 (1976), the Court
characterized the equity nature of trusts, as follows
In its technical legal sense, a trust is
defined as the right, enforceable solely
in equity, to the beneficial enjoyment of
property, the legal title to which is
vested in another, but the word trust is
frequently employed to indicate duties,
relations, and responsibilities which are
not strictly technical trusts (89 C.J.S.
712).
A person who establishes a trust is
called the trustor; one in whom
confidence is reposed as regards
property for the benefit of another
person is known as the trustee; and the
person for whose benefit the trust has
been created is referred to as the
beneficiary (Art. 1440, Civil Code).
There is a fiduciary relation between the

trustee and the cestui que trust as

regards certain property, real, personal,
money or choses in action. Pacheco v.
Arro, 85 Phil. 505 (at p. 80).
The equity nature of a trust supports the proposition that the
intention of the trustor to create a trust for the benefit of
intended beneficiary should as much as possible be realized.
Thus, Article 1444 provides that No particular words are
required for the creation of an express trust, it being
sufficient that a trust is clearly intended. An application of
this doctrine (not the article) can be found in Government v.
Abadilla, 46 Phil. 642 (1924), where after holding that the
testamentary trust was very unskillfully drawn; its language
is ungrammatical and at first blush seems to somewhat
obscure, the Court nonetheless held: but on closer
examination it sufficiently reveals the purpose of the
testator. And if its provisions are not in contravention of
some established rule of laws or public policy, they must be
respected and given effect. (at p. 646.)
In applying the equity nature of trusts, Abadilla held that the
intention of the trustor is the more essential consideration,
and that
In regard to private trusts it is not
always necessary that the cestui que
trust should be named, or even be in
esse at the time the trust is created in
his favor. (Citing Flint on Trusts and
Trustees, section 25; citing Frazier v.
Frazier, 2 Hill Ch., 305; Ashurst v. Given,
5 Watts & S., 329; Carson v. Carson, 1
Wins [N.C.], 24.) . . . Thus a devise to a
father in trust for accumulation for his
children lawfully begotten at the time of
his death has been held to be good
although the father had no children at
the time of the vesting of the funds in
him as trustee. In charitable trusts such
as the one here under discussion, the
rule is still further relaxed. (Citing Perry
on Trusts, 5th ed., section 66.) (at
p.647.)
In Ramos v. Court of Appeals, 232 SCRA 348 (1994), where
the payor of the purchase price of the property had intended
that it be held by purported trustee for her because she was
not qualified to hold such parcel of land, although a resulting
trust should have arisen under the provisions of Article 1448
of the Civil Code, nonetheless, the Court refused to grant to
the payor the relief of compelling the purported trustee to
convey the land to her, ruling that
However, if the purpose of the payor of
the consideration in having title title
placed in the name of another was to
evade some rule of the common or
statute law, the courts will not assist the
payor in achieving his improper purpose
by enforcing a resulting trust for him in

accordance with the clean hands

doctrine. The courts generally refuses to
give aid to claims from rights arising out
of an illegal transaction, such as where
the payor could not lawfully take title to
land in his own name and he used the
grantee as a mere dummy to hold for
him and enable him to evade the land
laws, i.e., an alien who is ineligible to
hold title to land, who pays for it and has
the title put in the name of a citizen.
Otherwise stated, as an exception to the
law on trust, [a] trust or a provision in
the terms of a trust is invalid if the
enforcement of the trust or provision
would be against public policy, even
though its performance does not involve
the commission of a criminal or tortious
act by the trustee. (at p. 361, quoting
from Restatement (Second) of Trusts 62
[1959].)
3. Trusts Do Not Create a Separate Juridical Entity,
But the Naked Title of the Trustee Divorces the Trust
Properties from the Rest of the Trustees Estate
It should be noted that there is no statutory provision or
case-law which recognizes a trust relationship as creating a
separate juridical entity. Indeed, the essence of what
constitute a trust is the recognition that the trustee holds
directly
legal
or
naked
title
to
the
trust
properties. Nevertheless, the naked or legal title held by the
trustee should be looked upon as held in his official capacity
as trustee and cannot be deemed included in his estate to
which he has full ownership and by which he owes no
fiduciary duties.
These principles are best exemplified in Development Bank
of the Philippines v. COA, 422 SCRA 465 (2004), where the
DBP contributed funds into a retirement plan for its officers
and employees, and constituted a board of trustees vesting
it with the control and administration of the fund.
Augmentation to the retirement fund were made through
loans extended to the qualified officers and employees,
which were invested in shares of stocks and other
marketable securities, and the earnings from which were
directed to be distributed to the beneficiaries even before
they have retired.
The COA objected to the distribution of the earnings from the
investments made through the retirement fund on the
ground that is was contrary to an express provision of law
which prohibits the distribution of retirement benefits to
government employees prior to their actual retirement. COA
also directed that the earnings from the investment be
included in DBPs books of account as part of its own
earnings, since the retirement and its income were actually
owned by DBP having made the contributions thereto. DBP
objected to the COA resolution on the ground the express
trust created for the benefit of qualified DBP employees
under the Trust Agreement . . . gave the Fund a separate

22
legal personality, (at p. 467) and therefore the earnings
pertained to the employees and should be credited as
income of DBP.
While DBP v. COA characterized an employees trust as a
trust maintained by an employer to provide retirement,
pension or other benefits to its employees . . . [and ] is a
separate taxable entity established for the exclusive benefit
of the employees, (at p. 473) still the Court did not
consider the such employees trust as a separate juridical
person. The Court ruled that The principal and income of
the Fund [of employees trust] would be separate and
distinct from the funds of DBP, on the ground that DBP as
trustor already conveyed legal title thereto to the Board of
Trustees of the employees trust, and with DBP officers and
employees having beneficial title thereto, thus:
In a trust, one person has an equitable
ownership in the property while another
person owns the legal title to such
property, the equitable ownership of the
former entitling him to the performance
of certain duties and the exercise of
certain powers by the latter. . .
In the present case, DBP, as the trustor,
vested in the trustees of the Fund legal
title over the Fund as well as control
over the investment of the money and
assets of the Fund. The powers and
duties granted to the trustees of the
Fund under the Agreement were plainly
more than just administrative [but
included the power of control, the right
to hold legal title, and the power to
invest and reinvest] . . . (at p. 474.)
xxx.
Clearly, the trustees received and
collected any income and profit derived
from the Fund, and they maintained
separate books of account for this
purpose. The principal and income of
the Fund will not revert to DBP even if
the trust is subsequently modified or
terminated. The Agreement states that
the principal and income must be used
to satisfy all of the liabilities to the
beneficiary officials and employees
under the Gratuity Plan . . . (at p. 475.)
On the issue that the DBP officials and employees had no
right to the fund nor to the income earned until they actually
retire, which therefore did not qualify them to be considered
cestui que trust or beneficiary, and therefore the same
should still accrue to DBP, the Court ruled

The beneficiaries or cestui que trust of

the Fund are the DBP officials and
employees who will retire x x x .
As COA correctly observed, the right of
the employees to claim their gratuities
from the Fund is still inchoate. [The law],
does not allow employees to receive
their gratutities until they retire.
However, this does not invalidate the
trust created by DBP or the concomitant
transfer of legal title to the trustees. As
far back as in Government v. Abadilla,
the Court held that it is not always
necessary that the cestui que trust
should be named, or even be in esse at
the time the trust is created in his
favor. It is enough that the beneficiaries
are sufficiently certain or identifiable.
(at pp. 476-477.)
The Court resolved in DBP v. COA, that The Agreement
indisputably transferred legal title over the income and
properties of the Fund to the Funds trustees. Thus, COAs
directive to recored the income of the Fund in DBPs books of
account as the miscellaneous income of DBP constitutes
grave abuse of discretion. The income of the Fund does not
form part of the revenues or profits of DBP, and DBP may not
use such income for its own benefit. The principal and
income of the Fund together constitute the res or subject
matter of the trust. The Agreement established the Fund
precisely so that it would eventually be sufficient to pay for
the retirement benefits of DBP employees under [the law]
without additional outlay from DBP. COA itself acknowledged
the authority of DBP to set up the Fund. However, COAs
subsequent directive would divest the Fund of income, and
defeat the purpose for the Funds creation. (at p. 477.)
4. Essence of Trust Is Anchored on Splitting or
Intention to Split the Naked Title and Beneficial Title
of the Res or Trust Property
The essence of trusts, whether express or resulting, is that
the fiduciary relationship or the enforcement of equity
principles is built upon property relations; unless, the dispute
involved claims arising from property rights, then trusts
principles do not apply. In other words, there is no real trust
relationship based only on the meeting of the minds, and
that the trustee does not even begin to assume fiduciary
duties towards the beneficiary, unless and until title to the
res is transferred to him in either of three ways:
(a) When only naked title is given to him
(i.e., he is registered as the naked or
legal title holder or trustee for the
benefit of an identified beneficiary),
then an express trust has been
constituted; or
(b) When full title has been registered in
his name, but with a clear undertaking

to hold it for the benefit of another

person
or
pursuant
to
a
clear
arrangement with another person as the
beneficiary, then an express trust at
best, or resulting trust at least, has been
constituted; or
(c) When full title to the property has
been acquired by a person under
circumstances that the law or equity
imposes upon him the obligation to
convey it to another person who has a
better claim to such property, in which
case a constructive trust is deemed
constituted by force of law.
This has been confirmed by the Supreme Court in Caezo v.
Rojas, 538 SCRA 242 (2007), where it held
What distinguishes a trust from other
relations is the separation of the legal
title and equitable ownership of the
property. In a trust relation, legal title is
vested in the fiduciary while equitable
ownership is vest in a cestui que trust.
Such is not true in this case. The
petitioner alleged in her complaint that
the tax declaration of the land was
transferred to the name of [the
purported trustee] Crispulos without her
consent. Had it been her intention to
create a trust and make Crispulo her
trustee, she would not have made an
issue out of this because in a trust
agreement, legal title is vested in the
trustee. The trustee would necessarily
have the right to transfer the tax
declaration in his name and to pay the
taxes on the property. These acts would
be treated as beneficial to the cestui
que trust and would not amount to an
adverse possession. (at p. 255.)
The existence of valid title in the person of the trustee for
the benefit of the cestui que trust is so essential that in
cases where the title of the purported trustee was void, the
Supreme Court has refused to apply trust principles at all.
Thus, in Ferrer v. Bautista, 231 SCRA 257 (1994), where the
free patent and original certificate of title issued in the name
of the occupant of a strip of land that had arisen by accretion
was held to be void, the Court refused to apply the principle
that an action for reconveyance on an implied trust
prescribes in ten years after the issuance of the title, on the
ground that no implied trust could arise from a void title held
by the purported trustee, and hence the action to reconvey
was deemed imprescriptible.
Likewise, in Macababbad, Jr. V. Masirag, 576 SCRA 70 (2009),
where the title to the registered land was obtained through
forging the signatures of the heirs in the purported
extrajudicial settlement of estate, the Court held title by the

23
heir who exercised fraud, was void and the rules on implied
trust to limit the period to file an action for reconveyance to
ten (10) years was deemed inapplicable.

5. Kinds of Trust
Art. 1441. Trusts are either
express or implied. Express trusts
are created by the intention of the
trustor or of the parties. Implied
trusts come into being by operation
of law.
Article 1441 of the Civil Code expressly recognizes the
following kinds of trust, thus:
Express Trust which is created by the
intention of the trustor or of the parties;
Implied Trust which comes into being
by operation of law.
In turn, jurisprudence has distinguished between two types
of implied trusts, namely: (a) Resulting Trusts; and (b)
Constructive Trusts.
Express trusts are the product of contractual intents; they
are essentially creatures of Contract Law, and therefore are
animated by the agreed intentions of the parties under the
principle of autonomy or the freedom to contract doctrine.
Ramos v. Ramos, 61 SCRA 284 (1974), defined express trusts
as those which are created by the direct and positive acts of
the parties, by some writing or deed, or will, or by words
either expressly or impliedly evincing an intention to create a
trust (quoting from 89 C.J.S. 122.)
Lately, in Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,
587 SCRA 417 (2009), the Court held that Trust is the right
to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that
obliges the trustee to deal with the property for the benefit
of the beneficiary. Trust relations between parties may either
be express or implied. An express trust is created by the
intention of the trustor or of the parties. An implied trust
comes into being by operation of law. (at p. 418.)
On the other hand, implied trusts, particularly constructive
trusts, are creatures of the law; they exist in circumstances
where the law mandates it so, and in all similar situations
where justice or equity has to be achieved. Implied trusts are
essentially a product of equitable consideration.
Ramos defined implied trusts as those which, without being

expressed, are deducible from the nature of the transaction

as matters of intent, or which are superinduced on the
transaction by operation of law as matters of equity,
independently of the particular intention of the parties.
(quoting from 89 C.J.S. 724.)
The difference in legal effects between an express trust and
an implied trust, according to Ramos, was that the former is
not susceptible to charges of prescription or laches, whereas
in the latter, it is possible that the cause of action of the
cestui que trust may be extinguished by prescription or
laches.
In Philippine National Bank v. Court of Appeals, 217 SCRA
347 (1993), the Court applied the principles of constructive
trust under Article 1456 of the Civil Code to rule on a
situation where a bank had mistakenly credited to the
account of a person an amount not due to the depositor
(although the Court held that the primary resolution of the
issues was under quasi-contract on solutio indebiti).
Although money or other forms of legal tender do not
constitute property for the holder thereof can claim
ownership, the commercial value they represent is a
proprietary interest where trust principles can be made to
apply. Indeed, it is not unusual that trust agreements are
executed with the trust departments of banks, where a good
part of the corpus would constitute large sum of money.
Earlier, under the old Civil Code, in Diaz v. Gorricho and
Aguado, 103 Phil. 261 (1958), the Court held that
The reason for the difference in
treatment is obvious. In express trusts,
the delay of the beneficiary is directly
attributable
to
the
trustee
who
undertakes to hold the property for the
former, or who is linked to the
beneficiary by confidential or fiduciary
relations. The trustees possession is,
therefore,
not
adverse
to
the
beneficiary, until and unless the latter is
made aware that the trust has been
repudiated. But in constructive trusts
(that are imposed by law), there is
neither promise nor fiduciary relation;
the so-called trustee does not recognize
any trust and has no intent to hold for
the beneficiary; therefore, the latter is
not justified in delaying action to
recover his property. It is his fault if he
delays; hence, he may be estopped by
his own laches. (at p. 266.)
As will be discussed in the last chapter, it used to be the
judicial position that under an express trust arrangement,
the trustee can never claim either acquisitive prescription in
his favor to obtain title to the property held in trust, or the
benefit of extinctive prescription in order to defeat the right
of the beneficiary to demand the exercise of his rights. The
reason was that in an express trust arrangement, which is
created only by the express or implied acceptance by the

trustee that he holds the trust property for the benefit of the
beneficiary, his possession thereof is not adverse to, nor in
repudiation of, the rights and beneficial title of the
beneficiary. Consequently, the long passage of time cannot
give rise to either prescription, much less laches; there must
be an express repudiation of the trust arrangement by the
trustee, and notice to the beneficiary that he now holds title
adverse to the beneficiary, for prescription or laches to begin
commencing.
On the other hand, under an implied trust arrangement,
where there is really no implied acceptance of a trust
obligation on the purported trustee, the mere fact that title
has been registered in the name of the purported trustee
and he holds possession thereof for his own benefit is
constituted as a repudiation of any trust arrangement that
the purported beneficiary may expect from the arrangement.
Consequently, the mere passage of time with the purported
trustee exercising dominion over the purported trust
properties for his own benefit, without need of express
repudiation could eventually lead to successfully claiming
the effects of prescription or laches on the part of the
trustee, to the detriment of the beneficiary.
This critical distinction has been blurred in the years since
the Ramos decision, with both kinds of trusts being
considered capable of being subject to the defense of
prescription or laches, with the difference remaining on
whether there is a need for express repudiation, and the
nature required for any of such repudiation to take effect.
The matter is better discussed in the last chapter.
One other distinction between express trusts and implied
trusts, is that express trusts over an immovable property
cannot be enforced by parol evidence, but must be properly
supported by a written instrument, whereas, implied trusts,
regardless of the nature of the trust property, may always be
enforced even when constituted orally. In other words,
implied trusts are not within the operative cover of the
Statute of Frauds, as expressed succinctly in Article 1457:
An implied trust may be proved by oral evidence.
Although express trusts and implied trusts are governed by
different principles, the common denominator between them
is that they are legal relationships built upon property rights;
there can be no express or implied trusts among individuals
unless some property lies in the middle of such relationship.

II. THE LAW ON EXPRESS TRUSTS

1. Definition and Nature of Express Trusts
Art. 1440. A person who
establishes a trust is called the
trustor; one in whom confidence is
reposed as regards property for the
benefit of another person is known
as the trustee; and the person for
whose benefit the trust has been

created is
beneficiary.

referred

to

as

the

24

Art. 1441. Trusts are either

express or implied. Express trust
are created by the intention of the
trustors or of the parties. Implied
trusts come into being by operation
of law.
Title V of the New Civil Code does not contain a particular
definition of Trust, but its first article Article 1440
defines the persons who constitute the parties in a trust
relationship, thus:
Trustor the person who establishes a
trust (referred to as grantor, settlor,
or founder in common-law parlance);
Trustee the person in whom
confidence is reposed as regards the
property placed in trust (referred to as
the corpus); it is the trustee who
assumes certain duties relating to the
the res with respect to the person for
whose benefit the trust is created; and
Beneficiary the person for whose
benefit the trust has been created (the
cestui que trust).
We can therefore define trust under the terms of Article 1440
as a legal relationship based primarily on the parties
relationship to the property that constitutes the corpus or
the trust estate, whereby a person, called the trustor,
conveys the naked or legal title to a property to another
person, called the trustee, who takes title thereto under a
fiduciary obligation to administer, manage and dispose
of the property for the benefit of another person, called the
beneficiary, to whom therefore beneficial or equitable title
pertains.
Quoting from American legal literature, Tolentino defines
trust as the legal relationship between one person having
an equitable ownership in property and another person
owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of
certain duties and exercise of certain powers by the latter.
(Tolentino, Civil Code of the Philippines, Vol. IV, at p. 669,
citing 54 Am. Jur. 21, hereinafter referred to as Tolentino;
reiterated in Morales v. Court of Appeals, 274 SCRA 282, 297
[1997].)
In Barretto v. Tuason, 50 Phil. 888 (1926), the Supreme Court
noted that trust is known as fideicomiso under Spanish
legal system, with the trustee being designated as the
fiduciario, and the beneficiary referred to as the
fidecomisario or the cestui que trustant.

In Philippine National Bank v. Court of Appeals, 217 SCRA

347 (1993), the Court described a typical trust (as
distinguished from a constructive trust under Article 1456 of
the Civil Code) as one wherein confidence is reposed in one
person who is named a trustee for the benefit of another
who is called the cestui que trust, respecting property which
is held by the trustee for the benefit of the cestui que trust.
A constructive trust, unlike an express trust, does not
emanate from, or generate a fiduciary relation. While in an
express trust, a beneficiary and a trustee are linked by
confidential or fiduciary relations; in a constructive trust,
there is neither a promise nor any fiduciary relation to speak
of and the so-called trustee neither accepts any trust or
intends holding the property for the beneficiary. (at pp.
353-354; italics supplied.)
In addition, PNB distinguished between the obligations of the
trustee in an express trust from that in a constructive trust:
Under American Law, a court of equity does not consider a
constructive trustee for all purposes as though he were in
reality a trustee; although it will force him to return the
property, it will not impose upon him the numerous fiduciary
obligations ordinarily demanded from a trustee of an express
trust. It must be borne in mind that in an express trust, the
trustee has active duties of management while in a
constructive trust, the duty is merely to surrender the
property. (at p. 356.)
2. Essential Characteristics of Express Trusts
In Morales v. Court of Appeals, 274 SCRA 282 (1997), after
adopting Tolentinos definition of trusts, the Court
enumerated the following essential characteristics of trust
as enumerated in the esteemed authors book:
(a) It is a relationship;
(b) It is a relationship of fiduciary
character;
(c) It is a relationship with respect to
property, not one involving merely
personal duties;
(d) It involves the existence of equitable
duties imposed upon the holder of the
title to the property to deal with it for
the benefit of another; and
(e) It arises as a result of a
manifestation of intention to create the
relationship. (at p. 298)
Morales actually involved an application of the principles
pertaining to implied trusts (particularly the application of
Article 1448 of the Civil Code), and although one gets the
impression that the characteristics pertain to all forms of
trusts, both express and implied, the above enumerated
essential characteristics actually pertain to express trusts,

and perhaps even to resulting trusts, but not to constructive

trust arrangements, since it has already been held by the
Supreme Court that technically speaking, the purported
trustee in a constructive trust actually owes no fiduciary duty
or obligation to the cestui que trust, and certainly a
constructive trust arises by operation of law and not as a
result of a manifestation of intention to create the
relationship.
a. Express
Character

Trusts

Are

Essentially

Contractual

in

Art. 1445. No trust shall fail

because the trustee appointed
declines the designation, unless the
contrary should appear in the
instrument constituting the trust.
Art. 1446. Acceptance by the
beneficiary
is
necessary.
Nevertheless, if the trust imposes
no onerous condition upon the
beneficiary, his acceptance shall be
presumed, if there is no proof to
the contrary.
Generally speaking, an express trust is essentially
contractual in character because it can only be constituted
through contractual intention on the part of the trustor to
dispose of his property by dividing its full ownership between
the trustee and the beneficiary, and requires generally the
full acceptance of the naked title and fiduciary obligations on
the part of the trustee, and the concomitant obligations that
go with it. This is the reason why Morales indicates that one
of the essential characteristic of a trust that it arises as a
result of a manifestation of intention to create the
relationship. (at p. 298.)
Thus, Article 1441 of the Civil Code provides that Express
trusts are created by the intention of the trustor or of the
parties, and Article 1444 provides that No particular words
are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.
While Article 1441 of the Civil Code defines an express trust
as created by the intention . . . of the parties, which clearly
supports the proposition that the nexus of every express
trust arrangement is a contractual relationship, nonetheless,
it also defines an express trust as created by the intention
of the trustor alone, which seems to defy the essence of
mutual consent as a necessary element in bringing about a
contractual relationship. Yet it cannot be denied that no
person may find himself bound to the fiduciary duties and
obligations of a trustee, unless he previously consented
thereto, or expresses his consent by voluntarily assuming
such relationship to the trust property which necessarily
brings about the duties and obligations of a trustee.
On the other hand, Article 1445 of the Civil Code provides
that No trust shall fail because the trustee appointed

25
declines the designation, unless the contrary should appear
in the instrument constituting the trust. Read plainly, Article
1445 seems to imply that the element of consent or
meeting of minds, so essential for a valid contract to arise,
does not pertain to express trust and thus may lead to the
conclusion that express trusts are not necessarily contractual
relationships. Such impression would be wrong, as will be
explained in the sections below discussing the characteristic
of express trust as being a real and preparatory contract.
In other words, there can be no denying the legal truism that
an express trust constitutes essentially a contractual
relationship between and among the parties thereto. This is
supported by Article 1446 which states that Acceptance by
the beneficiary is necessary, and that if the trust does not
impose any onerous condition upon the beneficiary, then
his acceptance shall be presumed, if there is no proof to the
contrary.
It should be noted, however, that the nexus of the
contractual meeting of the minds in an express trust is that
between the trustor and the trustee, and the acceptance of
the benefits by the beneficiary under the trust arrangement
would constitute normally merely stipulation pour autrui.
Although the proper identification of the beneficiary
constitutes an essential element of a valid trust, as it
determines the nature and extent of the fiduciary duties and
obligations of the trustee, acceptance of the benefits by the
beneficiary is generally not an essential element of a valid
trust. This is the reason why the lack of acceptance by the
beneficiary does not generally render the trust void. The
provisions of the law mandating acceptance by the
beneficiary, whether express or implied, or presumed, are
meant to cover the principle of law that nobody can be
compelled to accept the gift or charity of another person
without his consent.
Express trusts are essentially the product of contractual
intent, and most express trust relationships are overtly
contractual in nature since they are executed in a formal
Deed of Trust.
An express trust may also be constituted in a will, it which
case it becomes a testamentary trust, and the validity of the
trust arrangement would be depended on the validity of the
testamentary disposition. In such case, the issues as to the
validity of the trust arrangements would have to be resolved
under the Laws on Succession.
An express trust may also be constituted in the form of a
donation, in which case it is embodied in a solemn contract,
and many of the issues on validity would have to be resolved
under the Law on Donations.
It should be noted, however, that when the beneficiary
constituted in a trust is other than the trustor, then the deed
of trust actually provides for stipulation pour autrui in favor
of the designated beneficiary, and under Article 1446 of the
Civil Code, acceptance by the beneficiary is deemed

presumed. More importantly, a designation of a beneficiary

which does no impose onerous conditions, partakes
essentially of a gift or a donation in favor of the beneficiary,
and strictly speaking is governed by the Law on Donation
which makes the disposition a solemn contract. Likewise, in
the Law on Taxation, the same constitute taxable gift or
donation for which the proper gift tax should be paid.
Nonetheless, the non-compliance with the solemnities
required of donation in the realm of trust does not render the
trust void. Indeed, under Article 1444 of the Civil Code No
particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended; and
under Article 1457, it is provided that An implied trust may
be proved by oral evidence.
Thus, in practice, many trust dispositions are constituted in
a manner that the trustor seeks to gift the designated
beneficiary with all the beneficial title to the estate property
held in the hands of the trustee. In such cases, what is
executed is merely a Deed of Trust, the solemnities of
which do not fall under the Law on Donations, and generally
would comply with the formalities of an ordinary deed of
conveyance.

(b) The Beneficiary: to whom the

trustee owes equitable duties to deal
with the trust property for his; and
(c) The Res: which is the trust property
which the trustee manages for the sake
or the interest of the beneficiary, which
can be created in anything that the law
recognizes to be property.
[See also Aquino, Ranhilio Callangan,
Resulting Trusts and Public Policy, 232
SCRA 364, 366, citing Dukeminier at
128.]
The enumeration of the essential elements of every
express trust indicates that every trust relationship is truly a
legal relationship built on property rights, and without the
res or the corpus, there is really no obligation upon the
trustee who cannot be expected to manage the property for
the benefit of the beneficiary, simply because he has no
control over property that has not been transferred to his
name.

b. Essential Elements of Express Trusts

Much of the discussions hereunder, unless otherwise
indicated, cover essentially contractual trusts arrangements
those that are created by the intention of the trustor or of
the parties, without taking the form of donation or
testamentary disposition. Therefore, we will discuss
immediately hereunder the essential characteristics of
express trusts as contractual relationship of being: (a)
nominate and principal; (b) unilateral; (c) primarily
gratuitous; (d) real; (e) preparatory; and (f) fiduciary. The
essential characteristic of an express trust being a real
contract will be discussed in the next section on The Rules
of Enforcement of Express Trusts.
It should be noted that Title V of the New Civil Code does not
expressly state under any of its article that express trusts
are contractual relationships. However, as explained
above, it would be more useful on our part to consider
express trusts, as distinguished from implied trusts, to be
essentially contractual in nature, i.e., of being created under
contractual intents, and with the rights, duties and
responsibilities arising from contractual relationship.
In Mindanao Development Authority v. Court of Appeals, 113
SCRA 429 (1982), the Supreme Court held that It is
fundamental in the law of trusts that certain requirements
must exist before an express trust will be recognized, (at p.
436), and it affirmed the following to be the essential
elements of an express trust, enumerated earlier in
Francisco v. Leyco, 3 C.A.R. 2s 1384, citing Rous, Florimond
C., The Trust Relationship, 96 SCRA 186, 191, thus:
(a) The Trustee: who holds the trust
property and is subject to equitable
duties to deal with it for anothers
benefit;

(1) Express Trusts Establish Contractual Relationships

Built Around Property Relation
Morales enumerates that one of the essential characteristic
of trusts is that it is a relationship with respect to property,
not one involving merely personal duties. (at p. 298; italics
supplied). On this matter, Mindanao Development Authority
held that
Stilted formalities are unnecessary, but
nevertheless
each
of
the
above
elements is required to be established,
and, if any one of them is missing, it is
fatal to the trusts. Furthermore, there
must be a present and complete
disposition of the trust property,
notwithstanding that the enjoyment
in the beneficiary will take place in
the future. It is essential, too, that the
purpose be an active one to prevent
trust from being executed into a legal
estate or interest, and one that is not in
contravention of some prohibition of
statute or rule of public policy. There
must
also
be
some
power
of
administration other than a mere duty to
perform a contract although the contract
is for a third-party beneficiary. A
declaration of terms is essential, and
these must be stated with reasonable
certainty in order that the trustee may
administer, and that the court, if called
upon so to do, may enforce the trust.
(at p. 437, citing 76 Am Jur 2d, Sec. 31,

pp. 278-279; emphasis supplied.)

26

Thus, when the deed of sale upon which an express trust

was sought to be established in Mindanao Development
Authority merely provided that the seller agree[s] to work
for the titling of the entire area of my land under my own
expense and the expenses for the titling of the portion sold
to me shall be under the expenses of the said Juan Cruz Yap
Chuy, the Court held that no express trust was constituted,
since other than undertaking to pay for the expenses of
titling of the property, The stipulation does not categorically
create an obligation on the part of [the seller] to hold the
property in trust for Juan Cruz. Hence there is no express
trust. It is essential to the creation of an express trust that
the settlor [trustor] presently and unequivocally make a
disposition of property and make himself the trustee of the
property for the benefit of another. (at p. 437, citing 76 Am
Jur 2d, sec. 35, p. 281.)
Finally, the Court also noted in Mindanao Development
Authority that the provision in the deed of sale that the
buyer will work for the titling of the entire area of my land
under my own expense, it was not clear what particular
property of the seller was referred to, and thus no express
trust could be validly constituted since A failure on the part
of the settlor definitely to describe the subject-matter of the
supposed trust or the beneficiaries or object thereof is strong
evidence that he intended no trust. (at p. 438.)
In Caezo v. Rojas, 538 SCRA 242 (2007), reiterating the
ruling in Morales v. Court of Appeals, 274 SCRA 282
(1997), on what constitutes the essential elements of
an express trust, the Court held:
. . . The presence of the following
elements must be proved: (1) a trustor
or settlor who executes the instrument
creating the trust; (2) a trustee, who is
the person expressly deisgnated to carry
out the trust; (3) the trust res, consisting
of duly identified and definite real
property; and (4) the cestui que trusts,
or beneficiaries whose identity must be
clear. . . (at p. 253.)
Note that in Caezo, aside from reiterating that among the
essential elements of an express trust is the trust res,
consisting of duly identified and definite real property, it
merely requires that the beneficiaries whose identity must
be clear, and not that there must be prior acceptance by
the beneficiary of the trust benefits for the contractual trust
relationship between the trustor and the trustee can come
into existence.
c. Nominate and Principal, Yet Governed by Equity
Principles
As a contract, an express trust is nominate and principal,
having been given particular name and essentially defined
by the Civil Code, and not needing another contract to be

valid and binding.

Usually the essential characteristics of nominate and
principal bring about the application of the doctrine that
when a legal relationship is created between the parties that
embodies the essence of a trust, then in spite of the
intention or nomenclature used by the contracting parties, it
would still be characterized by the law, and governed by the
Law on Trusts. Unfortunately, under the New Civil Code, the
Law on Trusts is not complete set of law and has a general
reference under Article 1442 to the principles of the general
law of trusts, which are invoked as part of the Philippine
Law on Trusts. In fact, many of the obligations and duties of
the trustee prevail on the basis of equity and not necessarily
upon the contractual intentions of the parties.
d. Unilateral and Gratuitous
An express trust is a unilateral contract since only the
trustee assumes obligations to carry on the trust for the
benefit of the beneficiary.
Article 1446, which provides that acceptance by the
beneficiary is necessary, not only confirms the contractual
nature of every trust contract, but supports the position that
an express trust is essentially a gratuitous contract,
supported by the consideration of liberality, especially when
the article provides that the beneficiarys acceptance is
presumed if the trust imposes no onerous condition upon
the beneficiary, unless there is proof that he has not
accepted the benefits of the trust arrangement. Generally,
therefore, a trust relationship imposes no obligation or
burden upon the beneficiary.
e. Express Trust as a Preparatory Contract
Express trust is preparatory contract because it is not
constituted for its own sake in that the trust relationship is
essentially a medium established by the trustor to allow full
authority and discretion on the part of the trustee to enter
into various juridical acts on the corpus to earn income or
achieve other goals given for the benefit of the beneficiary.
An express trust may create of a form of contract pour
autrui, in the sense that if the trustor does not make himself
the beneficiary, but constitutes the trust for the benefit of
another person, the transfer of the naked or legal title of the
property to the trustee who accepts the fiduciary obligations,
creates the trust, even if the beneficiary does not formally
accept the beneficial titled conveyed under the trust
arrangement.
In such a manner, an express trust
relationship creates no obligation on the part of the trustor
to the designated beneficiary, nor does the beneficiary have
any right against the trustor, except those voluntarily
assumed by the trustor under the terms of the deed of trust.
Generally, the fiduciary duties under an express trust are
imposed on the trustee, and the rights of the beneficiary are
exercisable against the trustee.
One would therefore arrive at the conclusion that insofar as

the trustor is concerned, the act of establishing an express

trust for the benefit of the beneficiary, is an act of donation
or a gift, which often is taxable under the Tax Code for
donors or gift tax. Yet, the constitution of an express trust, is
not considered to be a form of solemn contract. This is clear
under Article 1444 of the Civil Code that provides that No
particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended.
Nonetheless, being essentially an act of liberality, and under
the premise that no person can be obliged to accept the
kindheartedness of others, Article 1446 expressly provides
that Acceptance by the beneficiary is necessary. But since
the constitution of an express trust is usually for the benefit
of the designated beneficiary, Article 1446 presumes the
acceptance thereof by the designated beneficiary, thus:
Nevertheless, if the trust imposes no onerous condition
upon the beneficiary, his acceptance shall be presumed, if
there is no proof to the contrary.
What happens when the designated beneficiary expressly
refuses to accept the benefits of the trust arrangement, and
yet the naked or legal title to the corpus has already been
transferred to the trustee? Does the express trustee
therefore fail?
The essential characteristic of express trust being a
preparatory contract would mean that with the purpose of
the trust no longer availing, since the designated beneficiary
has refused the trust relationship, the trust ceases to have
an objective. But since the naked or legal title remains with
the trustee, his obligations is to comply with the instructions
of the trustor, and dispose of the properties in accordance
with the instructions of the trustor.
f. Trust Constitutes Fiduciary Duties on the Trustee
Article 1440 defines the trustee as one in whom
confidence is reposed as regards property for the benefit of
another person is known as the trustee. In other words,
express trust creates a fiduciary relationship in the trustee
by virtue of his having assumed naked or legal title to the
properties constituting the corpus, under express provisions
to use, control, administer and management them for the
benefit of the trustee. An express trust constitute the trustee
as a fiduciary for the benefit of the beneficiary, since both by
contractual stipulations and by the fact that the trustee
accepts title to the properties for the benefit of the
beneficiary, constitutes necessary the duties of diligence and
fidelity.
(1) Acquisitive Prescription on the Corpus Unavailing
to the Trustee
One of the consequences of the fiduciary relationship
existing in a trust relationship is the inability of the trustee to
invoke the statute of limitations or prescription against the
beneficiary. Thus in Pacheco v. Arro, 85 Phil. 505 (1950), the
Court held that a trustee cannot invoke the statute of
limitations to bar the action and defeat the right of the cestui

27
que trustent. If the pretense of counsel for the petitioners
that the promise above adverted to cannot prevail over the
final decree of the cadastral court holding the predecessorin-interest of the petitioners to be the owner of the lots
claimed by the respondents were to be sustained and
upheld, then actions to compel a party to assign or convey
the undivided share in a parcel of land registered in his name
to his co-owner or co-heir could no longer be brought and
could no longer succeed and prosper. (at p. 515.)
In the same manner, in the earlier decision of Escobar v.
Locsin, 74 Phil. 86 (1943), where the plaintiff was the owner
of a parcel of land, but being illiterate, asked the defendants
predecessor-in-interest to claim the same for her; but that
instead he committed a breach of trust by claiming the lot
for himself; the trial court, while recognizing that the plaintiff
had the equitable title and the defendant the legal title,
nevertheless dismissed the complaint because the period of
one year provided for under the Torrens system for the
review of a decree had elapsed, and the plaintiff had not
availed herself of that remedy. In overturning the trial courts
decision, the Court held A trust such as that which was created
between the plaintiff and [defendants
predecessor-in-interest]is sacred and
inviolable. The Courts have therefore
shielded fiduciary relations against
every manner of chicanery or detestable
design cloaked by legal technicalities.
The
Torrens
system
was
never
calculated to foment betrayal in the
performance of a trust. (at p. 87.)
The much earlier decision in Barretto v. Tuazon, 50 Phil. 888
(1926), characterized the old institution of mayorazgo a
fiduciary charge made to the first-born, as the usufructuary
possessor, to preserve the entailed property in the family
and to deliver them at the proper time to the succeeding
first-born, who shall possess and enjoy them as a species
of the genus trust, the essence of which, in concise terms,
is nothing more than the confiding of a thing to one in order
that he may preserve it and deliver it to another. (at p.
918). Thus, the cause of action of the successors-in-interest
who were entitled to benefits of the mayorazgo could not be
defeated by claims of prescription or failure to fail any claims
in the proceedings for the settlement of the estate of the
deceased.
In Yu Tiong v. Yu, 6 SCRA 950 (1962), the Court held that in
view of the fiduciary nature of the legal relation that exists
between the trustee and the cestui que trust , the statute of
limitations or prescription and the principle of laches cannot
being invoked by the trustee with respect to the right of
action of the latter. The principle was reiterated in De
Buencamino v. De Matias, 16 SCRA 849 (1966).
4. Rules of Enforceability of Express Trusts

Art. 1443. No express trusts

concerning an immovable or any
interst therein may be proved by
parol evidence.
Art. 1444. No particular
words are required for the creation
of an express trust, it being
sufficient that a trust is clearly
intended.
a. Express Trust Is Essentially a Real Contract, Not
Merely Consensual
Discussions on the rules governing the enforceabilityof an
express trust may imply that as a contractual relationship
between the trustor and the trustee, it has the essential
characteristic of being consensual (i.e., perfected, valid and
binding upon mere meeting on the minds on the subject
matter and the consideration), as contrasted from the
characteristics of real (i.e., requiring the fourth element of
delivery), and solemn (i.e., requiring the fourth element of
form or solemnity, for validity). After all, Article 1444 of the
Civil Code, which applies particularly to express trusts,
provides that No particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended. Yet by its very definition, an express
trusts constitute a real contract, that is, it is not merely
perfected by a mere meeting of minds between the trustor
and trustee to constitute a trust. Indeed, no trust relationship
exists, until and unless, the property constituting the res is
conveyed to the trustee.
Trusteeship is essentially a proprietary relationship, not
merely from acceptance of the duties and responsibilities of
a trustee. Indeed, a designated trustee may formally accept
the duties and responsibilities laid out in the deed of trust,
but no fiduciary obligation arises without the properties
being transferred to his name. Without naked or legal title in
the properties of the corpus being transferred in the name of
the trustee, there is no moral or legal basis upon which his
fiduciary obligations can arise.
Thus, when Article 1445 of the Civil Code provides that No
trust shall fail because the trustee appointed declines the
designation, it can only mean two things. No contractual
relationship has been established yet because the actual
transfer of naked or legal title to the designated trustee has
been effected, and the trust could not be said to fail because
its final establishment may still be effected by another
persons who accepts the trust and to whom the naked or
legal title to the corpus may be instituted. It may also mean
that naked or legal title has been effected by the trustor in
the name of the trustee before the latter has expressly
accepted the designation; but his refusal of the trust
designation cannot also work to fail the trust, because it is
then possible to transfer naked or legal title to the corpus in
another person who accepts the trust designation.
Article 1445 of the Civil Code recognizes that unless the
contrary should appear in the instrument constituting the

trust, that the designation of the particular individual was

primordial in the establishment of the trust (which by
contractual intent made the express trust as personalitycentered relationship), trusteeship is essentially a propertybased relationship, that the transfer of naked or legal title of
the trust estate to the trustee-as-a-professional-fiduciary
for the benefit of another person, is the moving spirit behind
the trust relationship.
With respect to the essential characteristic that trust
relationship is always based upon a splitting of dominion
over the trust property (a legal relation based on property
rights), Pacheco v. Arro, 85 Phil. 505 (1950), held that [t]he
juridical concept of a trust, which in a broad sense involves,
arises from, or is the result of, a fiduciary relation between
the trustee and the cestui que trust as regards certain
property-real, personal, funds or money, or choses in action.
(at p. 514). In more pinpointed language, Julio v. Dalandan,
21 SCRA 543 (1967), characterizes trust as a method of
disposition of property. (at p. 550.)
There is no doubt that the ideal form of an express trust is
constituted pursuant to a written Deed of Trust whereby
naked or legal title to the trust property is conveyed to the
specified trustee under clear terms and conditions providing
for his duties and responsibilities towards the indicated
beneficiary of the res. In this case, it must be remembered
that the execution of the Deed of Trust as a public document
which has the effect, as between the trustor and the trustee,
of constructive delivery of the covered trust properties.
When it comes to immovables, especially registered land or
any interest therein, express trusts take the ideal form of
legal or naked title being registered in the name of trustee
who holds the property for the benefit of the indicated
beneficiary. In other words, the best form of an express trust
is when the trustee is expressly registered as naked title
owner.
Do we presume then that when the purported trustee holds
title as full owner of the res, the underlying trust
relationship is no longer express trust, but rather resulting
trust? The answer do this is that it is legally possible to still
have an express trust even when the registered title in the
name of the trustee is full ownership as distinguished from
naked or legal title. This is clear from both statutory
provisions and jurisprudence.
Firstly, apart from the lone requirement under Article 1443
that No express trusts concerning an immovable or any
interest therein may be proved by parol evidence; the
controling principle is actually found in Article 1444 which
provides that No particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended.
Jurisprudence supports the contractual basis of express
trusts as those which are created by the direct and positive
acts of the parties, by some writing or deed, or will or by
words either expressly or impliedly evincing an action to
create a trust. In Julio v. Dalandan, 21 SCRA 543 (1967), the

28
Supreme Court observed that In reality, the development of
the trust as a method of disposition of propery, so
jurisprudence teaches, seems in large part due to its
freedom from formal requirements. This principle perhaps
accounts for the provision in Article 1444. . . (at p. 550,
quoting from 54 Am.Jr., p. 50.)
In Julio, the evidence of an express trust was in the form of
an affidavit subscribed and sworn to by [purported trustee]
Clemente Dalandan . . . By the terms of this writing,
Clemente Dalandan, deceased father of defendants Emiliano
and Maria Dalandan, acknowledged that a four-hectare piece
of riceland in Las Pinas, Rizal belonging to Victoriana
Dalandan, whose only child and heir is plaintiff Victoria Julio,
was posted as security for an obligation which he, Clemente
Dalandan, assumed but, however, failed to fulfill The result
was that Victorianas said land was foreclosed. . . (at pp.
545-546). The trial court had dismissed on the complaint
seeking reconveyance of the property to the heir of
Victoriana Julio on the ground of prescription: the lower
court ruled that plaintiffs suit, viewed either as an action for
specific performance or for the fixing of a term, had
prescribed. Reason: the 10-year period from the date of the
document had elapsed. (at p. 548). In ruling that the
document embodied an express trust, and that prescription
could not commence unless there was an express
repudiation of the trust, the Court further held
. . . For, technical or particular forms of
words or phrases are not essential to the
manifestation of intention to create a
trust or to such words as trust or
trustee essential to the constitution of
a trust as we have held in Lorenzo vs.
Posadas, 64 Phil. 353, 368. Conversely,
the mere fact that the word trust or
trustee was employed would not
necessarily prove an intention to creat a
trust. what is important is whether the
trustor manifested an intention to create
the kind of relationship which in law is
known as a trust. It is unimportant that
the trustor should know that the
relationship which he indends to create
is called a trust, and whether or not he
knows the precise characteristics of the
relationship which is called a trust.
Here, that trust is effective as against
defendants and in favor of the
beneficiary thereof, plaintiff Victoria
Julio, who accepted it in the document
itself. (at pp. 550-551.)
In Cuaycong v. Cuaycong, 21 SCRA 1192 (1967), the
Supreme Court held that Our Civil Code defines an express
trust as one created by the intention of the trustor or of the
parties, and an implied trust as one that comes into being by
operation of law. [Article 1441] Express trusts are those
created by the direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an

intention to create a trust. . . .We find it clear that the

plaintiffs alleged an express trust over an immovable,
especially since it is alleged that the trustor expressly told
the defendants of his intention to establish the trust. Such a
situation definitely falls under Article 1443 of the Civil Code.
Ramos v. Ramos, 61 SCRA 284 (1974), held that Express
trusts are those which are created by the direct and positive
acts of the parties, by some writing or deed, or will, or by
words either expressly or impliedly evincing an intention to
create a trust. (at p. 298, quoting from 89 C.J.S. 722).
The principle that an express trust may still be constituted
outside of formal designation of the trustee as naked or legal
titleholder of the corpus, and can be deduced from the words
or actuations of the party has been consistently upheld in
decisions of the Supreme Court. Sotto v. Teves, 86 SCRA 154
(1978); Philippine National Bank v. Court of Appeals, 217
SCRA 347 (1993); Rizal Surety & Ins. Co. v. Court of Appeals,
261 SCRA 69 (1996); DBP v. COA, 422 SCRA 459 (2004);
Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999);
Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v. Ramos,
577 SCRA 509 (2009).
Only recently, in Heirs of Tranquilino Labiste v. Heirs of Jose
Labiste, 587 SCRA 417 (2009), the Court held that since
under Article 1444 of the Civil Code, [n]o particular words
are required for the creation of an express trust, it being
sufficient that a trust is clearly intended, then an affidavit
executed by eventual registered owner of a registered land
that the lot brought in his name was co-owned by him, as
one of the heirs of Jose, and his uncle Tranquilino. And by
agreement, each of them has been in possession of half of
the property, qualifies it to be as an express trust, and
consequently, prescription and laches will run only from the
time the express trust is repudiated. (at p. 426.)
b. Express Trust Must Nevertheless Be Clearly Shown
to Have Been Intended
Although the rule under Article 1444 is that No particular
words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended, (See also
Tuason de Perez v. Caluag, 96 Phil. 981 [1955]; Julio v.
Dalandan, 21 SCRA 543, 546 [1967]), nonetheless Ramos v.
Ramos, 61 SCRA 284 (1974), reminds us that an express
trust will never be presumed to exist; that the party who
claims are right under a trust arrangement must prove the
existence thereof, thus: A trust must be proven by clear,
satisfactory, and convincing evidence. It cannot rest on
vague and uncertain evidence or on loose, equivocal or
indefinite declarations. As already noted, an express trust
cannot be proven by parol evidence. (at pp. 300-301; Citing
De Leon v. Peckson, 62 O. G. 994; Pascual v. Meneses, 20
SCRA 219, 228 [1967]; Cuaycong vs. Cuaycong, 21 SCRA
1192 [1967]).
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), reiterated the
principle that to establish a trust the proof must be clear,
satisfactory and convincing. It cannot rest on vague,
uncertain evidence, or on a loose, equivocal or indefinite

declaration. (at p. 984). However, when the trustees

themselves (i.e., the donees in a donation inter vivos),
themselves have executed a declaration of trust (which is
defined as an act by which a person acknowledges that the
property, title to which he holds is held by him for the use of
another), constituted clearly and unequivocally the trust
even if the same was executed subsequent to the death of
the trustor, Juana Juan, for it has been held that the right
creating or declaring a trust need not be contemporaneous
or inter-parties (Stephenson v. Stephenson, 171 S.W. 2d Rec.
201). It was even held that an express trust may be
declcared by a writing made after the legal estate has been
vested in the trustee (Kurtz v. Robinson, Tex. Civ. App. 256
S.W. 2d 1003). (at p. 984.)
Lately, in Canezo v. Rojas, 538 SCRA 242 (2007), in
reiterating the essential elements of an express trust, held
that As a rule, however, the burden of proving rleafter
c. What Is the Essence of the Relationship Between
the Trustor and the Trustee Pri0r to the Conveyance
of the Res to the Trustee?
A deed of trust setting-up the trust relationship, constituting
the trustee, providing for his duties and responsibilities and
designating the beneficiary would not give rise to a true trust
relationship even with the formal acceptance of the
designated trustee, unless and until the property that would
constitute the corpus of the trust relationship is actually
conveyed to the trust relationship.
If the fourth element of delivery, i.e., transfer of legal title
over the trust property to the trustee, is necessary in order
that a contract of express trust is constituted, then the
proper question that ought to be ask is: What is the status
of a Deed of Trust, duly executed by the trustor and the
trustee and accepted in the same instrument by the
beneficiary, before title to the designated trust property is
actually placed in the name of the trustee?
One answer to this issue is that before delivery of title over
the trust estate to the trustee, there is no valid contract of
trust, but only a nominate contract of do ut facia, that is that
the trustor has contractually bound himself to delivery and
transfer title over the trust property to the trustee
(essentially a real obligation to give), and the trustee has
bound himself to accept delivery and to manage the
properties to be delivered for the interests of the beneficiary
(essentially a personal obligation to do).
If the so-called contract of trust is valid at this point (i.e.,
upon mere meeting of the minds), then in order to be a real
contract, it must mean that it creates a binding obligation.
But the only enforceable obligation so far created by
meeting of the minds is that of the trustor to deliver legal
title to the trust property to the trustee and beneficial title to
the beneficiary, which does not fall within the essence of a
trust which is supposed to create an obligation on the part of
the trustee to manage the trust property for the benefit of
the beneficiary. The trustor of a true trust does not assume
any obligation; he is the creator of the trust.

29
d. Express Trusts Over Immovables Must Be in Writing
Article 1443 of the Civil Code provides that No express
trusts converning an immovable or any interest therein may
be proved by parol evidence. The clear legal implication of
the language of Article 1443 is that an express trust
concerning movables or any interests therein may be proved
by parol evidence; which means that the mere meeting of
minds over the creation of an express trust over movables
creates a valid and enforceable contract of trust once the
movable is delivered to the trustee.
It is my submission that Article 1443 is a lame provision,
and really serves no useful purpose in the realm of true
express trusts arrangements involving immovables or any
interest therein.
Firstly, Article 1443 does not render the express trusts over
immovables void when it is not effected in writing, it merely
renders the contractual relationship unenforceable. Since it
is only the grantor or the accepting beneficiary who have
rights to enforce under the terms of the contractual
relationship, it is they who are unfavorably affected by the
provisions of Article 1443: they cannot adduce parol
evidence in order to enforce the fiduciary duties and
obligations of the trustee through court action. This means
that Article 1443 constitutes a mere species of the Statute of
Frauds.
Thus, in Pealber v. Ramos, 577 SCRA 509 (2009), the
Supreme Court confirmed that The requirement in Article
1443 that the express trust concerning an immovable or an
interest therein be in writing is merely for purposes of proof,
not for the validity of the trust agreement, (at p. 528) and
it went on to rule
. . . Therefore, the said article is in the
nature of a statute of frauds. The term
statute of frauds is descriptive of
statutes which require certain classes of
contracts to be in writing. The statute
does not deprive the parties of the right
to contract with respect to the matters
therein involved, but merely regulates
the formalities of the contract necessary
to render it inforceable. The effect of
non-compliance is simply that no action
can be proved unless the requirement is
complied with. Oral evidence of the
contract will be excluded upon timely
objection. But if the parties to the
action, during the trial, make no
objection to the admissibility of the oral
evidence to support the contract
covered by the statute, and thereby
permit such contract to be proved orally,
it will be just as binding upon the parties
as if it had been reduced to writing. (at
p. 528.)

Nonetheless, Pealbar did not find for the establishment of

an express trust from the oral testimony given, on the
ground that the parol evidence failed to prove clearly that an
express trust had been constituted, thus
A careful perusal of the records of the case reveals that
respondent spouses Ramos did indeed fail to interpose their
objections regarding the admissibility of the afore-mentioned
testimonies when the same were offered to prove the
alleged verbal trust agreement between them and petitioner.
Consequently, these testimonies were rendered admissible
in evidence. Nevertheless, while admissibility of
evidence is an affair of logic and law, determined as it
is by its relevance and competence, the weight given
to such evidence, once admitted, still depends on
judicial evaluation. Thus, despite the admissibility of the
said testimonies, the Court holds that the same carried little
weight in proving the alleged verbal trust agreement
between petitioner and respondent. (at pp. 529-530.)
Civil Law provides that the Statute of Frauds, which is meant
to prevent fraud and cannot be used to perpetuate fraud,
has no application to contracts that have either been
partially or fully executed. If that were so, and Article 1443 is
merely a species of the Statute of Frauds, then it would have
no application to a true express trust over an immovable,
since by definition an express trust exists by virtue of the
trustor having conveyed the res or the corpus to the trustee
who assumes naked or legal title to it. In other words, since
express trust over an immovable presents a real contract
where ownership has in fact been conveyed to the purported
trustee, then it is exempted from the coverage of the Statute
of Frauds, and parol evidence may now be adduced to prove
the existence of such express trust.
Secondly, considering that express trust over immovables
are necessarily covered by the characteristic of being a real
contract, ineluctably no express trust over immovables can
be constituted by mere meeting of the minds, and that to
even be validly constituted, an express trust over immovable
requires the fourth requisite of delivery to have taken place
that naked or legal title over the properties constituting
the corpus have been transferred in the name of the
designated trustee. And under current legislation, no title to
registered land or any interest therein may be registered
with the Register of Deeds and title transferred in the name
of a trustee, unless the deeds are in a public instrument, and
all taxes thereto have been paid and certified to have been
paid.
Even if Article 1443 were to be construed as referring to an
express trust that has been constituted not only by the
meeting of the minds of the parties, but coupled with
delivery of the immovable trust property to the trustee, it
would also lead to the absurd consequence of declaring as
unenforceable an oral express trust contract, where there
has been execution. It is an established doctrine that the
Statute of Frauds consideration has no application to fully or
partially executed contracts. In any event, registration of
naked or legal title in the registered land in the name of the
trustee is certainly equivalent to the trust being in writing.
Finally, Article 1445 supports the proposition that a contract

of express trust is not a consensual contract, but essentially

requires transfer of title to the trust properties for its valid
constitution, when it provides that No trust shall fail
because the trustee appointed declines the designation,
unless the contrary should appear in the instrument
constituting the trust. Under Article 1441, an express can
be created by the intention of the trustor alone, and that
Article 1445 follows up by stating that ones that intention
has created the express trust, it cannot fail simply because
the trustee appointed declines the designation, which can
only mean that the intention of the trustor to create the trust
can only be manifested by the act of placing title in the trust
properties in the name of the designated trustee for the
benefit of the designated beneficiary. The refusal by the
designated trustee (i.e., non-giving of his consent), does not
make the express trust contract involving immovables to be
void for lack of consent, for indeed the transfer of title to the
property has been effected, most especially of the beneficial
or equitable title to the beneficiary, whose acceptance of the
grant of the trustor is deemed to have taken place when no
onerous condition has been placed upon him under the
terms of the trust agreement.
Thirdly, it is now well-settled in Philippine jurisprudence that
when an express trust over immovable is not in writing,
nonetheless, it can still be proven by clear and convincing
parol evidence to be a resulting trust, under the aegis of
Article 1457 that provides that An implied trust may be
proved by oral evidence. This matter is thoroughly covered
in the next chapter on the section on Resulting Trusts.
Even under the terms of the public instrument creating an
express trust over immovables, the mere actual or physical
delivery of possession or control over land and any interest
therein to the designated trustee would not create a valid
and binding express trust yet because naked or legal title
has not yet been constituted in the name of the trustee by
which he is therefore able to exercise the prerogatives of
title holder for the benefit of the designated beneficiary.
Thus, when an express trust has been constituted over land
or any interest therein, especially those registered under the
Torrens system, but there has been no effective transfer of
naked or legal title to the properties constituting the corpus,
there is as yet no real express trust that has arisen. Lacking
the fourth requisite of delivery, the purported express trust
over immovables cannot even be said to be unenforceable,
for it is as yet non-existent.
It may further be argued that the foregoing discussions are
really for academic purposes, since even when the express
trust has not been legally constituted by non-transfer of
naked or legal title to the trustee, the intentions of the
parties may still be pursued to equitable ends under the
principles of implied trusts. Yet even for implied trust,
particularly resulting trusts as discussed in the next chapter,
no fiduciary relationship will arise in the person of the
trustee unless and until title to the property in dispute is
transferred in his name.
Perhaps, if Article 1443 is to have any legal significance at
all, its provisions must be understood to apply to an
agreement to create an express trust over an immovable or

30
any interest therein (which is the innominate contract do
ut facia referred to earlier ). In other words, an oral
agreement between the trustor and the trustee to constitute
a trust over an immovable or any interest therein which is
not followed-up with an actual conveyance of the covered
res is not enforceable by parol evidence.

5. Distinguishing Express Trusts from Other Similar

Arrangements
We can learn more of the essence and characteristics of
express trusts by comparing them with other similar
contracts.
a. Splitting of Full Dominion Into Naked or Legal Title
and Beneficial or Equitable Title
The state whereby there is a split of the full dominion of a
particular property between legal title in one person and
beneficial ownership in another, does not necessarily create
the trust relationship.
(1) Compared with Usufruct
For example a usufruct is a property arrangement recognized
under Articles 562 and 563 of the Civil Code, whereby a
usufructuary enjoys the property of another (the naked title
owner), and may be constituted on the whole or a part of the
fruits of the thing. Consequently, it is the usufructuary who
directly possess and enjoys the fruits and benefits of on the
subject property.
In fact under Articles 566 and 589 of the Civil Code, it is the
usufructuary who is obliged to preserve the form and
substance of the property held in usufruct, and to take care
of its with the diligence of a good father of a family for the
benefit of the naked title holder at the end of the usufruct. In
contrast, under a trust relationship, it is the trustee, the
naked title holder, who actively manages and administers
the trust property, and the beneficiary mainly is a passive
receiver of the fruits and benefits arising from the trust
property.

(2) Compared with Lease

Another example would be a lease agreement, whereby the
lessor retains not only naked title to the property leased and
many other beneficial titles, and what is contracted out to
the lessee is the narrow enjoyment of the possession and
use of the leased property, and only for a limited period
provided in the lease agreement. In contradistinction, in a
trust relationship, full beneficial ownership over the trust
property is for the account of the beneficiary, and really what

is assumed by the trustee is the obligation to manage the

trust property as the legal title holder for the benefit and
interest of the beneficiary. In addition, unlike in a lease
arrangement where the benefits enjoyed by lessee are only
for a limited contracted period, those of the beneficiary in a
trust arrangement are usually of a permanent nature.
(3) Compared with Sale
Express trusts therefore belong to those genre of contracts
which involve the disposition of title to property. However,
unlike a contract of sale which is defined under Article 1458
of the Civil Code as one whereby the seller obliges himself to
transfer ownership and deliver possession to the buyer, an
express trust is not perfected by mere consent, but requires
the actual delivery of the naked or legal title to the trustee
for the relationship to arise. Likewise, unlike sale where the
buyer takes full ownership of the subject matter for his sole
benefit, the trustee in an express trust only takes naked or
legal title and for the benefit of another person, the
beneficiary. Thus, a contract of sale is entered into for its
own end, the acquiring of title of the subject matter by the
buyer, an express trust is constituted merely as a
preparatory arrangement, a medium, by which the trustee is
expected to pursue other juridical acts for the benefit of the
beneficiary.
b. On Being Bound to Fiduciary Duties and Obligations
(1) Compared with Agency
The essence of what makes a party in a trust arrangement
the trustee is by reason of the fact that he receives naked
or legal title to the property to be held in trust; and the
reason why the office of the trustee is fiduciary in character
is because he holds title to the property for the benefit of
another person, the beneficiary. Thus, there is no trust
relationship merely because the trustor stipulates in a
contract that he reposes trust and confidence in the person
denominated as trustee; trust relationship is essentially
borne out of a property relationship whereby full dominion
over a property is split between naked title in the name of
the trustee where he would manage and administer the
property for the benefit of the another person in whom
beneficial ownership is given.
In the case of an agent, the fiduciary relationship is strictly
based on a personal level: that he has been commissioned
by the principal to represent him and his interest in dealings
with third parties. The agent is therefore bound by the duties
of obedience, diligence and loyalty by reason of his
contractual commitment to act for and represent the
principal and the latters interest with third parties; he does
not purport to act for himself or upon his own powers, but by
the principals authority, and therefore the agent does not
have any title to the property placed in his custody. An agent
therefore is bound to act in accordance with the instructions
of the principal, and in the name of the principal;
consequently, the agent is not a party to the contracts
entered into by him in the name of the principal, and has no
rights, or assumes no obligations, under such contracts.

On the other hand, the trustee is given naked title to the

property to be held in trust, and he transacts business with
third parties under the trust in his own behalf as a trustee
and legal title holder and not in the name of the beneficiary.
Although a trustee is bound by the duty of loyalty, i.e., he
must act for the best interest of the beneficiary, and that in a
conflict-of-interests situation, he must prefer the interest of
the beneficiary over that of his own estate; nonetheless, he
is not bound by any duty of obedience, for indeed he has
been given legal title to the trust property precisely because
he is expected to use his discretion and best judgment in
pursuing transactions under the trust arrangement. He is not
expected to be bound by the instructions of the beneficiary,
who often is an infant, or who has no legal capacity, like an
insane person. Since the trustee is obliged to manage the
trust property for the benefit of the beneficiary, he is bound
to exercise due diligence in his dealings in relation to the
trust.
While both trust and agency relationships are fiduciary in
nature, the agency relation is essentially revocable at the
will of the principal, being based primarily on willingness of
the principal to be represented by another person. On the
other hand, a trust being essentially based on a property
relationship, is not revocable at will; and although
revocation of trust is the term used, it is not at the will of
the trustor or the beneficiary, unless that is so stated in the
trust instrument, but can only be based on a breach of
trust, or only upon showing that the trustee has breached
his duty of loyalty or duty of diligence. In other words, a
trustee cannot generally be stripped of the legal title unless
it is shown that he is unfit for the position of trustee, or he
has breached his trust obligations. Thus, in De Leon v. MoloPeckson, 6 SCRA 798 (1962), the Court held that in the
absence of any reservation of the power to revoke, an
express trust (referred to as voluntary trust), is irrevocable
without the consent of the beneficiary.

6. Kinds of Express Trusts

It has been held that the development of trust as a method
of disposition of property is to a large part due to its freedom
from formal requirements. Lucenario, Domingo, Parol
Evidence of Express Trust, 109 SCRA 451, 453, citing 54 Am.
Jur. 50; also Julio v. Dalandan, 21 SCRA 543, 550 (1967).
Thus, Article 1444 of the Civil Code provides that No
particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended.
In the early case of Gamboa v. Gamboa, 52 Phil. 503 (1928),
the Supreme Court demonstrated how mere oral assertions
of trustee obligations against the registered owner of a
parcel of land was held unavailing, the Court holding a
person who has held legal title to land, coupled with
possession and beneficial use of the property for more than
ten years, will not be declared to have been holding such
title as trustee for himself and his brothers and sisters upon
doubtful oral proof tending to show a recognition by such
owner of the alleged rights of his brother and sisters to share

31
in the produce of the land. In other words, the best evidence
to show a trust relationship is written admission of the
purported trustee that he or she has agreed to hold title to
the property in question for the benefit of the claimants.
In Salao v. Salao, 70 SCRA 65 (1976), the Court held
mandatory the provisions of Article 1443, which requires that
an express trust involving immovable property must be
covered in a written instrument, thus
Not a scintilla of documentary evidence
was presented by the plaintiffs to prove
that there was an express trust over the
Calunuran fishpond in favor of Valentin
Salao.
Purely parol evidence was offered by
them to prove the alleged trust. Their
claim that in the oral partition in 1919 of
the two fishponds the Calunuran
fishpond was assigned to Valentin Salao
is legally untenable.
It is legally indefensible because the
terms of article 1443 of the Civil Code
(already in force when the action herein
was instituted) are peremptory and
unmistakable: parol evidence cannot be
used to prove an express trust
concerning realty. (at p. 81.)
Although Article 1444 provides that No particular words are
required for the creation of an express trust, it still requires
that the circumstances indicate that a trust is clearly
intended. When it comes to immovable property, that a
trust is clearly intended takes only one form: a written
instrument as mandated under Article 1443. In the absence
of such written instrument then public policy expressed
under Article 1443 is that no such intent to create a trust
exists, and consequently, there are not trust obligations on
the part of the purported trustee.
When it comes to other forms of trust properties, the
element of intention to create trust must still come into
play, which is any evidence tending to show that the trustor
had transferred title to the trust property with intention to
have them managed for the benefit of the beneficiary,
coupled with an intention on the part of the trutee to have
accepted title to the trust property with the obligation to
manage them for the benefit of the beneficiary. An express
trust is never presumed to exist merely on the basis that title
to property has been transferred to another person; in the
absence of written evidence, the intention to create a trust
must be proved by clear and convincing evidence. Thus, De
Leon v. Molo-Peckson, 6 SCRA 978 (1962), held
True, it is that to establish a trust the
proof must be clear, satisfactory and

convincing. It cannot rest on vague,

uncertain evidence, or on a loose,
equivocal or indefinite declaration . . .
but here the document in question
clearly and unequivocally declares the
existence of the trust even if the same
was executed subsequent to the death
of the trustor, Juana Juan, for it has been
held that the right creating or declaring
a trust need not be contemporaneous or
inter-parties . . It was even held that an
express trust may be declared by a
writing made after the legal estate has
been vested in the trustee. . . (at
p. 984.)
In De Leon, the instrument showed that the appellants
agreed to sell to the appellee the lots at a nominal price of
P1.00 per lot, which to the Court represented a recognition of
a pre-existing trust or a declaration of an express trust,
based on the provision in the donors will to the effect that
the titles to the land should be conveyed to appellants with
the duty to hold them in trust for the appellee.
But in Salao, after it was held that no express trust could
have been constituted over immovables without a written
trust, the Court went on to determine whether a trust over
immovable property, which cannot be enforced in the
absence of written evidence thereof, can still be pursued
under the provisions of implied trust: Is plaintiffs massive
oral evidence sufficient to prove an implied trust, resulting or
constructive, regarding the two fishponds? (at p. 81; italic
format supplied). The matter will be covered under the
chapter on implied trusts.

a. Contractual Trusts
The manner of splitting the legal title and beneficial
ownership over the property (i.e., the corpus) to be held in
trust may be done in several ways. For example, the
situation covered under Article 1440 would involve a
situation where the full owner of a property, defined as the
trustor, conveys the naked title to one person, say a banking
institution, as trustee, under the terms of the trust
agreement for the benefit of another person called the
beneficiary, say the retarded child of the trustor. In this case,
you would have three parties to the trust arrangement.
Another mode would be for the trustor to convey the naked
title of the trust property to a trustee, say a banking
institution, with trustor himself to become the beneficiary of
the trust. In this case you would only have two parties to the
trust agreement, the trustor-beneficiary and the trustee.
A third mode would be for the trustor to convey the title to
the property to himself merely as trustee for the benefit of a

beneficiary, such as when a father donates a property to his

son by constituting himself as the trustee during the infancy
of the son. In this case, there are essentially only two
parties, the trustor-turned-trustee and the beneficiary. Such
an arrangement essentially covers a gift by the trustor to the
beneficiary.
What is clear from the foregoing illustrations is that express
trust relationship is the product of contractual intentions.
Express trusts therefore are the creature of what we term in
Contract Law as the freedom to contract or the doctrine of
autonomy, and the right of every owner to deal with
proprietary arrangements over property owned by him in a
manner that serves his purpose, provided it is not contrary
to laws, moral or public policy.
In order to complete the definition of terms, it should be
noted that the properties that are covered by the trust
relationship are referred to collectively as the corpus, and
should be distinguished from the fruits, earning and interests
that are earned from the trustees management of the
corpus.
b. Inter Vivos Trusts
As discussed previously, inter vivos trusts are expressed
trust pursued in the form of donations, and which therefore
become solemn contracts which must comply with the
solemnities mandated by the Law on Donations.
A good example of an express trust created through a
donation is found in the decision in De Leon v. Molo-Peckson,
6 SCRA 978 (1962), where the husband, Mariano Molo y
Legaspi died leaving a will wherein he bequeathed his entire
estate to his wife, Juana Juan, who in turn executed a will
naming therein many devisees and legatees, including
Guillermo San Rafael. Subsequently, Juana Juan executed a
donation inter vivos in favor of her two daughters for almost
the entire property, which included the ten parcels of land
located in Pasay City and subject of the suit. Six months after
the mother died, the donees-daughters executed a Mutual
Agreement whereby the bound themselves to sell for P1.00
each the ten lots to the issues of Guillermo San Rafael under
the express purpose That this agreement is made in
conformity with the verbal wish of the late Don Mariano Molo
y Legaspi and the later Doa Juana Francisco Juan y Molo.
These obligations were repeatedly told to [the doneesdaughters] before their death and that the same should be
fulfilled after their death.
Although the donees-daughter subsequently tried to revoke
the Mutual Agreement, the Court held that an express trust
had been duly constituted, since the instrument, wherein
the appellants [donees-daughters] agreed to sell to the
appellee the lots at a nominal price of P1.00 pler lot,
represents a recognition of a pre-existing trust or a
declaration of an express trust, based on the provision in the
donors will to the effect that the titles to the land should be
conveyed to appellants with the duty to hold them in trust
for the appellee. (at p. 984.)

32
c. Testamentary Trust
When an express trust is created under the terms of the last
will and testament of the testator, it is a testmentary trust
and is governed by the Law on Succession. Unless the will
conforms with the solemnities and conditions set by law, it
will be void together with the testmentary trust sought to be
created therein.
Palad v. Province of Quezon, 46 SCRA 354 (1972), shows
where an express trust was embodied in a holographic will
containing testamentary dispositions, through which the
testator created a trust for the establishment and
maintenance of a high school to be financed with tie income
of certain specified properties for the benefit of the
inhabitants of a town, naming as trustee whomsoever may
be the governor of the province.
In Perez v. Araneta, 4 SCRA 430 (1962), the Court held that
the provisions of the will of the decedent explicitly
authorizing the trustee constituted therein to sell the
property held in trust and to acquired, with the proceeds of
the sale, other properties, leaves no room for doubt about
the intent of the testatrix to keep, as part of the trust estate,
said proceeds of sale, and not turn the same over to the
beneficiary as net rental or income.
In De Leon v. Molo-Pecson, 6 SCRA 798 (1962), the Court
held that the execution by the appellants of the agreement
to sell the parcels of land at a nominal price of P1.00 per lot,
represent a recognition of a pre-existing trust or a
declaration of an express trust, based on the provisions in
the donors will to the effect that the titles to the parcels of
land covered should be conveyed to appellants with the duty
to hold them in trust for the appellee.
d. Eleemosynary or Charitable Trusts
A description of a charitable trusts is found in Lopez v. Court
of Appeals, 574 SCRA 26 (2008), where in the notarial will,
the testator expressed that she wished to constitute a trust
fund for her paraphernal properties, denominated as
Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to be
administered by her husband. . . Two-thirds (2/3) of the
income from rentals over theses properties were to answer
for the education of deserving but needy honor students,
while one-third (1/3) was to shoulder the expenses and fees
of the administrator.
However, the properties designated for the Fideicomiso were
excluded and instead adjudicated to the husband (Jose) as
sole heir. Consequently, the Court ruled that On the premise
that the disputed properties ere the paraphernal properties
of Juliana which should have been included in the
Fideiocomiso, their registration in the name of Jose would be
erroneous and Joses possession wuld be that of a trustee in
an implied trust . . . [which from] the factual milieu of this
case is provided in Article 1456 of the Civil Code. (at p. 36.)

e. Publicly-Regulated Trusts

a. The Trustor

Publicly-regulated trusts would be those where the State

provides the vehicle by which institutions are allowed to
administer large funds for the benefit of the public. Among
such funds created under the law would be the pension and
benefits funds administered by the GSIS, the SSS and the
Pag-Ibig Fund. Tax laws provide for incentives to the settingup of retirement funds for employees. All such funds are
really being administered for the beneficiaries thereof
through the medium of trust.

(1) Trustor as the Creator of the Trust

A good example of a retirement trust is that discussed in

Development Bank of the Philippines v. Commission on
Audit, 422 SCRA 459 (2004), which the Court described as
follows:
In the present case, the DBP Board of
Governors (now Board of Directors)
Resolution No. 794 and the agreement
executed by former DBP Chairman
Rafael Sison and the trustees of the Plan
created an express trust, specifically, an
employees trust. An employees trust is
a trust maintained by an employer to
provide retirement, prson or other
benefits to its employees. It is a
separate taxable entity established for
the exclsuivse benefit of the employees.
Resolution No. 794 shows that DBP
intended to establish a trust fund to
cover the retirement benefits of certain
employees under Republic Act No. 1616
(RA 1616). The principal and income of
the Fund would be separate and distinct
from the funds of DBP. . . (at p. 473.)
Although the Supreme Court held that the principal and
income of the fund no longer pertained in ownership to DBP,
since naked title has been devolved to the trustees of the
Fund, and that beneficial interest was with the qualified
officers and employees of DBP, nonetheless it found that
DBP, as trustor, has legal standing to sue on matters relating
to the Fund, thus:
As a party to the Agreement and a
trustor of the Fund, DBP has a material
interest in the implementation of the
Agreement, and in the operation of the
Gratuity Plan and the Fund as prescribed
in the Agreement. The DBP also
possesses a real interest in upholding
the legitimacy of the policies and
programs approved by its Board of
Directors for the benefit of DBP
employees. . . (at p. 472.)
7. Capacities, Rights, Duties and Obligations of the
Parties to the Express Trust

Under Article 1440, the trustor is defined as the person

who establishes a trust; and under Article 1441, an express
trust may be created by the intention of the trustor. The
trustor therefore, disposes of his full ownership of the
designated trust properties in favor of the trustee who
assumes legal title thereto, and the beneficiary, to whom
beneficial or equitable title shall pertain.
It is possible that under an express trust, the trustor
transfers naked or legal title to properties to the trustee, but
with the trustor designated as the beneficiary.

(2) Trustor Must Have Legal Capacity to Convey Trust

Property

33
(1) Trustee Is the Party Primarily Bound
Under Article 1440, the trustee is the person in the trust
relation in whom confidence is reposed as regards property
for the benefit of another person. It is the trustee therefore
who is the party primarily bound under the trust relation,
and being possessed of the legal title to the trust property
held for the benefit of another person, he is bound by the
fiduciary duties of diligence and loyalty.
(2) Trustee Must Have Legal Capacity to Accept the
Trust
It is to the trustee that naked or legal title to the trust
properties is transferred. Consequently, the trustee must
also have legal capacity to accept the trust, especially when
upon acceptance of the trust, he binds himself to certain
obligations.
(3) When Trustee Declines the Designation

Gayondato v. Treasurer of the P.I., 49 Phil. 244 (1926),

distinguishes an express trust from an implied trust in the
sense that in an express trust, the trustor must have legal
capacity to create the trust, which effectively requires the
ability to convey naked or legal title in the trust property to
the trustee to be held by the latter for the benefit of the
beneficiary. The Court held
Bouvier defines a trust in its technical
sense as a right of property, real or
personal, held by one party for the
benefit of another. In the present case
we have this situation: The plaintiff was
a minor at the time of the registration of
the land and had no legal guardian. It is
true that her mother in whose name the
land was registered was the natural
guardian of her person, but that
guardianship did not extend to the
property of the minor and conferred no
right to the administration of the
same . . . and the plaintiff, being a minor
and under disability, could not create a
technical trust of any kind. Applying
Bouviers definition to this state of facts,
it is clear that there was no trust in its
technical signification. The mother had
no right of property or administration in
her daughters estate and was nothing
but a mere trespasser. . . . (at p. 250)
In effect, capacity of the parties is not essential in implied
trusts, because the arrangement is imposed by operation of
law; whereas, in an express trust, capacity to transfer title on
the trust properties, in order to have legal title held by the
trustee, is critical.
b. The Trustee

Article 1445 of the Civil Code provides that No trust shall

fail because the trustee appointed declines the designation,
unless the contrary should appear in the instrument
constituting the trust. On this matter, Tolentino wrote
Want of Trustee. The principle that equity will not allow
a trust to fail for want of a trustee is clearly established.
Where a trust has once been created and the trustee dies,
becomes insane or subject to some other legal incapacity, or
resigns or is removed, the trust does not fail, but a new
trustee will be appointed. Such an appointment will be made
by the proper court unless by the terms of the trust other
provision is made for the appointment of a successor
trustee. The reason why a trust does not fail for want of a
trustee is that to permit it to fail for this reason would be
contrary to the intention of the trustor in creating the trust.
The trustor is primarily interested in the disposition of the
beneficial interest in the property, and the matter of its
administration is a subsidiary consideration.
x x x.
There are cases, however, in which it may appear that the
trustor intended the trust to continue only so long as the
person designated by him as trustee should continue as
such. It may be so provided by the terms of the trust, or it
may appear that the purposes of the trust cannot be carried
out unless the person named as trustee continues to act. In
such a case, the trust will fail, if the trustee resigns, dies, is
removed, or otherwise ceased to be a trustee. (Tolentino,
Civil Code of the Philippines, Vol. IV, at pp. 676-677 [1991
ed.].)
Want of Trustee.
The principle that equity
will not allow a trust to fail

for want of a trustee is

clearly established. Where
a trust has once been
created and the trustee
dies, becomes insane or
subject to some other legal
incapacity, or resigns or is
removed, the trust does
not fail, but a new trustee
will be appointed. Such an
appointment will be made
by the proper court unless
by the terms of the trust
other provision is made for
the appointment of a
successor
trustee.
The
reason why a trust does
not fail for want of a
trustee is that to permit it
to fail for this reason would
be
contrary
to
the
intention of the trustor in
creating the trust. The
trustor
is
primarily
interested
in
the
disposition
of
the
beneficial interest in the
property, and the matter
of its administration is a
subsidiary consideration.
The principle that the law will not allow a trust to fail due
non-acceptance, resignation, incapacity or death of the
designated trustee in recognized under our Rules of Court
which provide for the duties of the trustee and the manner of
appointment or replacement, as discussed hereunder.
(4) Obligations of the Trustee
(i) Contractually Stated Duties and Obligations of the
Trustee
An express trust constituted under a trust agreement
normally provides for the powers and functions of the
trustee, and would enumerate such powers which under the
law need to be covered by a special power of attorney to
remove any doubt as to the duties of the trustee, and
provide for the parameters of his obligations as well.
(ii) Common Law Duties of the Trustee
The position of trustee being fiduciary in nature, a trustee is
expected to carry out the trust using the diligence of a good
father of a family. The trustee becomes personally liable for
gross negligence committed even when it is in the pursuit of
the trust arrangement; for negligence which causes damage
to another person constitutes a wrong committed by the
tortfeasor for which he can be held personally liable. Every
trustee has the common law duty of diligence.
In addition, the trustee is expected to be loyal to the affairs

and interest of the beneficiary. He cannot appropriate for

himself any opportunity which in the course of his functions
as trustee should pertain to the beneficiary. He has the duty
to account t the beneficiary for the affairs of the trust. And
he cannot convert the use of the trust properties, and the
incomes, fruits and proceeds for his own benefit. Every
trustee has the common law duty of loyalty.
Perez v. Araneta, 4 SCRA 434 (1962), held that although the
beneficiaries may be entitled to receive the income flowing
from the trust estate, the profits realized in the sale of trust
properties are part of the capital held in trust, to which the
beneficiaries are entitled to receive as income.
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), held that the
other duties of the trustee, which flow out of the main duty
of loyalty, would be the duty to account to the beneficiary of
the trust estate. It would be the duty of the trustee also to
deliver the property in trust to the cestui que trust , when it
is time to so do it, free all liens and encumbrances.
Under Article 1455, when the trustee uses trust funds for the
purchase of property and causes the conveyance to be made
in his name or a third person, a trust is established in favor
of the beneficiary.
A violation of the duties of the trustee may constitute a
breach of trust that would be the legal basis by which the
trustee may be removed, or the trust revoked entirely.
(iii) Trustee
Property

is

Prohibited

from

Donating

Trust

Under Article 736 of the Civil Code, trustees cannot donate

the property entrusted to them. Such prohibition is in
accordance with the fiduciary duty of loyalty of a trustee,
that the holds the trust property for the benefit of the
beneficiary. He therefore cannot exercise acts of beneficence
employing the property that he holds for the benefit of
another person. (see Araneta v. Perez, 5 SCRA 338 [1962].)
(iv) Trustee Cannot Use Funds of the Trust to Acquire
Property for Himself
Under Article 1455 of the Civil Code (on implied trusts),
When any trustee . . . uses trust funds for the purchase of
property and causes the conveyance to be made to him or to
a third person, a trust is established by operation of law in
favor of the person to whom the funds belong. Article 1455
actually establishes the parameters of the duty of loyalty
that every trustee owes to the beneficiarythat the trustee
is obliged to use the funds of the trust estate for the sole
benefit of the beneficiary.
Every trustee in express trust, being the naked title holder,
of course has the power to use funds of the trust estate to
acquire properties to be placed in his name, but that would
have to be officially as trustee. Article 1455 applies in a
situation where the property is placed in the name of the

34
trustee without indicating that he holds it as trustee. That
would then later authorize him to claim the property as his
own, in breach of his duties of loyalty.
(v) Duties and Responsibilities of the Trustees under
the Rules of Court
Rule 98 of the Rules of Court grants the court authority to
appoint a trustee when necessary to carry into effect the
provisions of a will or a written instrument. (Section 1), and
that title to the trust estate will vest in the trustee thus
appointed by the courts (Section 2).
In particular, Section 3 of Rule 98, provides that
When a trustee under a written
instrument declines, resigns, dies, or is
removed before the objects of the trust
are accomplished, and no adequate
provision is made in such instrument for
supplying the vacancy, the proper
[Regional Trial Court] may, after due
notice to all persons interested, appoint
a new trustee to act alone or jointly with
the others, as the case may be. Such
new trustee shall have and exercise the
same powers, rights, and duties as if he
had been originally appointed, and the
trust estate shall vest in him in like
manner as it had vested or would have
vested, in the trustee in whose place he
is substituted; and the court may order
such conveyance to be made by the
former trustee or his representatives, or
by the other remaining trustees, as may
be necessary or proper to vest the trust
estate in the new trustee, either alone
or jointly with others.
The provisions of Rule 38 of the Rules of Court are meant to
implement the rule in this jurisdiction that the nonacceptance, death, civil interdiction, insanity, insolvency, or
even the resignation of a designated trustee, shall not of
itself prevent a trust from coming into fruition or extinguish
one that has been already constituted. The doctrine flows
from the equity nature of the trust as a legal institution in
the Philippines.
An example of the application of this principle is in the
decision in Lorenzo v. Pasadas, 64 Phil. 353 (1937), where
the will of the decedent never used the term trust, but
nevertheless the intention to create one was deemed implicit
to the Court, thus
The appointment of P.J.M. Moore as
trustee was made by the trial court in
conformity with the wishes of the
testator as expressed in his will. It is

true that the word trust is not

mentioned or used in the will but the
intention to create one is clear. No
particular or technical words are
required to create a testamentary trust
(69 C.J., p. 711). The words trust and
trustee, though apt for the purpose,
are not necessary. In fact, the use of
these two words is not conclusive on the
question that a trust is created (69 C.J.,
p. 714). To create a trust by will the
testator must indicate in the will his
intention so to do by using language
sufficient to separate the legal from the
equitable estate, and with sufficient
certainty designate the beneficiaries,
their interest in the trust, the purpose or
object of the trust, and the property or
subject
matter
thereof.
Stated
otherwise,
to
constitute
a
valid
testamentary trust there must be
concurrence of three circumstances: (1)
Sufficient words to raise a trust; (2) a
definite subject; (3) a certain or
ascertained object; statutes in some
jurisdictions expressly or in effect so
providing. (69 C. J., pp. 705, 705.) There
is no doubt that the testator intended to
create a trust. He ordered in his will that
certain of this properties be kept
together undisposed during a fixed
period, for a stated purpose. The
probate court certainly exercised sound
judgment in appointing a trustee to
carry into effect the provisions of the
will. (see sec. 582, Code of Civil
Procedure). (at pp. 368-369).
Following up on this principle, the Supreme Court held in
Julio v. Dalandan, 21 SCRA 543 (1967), that
For, technical or particular forms of
words or phrases are not essential to the
manifestation of intention to create a
trust or to the establishment thereof.
Nor would the use of some such words
as trust or trustee essential to the
constitution of a trust as we have held in
Lorenzo v. Posadas, 64 Phil. 453, 368.
Conversely, the mere fact that the word
trust or trustee was employed would
not necessarily prove an intention to
create a trust. What is important is
whether the trustor manifested an
intention to create the kind of
relationship which in law is known as a
trust. Is it important that the trustor
should know that the relationship which
intents to create is called a trust, and
whether or not he knows the precise
characteristics of the relationship which
is called a trust. Here, that trust is

effective as against defendants and in

favor of the beneficiary thereof, plaintiff
Victoria Julio, who accepted it in the
document itself. (at pp. 550-551)
Under Sections 5 and 6 of Rule 98, the following are the
duties and responsibilities of the trustee appointed by the
courts:
(a) Before entering on the duties of his
trust, a trustee shall file a bond with the
court conditioned upon compliance with
his duties;
(b) To make and return to the court, at
such time as it may order, a true
inventory of all the real and personal
estate belonging to him as trustee,
which at the time of the making of such
inventory shall have come to his
possession or knowledge;
(c) To manage and dispose of all such
estate, and faithfully discharge his trust
in relation thereto, according to law and
the will of the testator or the provisions
of the instrument or order under which
he is appointed;
(d) To render upon oath at least once a
year until his trust is fulfilled, unless he
is excused therefrom in any year by the
court, a true account of the property in
his hands and of the management and
disposition thereof, and will render such
other account as the court may order;
and
(e) Upon the expiration of his trust, he
will settle his accounts in court and pay
over and deliver all the estate remaining
in his hands, or due from him on such
settlement, to the person or persons
entitled thereto.
(vi) Proper Proceedings for Sale or Encumbrance of
Trust Estate
Under Section 9 of Rule 98 of the Rules of Court, when the
sale or encumbrance of any real or personal estate held in
trust is necessary or expedient, the Regional Trial Court (RTC)
having proper jurisdiction of the trust may, on petition and
after due notice and hearing, order such sale or
encumbrance to be made, and the reinvestment and
application of the proceeds thereof in such manner as will
best effect the objects of the trust.
(vii) Trustee Does Not Assume Generally Personal
Liability on the Trust

35
Although a trustee enters upon the fulfillment of his duties
by his own name, and not in the name of the trustor or the
beneficiary, nonetheless, it should be understood that the
performance of the functions of the trustee and the contracts
entered into in pursuit of the trust, as performed under
official capacity as a trustee. Consequently, the liabilities
assumed by the trustee is such capacity can only be
enforced to the extent of the trust properties. In other words,
the trustee, unless he so stipulates, does not become
personally liable to his separate properties outside of the
trust properties, for contracts and transactions arising from
the trust and entered into in his official capacity as trustee.
Thus, in Tan Senguan and Co. v. Phil. Trust Co., 58 Phil. 700
(1933), where the properties for which the trust company
had entered into transaction were received not in a trustee
capacity, the Court held that the trustee would be liable for
such transactions in its personal capacity, and not as a
trustee.
A trustee who acts within the scope of the trust therefore,
has a right to charge to the trust estate the expenses
incurred by reason thereof.
On the other hand, a trustee is expected to exercise due
diligence in the pursuit of the trust, and when he acts with
fraud or gross negligence, he becomes personally liable for
his own separate properties, as to all persons who suffer
damage by reason of such fraud or negligence.
(viii) Trustee is Entitled to
Management of the Trust Estate

Compensation

for

In Lorenzo v. Pasadas, 64 Phil. 353 (1937), the Court held

that as a matter of general proposition, A trustee, no doubt,
is entitled to receive a fair compensation for his services.
(at p. 365, citing Barney v. Saunders, 16 How., 535, 14 Law.
Ed., 1047.)
Under Section 7 of Rule 98 of the Rules of Court, if the
compensation of the trustee is not determined in the
instrument creating the trust, his compensation shall be
fixed by the court that appointed him.
In Araneta v. Perez, 7 SCRA 258 (1962), the Court held that
the reasonableness of fees of a trustees should be
determined in advance, but must be determined at the time
he files a claim for the same, since reasonableness depends
upon variable circumstances, such as the character and
powers of the trusteeship, the risk and responsibility
assumed, the time and labor and skill required in the
administration of the trust, as well as the care and
management of the estate. The Court also held that the
trustee may be indemnified out of the trust estate for the
expenses incurred in rendering and proving his accounts and
for the costs and counsels fees in connection therewith.
(ix) Removal or Resignation of Trustee

Under Section 8 of Rule 98 of the Rules of Court, the proper

RTC may, upon petition of the parties beneficially interested
and after due notice to the trustee and hearing, remove a
trustee if such removal appears essential in the interests of
the petitioners. The RTC may also, after due notice to all
persons interested, remove a trustee who is insane or
otherwise incapable of discharging his trust or evidently
unsuitable therefore.
The section also recognizes that a trustee, whether
appointed by the court or under a written instrument, may
resign his trust if it appears to the court that is it proper to
allow such resignation.
c. The Beneficiary
(1) Beneficiary Is the Passive Recipient of Benefits
Flowing from the Trust
Under Article 1440 of the Civil Code, the beneficiary is the
person for whose benefit the trust has been created. As a
general rule, the designation of the beneficiary, is a
gratuitous act, essentially an act of donation by which
beneficial or equitable title to the trust property is given to
the beneficiary. However, when the trustor creates the trust
by designating a trustee to hold the trust properties for the
benefit of the trustor, there is no act of beneficence in this
case, but constitutes more as a sense of estate planning.
Under Article 1446 of the Civil Code, acceptance by the
beneficiary of the express trust is necessary. Nevertheless, if
the trust imposes no onerous condition upon the beneficiary,
his acceptance shall be presumed, if there is no proof to the
contrary. The situation does not cover the case when the
trustor designates himself as the beneficiary.
Article 725 of the Civil Code defines donation as an act of
liberality whereby a person disposes gratuitously of a thing
or right in favor of another, who accepts it. Since a person
cannot be compelled to accept the generosity of another, it
is provided under Article 1446 that [a]cceptance by the
beneficiary is necessary. Although the Law on Donations
provides for solemnities for the act of donation and its
acceptance, it has been held in Cristobal v. Gomez, 50 Phil.
810 (1927), that the acceptance by the beneficiary of
gratuitous express trust is not subject to the rules for the
formalities of donations.
Parenthetically, under Article 748, it is provided that the
donation of a movable may be made orally or in writing. An
oral donation requires the simultaneous delivery of the thing
or the document representing the right donated. If the value
of he personal property donated exceeds five thousand
pesos, the donation and the acceptance shall be made in
writing. Otherwise, the donation shall be void.
Under Article 749 of the Civil Code, in order that the
donation of an immovable may be valid, it must e made in a
public document, specifying therein the property donated
and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation

or in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor. If the
acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, and this step
shall be noted in both instruments.
De Leon v. Molo-Peckson, 6 SCRA 978 (1962), relying upon
American jurisprudence, held that The fact that the
beneficiaries [to a donation inter vivos] were not notified of
the existence of the trust or that the latter have not been
given an opportunity to accept it is of no importance, for it is
not essential to the existence of a valid trust and to the right
of the beneficiaries to enforce the same that they had
knowledge thereof at the time of its creation (Soehr v. Miller,
296 F. 414). Neither is it necessary that the beneficiary
should consent to the creation of the trust (WockwireSpencer Steel Corporation v. United Springs Mfg. Co., 142
N.E. 758, 247 Mass. 565). In fact it has been held that in
case of a voluntary trust the assent of the beneficiary is not
necessary to render it valid because as a general rule
acceptance by the beneficiary is presumed (Article 1446,
new Civil Code; Cristobal v. Gomez, 50 Phil. 810). (at p. 985)
(2) Beneficiary Need Not Have Legal Capacity
It is posited that the beneficiary of an express trust need not
have legal capacity to be constituted as such in a trust
agreement, especially so when the designation is an act of
pure liberality.
Under Article 738 of the Civil Code, All those who are not
specially disqualified by law therefore may accept
donations, which means that all persons regardless of legal
capacity, may be donees except only in those specific cases
where the donation to them cannot be made. Article 741
provides that minors and others who cannot enter into a
contract may become donees but acceptance shall be done
through their parents or legal representatives. Under Article
742, donations may even be made to conceived and unborn
children and may be accepted by those persons who would
legally represent them if they were already born.
In the case of express trust, Article 1446 of the Civil Code
provides that if the trust imposes no onerous condition upon
the beneficiary, his acceptance shall be presumed, if there is
no proof to the contrary.
The provisions do not cover also charitable trusts, or those
constituted upon a trustee who holds legal title to the trust
properties for the benefit of a general group of beneficiaries.

8. How Express Trust Extinguished or Terminated

Like any other legal relationship, express trust relationships
may be terminated by reason provided for in the trust
instrument itself, or upon grounds provided for by law or

36
equity.
a. Destruction of the Corpus
When the entire trust estate is loss or destroyed, the trust is
extinguished since the underlying proprietary basis no longer
exists to warrant any legal relationship between the trustee
and the beneficiary.
b. Revocation by the Trustor
In a revocable express trust, the trustee may simply invoke
the revocation or termination clause found in the deed of
trust thereby revoking the trust and conveying notice thereof
to the trustee. Unless there is reserved power to revoke, the
general rule is that an express trust is irrevocable.
In De Leon v. Molo-Peckson, 6 SCRA 978 (1962), the doneedaughters had tried to revoke the Mutual Agreement they
previously executed confirming the desires of the mother
who donated to them that the ten parcels of land donated
would be sold at nominal price to a designated cetui que
trust. The Court held that although It is true, as appellants
contend, that the alleged declaration of trust was revoked,
and having been revoked it cannot be accepted, but the
attemted revocation did not have any legal effect. The rule is
that in the absence of any reservation of the power to revoke
a voluntary trust is irrevocable without the consent of the
beneficiary . . . It cannot be revoked by the creator alone,
nor by the trustee. (at p. 985, citing Allen v. Safe Depolsit
and Trust Co., of Balitmore, 7 A.2d 180, 177 Md. 26; Fricke v.
Weber, C.A.A. Ohio, 145 F.2d 737; Hughes v. C.I.R., C.C.A. 9,
104 F.2d 144; Ewing v. Shannahan, 20 S.W. 1065, 113 Mo.
188; italics supplied)
c. Achievement of Objective, or Happening of the
Condition Provided for in the Trust Instrument
When the trust instrument provides the objective or the
condition upon which the trust shall be extinguished, say
when the trust instrument provides that full ownership in the
trust properties shall be consolidated in the person of the
beneficiary once he reaches the age of majority, the
happening of the condition shall terminate the trust.
d. Death or Legal Incapacity of the Trustee
Unless otherwise expressly stipulated in the trust instrument,
the death, civil interdiction, insanity or insolvency of the
trustee does not necessarily terminate the trust. Thus,
Tolentino writes:
The principle that equity will no allow a
trust to fail for want of a trustee is
clearly established. Where a trust has
once been created and the trustee dies,
becomes insane or subject to some

other legal incapacity, or resigns or is

removed, the trust does not fail, but a
new trustee will be appointed. Such an
appointment will be made by the
property court unless by the terms of
the trust other provision is made for the
appointment of a successor trustee. The
reason why a trust does not fail for want
of a trustee is that to permit it to fail for
this reason would be contrary to the
intention of the trustor in creating the
trust. The trustor is primarily interested
in the disposition of the beneficial
interest in the property, and the matter
of its administration is a subsidiary
consideration. (Tolentino, at p. 676.)
In Canezo v. Rojas, 538 SCRA 242 (2007), where the
daughter alleged that he had entrusted possession and title
to the property to her father Crispulo when she left Mindanao
based on either an express trust or a resulting trust, the
Supreme Court laid down the following legal effect on the
death of the trustee:
Assuming that such a relation existed, it
terminated upon Crispulos death in
1978. A trust terminates upon the death
of the trustee where the trust is
personal to the trustee in the sense that
the trustor intended no other person to
administer it. If Crispulo was indeed
appointed as trustee of the property, it
cannot be said that such appointment
was intedned to be conveyed to the
respondents or any of Cripulos other
heirs. Hence, after Crispulos death, the
respondent had no right to retain
possession of the property. At such
point, a constructive trust would be
created over the property by operation
of law. Where one mistakenly retains
property which rightfully belongs to
another, a constructive trust is the
proper remedial device to correct the
situation. (at p. 257.
e. Confusion or Merger of Legal Title and Beneficial
Title in the Same Person
When the trustee of an existing trust becomes the
beneficiary thereof, or vice versa, the trust relation is ipso
jure extinguished, for it is difficult to see how a person can
owe fiduciary duties to himself.
f. Breach of Trust
When a trustee breaches his duty of loyalty, it would
constitute legal basis by which to terminate the trust.
Thus, in Martinez v. Grao, 42 Phil. 35 (1921), the Court held

that when a person administering the property in the

character of a trustee inconsistently assumes to be holding it
in his own right, this operates as a renunciation of the trust
and the persons interested as beneficiaries in the property
are entitled to maintain an action to declare their right and
remove the unfaithful trustee.

III. IMPLIED TRUSTS

1. Nature and Types of Implied Trusts
Art. 1441. Trusts are either
express or implied. Express trusts
are created by the intention of the
trustor or of the parties. Implied
trusts come into being by operation
of law.
Art. 1442. The principles of
the general law of trusts, insofar as
they are not in conflict with this
[Civil] Code, the Code of Commerce,
the Rules of Court and special laws
are hereby adopted.
Art. 1445. The enumeration
of the following cases of implied
trust does not exclude others
established by the general law of
trust, but the limitation laid down
in Article 1442 shall be applicable.
According to the Report of the Code Commission, the
underlying doctrine of implied trusts is founded on equity,
derived from American decisions under a legal system where
injustice would result in which the legal estate or title were
to prevail over the equitable right of the beneficiary. (Report
of the Code Commission, p. 60)
Under Article 1441 of the New Civil Code, as distinguished
from express trust which are created by the intention of the
trustor or of the parties, implied trusts come into being by
operation of law. This may imply that implied trusts are
essentially creatures of the law, and do not arise from the
intentions of the parties bound by the trust relationship.
Although such an implication may be true of constructive
trusts, it does not accurately apply to resulting trusts, as
explained hereunder.
a. Two Types of Implied Trusts: Resulting Trusts and
Constructive Trusts
In Ramos v. Ramos, 61 SCRA 284 (1974), the Supreme Court
defined and characterized implied trusts as those which,
without being expressed, are deducible from the nature of
the transactions as matters of intent, or which are
superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention
of the parties (89 C.J.S. 724). (at p. 298; italics supplied)

37
Ramos distinguishing principles were reiterated in Salao v.
Salao, 70 SCRA 65, 80 (1976).
Morales v. Court of Appeals, 274 SCRA 282 (1997) defined
implied trusts as those that come into being by operation
of law, either through implication of an intention to create a
trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. (at
p. 298)
Therefore, implied trust which are deductible from the
nature of the transactions as matters of intent, are referred
to as resulting trusts; and those which are superinduced by
operation of law as matters of equity are constructive
trusts.
Morales gave the rationale for resulting trusts as
being based on the equitable doctrine that valuable
consideration and not legal title determines the equitable
title or interest and are presumed to always to have been
contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal
title but is obligation in equity to hold his legal title for the
benefit of another. (at p. 298)
On the other hand, Morales defines constructive trusts as
those which are created by the construction of equity in
order to satisfy the demands of justice and prevent unjust
enrichment. They arise contrary to intention against one
who, by fraud, duress or abuse of confience, obtains or holds
the legal right to property which he ought not, in equity and
good conscience, to hold. (at p. 298, citing Huang v. Court
of Appeals, 236 SCRA 420 [1994]; Vda. De Esconde v. Court
of Appeals, 253 SCRA 66 [1996]. Reiterated in Caezo v.
Rojas, 538 SCRA 242 [2007]; Pealber v. Ramos, 577
SCRA 509 [2009]).
In Philippine National Bank v. Court of Appeals, 217 SCRA
347 (1993), the Court held that the framers of our present
Civil Code incorporated implied trusts, which includes
constructive trusts, on top of quasi-contracts, both of which
embody the principle of equity above strict legalism. (at p.
356, italics supplied)
b. Two Types of Implied Trusts Distinguished from
Express Trusts
Unlike an express trust, which essentially proceeds from a
clear or direct contractual intention to dispose of trust
property to a trustee for the benefit of the beneficiary, in a
resulting trust, no such intention is apparent, but merely
presumed by law from the nature of the transaction. In
essence, express trusts are creatures of the parties express
intent usually manifested by devolving naked or legal title to
the trustee of the res, whereas resulting trusts are implied by
law from the implied intentions of the parties as derived from
the nature of their transactions.

When it comes to constructive trusts, no such intention at all

is drawn from the nature of the transaction, and the purpose
of the law in imbuing the relationship with trust
characteristics is to achieve equity demanded by the
situation. In fact, Ramos holds that constructive trust may
be constituted by force of law independently of the
particular intentions of the parties.
Express trusts over immovables can be proved by parol
evidence, in both types of implied trusts, they may be
proved and enforced by parol evidence.
Since the trust relationship in constructive trusts is imposed
by law, then there is really no fiduciary relationship existing
between the purported trustee and the purported cestui que
trust; whereas, in both express trusts and resulting trusts,
the trustee assumes fiduciary duties to the cestui que trust.
Consequently, while express trusts (also in resulting trusts)
may be subject to laches or defenses of prescription only
when there has been a previous clear repudiation by the
trustee made known to the beneficiary; in constructive
trusts, no such repudiation need be made for prescription to
begin to run.
2. Rules of Enforceability of Implied Trusts
Art. 1457. An implied trust may be proved by
oral evidence.
The discussions hereunder are based on the legal premise
that trusts relationships, whether express or implied, are
built on existing property relations and that at the center of
the legal issue involves property that has been transferred in
the name of, or in ownership to, the purported trustee.
Issues pertaining to the enforceability of trusts relations, and
the nature of the evidence that is legally allowed to prove
such trust relations, are pursued only when such property
relations are in place. Morales has in fact considered as one
of the essential characteristics of every trust that it is a
relationship with respect to property, not one involving
merely personal duties. (at p. 298) Such a legal premise
follows the principle that trusts contracts (i.e., express and
resulting trusts) have the essential characteristic of real as
distinguished from consensual or formal.
Under the old Civil Code, the syllabus appearing at the
beginning in the decision in Gamboa v. Gamboa, 52 Phil. 503
(1928), affirmed the nature of proof that must be satisfied in
order to prove implied trusts, thus
1. Trusts; Proof Insufficient to Show Title
of Land to Have Been Held in Trust.A
person who has held legal title to land,
coupled with possession and beneficial
use of the property for more than ten
years, will not be declared to have been
holding such title as trustee for himself
and his brothers and sisters upon
doubtful oral proof tending to show a

recognition by such owner of the alleged

rights of his brothers and sisters to
share in the produce of the land. (at pp.
503-504)
Under Article 1457 of the New Civil Code, an implied trust,
whether resulting or constructive, may be proved by oral
evidence, without distinction on whether it involves a
movable or an immovable property. Article 1457 therefore
contains the rationale for implied trusts as reported by the
Code Commission that the underlying doctrine of implied
trusts is founded on equity . . . under a legal system where
injustice would result in which the legal estate or title were
to prevail over the equitable right of the beneficiary. This is
in contrast to Article 1443, which provides that an
express trust over immovables or any interest therein can
only be constituted in writing, and cannot be proved by parol
evidence, which embodies the public policy that when it
comes to registered land, generally parol evidence cannot
derogate the title of the registered owner.
In Salao v. Salao, 70 SCRA 65 (1976), where the Court
refused to enforce the claims of the plaintiffs under a cause
of action based on an express trust over immovable property
unsupported by a written instrument, next proceeded to
address the issue Is plaintiffs massive oral evidence
sufficient to prove an implied trust, resulting or constructive,
regarding the two fishponds? (at p. 81). The Court held that
indeed if the principles of express trust cannot be applied for
lack of written evidence to sustain a trust over immovables,
then the oral evidence can be accepted by the courts to
support a claim of implied trusts.
But the Court in Salao also held that although oral evidence
may be adduced to prove an implied trust over immovables,
it held that in order to be recognized such oral evidence
must measure up to the yardstick that a trust must be
proven by clear, satisfactory and convincing evidence, and
cannot rest on vague and uncertain evidence or on loose,
equivocal or indefinite declarations. (at p. 83, citing De Leon
v. Molo-Peckson, 116 Phil. 1267 [1962]) The Court quoted
the following authorities
Trusts; Trust and trustee; establishment of trust by
parol evidence; certainty of proof. Where a trust is
to be established by oral proof, the testimony
supporting it must be sufficiently strong to prove
the right of the alleged beneficiary with as much
certainty as if a document proving the trust were
shown. A trust cannot be established, contrary to
the recitals of a Torrens title, upon vague and
inconclusive
proof.
(Syllabus,
Suarez
vs.
Tirambulo, 59 Phil. 303).
Trust evidence needed to establish trust
on parol testimony. In order to establish
a trust in real property by parol
evidence, the proof should be as fully
convincing as if the act giving rise to the
trust obligation were proven by an
authentic document. Such a trust cannot

be
established
upon
testimony
consisting in large part of insecure
surmises based on ancient hearsay.
(Syllabus, Santa Juana vs. Del Rosario,
50 Phil. 110).

38

In Salao, the Court noted its earlier decision in Yumul v.

Rivera and Dizon, 64 Phil. 13 (1937), where it held that when
it comes to registered land, A certificate of title is conclusive
evidence of the ownership of the land referred to therein
(sec. 47, Act No. 496). x x x. But a strong presumption
exists that Torrens certificates of title have been regularly
issued and are valid and, in order to maintain an action in
personam for reconveyance, proof as to the fiduciary
relation of the parties and of the breach of trust must be
clear and convincing. (at pp. 17-18) It also referred to its
decision in Legarda and Prieto v. Saleeby, 31 Phil. 590, 593
(1915), where it held that the purpose of the Torrens system
is to quiet title to land: Once a title is registered, the owner
may rest secure, without the necessity of waiting in the
portals of the court, or sitting in the mirador de su casa, to
avoid the possibility of losing his land. (at pp. 83-84)
The Court in Salao also referred to its decision in Legarda
and Prieto v. Saleeby, 31 Phil. 590, 593 (1915), where it held
that the purpose of the Torrens system is to quiet title to
land: Once a title is registered, the owner may rest secure,
without the necessity of waiting in the portals of the court, or
sitting in the mirador de su casa, to avoid the possibility of
losing his land. (at pp. 83-84)
The Court then concluded in Salao that There was no
resulting trust in this case because there never was any
intention on the part of the parties involved to create any
trust. There was [also] no constructive trust because the
registration of the two fishponds . . . was not vitiated by
fraud or mistake. This is not a case where to satisfy the
demands of justice it is necessary to consider the . . .
fishponds as being held in trust. (at p. 84).
The Salao doctrines therefore show the close kinship
between express trusts and resulting trusts and that
treatment can move from one to the other in order to
achieve equity.
In Municipality of Victorias v. Court of Appeals, 149 SCRA 32
(1987), it was held that the existence of public records other
than the Torrens title indicating a proper description of the
land, and not the technical description thereof, and clearly
indicating the intention to create a trust, was considered
sufficient proof to support the claim of the cestui que trust.
In Ong Ching Po v. Court of Appeals, 239 SCRA 341 (1994),
where the Court held that although an implied trust may be
proved orally, the evidence to prove it must be
trustworthy and received by the courts with extreme caution,
and should not be made to rest on loose, equivocal and
indefinite declarations. (at p. 347)
Lately, in Booc v. Five Stars Marketing Co., Inc., 538 SCRA 42

(2007), the Court reiterated the doctrine it laid down in

Morales v. Court of Appeals, 274 SCRA 282 (1997), and Tigno
v. Court of Appeals, 280 SCRA 262 (1997), that As a rule,
the burden of proving the existence of a trust is on the party
asserting its existence and such proof must be clear and
satisfactorily show the existence of the trust and its
elements. Booc held that an affidavit of the fact of resulting
trust against contrary affidavits presented by other
witnesses, as well as the transfer certificates of title and tax
declarations to the contrary, do not support clearly the
existence of trust.

parties, the intention as to which is to be found in the nature

of their transaction, but not expressed in the deed or
instrument of conveyance (quoting from 89 C.J.S. 725; italics
supplied). Examples of resulting trusts are found in article
1448, [1449, and] 1455 of the Civil Code. (at p. 298).

The conclusion one gets from reading the foregoing

decisions is that, faced with a Torrens title that shows no
trust relationship assumed by the registered owner, and
there is no other written evidence to show an intention to
create a trust, then generally oral evidence is unavailable to
overcome the registered title of the purported trustee who
denies the existence of any trust. The reliable evidence to
indicate a resulting trust relationship against a clean title
registered in the name of the purported trustee can only be
a written document signed by said purported trustee
acknowledging that he holds title for the benefit of another
party, or from the nature of the transaction duly proven
indicating how title was acquired by the registered owner,
and shows that there was a clear agreement or intention to
hold it for the benefit of another person.

The essence of resulting trusts is the implication drawn out

by law from the nature of the transactions covered; and
necessarily, the enumerated cases, being merely implied
trust from the laws perceived intentions of the parties,
constitute disputable presumptions of trust, and evidence
may thus be adduced to show that no trust was intended nor
contemplated by the parties. Correctly interpreted, since it
is the law that imbues certain transactions with the
characteristics of resulting trusts, the cestui que trust need
only prove the facts that would constitute the covered
transaction and the legal presumption that there exists a
resulting trust would arise from the very nature of the
transaction proven; immediately, the burden of proof would
be on the part of the purported trustee to show that no such
trust relationship was intended.

Perhaps the best way to end this section is to invoke the

decision in Caezo v. Rojas, 538 SCRA 242 (2007), which
held that

b. Blurring of the Distinction Between Express Trusts

and Resulting Trusts

While implied trust may be proved by

oral evidence, the evidence must be
trustworthy and received by the courts
with extreme caution, and should not be
made to rest on loose, equivocal or
indefinite
declarations.
Trustworthy
evidence is required because oral
evidence can easily be fabricated. In
order to establish an implied trust in real
property by parol evidence, the proof
should be as fully convincing as if the
acts giving rise to the trust obligation
are proven by an authentic document.
An implied trust, in fine, cannot be
established
upon
vague
and
inconclusive proof. In the present case,
there was no evidence of any
transaction between the petitioner and
her father form which it can be inferred
that a resulting trust was intended. (at
p. 256)
3. Resulting Trusts
In Ramos v. Ramos, 61 SCRA 284 (1974), the Court held that
A resulting trust is broadly defined as a trust which is
raised or created by the act or construction of law, but in its
more restricted sense it is a trust raised by implication of law
and presumed always to have been contemplated by the

This characterization of resulting trust was reiterated in

Salao v. Salao, 70 SCRA 65, 80-81 (1976).
a. Burden of Proof in Resulting Trusts

39
Discussions on this issue will start with the early decision
in Martinez v. Grao, 42 Phil. 35 (1921), were the facts
showed that previously the heirs of the deceased spouses
Martinez had sold under a sale a retro the parcels of land
inherited from the deceased spouses in order to cover the
debts of the estates; and that in order to expedite the
obtaining of a large loan from a savings association to
prevent the consolidation of title to the buyer a retro , the
heirs had agreed to allow one of their own to effect
redemption and deal directly with the savings association.
Martinez decision narrated that The person chosen as the
repository of this trust was Clemencia Grao, (at p. 39) who
executed a notarial declaration in which she states, among
other things, that she had intervened in the aforementioned
transactions in behalf of all the Martinez heirs. (at p. 40)
But [i]n consideration of the responsibility thus to be
assumed by Clemencia Grao, as borrower, all of the adult
Martinez heirs personally and the guardians of the minor
heirs executed a document jointly with Clemencia Grao . . .
in which it was agreed that Clemencia Grao should have
exclusive possession of all the land pertaining to the
Martinez estate and administer the same for the purpose of
raising the necessary revenue to meet her obligations (at p.
40) to the lending savings association. Years later, Clemencia
Grao asserted that she was the absolute owner of all the
property obtained by her from the original buyer a retro and
denied that the other Martinez heirs had any interest
whatsoever therein.

If we go by the jurisprudential definition of resulting trust,

the presumed intention of the parties bounded by the trust
relationship is drawn from the nature of the transaction, and
not from the words, acts or omissions of the parties. Thus,
when the intention is derived, not only from the nature of the
transactions, but from the verbal expressions of the parties,
then the relationship is one of express trust, not resulting
trust, since under Article 1441 of the Civil Code, express
trust are created by the intention of the trustor or of the
parties. Only recently, in Caezo v. Rojas, 538 SCRA 242
(2007), the Court characterized express trusts as those
which are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words
evincing an intention to create a trust, (at pp. 251-252,
italics supplied, citing Buan Vda. De Esconde v. Court of
Appeals, 253 SCRA 66, 73 [1996]), as distinguished from
implied trusts (which would include resulting trusts) which,
without being expressed, are deducible from the nature of
the transaction as matters of intent or, independently, of the
particular intention of the parties, as being superinduced on
the transaction by operation of law basically by reason of
equity. (at p. 252)

The Supreme Court held in Martinez that the properties

redeemed from the buyer a retro and mortgaged with the
savings associations were held in trust by the said
Clemencia Grao for the benefit of the said heirs . . . subject,
however, to the mortgage in favor of the savings
association. The Court did not characterize what type of trust
was created by the transaction since the decision was
rendered under the Spanish Civil Code, but it held that the
Martinez heirs were entitled to accounting from the said
Clemencia Grao of all the proceeds obtained from her
administration of the properties, that any amount
appropriated by her for her own benefit and not applied to
the payment of the mortgage loan would have to be
reimbursed; and that it being manifestly improper that a
person in the hostile attitude occupied by Clemencia Grao
towards the Martinez heirs should be allowed to administer
the property in question, it results that the receivership
[previously ordered by the trial court] should be reinstated.
(at p. 49). Martinez is a prime example of the application of
trusts principles under the old Civil Code, purely based on
equity principles and without statutory support.

Yet, as shown by the discussions hereunder, the rules on

implied trusts (particularly resulting trusts) have been made
to apply to situations which are considered as express trusts
because the intentions of the parties are deducible by the
direct and positive acts of the parties, by some writing or
deed, or will, or by words evincing an intention to create a
trust.

The principle was reiterated under the aegis of the New Civil
Code in Heirs of Candelaria v. Romero, 109 Phil. 500
(1960), where the proven facts showed that one brother
(Emilio) had taken over the installment payments over a
purchased subdivision lot of another brother (Lucas) who had
fallen ill, until the whole purchase price had been fully
satisfied under the arrangement that although Lucas
Candelaria had no more interest over the lot, the subsequent

payments made by Emilio Candelaria until fully paid were

made in the name of Lucas Candelaria, with the
understanding that the necessary documents of transfer will
be made later, the reason that the transaction being from
brother to brother. (at p. 501). Years later, when the
certificate of title was issued in the name of Lucas, his heirs
refused to reconvey the property to the heirs of Emilio. In an
action for reconveyance filed by the heirs of Emilio, the trial
court dismissed the complaint holding that an express and
not an implied trust was created as may be gleaned from the
facts alleged in the complaint, which in unenforceable
without any writing, and that since [the title] covering the
land in question had been issued to Lucas Cadelaria wayback in 1918 or 38 years before the filing of the complaint,
the action has already prescribed. (at p. 502) On appeal,
the Supreme Court held that
The trust alleged to have been created,
in our opinion, is an implied trust. As
held, in effect, by this Court in the case
of Martinez vs. Grao (42 Phil., 35),
where real property is taken by a person
under an agreement to hold it for, or
convey it to another or the grantor, a
resulting or implied trust arises in favor
of the person for whose benefit the
property was intended. Such implied
trust is enforceable even when the
agreement is not in writing, and is not
an express trust which requires that it
be in writing to be enforceable. This
rule, which has been incorporated in the
new Civil Code in Art. 1453 thereof, is
founded upon equity. The rule is the
same in the United States, particularly
where, on the faith of the agreement or
understanding, the grantee is enable to
gain an advantage in the purchase of
the property or where the consideration
or part thereof has been furnished by or
for such other. . . . It is also the rule
there that an implied trust arises where
a person purchases land with his own
money and takes a conveyance thereof
in the name of another. In such a case,
the property is held on a resulting trust
in favor of the one furnishing the
consideration for the transfer, unless a
different intention or understanding
appears. The trust which results under
such circumstances does not arise from
contract or agreement of the parties,
but from the facts and circumstances,
that is to say, it results because of
equity and arises by implication or
operation of law. (at pp. 502-503;
italics supplied)
Finding that a resulting trust was duly constituted, the Court
applied the principle that Continuous recognition of a
resulting trust, however, precludes any defense of laches in
a suit to declare and enforce the trust. . . . The beneficiary of

a resulting trust may, therefore, without prejudice to his right

to enforce the trust, prefer the trust to persist and demand a
conveyance from the trustee. (at p. 504) The Court also
ruled that It being alleged in the complaint that Lucas held
the title to the lot in question merely in trust for Emilio and
that this fact was acknowledged not only by him but also by
his
heirs,
herein
defendantswhich
allegation
is
hypothetically admittedwe are not prepared to rule that
plaintiffs action is already barred by lapse of time. On the
contrary, we think the interest of justice would be better
served if she and her alleged co-heirs were to be given an
opportunity to be heard and allowed to present proof in
support of their claim. (at p. 504)
Although Candelaria refers to the ruling in Martinez to have
recognized the constitution of a resulting trust even
though in Martinez the agreement was covered in three
notarized documents, what may be learned from Candelaria
is that when the arrangement is covered merely by verbal
agreement, the trust relationship constituted over
immovables would then be characterized as being a
resulting trust in order to achieve equity and be able to
move around the requirement under Article 1443 of the Civl
Code that No express trusts concerning an immovable or
any interest therein may be proved by parol evidence. Thus,
in Candelaria, having resolved that what was constituted was
a resulting trust, the Court directed the case to be remanded
to the trial court to allow the heirs of the cestui que trust to
prove their allegations which would include parol evidence.
In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court
held that The concept of implied trusts is that from the facts
and circumstances of a given case the existence of a trust
relationship is inferred in order to effect the presumed (in
this case it is even expressed) intention of the parties or to
satisfy the demands of justice or to protect against fraud.
(at p. 179)
Only lately, in Caezo v. Rojas, 538 SCRA 242 (2007), the
Court held that
A resulting trust is a species of implied
trust that is presumed always to have
been contemplated by the parties, the
intention as to which can be found in the
nature of their transaction although not
expressed in a deed or instrument of
conveyance. A resulting trust is based
on the equitable doctrine that it is the
more valuable consideration than the
legal title that determines the equitable
interests in property. (at p. 256; italics
supplied.)
It seems therefore that when the intention of the parties
bound by the trust relationship is found expressed in a deed
or instrument, it covers an express trust; whereas, when the
same intention is merely verbal or can be proved by parol
evidence, it may be considered as a resulting trust.

40
In the chapter on express trusts, the question has been
asked whether for express trust to exist, as distinguished
from resulting trust, it is necessary that naked title is
formally registered in the name of the trustee who expressly
assumes fiduciary obligations to an identified beneficiary.
The implication is that a written undertaking by the title
holder of a property, especially registered land, holding the
property for the benefit of another only creates a resulting
trust and not an express trust.
The latest decision on the matter, Heirs of Tranquilino
Labiste v. Heirs of Jose Labieste, 587 SCRA 417 (2009), is to
the effect that a written undertaking by the registered owner
to hold the property for the benefit of another would
constitute an express trust, even when title registered in the
name of the purported trustee is full title.
In Labiste, Epifanio Labiste, representing the heirs of Jose
Labiste, and his uncle, Tranquilino Labiste, obtained joint
registration as co-owners of a large tract of land which they
bought from the Bureau of Lands. Subsequently, the heirs of
Tranquilino also bought the one-half interest of the Jose heirs
and took over full possession of the property. After the war,
the Jose heirs filed a petition for the reconstitution of title to
the property with a agreement with the Tranquilino heirs that
the latters claims would be litigated after the reconstitution
of the title. The reconstituted title was issued over the
property in the name of Epifanio Labiste as representing the
Jose heirs, who thereafter refused to honor the rights of the
Tranquilino heirs. When suit was filed seeking reconveyance
of the title to the property to the Tranquilino heirs, it was
ruled by the trial court that the action had prescribed having
been filed beyond the 10-year period from the registration of
title as mandated for a resulting trust.
The Supreme Court ruled that the situation constituted an
express trust, and not a resulting trust, and that
consequently prescription and laches will run only from the
time the express trust is repudiated, continuing that
. . . The Court has held that for
acquisitive prescription to bar the action
of the beneficiary against the trustee in
an express trust for the recovery of the
property held in trust it must be shown
that: (a) the trustee has performed
unequivocal
acts
of
repudiation
amounting to an ouster of the cestui que
trust; (b) such positive acts of
repudiation have been made known to
the cestui que trust, and (c) the
evidence
thereon
is
clear
and
conclusive. Respondents cannot rely on
the fact that the Torrens title was issued
in the name of Epifanio and the other
heirs of Jose. It has been held that a
trustee who obtains a Torrens title over
property held in trust by him for another
cannot repudiate the trust by relying on
the registration. The rule requires a

clear repudiation of the trust duly

communicated to the beneficiary. The
only act that can be construed as
repudiation was when respondents filed
the petition for reconstitution in October
1993. And since petitioners filed their
complaint in January 1995, their cause
of action has not yet prescribed, laches
cannot be attributed to them.
(at p.
426)
The Court noted in Labiste that Under Article 1444 of the
Civil Code, [n]o particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended. (at pp. 425-426) It therefore concluded,
that what was involved was not an implied trust, but rather
an express trust since The Affidavit of Epifanio is in the
nature of a trust agreement. Epifanio affirmed that the lot
brought in his name was co-owned by him, as one of the
heirs of Jose, and his uncle Tranquilino. And by agreement,
each of them has been in possession of half of the property.
Their arrangement was corroborated by the subdivision plan
prepared by Engr. Bunagan and approved by Jose P. Dans,
Acting Director of Lands. (at p. 426).
Compare the ruling in Labiste, with that in Caezo v. Rojas,
538 SCRA 242 (2007), where the petitioning daughter sought
to recover a parcel of land from her stepmother which the
latter inherited from the deceased husband. The daughter
alleged that she was the one who purchased the
unregistered land from the Bureau of Lands, but that when
she had to leave Mindanao, she placed it in the care of her
father who verbally agreed to hold title on her behalf. The
father eventually obtained a tax declaration to the land in his
name and paid the real property taxes thereon also in his
name. After the father died, the stepmother took over the
title to the land. The daughter sought a reconveyance of title
to the land on the ground of a trust was created thereon in
her favor. The daughter executed a sworn statement to
prove the existence of an express trusts or a resulting trusts
on the theory that prescription or laches cannot be poised
against her claims on the property. The Court ruled against
the daughter as follows:
It is true that in express trusts and
resulting trusts, a trustee cannot acquire
by prescription a property entrusted to
him unless he repudiates the trust. x x
x . (at p. 252)
As a rule, however, the burden of
proving the existence of a trust is on the
party asserting its existence, and such
proof must be clear and satisfactorily
show the existence of the trust and its
elements. . . . Accordingly, it was
incumbent upon petitioner [daughter] to
prove the existence of the trust
relationship. And petitioner sadly failed
to discharge that burden.

The
existence
of
express
trust
concerning real property may not be
established by parol evidence. It must
be proven by some writing or deed. In
this case, the only evidence to support
the claim that an express trust existed
between the petitioner and her father
was the self-serving testimony of the
petitioner. Bare allegations do not
constitute evidence adequate to support
a conclusion. They are not equivalent to
proof under the Rules of Court. (at p.
253)
The best evidence of an express trust, would be a Deed of
Trust, which describes the trust properties, and conveys
naked or legal title thereto to the trustee under terms and
conditions
that
indicate
the
powers,
duties
and
responsibilities of the trustee to the indicated beneficiary. A
deed of trusts is usually acknowledged and subscribed by
both the trustor and the trustee. In Labiste, where there was
no such deed of trust, but the Court allowed sworn
statements to constitute as the written evidence to prove
the existence of an express trust; whereas, in Caezo, such
sworn statement was deemed to be insufficient to prove
either an express or a resulting trust. The lesson learned
from a comparison of the Labiste and the Caezo rulings is
that, outside of a formal deed of trust, written or sworn
statements narrating the purported trust, in order to support
the conclusion that there is such a trust relationship, must
contain the signature of the party sought to be bound (a
term used for the requisite memorandum under the Statute
of Frauds), i.e., the signature of the trustee, who under any
trust relationship, is really the party who assumes
obligations and fiduciary duties relative to the property held
in trust.
b. Rule of Prescriptibility of Resulting Trusts
Since a resulting trust is much akin to an express trust under
the consideration that it arises from the presumed or
sometimes merely orally expressed intention of the parties,
the Supreme Court has held in Ramos v. Ramos, 61 SCRA
284 (1974), that the rule of imprescriptibility of an action to
recover property held in express trust, may possible apply to
a resulting trust as long as the trustee has not repudiated
the trust.
Therefore, the rules on acquisitive prescription when it
comes to resulting trusts, would be the same rules
pertaining to express trusts. The matter is dealt more in
detail in the last chapter.

41
the beneficiary.
In Geronimo and Isidoro v. Nava and Aquino, 105 Phil. 145
(1959), a constructive trust was held to have arisen upon a
trial courts decision becoming final and executory which
held that defendants-spouses right to redeem the property
in litigation and ordered the plaintiffs-spouses to make the
resale, in the sense that although the plaintiffs-spouses were
the registered owners of the property they possessed only
naked title thereto which they were to hold in trust for the
defendants-spouses to redeem, subject to the payment of
the redemption price. However, the Court held in that
decision that In the latter instance of constructive trust,
prescription may apply only where the trustee asserts a right
adverse to that of the cestui que trust, such as, asserting
acts of ownership over the property being held in trust, (at
p. 153), which is contrary to its ruling that in a constructive
trust, since there is really no fiduciary relationship, no act of
repudiation need to be made by the trustee for prescription
to run.
Ramos v. Ramos, 61 SCRA 284 (1974), characterized
constructive trust as
. . . a trust raised by construction of
law, or arising by operation of law. In a
more
restricted
sense
and
as
contradistinguished from a resulting
trust, a constructive trust is a trust not
created by any words, either expressly
or impliedly evincing a direct intention
to create a trust, but by the construction
of equity in order to satisfy the demands
of justice. It does not arise by
agreement or intention, but by operation
of law. (89 C.J.S. 726-727). If a person
obtains legal title to property by fraud or
concealment, courts of equity will
impress upon the title a so-called
constructive trust in favor of the
defrauded party. A constructive trust is
not a trust in the technical sense. (at p.
298-299; citing Article 1456 of the Civil
Code; and Gayondato v. Treasurer of the
P.I., 49 Phil. 244 [1926]).
The ruling has been reiterated in Salao v. Salao, 70 SCRA
65, 81 (1976); Guy v. Court of Appeals, 539 SCRA 584
(2007).
a. Distinguishing from Resulting Trusts

4. Constructive Trusts
In Diaz v. Gorricho and Aguado, 103 Phil. 261, 266 (1958),
and Carantes v. Court of Appeals, 76 SCRA 514, 524
(1977), the Court characterized constructive trust as one
which is imposed by law . . . [and] there is neither promise
nor fiduciary relations; the so-called trustee does not
recognize any trust and has no intent to hold the property for

Unlike resulting trusts that draw their essence from the

perceived intention of the parties as taken from the structure
of the transactions covered, constructive trusts draw their
essence from the need to impose a fiduciary duty on a
person who takes title to a property to achieve justice or
equity on behalf of another person who would otherwise be
adversely affected by the fact that such title remains with, or

has been conveyed to, another person.

In Philippine National Bank v. Court of Appeals, 217 SCRA
347 (1993), the Court distinguished an express trust from
the constructive trust in the following manner, thus
In analyzing the law on trust, it would be
instructive to refer to Anglo-American
jurisprudence on the subject. Under
American Law, a court of equity does
not consider a constructive trustee for
all purposes as though he were in reality
a trustee; although it will force him to
return the property, it will not impose
upon him the numerous fiduciary
obligations ordinarily demanded from a
trustee of an express trust. It must be
borne in mind that in an express trust,
the trustee has active duties of
management while in a constructive
trust, the duty is merely to surrender the
property. (at p. 356)
In Aznar Brothers Realty Company v. Aying, 458 SCRA 496
(2005), the Court distinguished a resulting trust from a
constructive trust, as follows
Resulting trusts are based on the
equitable
doctrine
that
valuable
consideration and not legal title
determines the equitable title or interest
and are presumed always to have been
contemplated by the parties. They arise
from the nature of circumstances of the
consideration involved in a transaction
whereby one person thereby becomes
invested with legal title but is obliged in
equity to hold his legal title for the
benefit of another. On the other hand,
constructive trusts are created by the
construction of equity in order to satisfy
the demands of justice and prevent
unjust enrichment. They arise contrary
to intention against one who, by fraud,
duress or abuse of confidence, obtains
or holds the legal right to property which
he ought not, in equity and good
conscience, to hold. (at pp. 508-509)
The principle was reiterated in Lopez v. Court of Appeals, 574
SCRA 26 (2008), where the Court further held that
A resulting trust is presumed to have
been contemplated by the parties, the
intention as to which is to be found in
the nature of their transaction but not
expressed in the deed itself. Specific
examples of resulting trusts may be
found in the Civil Code, particularly Arts.
1448, 1449, 1451, 1452 and 1453.

42

A constructive trust is created, not by

any word evincing a direct intention to
create a trust, but by operation of law in
order to satisfy the demands of justice
and to prevent unjust enrichment. It is
raised by equity in respect of property,
which has been acquired by fraud, or
where although acquired originally
without fraud, it is against equity that it
should be retained by the person
holding it. Constructive trusts are
illustrated in Arts. 1450, 1454, 1455 and
1456. (at p. 27)

In PNB, the drawee-bank had mistakenly credited double

payments into the account of the payee Mata, which it
discovered only six years later, at which time it made a
formal demand upon the payee to refund the overpayment.
When the payee did not comply with the demand, the
petitioner drawee-bank filed a collection case based on a
constructive trust under Article 1456 of the Civil Code, it has
a right to recover the said amount it erronenously credited to
respondent Mata. (at p. 351).

Lately, in Caezo v. Rojas, 538 SCRA 242 (2007), the Court

held that
A constructive trust is one created not
by any word or phrase, either expressly
or impliedly, evincing a direct intention
to create a trust, but one which arises in
order to satisfy the demands of justice.
It does not come about by agreement or
intention but in the main by operation of
law, construed as against one who, by
fraud, duress or abuse of confidence,
obtains or holds the legal right to
property which he ought not, in equity
and good conscience, to hold. (at p.
258)
b. Constructive Trusts Similar in Purpose to
Contract of Solutio Indebiti

The Supreme Court noted that Petitioner [drawee-bank]

naturally opts for an interpretation under constructive trust
as its action . . . can still prosper [i.e, implied trust], as it is
well within the prescriptive period of ten (10) years as
provided by Article 1144, paragraph 2 of the Civil Code. (at
p. 352) In contrasting an express trust from an implied trust,
the Court held in PNB
Quasi-

It is quite interesting to note that in Philippine National Bank

v. Court of Appeals, 217 SCRA 347 (1993), the Supreme
Court discussed the similarity in the nature and equity
considerations of constructive trusts and the quasi-contract
of solutio indebiti, thus:
Rarely in this Court confronted with a
case calling for the delineation in broad
strokes of the distinctions between such
closely allied concepts as the quasicontract called solutio indebiti under
the venerable Spanish Civil Code and
the
species
of
implied
trust
denominated
constructive
trust,
commonly regarded as of AngloAmerican origin. Such a case is the one
presented to us now which has
highlighted more of the affinity and less
of the dissimilarity between the two
concepts as to lead the legal scholar
into the error of interchanging the two.
Presented below are the factual
circumstances
that
brought
into
juxtaposition the twin institutions of the
Civil Law quasi-contract and the AngloAmerican trust. (at p. 350)

The drawee-bank did not seek to recover based on solutio

indebiti since under Article 1145(2) of the Civil Code, it has
exceed the statute of limitation of 6 years. The trial court
rendered judgment dismissing the complaint ruling that the
instant case falls squarely under Article 2154 on solutio
indebiti and not under Article 1456 on constructive trust. In
affirming the lower court, the appellate court added in its
opinion that under Article 2154 on solutio indebiti, the
person who makes the payment is one who commits the
mistake vis-a-vis the recipient who is unaware of such a
mistake. (at p. 351)

A deeper analysis of Article 1456 reveals

that it is not a trust in the technical
sense for in a typical trust, confidence is
reposed in one person who is name a
trustee for the benefit of another who is
called the cestui qui trust, respecting
property which is held by the trustee for
the benefit of the cestui qui trust. A
constructive trust, unlike an express
trust, does not emanate from, or
generate a fiduciary relation. While in an
express trust, a beneficiary and a
trustee are linked by confidential or
fiduciary relations, in a constructive
trust, there is neither a promise nor any
fiduciary relation to speak of and the socalled trustee neither accepts any trust
nor intends holding the property for the
beneficiary. (at pp. 353-354)
xxx.
In analyzing the law on trust, it would be
instructive to refer to Anglo-American
jurisprudence on the subject. Under
American Law, a court of equity does
not consider a constructive trustee for
all purposes as though he were in reality
a trustee; although it will force him to

return the property, it will not impose

upon him the numerous fiduciary
obligations ordinarily demanded from a
trustee of an express trust. It must be
borne in mind that in an express trust,
the trustee has active duties of
management while in a constructive
trust, the duty is merely to surrender the
property.
Still applying American case law, quasicontractual obligations give rise to a
personal liability ordinarily enforceable
by an action at law, while constructive
trusts are enforceable by a proceeding
in equity to compel the defendant to
surrender specific property. To be sure,
the distinction is more procedural than
substantive. (at p. 356)
In drawing the parallelism between solutio indebiti and
trusts, the Court noted that While the principle of undue
enrichment or solutio indebiti, is not new, having been
incorporated in the subject on quasi-contracts in Title XVI of
Book IV of the Spanish Civil Code . . . the chapter on Trusts is
fairly recent, having been introduced by the Code
Commission in 1949. Although the concept of trusts is
nowhere to be found in the Spanish Civil Code, the framers
of our present Civil Code incorporated implied trusts, which
includes constructive trust, on top of quasi-contracts, both of
which embody the principle of equity above strict legalism.
(at pp. 355-356, italics supplied). In addition, the Court
held
Further reflection on these concepts
reveals that constructive trust is as
much a misnomer as a quasi-contract,
so far removed are they from trusts and
contracts proper, respectively. In the
case of a constructive trust, as in the
case of quasi-contract, a relationship is
forced by operation of law upon the
parties, not because of any intention on
their part but in order to prevent unjust
enrichment, thus giving rise to certain
obligations not within the contemplation
of the parties. (at p. 356)
In ruling that the drawee-bank had a right to invoke the
principles of constructive trust under Article 1456 of the Civil
Code, the Court held that We agree with petitioners stand
that under Article 1456, the law does not make any
distinction since mutual mistake is a possibility on either side
on the side of either the grantor or the grantee. Thus, it
was error to conclude that in a constructive trust, only the
person obtaining the property commits a mistake. This is
because it is also possible that a grantor, like PNB in the case
at hand, may commit the mistake. (at p. 357). Nonetheless,
the drawee-bank lost the case on the ground of laches.
5. Implied Trusts Particularly Constituted by Law

Art. 1445. The enumeration

of the following cases of implied
trust does not exclude others
established by the general law of
trust, but the limitation laid down
in Article 1442 shall be applicable.
Article 1447 of the Civil Code expressly provides that the
enumeration in the subsequent articles of the cases of
implied trust does not exclude others established by the
general law of trust, but that the limitation laid down in
Article 1442 shall be applicable, i.e., so long as those
principles do not conflict with the Civil Code, the Code of
Commerce, the Rules of Court and special laws.
The discussions in this section would ultimately show that
strictly speaking the enumerated implied trusts are
essentially resulting trusts (Articles 1448 to 1455), and that
the only true constructive trusts are those covered by Article
1456, which actually embodies the general principle for
constructive trusts.
a. Purchase of Property Where Title Placed in One
Person, But Price Paid by Another Person
Art. 1448.
There is an
implied trust when property is sold,
and the legal estate is granted to
one party but the price is paid by
another for the purpose of having
the beneficial interest of the
property. The former is the trustee,
while the latter is the beneficiary.
However, if the person to whom the
title is conveyed is a child,
legitimate or illegitimate, of the
one paying the price of the sale, no
trust is implied by law, it being
disputably presumed that there is a
gift in favor of the child.
Under Article 1448 of the Civil Code, there is an implied trust
when property is bought, and the legal estate is granted to
one party but the price is paid by another for the purpose of
having the beneficial interest of the property. The person in
whose name the property is registered is the trustee, while
the person who paid for the price shall be the beneficiary.
The presumption of resulting trust arises from the truism
expressed in Uy Aloc v. Cho Jan Jing, 19 Phil. 202 (1911), that
one of who pays for something usually does so for his own
benefit.
Truly, Article 1448 covers a resulting trust that bases itself
from the implied intentions of the trustor-beneficiary and the
acceptance of the obligation by the trustee who is fully
aware that property is registered in his name for which he
never paid the price. See Ramos v. Ramos, 61 SCRA 284
(1974), Philippine National Bank v. Court of Appeals, 217
SCRA 347 (1993), and Lopez v. Court of Appeals, 574 SCRA

43
26 (2008).
In Morales v. Court of Appeals, 274 SCRA 282 (1997), the
Court referred to the implied trust covered under Article
1448 as purchase money resulting trust. (citing 76 Am.Jur.
2d Trusts 179), thus:
The trust is created in order to
effectuate what the law presumes to
have been the intention of the parties in
the circumstances that the person to
whom the land was conveyed holds it as
trustee for the person who supplied the
purchase money. (at p. 299)
The reason why the situation described under Article 1448 is
an implied trust is that unlike in express trust, the person
who takes title to the purchased property does not expressly
bound himself to hold or administer the same for the benefit
of any person. The presumption of a resulting trust arises
from the fact of a sale transaction where the evidence shows
that title is placed in the name of one person, while the
purchase price was paid by the other.
The other reason why there is only an implied or resulting
trust is that full title, not just naked or legal title, is placed in
the name of a person who is not referred to formally as
trustee nor is the other person who paid for the purchase
price referred to formally as a beneficiary. This is to
emphasize the point that the most distinguishing
mark between an express trust and a resulting trust is that in
the former the parties bound by the trust are formally
constituted with naked or legal title placed in the trustee and
beneficial title pertains to the beneficiary, or that the trustee
(whatever he may be called) is expressly given title to the
property with obligations to hold it for the benefit of another
party (whatever he may be called).
The situation covered under Article 1448 of the Civil Code is
meant to address the observation made in the early decision
in Martinez v. Martinez, 1 Phil. 647 (1903), where the facts
showed that it was the father who expended the sums for
the purchase of two vessels which were registered in the
name of his son, who was then of legal age, where the Court
held
It may be true that the laws in some of
the United States would in this case
raise a resulting trust in favor of the
plaintiff [the father]. But such laws are
not in force here; and whatever other
right the plaintiff may have against the
defendant [son], either for the recovery
of the money paid or for damages, it is
clear that such payment gave him no
title either legal or equitable to these
vessels. (at p. 649)

In Padilla v. Court of Appeals, 53 SCRA 168 (1973), the Court

applied the provisions of Article 1448 to impute a resulting
trust where pursuant to a special arrangement with the GSIS
which had foreclosed the mortgaged property and the right
of redemption had already expired, the mortgagors-spouses
had effected the sale thereof to the purported trustee with
the undertaking that the latter would use funds supplied by
the spouses to buy-back the property on behalf of the
spouses. The Court observed that The concept of implied
trusts is that from the facts and circumstances of a given
case the existence of a trust relationship is inferred in order
to effect the presumed (in this case it is even expressed)
intention of the parties or to satisfy the demands of justice or
to protect against fraud. (at p. 179).
One will notice from Padilla, that although there is an express
agreement on the part of the trustee to hold the property for
the benefit of the spouses, it would still constitute an implied
or resulting trust, when by definition under Article 1441, it
ought to be an express trust. Do we hold therefore that when
it comes to registered land, where full title (as contrasted
from title registered as trustee) in placed in the name of
the purported trustee, it cannot be express trust because the
Torrens title does not show naked or legal title in the
registered owner, much less does it indicate the beneficiary?
And if the trust relationship was expressed in an instrument
not registered in the Torrens titles, would the arrangement
now be an express trust, rather than an implied trust?
(1) When Title Is Placed in the Name of a Child
Article 1448 expressly provides that there is no presumption
of resulting trust, if the person to whom the title is conveyed
is a child, legitimate or illegitimate, of the one paying the
price of the sale, it being disputably presumed that there is a
gift in favor of the child.
In De los Santos v. Reyes, 205 SCRA 437 (1992), the Court
held that if the person to whom the title is conveyed is a
child, legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
As a general rule, it cannot be expected that a parent
placing property he bought in the name of the child intended
any form of trust, since it cannot be normally expected that
a child would administer property for the benefit of the
parents. Should Article 1448 be interpreted to mean, when it
uses the word child to cover a situation where title to the
property is placed by the parent in the name of a child who
then was a minor? I believe that this is a reasonable
presumption, as bolstered by the decisions discussed
hereunder.
In Martinez v. Martinez, 1 Phil. 647 (1903), the Court alluded
to the provision of then Article 161 of the old Civil Code,
relating to minors, that the ownership or enjoyment of
property acquired by a minor child with funds of his parents,
pertain to the latter [parents], which the Court observed was
the only provision which the we have found anywhere in the
laws now in force that declares the property to belong to the

person who paid the money. (at p. 649). The exception

under Article 1448 is merely a disputable presumption,
which means that it can still be shown that indeed the
parents had placed property bought by them in the name of
their child to impose an obligation on the part of the child to
administer the same for the benefit of the parents, especially
when the child reaches the age of majority.
In Morales v. Court of Appeals, 274 SCRA 282 (1997), the
Court recognized three exceptions to the establishment of an
implied resulting trust under Article 1448, The first is stated
in the last part of Article 1448 itself. Thus, where A pays the
purchase money and title is conveyed by absolute deed to
As child or to a person to whom A stands in loco parentis
and who makes no express promise, a trust does not result,
the presumption being that a gift was intended. (at p. 299.)
It is only with respect to a minor child that a parent stands in
loco parentis.
Only lately in Ty v. Ty, 553 SCRA 306 (2008), where the
evidence showed that the father had paid for the price of the
purchase of a valuable tract of land along EDSA, but where
the title was placed in the name of a son, it was held by the
Court that no express trust could be deemed constituted
because there was no writing to prove the same as required
under Article 1443 of the Civil Code when it comes to trust
being constituted over immovable properties. Although, the
Court did concede that it was still possible to prove the
existence of an implied trust, nevertheless, it ruled that the
provisions of Article 1448 expressly provide that no implied
trust is deemed to have been established if the person to
whom the title is conveyed is the child of the one paying the
price of the sale, and instead a donation is disputably
presumed in favor of the child. In Ty, the successors of the
deceased father had not shown that no such donation was
intended.
(2) When It Is the Child that Supplies the Purchase
Price
A good illustration where no implied trust arises can be
found in Trinidad v. Ricafort, 7 Phil. 449 (1907), where the
evidence showed that the father had repurchased the
property he sold to a third party using the money of his son;
yet the implied trust arrangement imbued by the trial court
to justify the taking over of title by the son after the death of
the father, was overturned by the Supreme Court

44
cannot apply in a situation where property is bought by the
father in his own name, using the money of the child.
Resulting trusts under Article 1448 comes from the
presumed intention of the trustor who supplied the money to
have beneficial on trust in the property. In Ty, the presumed
intention was coming from the father and could not be
presumed to come from a child.
(3) When a Contrary Intention Is Proved
Morales v. Court of Appeals, 274 SCRA 282 (1997), held that
Another exception [to the establishment of an implied
resulting trust under Article 1448] is, of course, that in which
an actual contrary intention is proved. (at p. 299.) The
ruling emphasizes the fact that the implied trusts
superinduced by law under the various provisions in the Title
V in the new Civil Code constitute merely disputable
presumptions, and the burden of proof is on the party
alleging that there is no implied trust constituted on each of
the transactions specifically covered by law. Yet, in Morales,
the immediate ruling of the Court tended to apply the
general rule that the burden of proving the existence of a
trust is on the party asserting its existence, thus:
There are recognized exceptions to the
establishment of an implied resulting
trust. . . Another exception is, of course,
that in which an actual contrary
intention is proved. . . (at p. 299)
As a rule, the burden of proving the
existence of a trust is on the party
asserting its existence, and such proof
must be clear and satisfactorily show
the existence of the trust and its
elements. While implied trust may be
proved by oral evidence, the evidence
must be trustworthy and received by the
courts with extreme caution, and should
not be made to rest on loose, equivocal
or indefinite declarations. Trustworthy
evidence is required because oral
evidence can easily be fabricated. (at p.
300)
(4) When Purchase Price Extended as a Loan

It plainly appears from all of the

evidence in the case that at the time of
the death of [the father] he was still the
owner of whatever interest was acquired
by the repurchase of this property in
1894, and that if the 2,600 pesos
furnished by [the son] to his father for
that purpose it was so furnished by way
of a loan and did not transfer to [the
son] any interest in the property. (at p.
452)
In other words, the equity principles under Article 1448

If it is shown that the person who paid for the amount of the
purchase price did so as a loan or as an advance to the
person in whose name the title to the property is transferred,
then no implied trust should also result because of the lack
of intention on the part of the person supplying the money to
have beneficial interest in the property bought.
Such situation is in contrast with the situation covered in
Article 1450 of the Civil Code (discussed immediately
hereunder), where the title to the property is placed in the
name of the person who advanced or loan the amount,

which is considered to be a form of implied trust, but may

properly be treated as an equitable mortgage.
(5) Exception: When the Purchase Is Made in Violation
of an Existing Statute
Morales v. Court of Appeals, 274 SCRA 282 (1997), held that
another exception to the establishment of an implied
resulting trust under Article 1448 is where the purchase is
made in violation of an existing statute and in evasion of its
express provision, [since] no trust can result in favor of the
party who is guilty of fraud. (at p. 299, citing 4 Tolentino
679,-680.)\
This particular ruling in Morales reiterates the principle laid
down in Deluao v. Casteel, 22 SCRA 231 (1962), that since
implied trusts are essentially founded on equity principles,
no trust can be held valid and enforceable when it is
violative of the law, morals or public policy.
b. Purchase of Property Where Title Is Placed in the
Name of Person Who Loaned the Purchase Price
Art. 1450. If the price of a
sale of property is loaned or paid by
one person for the benefit of
another and the conveyance is
made to the lender or payor to
secure the payment of the debt, a
trust arises by operation of law in
favor of the person to whom the
money is loaned or for whom it is
paid. The latter may redeem the
property and compel a conveyance
thereof to him.
Under Article 1450 of the Civil Code, if the price of a property
bought is loaned or paid by one person for the benefit of
another and the conveyance is made to the lender or payor
to secure the payment of the debt, an implied trust arises
by operation of law in favor of the person to whom the
money is loaned or for whom it is paid. The beneficiary is
expressly empowered to redeem the property and compel a
conveyance thereof to him.
While, Philippine National Bank v. Court of Appeals, 217
SCRA 347 (1993), enumerates the arrangement under Article
1450 as a resulting trust, Lopez v. Court of Appeals, 574
SCRA 26 (2008,) holds the implied trust arrangement to be a
constructive trust. We agree with the PNB characterization,
since it can be deduced from the very essence of the
described transaction that the buyer took title to the
property as security for the loan or advance given to the
cestui que trust, and such trustee therefore holds title
subject to the intention of the cestui que trust to pay for the
principal as a means to secure title to the property that was
bought in his behalf in the first placed.
(1) Akin to an Equitable Mortgage Arrangement

The implied trust situation covered under Article 1450 is akin

to an equitable mortgage arrangement, since title to the
property intended for the borrower is placed in the name of
the lender to secure the payment of the debt.
In Raymundo v. Bandong, 526 SCRA 514 (2007), the
Supreme Court reiterated the long-standing definition of
equitable mortgage as one which although lacking in some
formality or form or words, or other requisites demanded by
a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains
nothing impossible or contrary to law. (at p. 525.) That is
the reason why the Article 1450 expressly provides that the
borrower may redeem the property and compel the lender to
convey the property to him.
It should be noted, however, that the arrangement provided
under Article 1450 is not the typical equitable mortgage
arrangement found in the Law on Sale, since under such
arrangement, the equitable mortgage is constituted between
the purported seller (borrower-mortgagor) and buyer (lendermortgagee) in the contract of sale with a right of repurchase,
where the purpose of the sale is really to secure a principal
obligation, usually a loan, between the purported seller and
purported buyer. Under Article 1450, the equitable mortgage
is constituted by the sale of a third party of his property to a
purported buyer (the lender-mortgagee) who takes titles to
secure his loan or advance made to the cestui que trust, who
is a stranger to the contract of sale.
The characterization of the situation as an implied trust,
would impose upon the lender-buyer the fiduciary obligations
of the trustee. When the borrower fails to pay the loan or
obligation, it would be anomalous for the lender-buyer to
bring a collection case, for indeed he has already in his name
the property bought as security the loan; otherwise, it would
amount to unjust enrichment. But if the lender does nothing
because he is deemed to be fully paid with the property
already secured in his name, that would constitute pactum
commissorium prohibited under Article 2088 of the Civil
Code, and the title of the lender would be void ab initio.
Without the right to redeem granted under Article 1450 of
the Civil Code, could the borrower, who is a stranger to the
contract of sale effected between a third-party and the
lender seek recovery of the property by way of redemption?
Fortunately, with Article 1450 in place, there is no doubt
that the borrower has the ability to redeem the property by
paying his loan to, or advances from, the lender-trustee.
But even without Article 1450 in the statute books, it is our
position that indeed the borrower may seek redemption of
the property bought by and placed in the name of the lender.
It has already been held by the Supreme Court that in spite
of the best evidence rule, a written contract may be proved
by parol evidence to be an equitable mortgage, because the
public
policy against pactum commissorium takes
precedence. (Cuyugan v. Santos, 34 Phil. 100 [1916];
Mariano v. Court of Appeals, 220 SCRA 716 (1993); Rosales v.
Suba, 408 SCRA 664 [2003]). It is usual in such
arrangements that although the property bought is placed in
the name of the lender, it is the borrower who takes

45
possession and enjoys the property bought, and pays for the
real property taxes due thereon. Such an arrangement would
constitute badges of equitable mortgage under Article 1602
of the Law on Sales under the Civil Code.
When the borrower-beneficiary fails or refuses to redeem the
property (i.e., pay the principal obligation), and the lender
brings an action for collection, can the trust property be
levied upon for the payment of the judgment debt, contrary
to his duty of loyalty as a implied trustee? The answer would
of course be in the affirmative.
Indeed, in an equitable mortgage situation, even when title
is registered in the name of the lender, it is considered void
for being in violation of the public policy against pactum
commissorium. In a situation where the borrower has
defaulted on his loan, the remedy of the lender is not to
appropriate title to the property but rather bring an action
for foreclosure (Briones-Vazquez v. Court of Appeals, 450
SCRA 644 [2005]), or to bring a simple collection suit (Binga
v. Bello, 471 SCRA 653 [2005].).
It should be emphasized, though that when the principal
contract has been extinguished with full payment thereof,
then necessarily the accessory contract of equitable
mortgage is also extinguished, which then allows the
borrower to recover any and all properties given as security
for the loan.
c. When Absolute Conveyance of Property Effected
Only as a Means to Secure Performance of Obligation
of the Grantor
Art. 1454. If an absolute
conveyance of property is made in
order to secure the performance of
an obligation of the grantor toward
the grantee, a trust by virtue of law
is established. If the fulfillment of
the obligation is offered by the
grantor when it becomes due, he
may demand the reconveyance of
the property to him.
Under Article 1454 of the Civil Code, if an absolute
conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the
grantee, a trust by virtue of law is established. If the
fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the
property to him.
The principle embodied in Article 1454 of the New Civil Code
were applied under the old Civil Code in De Ocampo v.
Zaporteza, 53 Phil. 442 (1929), where a deed of sale with
right of repurchase was really intended to cover a loan made
by the purported seller from the purported buyer and title to
the subject matter was placed in the name of the buyer. The

Supreme Court held that the application must here be

made of the doctrines upheld in the cases of Uy Aloc vs. Cho
Jan Ling (19 Phil., 202); Camacho vs. Municipality of Baliaug
(28 Phil., 46); and Severino vs. Severino (44 Phil., 343), to
the effect that the defendants [buyer] only hold the
certificate of transfer in trust for the plaintiffs with respect to
the portion of the lot planted with 1,300 coconut trees, and
they are therefore bound to execute a deed in favor of the
plaintiffs, transferring to them said portion planted with
1,300 coconut trees. (at p. 445.)
While PNB enumerates the arrangement under Article 1454
as one of the resulting trusts, Lopez holds the implied trust
arrangement to be a constructive trust. We tend to agree
with the PNB characterization.
The situation covered under Article 1454 really constitutes
an equitable mortgage arrangement thoroughly covered
under Article 1602 to 1605 of the Law on Sales in the Civil
Code. Indeed, the absolute conveyance of property
described in Article 1454 is nothing more than a deed of
absolute sale; and Article 1604 embodies a doctrine longestablished in Philippine jurisprudence that The provisions
of article 1602 [on badges of equitable mortgage] shall also
apply to a contract purporting to be an absolute sale.
(Zamora v. Court of Appeals, 260 SCRA 10 [1996]; Tuazon v.
Court of Appeals 341 SCRA 07 [2000].)
If one would wonder why the matter has to be covered by
the principles of implied trusts under Article 1454 of the New
Civil Code, the plausible answer is that Articles 1604 and
1605 in the Law on Sales, expressly allows the purported
seller to ask for the reformation of the deed of absolute sale
to reflect its true nature as a mortgage contract, but
nowhere expressly grants the right to the seller to redeem
the property sold. The power of the purported seller in an
equitable-mortgage-cum-deed-of-absolute-sale to redeem
the property in the absence of a right of redemption clause is
expressly provided for in Article 1454.
Frankly, it would have been far better to transfer the right to
redeem under Article 1454 to be part of Article 1605 of the
Civil Code, instead of treating the matter under implied
trusts. A good reason we give for this advocacy is that since
the contract or arrangement defined under Article 1454 is
considered a constructive trust, it would be susceptible
under current jurisprudence to the defense of prescription,
especially when it comes to registered land. Under the Law
on Sales, the arrangement would clearly be an equitable
mortgage since the disposition contract is really a security
arrangement for a principal obligation. Since property given
as security has in fact been placed in the name of the
obligee, this would be contrary to the public policy against
pactum commissorium under Article 2088 of the Civil Code
which provides that the creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of
them; that any stipulation to the contrary is null and void;
and the right of the borrower-seller to redeem the property
purportedly sold in really imprescriptible (i.e., for as long as
the buyer can fully pay the principal obligation, which brings
about the extinguishment of the accessory equitable

mortgage arrangement), save when formal foreclosure

proceedings have been brought by the lender-buyer, or if the
property has passed a third party buyer in good faith and for
value.
d. Two or More Persons Purchase Property Jointly, But
Places Title in One of Them
Art. 1452. If two or more
persons agree to purchase property
and by common consent the legal
title is taken in the name of one of
them for the benefit of all, a trust is
created by force of law in favor of
the others in proportion to the
interest of each.
Under Article 1452 of the Civil Code, if two or more persons
agree to purchase property and by common consent the
legal title is taken in the name of one of them for the benefit
of all, a trust is created by force of law in favor of the others
in proportion to the interest of each. Both PNB and Lopez
classify the arrangement under Article 1452 as a resulting
trust, to which characterization we agree with.
An application of the principle covered in Article 1452 under
the old Civil Code can be found in De la Cruz v. Nino, 18 Phil.
284 (1911), where the title to certain parcels of land appear
to have been drawn up only in the name of one of the two
parties who formed a partnership and combined their capital
to acquire the properties. Nonetheless, there was drawn up
between them a private document that described their
arrangements, which has never been impugned by the party
in whose names the titles to the land had been placed. The
Court held that the parties were really co-owners, and the
party in whose names appear the titles to the land, being in
possession of only half of the parcels of land, was not
entitled to claim possession of the other half held by the
heirs of the deceased co-owner.
In Uy Aloc v. Cho Jan Jing, 19 Phil. 202 (1911), where a
number of Chinese merchants raised a fund by voluntary
subscription with which they purchased a valuable tract of
land and erected a large building to be used as a sort of club
house for the mutual benefit of the subscribers to the fund;
but since the association was not registered as a juridical
person, it was agreed to have the title to the property placed
in the name of one of their members, who accepted the
trust, and agreed to hold the property as agent and trustee
of the members of the association. When the title holder
refused to account for the rentals earned from the property,
and in fact set up title in himself, the members brought suit
to have title conveyed to them. The Court held in Uy Aloc
that there was an implied trust constituted and the
registered owner held it under an obligation, both express
and implied, to deal with it exclusively for the benefit of the
members of the association and subject to their will.
One has to wonder why the arrangement described under
Article 1452 of the Civil Code should even be considered an
implied trust arrangement; the very language of Article

46
1452 shows that it covers an express trust arrangement,
since it says that is covers as situation where two or more
persons agree to purchase property and that by common
consent the legal title is taken in the one of one of them for
the benefit of all. In other words, a trust arrangement is
created not by force of law, but by the intentions clearly
expressed by the parties through their agreement and
common consent, and therefore falls with the definition
under Article 1441 that Express trust are created by the
intention of the trustor or of the parties.
The only reason we see why the law would treat the
arrangement under Article 1452 not as an express trust is
because full title, not just naked or legal title is placed in the
name of the trustee, which means that insofar as the world
is concerned he appears to be the full owner, rather than as
a trustee. This is especially true when it comes to registered
land where full title is placed in the name of the trustee (i.e.,
he is not registered as trustee in the certificate of title),
and therefore, the trust arrangement can only be implied
from other source.
e. Property Conveyed to Person Merely as Holder
Thereof
Art. 1453. When property is
conveyed to a person in reliance
upon his declared intention to hold
it for, or transfer it to another or
the grantor, there is an implied
trust in favor of the person whose
benefit is contemplated.
Under Article 1453 of the Civil Code, when property is
conveyed to a person in reliance upon his declared intention
to hold it for, or transfer it to another or the grantor, there is
an implied trust in favor of the person whose benefit is
contemplated. Both PNB and Lopez characterize the
arrangement under Article 1453 as resulting trust.
As in the case of Article 1452, the situation covered by
Article 1453 covers really an express trust, because title to
property is taken by the trustee under a clear agreement to
hold it for another person. The only difference is that there
may be a situation where the person sought to be benefited
by the grantor has not yet given formal acceptance of the
benefit. Even such a situation is not critical, since under
Article 1446, if the trust imposes no onerous conditions upon
the beneficiary, his acceptance is presumed. Jurisprudence
has also affirmed the validity of a trust established for a
person who is not yet existing, such as an unborn child.
The points raised in the foregoing paragraph seemed to have
been affirmed by the Supreme Court in Cuaycong v.
Cuaycong, 21 SCRA 1192 (1967), but with opposite results.
In Cuaycong, the Court denied the application of the
provisions of Article 1453 to establish an implied trust: Said
arguments are untenable, even considering the whole
complaint. The intention of the trustor to establish the

alleged trust may be seen in paragraphs 5 and 6. Article

1453 would apply if the person conveying the property did
not expressly state that he was establishing the trust, unlike
the case at bar where he was alleged to have expressed
such intent. Consequently, the lower court did not err in
dismissing the complaint, (at p. 1198) on the ground that
since the complaint sought to recover an express trust over
immovables, then under Article 1443 of the Civil Code, the
same may not be proved by parol evidence.
An example of the situation covered by Article 1453 may be
found in the decision in Pacheco v. Arro, 85 Phil. 505 (1950),
where the claims of respondents in cadastral case were
withdrawn relying upon the assurance and promise made in
open court by petitioners predecessor-in-interests that upon
obtaining title to the properties subject to the petition, he
would convey and assign the lots to the respondents in
accordance with their respective claims. In an action for
specific performance filed to compel the petitioner to assign
and convey the lots covered, the Court held: When the
claim to the lots in the cadastral case was withdrawn by the
respondents relying upon the assurance and promise made
in open court by . . . the predecessor-in-interests of the
petitioners, a trust or a fiduciary relation between them
arose, or resulted therefrom, or was created thereby. (at pp.
514-515) Consequently, the Court held that such trustee
cannot invoke the statute of limitations to bar the action and
defeat the right of the cestuis que trust.
Earlier, in Martinez vs. Grao, 42 Phil. 35 (1921), the Court
held that a person who, before consolidation of property in
the purchaser under a contract of sale with pacto de retro,
agrees with the vendors to buy and administer the property
until all debts constituting an encumbrance thereon shall be
paid, after which the property shall be turned back to the
original owner, is bound by such agreement, and becomes in
effect a trustee to hold and administer the property in such
character. The principle was reiterated in Cristobal v. Gomez,
50 Phil. 810 (1927).
In reiterating the Martinez ruling, the Court in Heirs of Emilio
Candelaria v. Romero, 109 Phil. 500 (1960), held
The trust alleged to have been created,
in our opinion, is an implied trust. As
held, in effect, by this Court in the case
of Martinez vs. Grano (42 Phil., 35),
where property is taken by a person
under an agreement to hold it for, or
convey it to another or the grantor, a
resulting or implied trust arises in favor
of the person for whose benefit the
property was intended. This rule, which
has been incorporated in the new Civil
Code in Art. 1453 thereof, is founded
upon equity. The rule is the same in the
United States, particularly where, on the
faith of the agreement or understanding,
the grantee is enabled to gain an
advantage in the purchase of the
property or where the consideration or

part thereof has been furnished by or for

such other. Thus, it has been held that
where the grantee takes the property
under an agreement to convey to
another on certain conditions, a trust
results for the benefit of such other or
his heirs, which equity will enforce
according to the agreement. (189 C.J.S.
960). It is also the rule there that an
implied trust arises where a person
purchases land with his own money and
takes a conveyance thereof in the name
of another. In such a case, the property
is held on a resulting trust in favor of the
one furnishing the consideration for the
transfer, unless a different intention or
understanding appears. The trust which
results under such circumstances does
not arise from contract or agreement of
the parties, but from the facts and
circumstances, that is to say, it results
because of equity and arises by
implication or operation of law. (See 89
C.J.S. 964-968). (at pp. 502-503)
f. Donation of Property to a Donee Who Shall Have No
Beneficial Title
Art. 1449. There is also an
implied trust when a donation is
made to a person but it appears
that although the legal estate is
transmitted to the donee, he
nevertheless is either to have no
beneficial interest or only a part
thereof.
Under Article 1449 of the Civil Code, there is an implied trust
when a donation is made to a person but it appears that
although the legal estate is transmitted to the donee, he
nevertheless is either to have no beneficial interest or only a
part thereof. In such a situation, the donor is deemed to have
become the beneficiary under an implied trust arrangement.
Lopez and PNB classify the arrangement under Article 1449
as a resulting trust; for obvious reasons, we agree with such
a position.

47
other half would be held by her for the benefit of a younger
brother, coupled with a deed of waiver later on executed by
the daughter that she held the land for the common benefit
of her brother, the Court held that the arrangement created
an implied trust in favor of the brother under Article 1449 of
the Civil Code.
Adaza is quite a curious ruling for two reasons. Firstly, if the
donation to the daughter was made by the father with the
express directive that the daughter would take title for her
benefit and that of her younger brother, would that not
constitute an express trust, or one that is created by the
express intention of the father? Secondly, did not the waiver
constitute a written acknowledgment on the part of the
trustee that the took title for the benefit of the brother
also, and thereby constitute competent evidence to support
an express trust arrangement?
g. Land Passes By Succession But Heir Places Title
into a Trustee
Art. 1451. When land passes by
succession to any person and he
causes the legal title to be put in
the name of another, a trust is
established by implication of law
for the benefit of the true owner.
Under Article 1451 of the Civil Code, when land passes by
succession to any person and he causes the legal title to be
placed in the name of another, a trust is established by
implication of law for the benefit of the true owner.
Both PNB and Lopez characterize the implied trust
arrangement covered under Article 1451 as resulting trust.
We agree with such characterization.

In has been opined that the resulting trust covered under

Article 1449 is analogous to, but should not be confused
with, the fideicommissary substitution under Article 863 of
the Civil Code, wherein the testator designates a person as
an heir charging him to deliver to another person the whole
or part of the inheritance. (Coquia, Jorge R., The Doctrine of
Implied Trust, 310 SCRA 486, 492). Yet, under the old Civil
Code, it was observed by the Court in Perez v. Garchitorena
and Casimiro, 54 Phil. 431(1930), that a fideicommissary
substitution is not equivalent to the English trust.

The language of Article 1451, as it limits its application to

land, may be taken to mean that no such implied trust arises
when it comes to other types of property, especially as to
movable properties, when the prevailing doctrine is that he
who possess movable is presumed to be the rightful owner.
That would perhaps be an erroneous conclusion for the
following reasons: Firstly, Article 1451 limits its application to
land because the principal of implied trust it embodies is
most appropriate to registered land, where title issued in the
name of the trustee, without indication that he holds the
same under fiduciary undertakings, can be an occasion to
abuse. Secondly, the enumeration of the applicability of
implied trust under Article 1451 and those of other articles,
is not deemed to be on an exclusive basis as clearly
expressed in the language of Article 1447: The enumeration
of the following cases of implied trust does not exclude
others established by the general law of trust.

Under the New Civil Code, in Adaza v. Court of Appeals, 171

SCRA 369 (1989), where the father donated a piece of land
in the name of the daughter but with verbal notice that the

Article 1451 should be read to cover the situation when the

property inherited is registered in anothers name as full
owner rather than as trustee, for in the latter case that

would clearly be an express trust.

Article 1451 should also be distinguished from the situations
covered by Article 1456 where property is acquired through
fraud or mistake (discussed hereunder), because under
Article 1451, the placing of title in the name of another (the
trustee) is done purportedly with the knowledge and consent
of the cestui que trust. What makes the arrangement under
Article 1451 an implied trust arrangement is the lack of clear
purpose or intention on why the heir caused legal title to be
put in another persons name. Article 1451 does not cover a
situation where the person takes title to the inherited land
acknowledging clearly that he does so for the benefit of the
heir, for that would be an express trust, except for the fact
that title in registered fully in the name of such person, and
not expressly as trustee.
The doctrine covered in Article 1451 has for its basis the
decisions of the Supreme Court under the old Civil Code that
did not contain provisions on trusts. Thus, in Bargayo v.
Camumot, 40 Phil. 857 (1920), the Court held that that the
co-owner or co-heir who is in possession of an inheritance
pro indiviso for himself and in representation of his coowners or co-heirs, if, as such owner, he administers or takes
care of the rest thereof with the obligation of delivery it to
his co-owners or co-heirs, is under the same situation as a
trustee. Bargayo however recognized the principle that when
a co-owner or co-heir refutes the co-ownership and takes
adverse possession of the property for himself alone, then
acquisitive prescription may arise in his favor to the
detriment of the other co-heirs or co-owners. Bargayo
distinguished between the rule of imprescriptibility of the
action for partition among co-owners, from the doctrine of
acquisitive prescription that allows a person to obtain title to
property by open, adverse possession.
In Castro v. Castro, 57 Phil. 675 (1932), the Court held that
one who acquires a Torrens title in his own name to property
which he is administering for himself and his siblings as heirs
in common by descent from a common ancestor may be
compelled to surrender to each of his co-heirs his
appropriate share, and a proceedings for partition is an
appropriate remedy by which to enforce such right. With
respect to the legal position taken by the brother who had
title registered in his name that he had repudiated the trust
more than ten years before the action for partition had been
filed by his siblings, and thus had acquired title by adverse
possession, the Court did not dispute the theory of
acquisitive prescription being available in such a situation
but held that it could not be applied on the basis that this
supposed repudiation of the trust first took place before
[brother cestui que trust] had reached his majority. The Court
held we are unable to see how a minor with whom another
is in trust relation can be prejudiced by repudiation of the
trust addressed to him by the person who is subject to the
trust obligation. The defendant in our opinion is not entitled
to the benefit of prescription from his supposed repudiation
of the trust. (at p. 685)
In Mabana v. Mendoza, 105 Phil. 260 (1959), where title to a
homestead was obtained pursuant to an agreement entered

into between the applicant and his co-heirs that should put
the title in his name subject to the condition that he was
merely to act as a trustee of his co-heirs, and a partition of
the property would later be effected between him and his coheirs, the Court held that there was created a relationship of
trust between the applicant and his co-heirs which gives to
the latter the right to recover their share in the property
unimpaired by the defense of prescription.
In Custodia v. Casiano, 9 SCRA 841 (1963), where the
predecessor-in-interest had bought a large tract of land on
installments, which devolved to the heirs upon his death, but
upon full payment thereof, the only male heir had caused
the title to be issued in his name with the understanding
with his co-heir that he would act as trustee, the Court held
that there being no evidence that the trust relation had even
been repudiated by said trustee, then the relationship of coownership had existed between such trustee and his sisters
and the right of the successors in interest of the said sister
to bring an action for the recovery of their shares against the
successor-in-interest of the said trustee cannot be barred by
prescription, despite the lapse of 25 years from the date of
registration of the land in the trustees name.
The decision in Mariano v. Judge De Vega, 148 SCRA 342
(1987), reminds us that the principles of implied trust under
Article 1451 do not apply when the real property is
unregistered land and no title has been issued in the name
of one of the co-owners, and the situation only shows that he
has possession and enjoyment of the property subject of the
co-ownership. No implied trust could be ascribed to the
situation according to the Court in that: The existence of
the co-ownership here argues against theory of implied trust,
for then a co-owner possesses co-owned property not in
behalf of the other co-owners but in his own behalf, (at p.
346) in accordance with the truism that possession by a coowner of the property owned in common is not necessarily
adverse possession against the other co-owners for [a]fter
all, co-owners are entitled to be in possession of the
premises, and it would not also constitute a clear repudiation
of the co-ownership itself. (at p. 346)
In Ting Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008), where a
Chinese resident had caused land to be placed in the name
of the trustee who was bound to hold the same for the
benefit of the trustor and his family in the event of death,
the application of the doctrine of a resulting trust under
Article 1451 by the heirs of the trustor could not be upheld
by the Court: This contention must fail because the
prohibition against an alien from owning lands of the public
domain is absolute and not even an implied trust can be
permitted to arise on equity consideration. (at p. 434)
h. When Trust Fund Used to Purchase Property Which
is Registered in Trustees Name
Art. 1455. When any trustee,
guardian or other person holding a
fiduciary relationship uses trust
funds for the purchase of property
and causes the conveyance to be

made to him or to a third person, a

trust is established by operation of
law in favor of the person to whom
the funds belong.

48

Under Article 1455 of the Civil Code, when any trustee,

guardian or other person holding a fiduciary relationship
uses trust funds for the purchase of property and causes the
conveyance to be made to him or to a third person, a trust is
established by operation of law in favor of the person to
whom the funds belong.
While Ramos and PNB characterize the arrangement covered
under Article 1455 as constituting a resulting trust, Lopez
holds that it is a form of constructive trust. I believe that the
better position is to treat such a situation as constituting a
resulting trust, since it comes about in breach of fiduciary
duty of loyalty that is brought about that a pre-existing
contractual relationship, i.e., agency or express trust.
Article 1455 is the operative provision governing the duty of
loyalty of the agent to the principal, as well as the trustee to
the beneficiary. A trustee is duty-bound to handle the affairs
of the trust and to apply all the properties in the trust estate
for the sole benefit of the beneficiary. In a situation where
there is a conflict between the interests of the trustee and
the beneficiary, it is the duty of the trustee to prefer that of
the beneficiary. A violation of the duty of loyalty makes the
trustee personally liable to the beneficiary for the resulting
damages. An appropriation of any business or interest that
should be for the account of the beneficiary would require
that the trustee to reimburse the profits or turn-over the
benefits to the estate trust. The principle laid down in Article
1455 covering the fiduciary duty of loyalty of the trustee is
applicable to express trusts and implied trusts.
In Camacho v. Municipality of Baliwag, 28 Phil. 466 (1914),
where evidence showed that a municipal officer received
funds from the members of the community to bid on behalf
of the municipality at a public auction of the land that was
taken over by the national government, and who after many
years claimed title in his own name, the Court held
There have been a number of cases
before this court in which a title to real
property was acquired by a person in his
own name while acting in a fiduciary
capacity, and who afterwards sought to
take advantage of the confidence
reposed in him by claiming the
ownership of the property for himself.
This court has invariably held such
evidence competent as between the
fiduciary and the cestui que trust. (at
pp. 468-469)
The Court went further to summarize the development of the
doctrine, thus
In Uy Aloc vs. Cho Jan Ling (19 Phil. Rep.,

202), the members of a Chinese club

agreed to purchase some real property
and for that purpose subscribed a fund
and placed it in the hands of the
defendant, who made the purchase in
his own name. Subsequently, he refused
to account for the rents on the property
and claimed it as his own. This court
held parol proof of the trust sufficient to
overcome the case in favor of the
defendant by reason of his registered
documents of title, and decreed that a
conveyance be made by the defendant
to the members of the association.
In Taguinot vs. Municipality of Tanay (9
Phil. Rep., 396), the plaintiffs, as heirs of
their
father,
sought
to
recover
possession of a parcel of land held by
the municipality on the strength of a
Spanish patent issued to him. It was
proved (largely by parol evidence) that
their father acted on behalf and at the
expense of the municipality in securing
the patent. The patent was retained by
the gobernadorcillo, a copy only being
issued to the patentee. The latter also
drew up a private document engaging to
execute
a
conveyance
to
the
municipality, the same being offered in
evidence.
The
municipality
had
continuously occupied the land since the
issuance of the title. The judgment of
the
court
below
dismissing
the
complaint was affirmed.
In the following cases of a similar
character, parol evidence was held not
sufficient to overcome the case made
out by the holder of the registered title:
Belen vs. Belen (13 Phil. Rep., 202);
Garen vs. Pilar (17 Phil. Rep., 132);
Balatian vs. Agra (17 Phil. Rep., 501).
Agonoy vs. Ruiz (11 Phil. Rep., 204), and
Madariaga vs. Castro (20 Phil. Rep.,
563), were both cases wherein one
person was delegated by a community
of property owners to secure in his own
name a patent from the Spanish
Government covering all their lands, the
object being to save the expense of
obtaining individual patents in the name
of each. After securing these patents,
the therein grantees ejected their
neighbors from the land covered by the
patents and respectively claimed the
land as their own. The evidence tending
to establish these facts was considered
by the court in both cases relief by
reformation of the patent or a
compulsory conveyance to the injured
persons was denied in each case,

because the rights of an innocent third

purchaser intervened. But in the first
case the injured persons were held
entitled to damages, provided they were
able to establish the same. In the
second case, however, the court
presumed a waiver of their claims by
reason of other evidence of record. The
fact that the parol evidence relied upon
in the cases cited in this paragraph to
defeat the documents of title was
carefully considered by the court,
impliedly admits its competency. It failed
in its purpose in these cases merely
because it was not sufficiently strong to
overcome the case in favor of the
holders of the registered titles. (at pp.
469)
The Court concluded in Camacho that We hold, therefore,
that the parol evidence introduced by the defendant
municipality was competent to defeat the terms of the
plaintiffs deed. It need only be added that in all such cases
as the present we have required and shall continue to
require that the proof contradicting such documents must be
clear and convincing. These qualities are apparent in the
proof offered by the defendant municipality in the case at
bar. (at p. 470)
In Sing Joco v. Sunyantung, 43 Phil. 589 (1922), where a
trusted or confidential employee of the company directly
employed fraud to induce the company to forfeit it option to
purchase a valuable large tract of land, and thereafter
caused his wife to purchase the same. In affirming the
decision of the trial court which decreed the reconveyance of
the property to the company, the Court then admitted that
from statutory law point of view only a recovery of damages
against the employee was allowed, thus: This reparation
provided for in the Civil Code and applied to the case of bar
seems to be limited to the indemnification of damages, as
we are not aware of any express provision in said Code
which imposes upon the person thus held liable, any
obligation, such as that of transferring to plaintiffs the estate
in question. (at p. 593). Nonetheless, the Court affirmed
that This specific relief [of reconveyance], however, has
already come to be applied in this jurisdiction in similar
cases, among which can be cited that of Camacho vs.
Municipality of Baliuag (28 Phil., 466.) And in the North
American law such sanction is expressly recognized, and a
transaction of this nature might be regarded as an equitable
trust by virtue of which the thing acquired by an employee
is deemed not to have been acquired for his own benefit or
that of any other person but for his principal, and held in
trust for the latter. (at p. 593, citing 21 R. C. L., 825; 2
Corpus Juris, 353). In justifying such a resolution, the Court
held
Such an act of infidelity committed by a
trusted employee calculated to redound
to his own benefit and to the detriment
of his employers cannot pass without
legal sanction. Nemo debet aliena

jactura locupletari; nemo ex suo delicto

meliorem suam conditionem facera
potest. It is an illicit act committed with
culpa and therefore, its agent is liable
(art. 1089, Civil Code), for the damage
caused
(art.
1902,
ibidem).
Not
identical, but similar, to this infidelity is
the abuse of confidence sanctioned in
our
Penal
Code
as
a
generic
circumstance,
nay
as
specific
aggravating one, and even as an
essential element of certain crimes.

49

Such principle, however, in case of this

nature is generally recognized in our
laws, since in the case of commercial
agents
(factores)
it
is
expressly
established.
Undoubtedly,
formerly
under the circumstances then prevailing
such sanction was not necessary in the
field of civil law, because its sphere of
action is the general relations of society;
but even then it was deemed necessary
expressly to protect with such sanction
the commercial relations wherein the
question of gain was involved, which is
sometimes so imperative as to ignore
everything, even the very principles of
loyalty, honesty, and fidelity. (at pp.
592-593)
A confidential employee who, knowing
that his principal was negotiating with
the owner of some land for the purchase
thereof, surreptitiously succeeds in
buying it in the name of his wife,
commits an act of disloyalty and
infidelity to his principal, and is liable for
damage. The reparation of the damage
must consist in respecting the contract
which was about to be concluded, and
transferring the said land for the same
price and upon the same terms as those
on which the purchase was made for the
land sold to the wife of said employee
passed to them as what might be
regarded as equitable trust, by virtue of
which the thing thus acquired by an
employee is deemed to have been
acquired not for his own benefit or that
of any other person but for his principal
and held in trust for the latter. (at p.
593)
In Severino v. Severino, 44 Phil. 343 (1923), the Court held

The relations of an agent to his principal

are fiduciary and it is an elementary and
very old rule that in regard to property
forming the subject-matter of the

agency, he is estopped from acquiring

or asserting a title adverse to that of the
principal. His position is analogous to
that of a trustee and he cannot
consistently, with the principles of good
faith, be allowed to create in himself an
interest in opposition to that of his
principal or cestui que trust. Upon this
ground, and substantially in harmony
with the principles of the Civil Law (see
sentence of the supreme court of Spain
of May 1, 1900), the English Chancellors
held that in general whatever a trustee
does for the advantage of the trust
estate inures to the benefit of the cestui
que trust. (Greenlaw vs. King, 5 Jur., 18;
Ex parte Burnell, 7 Jur., 116; Ex parte
Hughes, 6 Ves., 617; Ex parte James, 8
Ves., 337; Oliver vs. Court, 8 price, 127.)
The
same
principle
has
been
consistently adhered to in so many
American cases and is so well
established that exhaustive citations of
authorities are superfluous and we shall
therefore limit ourselves to quoting a
few of the numerous judicial expressions
upon the subject. The principle is well
stated in the case of Gilber vs.
Hewetson (79 Minn., 326)
A receiver, trustee, attorney, agent, or
any other person occupying fiduciary
relations respecting property or persons,
is utterly disabled from acquiring for his
own benefit the property committed to
his custody for management. This rule is
entirely independent of the fact whether
any fraud has intervened. No fraud in
fact need be shown, and no excuse will
be heard from the trustee. It is to avoid
the necessity of any such inquiry that
the rule takes so general a form. The
rule stands on the moral obligation to
refrain from placing ones self in
positions which ordinarily excite conflicts
between self-interest and integrity. It
seeks to remove the temptation that
might arise out of such a relation to
serve ones self-interest at the expense
of ones integrity and duty to another,
by making it impossible to profit by
yielding to temptation. It applies
universally to all who come within its
principle. (at pp. 350-351)
i. When Property
Mistake or Fraud

is

Acquired

Through

Art. 1456.
If property is
acquired through mistake or fraud,
the person obtaining it is, by force
of law, considered a trustee of an

implied trust for the benefit of the

person from whom the property
comes.
Under Article 1456 of the Civil Code, if property is acquired
through mistake or fraud, the person obtaining it is, by force
of law, considered a trustee under a implied trust
arrangement for the benefit of the person from whom the
property comes.
Lopez affirms that Article 1456 covers a form of constructive
trust. Philippine National Bank v. Court of Appeals, 217 SCRA
347 (1993), also confirms the arrangement covered under
Article 1456 as a constructive trust, thus
A deeper analysis of Article 1456 reveals
that it is not a trust in the technical
sense[,] for in a typical trust, confidence
is reposed in one person who is named a
trustee for the benefit of another who is
called the cestui que trust, respecting
property which is held by the trustee for
the benefit of the cestui que trust. A
constructive trust, unlike an express
trust, does not emanate from, or general
a fiduciary relation. While in an express
trust, a beneficiary and a trustee are
linked by confidential or fiduciary
relations, in a constructive trust, there is
neither a promise nor any fiduciary
relation to speak of and the so-called
trustee neither accepts any trust nor
intends holding the property for the
beneficiary. (at pp. 353-354)
By its language Article 1456 covers all types of property,
whether movable or immovable. Yet the cases that have
applied the principle in Article 1456 have often involved
immovable, specially registered parcels of land, where the
public policy is that the operative key to determine who has
title to the property is registration. When it comes to
movable property, the operation of an implied trust under
Article 1456 must contend with the public policy covered in
Article 559 of the Civil Code that possession of movable
property acquired in good faith is equivalent to title, thus
Art. 559. The possession of
movable property acquired in good
faith in equivalent to a title.
Nevertheless, one who has lost any
movable or has been unlawfully
deprived thereof, may recover it
from the person in possession of
the same.
If the possessor of a movable lost
or of which the owner has been
unlawfully deprived, has acquired it
in good faith at a public sale, the
owner cannot obtain its return
without reimbursing the price paid

therefore.

50

The second part of Article 559 offers the same principle of

recovery on the part of the true owner of a movable that is
similar to the implied trust doctrine under Article 1456:
Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person
in possession of the same.
(1) Application of Principle under the Old Civil Code
Lopez affirms that Article 1456 covers a form of constructive
trust. Philippine National Bank v. Court of Appeals, 217 SCRA
347 (1993), also confirms the arrangement covered under
Article 1456 as a constructive trust, thus
A deeper analysis of Article 1456 reveals
that it is not a trust in the technical
sense[,] for in a typical trust, confidence
is reposed in one person who is named a
trustee for the benefit of another who is
called the cestui que trust, respecting
property which is held by the trustee for
the benefit of the cestui que trust. A
constructive trust, unlike an express
trust, does not emanate from, or general
a fiduciary relation. While in an express
trust, a beneficiary and a trustee are
linked by confidential or fiduciary
relations, in a constructive trust, there is
neither a promise nor any fiduciary
relation to speak of and the so-called
trustee neither accepts any trust nor
intends holding the property for the
beneficiary. (at pp. 353-354)
(1) Application of Principle under the Old Civil Code
The equity principle now expressed in Article 1456 first found
expression in Gayondato v. Insular Treasurer, 49 Phil. 244
(1926). In Gayondato, where a mother and her minor
daughter inherited a large tract of land, and had it applied
for cadastral survey, but title was mistakenly issued only in
the name of the mother, the Court held that courts of equity
will impress upon the title, a condition which is generally in a
broad sense termed constructive trust in favor of the
defrauded party, but the use of the word trust in this sense
is not technically accurate and is not the kind of trust.
In the application of the underlying equity principle now
contained in Article 1456, the Court has always emphasized
that in spite of the proceedings under the Torrens system of
registration being in rem, and the title issued thereto being
considered imprescriptible and indefeasible, the Torrens
system does not prevent the cestui que trust under an
implied trust to sue for the recovery of the land in the action
for reconveyance, whenever the property is acquired through
mistake or fraud, since the person obtaining the registered
title is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property

comes.

nothing. (at pp. 254-255)

In Severino v. Severino, 44 Phil. 343 (1923), where the uncle

who was acting as agent or administrator of the property
belonging to a niece, had procured through fraud a Torrens
title over said property in his name, it was held that the
uncle was obliged to surrender the property to the niece and
transfer title to her.
In Laureano v. Stevenson, 45 Phil. 252 (1923), a certificate of
title under the Torrens system was mistakenly issued in favor
of petitioner Kilayko covering not only the parcel of land he
bought from Laureano, but including another adjacent land
which remained the property of his seller. When the creditors
of Kilayko had levied upon all the properties covered by the
title to enforce a judgment debt obtained against Kilayko,
Laureano then learned of the mistake committed during the
registration proceedings which had become final and
executory. In determining whether Laureano could legally
prevent the public sale of properties registered under the
Torrens system in the name of Kilayko, the Court held
The fundamental principles governing
the Torrens system are well known.
Ordinarily if one tasks no steps to
protect his property interests at the time
of the cadastral survey, he is estopped
to dispute the title. He has one year
from the issuance of the decree to
allege and prove fraud. But he may not
wait longer than this period to assert his
rights. And were this an ordinary
registration case, we would reach a
conclusion
satisfactory
to
the
appellants. But we think that there is
more to the case than this.
It must not be forgotten that Kilayco
never laid claim to this property; that
the two lots Nos. 4267 and 4289
covered by the certificate of title No.
830 were mistakenly registered in the
name of Eugenio Kilayco; that the court
did not have jurisdiction to confirm the
title of said two lots either in favor of
Eugenio Kilayco or of anybody else, for
the reason that no petition for title was
filed, no trial was held, no evidence was
presented, and no judgment was
rendered regarding these two lots in the
land registration proceedings; that
Kilayco never asserted any right of
ownership over the property; that the
rent was paid to Laureano; and that
judgment was obtained in the courts in
favor
of
Laureano
through
the
acquiescence and consent of Kilayco.
Kilayco was, in effect, merely holding
the title of the property in trust for
Laureano. The creditors of Kilayco had in
the property, which, in this case, was

In De Ocampo v. Zaporteza, 53 Phil. 442 (1929), where it was

determined that an instrument, which did not express the
true contract between the parties, but which nevertheless
became the basis upon which the defendants obtained the
amendment of the decree of adjudication by which they
received a certificate of transfer of title covering more than
the number of lots due them, the Court held that
application must here be made of the doctrines upheld in
the cases of Uy Aloc vs. Cho Jan Ling (19 Phil., 202);
Camacho vs. Municipality of Baliuag (28 Phil., 466); and
Severino vs. Severino (44 Phil., 343), to the effect that the
defendants only hold the certificate of transfer in trust for
the plaintiffs with respect to the portion of the lot planted
with 1,300 coconut trees; and they are therefore bound to
execute a deed in favor of the plaintiff, transferring to them
said portion planted with 1,300 coconut trees. (at p. 445)
In Escobar v. Locsin, 74 Phil. 86 (1943), the designated
agent, taking advantage of the illiteracy of the principal,
claimed for himself the property which he was designated to
claim for the principal and managed to have it registered in
his own name and became part of his estate when the agent
died. The Court held that the estate was in equity bound to
execute the deed of conveyance of the lot to the cestui que
trust: A trustsuch as that which was created between the
plaintiff and Domingo Sumangilis sacred and inviolable.
The Courts have therefore shielded fiduciary relations
against every manner of chicanery or detestable designed
cloaked by legal technicalities. The Torrens system was
never calculated to foment betrayal in the performance of a
trust. (at p. 87).
In Pacheco v. Arro, 85 Phil. 505 (1950), the Court held that
When the claim to the lots in the cadastral case was
withdrawn by the respondents relying upon the assurance
and promise made in open court by . . . the predecessor-ininterest of the petitioners, a trust or fiduciary relation
between them arose, or resulted therefrom, or was created
thereby. The trustee cannot invoke the statute of limitations
to bar the action and defeat the right of the cestui que
trustent. (at pp. 514-515)
The reason why Pacheco is covered under Article 1456,
rather than under Article 1453 (When property is conveyed
to a person in reliance to his declared intention to hold it for,
or transfer is to another or the grantor) is because the
action for reconveyance was being filed against the
successors-in-interest of the person who gave such a
declaration, and consequently, the property held in trust
passed to the heirs by way mistake, and rightfully covered
under Article 1456. This state of things was acknowledged
years later by the Supreme Court in Canezo v. Rojas, 538
SCRA 242 (2007), where it held:
Assuming that such a[n express trust]
relation existed, it terminated upon
Cripulos death
in 1978. A trust
terminates upon the death of the trustee
where the trust is personal to the

trustee in the sense that the trustor

intended no other person to administer
it. If Crispulo was indeed appointed as
trustee of the property, it cannot be said
that such appointment was intended to
be conveyed to the respondents or any
of Crispulos other heirs. Hence, after
Crispulos death, the respondent had no
right to retain possession of the
property. At such point, a constructive
trust would be created over the property
by operation of law. Where one
mistakenly
retains
property
which
rightfully
belongs
to
another,
a
constructive trust is the proper remedial
device to correct the situation. (at p.
257)

51

In Sevilla v. De los Angeles, 97 Phil. 875 (1955), one of the

heirs of decedent Felix Sevilla, through fraudulent
representation, succeeded in having the original certificate
of title issued in the name of the heirs of Felix Sevilla
cancelled and a new one issued in her name only and
thereby enabling her to possess the land and appropriate the
produce therefor. The Court held that This was of acquiring
title creates what is called constructive trust in favor of the
defrauded party and grants to the latter a right to vindicate
the property regardless of the lapse of time. (at p. 879;
italics supplied)
(2) Application under the New Civil Code
In Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958), the
Supreme Court recognized that Article 1456 merely
expresses a rule already recognized by our courts [first
enunciated in Gayondato v. Insular Treasurer, 49 Phil. 244
(1926)] prior to the [New Civil] Codes promulgation. (at p.
264)
Shortly thereafter, in Avecilla v. Yatco, 103 Phil. 666 (1958),
the Court held that the implied trust arrangement imposed
by Article 1456 allows the aggrieved party a remedy to seek
reconveyance against the party who has employed fraud,
thus
But the right of action in this
constructive trust should be exercised
against the trustee, who caused the
fraud, and not against an innocent
purchaser for value, as the Susana
Realty, Inc. This right may also be
exercised against Santiago Cruz who
also obtained title to the land with
knowledge of the fraud, but not with
regard to Susana Realty, Inc. which, as
already stated, has bought the property
in good faith. The remedy in this case of
the defrauded heirs is to bring an action
for damages against those who caused
the fraud or were instrumental in
depriving them of the property. Their

action cannot reach an innocent

purchaser for value who is protected by
law. (at p. 670)
Likewise, under the New Civil Code, the Court reiterated the
principle that public policy demands that a person guilty of
fraud or at least, of breach of trust, should not be allowed to
use a Torrens title as a shield against the consequences of
his own wrongdoing. In Vda. de Jacinto v. Vda. de Jacinto, 5
SCRA 370 (1962), the Supreme Court held
Even in the absence of fraud in
obtaining registration or even after the
lease of one year after the issuance of a
decree of registration, a co-owner of
land who applied for and secured its
adjudication and registration in his name
knowing that it had not been allotted to
him in the partition, may be compelled
to convey the same to whoever received
it in the apportionment, so long as no
innocent third party had acquired rights
therein, in the meantime for a valuable
consideration. Indeed, any rule to the
contrary
would
sanction
ones
enrichment at the expense of another.
Public policy demands that a person
guilty of fraud or, at least, of breach of
trust, should not be allowed to use a
Torrens title as a shield against the
consequences
of
his
wrongdoing
(Cabanos vs. Register of Deeds, etc., 40
Phil. 620; Severino vs. Severino, 41 Phil.
343).
Lastly, the claim of the heirs of Pedro
Jacinto that the latter had acquired
ownership of the property in litigation by
prescription, is likewise untenable. As
we had recently held in Juan, et a. vs.
Zuiga, G.R. No. L-17044, April 28, 1962,
an action to enforce a trust is
imprescriptible. Consequently, a co-heir
who, through fraud, succeeds in
obtaining a certificate of title in his
name to the prejudice of his coheirs, is
deemed to hold the land in trust for the
latter, and the action by them to recover
the property does not prescribe. (at pp.
376-377)
The Court has since then re-affirmed under the New Civil
Code the principle that registration of property by one
person in his name, whether by mistake or fraud, the real
owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real
owner, which would justify an action for reconveyance

In Gonzales v. Jimenez, 13
SCRA 80 (1965), where unregistered
land was sold by the father to a buyer

who took possession thereof, but

subsequently, the father managed to
obtain a free patent over the same
property in the name of the son to
whom an original certificate of title was
issued.

In Fabian v. Fabian, 22 SCRA

231 (1968), where co-heirs entered into
an extrajudicial settlement of the estate
of the decedent, excluding therefrom
some of the other forced heirs, and
subsequently obtaining original and
transfer certificates of title in their
names, the co-heirs who obtained title
through fraud were considered trustees
under an implied trust for the benefit of
the other co-heirs.
In Buena v. Reyes, 27 SCRA
1179 (1969), where the husband of one
of the co-heirs was designated by all the
heirs of the decedent to file an answer
in the cadastral proceedings and to
obtain title to the property left by the
decedent in behalf of all heirs, but
instead only obtained title in his name
and his two brothers, the Court ruled the
creation of a constructive trust.
In Magallon v. Montejo, 146
SCRA 282 (1986), where conjugal
property was adjudicated entirely in the
name of the surviving husband and
leaving out the children from their
successional rights to one-half of the
property pertaining to their deceased
mother, the Court held that a
constructive trust under Article 1456
had been duly constituted with the
surviving father as the trustee of a
constructive trust, [with] an obligation to
convey to the private respondents that
part of the land in question to which she
now claims an ostensible title, said
portion rightfully pertaining to the
respondents deceased mother as her
share in the conjugal partnership. (at p.
290)
In Municipality of Victorias v.
Court of Appeals, 149 SCRA 32 (1987),
where registered land previously sold to
the municipal corporation, but which
failed to duly register the sale, was
erroneously
passed
by
intestate
succession to the heirs of the seller, it
was held that notwithstanding the
irrevocability of the Torrens title the
trustee and his successors-in-interest
were bound to execute the deed of
reconveyance: As the land in dispute is
held by private respondents in trust for

the Municipality of Victorias, it is logical

to conclude that the latter can neither
be deprived of its possession nor be
made to pay rentals thereof. Private
respondent is in equity bound to
reconvey the subject land to the cestui
que trust, the Municipality of Victorias.
The
Torrens
system
was
never
calculated to foment betrayal in the
performance of a trust. (at p. 45)

In Adille v. Court of Appeals,

157 SCRA 455 (1988), where one of the
co-owners exercised for himself alone
the right to redeem the property sold
under a sale a retro and placed title
solely in his name, he was held to have
taken title as trustee under an implied
trust governed under Article 1456.

Pajarillo
v.
Intermediate
Appellate Court, 176 SCRA 340 (1989),
where the mother had previously validly
donated the land to a daughter, and
latter sold it again to a son who knew of
the donation, the latter having received
title thereto as a trustee of an implied
trust under Article 1456.

52

Yet, the Supreme Court has not been consistent in its

position. Let us first take the decision in Heirs of Tanak
Pangaaran Patiwayon v. Martinez, 142 SCRA 252 (1986),
where the decedent during his lifetime had married
legitimately three successive times, but without liquidation
of the conjugal partnerships formed during the first and
second marriages. The only male issue managed to convince
his co-heirs that he should act as administrator of the
properties left by the decedent, but instead obtained a
certificate of title in his own name to the valuable piece of
property of the estate. It was held by the Court that where
the son, through fraud was able to secure a title in his own
name to the exclusion of his co-heirs who equally have the
right to a share of the land covered by the title, an implied
trust was created in favor of said co-heirs, and that said son
was deemed to merely hold the property for their and his
benefit:
The rules are well-settled that when a
person through fraud succeeds in
registering the property in his name, the
law
creates
what
is
called
a
constructive or implied trust in favor
of the defrauded party and grants the
latter the right o recover the property
fraudulently registered within a period of
ten years. (See Ruiz v. Court of Appeals,
79 SCRA 525, 537). (at p. 261, citing
Gonzales v. Jimenez, Sr., 13 SCRA 80, 82
[1965])
Just a few months later, in Mariano v. Judge De Vega, 148

SCRA 342 (1987), where the children of the decedent by his

second marriage had taken over properties of the estate,
excluding therefrom grandchildren of the decedent by his
first marriage, the Court held that the situation is one that is
governed by the rules of co-ownership under Article 494 of
the Civil Code which provides that no prescription shall run in
favor of a co-owner or co-heir against his co-owners or coheirs so long as he expressly or impliedly recognizes the coownership. In view of a clear repudiation of the co-ownership
duly communicated to the co-heirs, no prescription occurred
and the filing of the action for partition and delivery of
possession covering their corresponding shares 28 years
after the death of the decedent was deemed not filed out of
time.
In Tomas v. Court of Appeals, 185 SCRA 627 (1990), while a
large tract of land was still unregistered land, the owners
sold portions thereof to the vendees covered by tax
declarations, and possession and control thereof was
transferred to the vendees. Yet when the owners had sought
registration of the property under the Torrens system, they
included the portions already sold and obtained title thereto
in their names. Upon discovery thereof, the vendees filed an
action for reconveyance to which the registered owner
pleaded finality of the decree of registration. The Court held
that an implied trust was constituted under Article 1456
thus: In the present case, prescription will not lie in favor of
the petitioners [owners-sellers] who are not even in
possession of the disputed land. (at p. 633).

In Noel v. Court of Appeals, 240 SCRA 78 (1995), where the

surviving wife sold the entirety of a parcel of land bought
during the marriage, without the authority from the forced
heirs of the deceased husband, the Court in ruling that that
the sale of the other half constituted the buyer as trustee
under an implied trust under Article 1456, held
In Diaz v. Gorricho, 103 Phil. 261 (1958),
the Court said that Article 1456 merely
expresses
a rule
recognized
in
Gayondato v. Insular Treasurer, 49 Phil.
244 (1926). Applying said rule, the
Gayondato court held that the buyer of
a parcel of land at a public auction to
satisfy a judgment against a widow
acquired only one-half interest on the
land corresponding to the share of the
widow and the other half belonging to
the heirs of her husband became
impressed with a constructive trust in
behalf of said heirs. (at pp. 88-89)
(3) Recent Applications of Article 1456
Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401
(2007), paid lip service to the principle embodied in Article
1456 that if property is acquired through mistake or fraud,
the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from

whom the property comes.

In Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1
(2007), the Court held that An action for reconveyance
respects the decree of registration as incontrovertible but
seeks the transfer of property, which has been wrongfully or
erroneously registered in other persons names, to its rightful
and legal owners, or to those who claim to have a better
right. There is no special ground for an action for
reconveyance. It is enough that the aggrieved party has a
legal claim on the property superior to that of the registered
owner and that the property has not yet passed to the hands
of an innocent purchaser for value. (at pp. 13-14).
Lumocso also held that cases brought under Article 1456
may also be considered as actions to remove cloud on ones
title as they are intended to procure the cancellation of an
instrument constituting a claim on petitioners alleged title
which was used to injure or vex them in the enjoyment of
their alleged title. (at p. 15)
Pasio v. Monterroyo, 560 SCRA 739 (2008), held that Under
the principle of constructive trust, registration of property by
one person in his name, whether by mistake or fraud, the
real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real
owner, which would justify an action for reconveyance.
(Citing Heirs of Tabia v. Court of Appeals, 516 SCRA 431
[2007]) In the action for reconveyance, the decree of
registration is respected as incontrovertible but what is
sought instead is the transfer of the property wrongfully or
erroneously registered in anothers name to its rightful
owner or to one with a better right. (Ibid) If the registration
of the land is fraudulent, the person in whose name the land
is registered holds it as a mere trustee, and the real owner is
entitled to file an action for reconveyance of the property.
(citing Mendizabel v. Apao, 482 SCRA 587 [2006]) (at p.
751)

In Pasio the respondents were able to establish that they

have a better right to the parcel of land since they had long
been in possession of the property in the concept of owners,
by themselves and through their predecessors-in-interest.
Therefore, despite the irrevocability of the Torrens titles
issued in the names of the petitioners and even if they are
already the registered owners under the Torrens system, the
petitioners may still be compelled under the law to reconvey
the property to respondents.
In Lopez v. Court of Appeals, 574 SCRA 26, where in her
notarial will the testator expressed that she wished to
constitute a trust fund for her paraphernal properties,
denominated as Fideicomiso de Juliana Lopez Manzano
(Fideicomiso), to be administered by her husband. . . Twothirds (2/3) of the income from rentals over theses properties
were to answer for the education of deserving but needy
honor students, while one-third (1/3) was to shoulder the
expenses and fees of the administrator, but that eventually
in the probate of the will the properties were adjudicated to

53
the husband as sole heir, the Court ruled that On the
premise that the disputed properties are the paraphernal
properties of Juliana which should have been included in the
Fideiocomiso, their registration in the name of Jose would be
erroneous and Joses possession would be that of a trustee in
an implied trust . . . [which from] the factual milieu of this
case is provided in Article 1456 of the Civil Code. . . . The
apparent mistake in the adjudication of the disputed
properties to Jose created mere implied trust of the
constructive variety in favor of the beneficiaries of the
Fideicomiso. (at pp. 38)
Recently, in Luna, Jr. v. Cabales, 608 SCRA 206 the court held
that The registration of a property in ones name, whether
by mistake or fraud, the real owner being another, impresses
upon the title so acquired the character of a constructive
trust for the real owner. The person in whose name the land
is registered holds it as a mere trustee, and the real owner is
entitled to file an action for reconveyance of the property.
The Torrens system does not protect a usurper from the true
owner. (at p. 206)