Report on Trust

Article 1440-1457
Submitted by:

Alcantara, Santiago
Canonizado, Ged
Dizon, Pilar
Encarnacion, Rafael
Glovasa, Imelou
Lincod, Daryl
Rayoso, Sunshine
Serrano, Marianne
Tagala, Mark Joseph
Tayamora, Sherwin
Ysulan, Jenalyn
Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

Report on Trust (Article 1440-1457)

Article 1440

Concept of Trust.
 It is a fiduciary relationship between one person having an equitable ownership in
property and another owning 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 for the benefit of the former.
Characteristics of Trust (Morales v. CA, G.R. No. 117228, June 19, 1997)
 It is a relationship.
 It is a relationship of fiduciary character.
 t is a relationship with respect to property, not one involving merely personal duties.
 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.
 It arises as a result of a manifestation of intention to create the relationship.
Parties to an express trust.
 Trustor
 Trustee
o May be a natural or a legal entity.
 Beneficiary
o May be a natural or a legal entity.
o It is not necessary to the creation of a trust that the beneficiary be names or
identified or even be in existence at the time of its creation.
Trust property.
 The subject-matter of a trust may be any property of value – real, personal, funds or
money, or choses in action.
 It must consist of property actually in existence, in which the trustor has a
transferable interest or title.
 It cannot be a mere expectancy without right or interest or a mere interest in the
performance of a contract although such interest is in the nature of a property right.
Nature of ownership of trustee
 The trust property is owned by two persons at the same time.
 The ownership of trustee is a mere matter of form and nominal.
 In legal theory, the trustee is an owner.
Nature of ownership of beneficiary.
 The beneficiary can only transfer his equitable title to the trust property.
 The beneficiary has no obligation to the trust, unless he is also serving in some other
capacity.
Character of office of trustee.
 As a principal
 As an agent (in some cases)
 As a fiduciary
Trust distinguished from other relations.

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Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

 What distinguishes a trust from other legal relations is the separation of the legal title
and the equitable ownership of the subject property between two or more persons.
 Trust v. Bailment
 Trust v. Donation
 Trust v. Contract
 Trust v. Debt

Article 1441. Trusts are either express or implied. Express trusts are created by the
intention of the trustor or the parties. Implied trusts come into being by operation of
law.

Classification of trusts.
1. Creation – From the viewpoint of the creative force bringing them into existence, they
may be either:
 Express trust (Arts. 1443 – 1446.) or one which can come into existence only
by the execution of an intention to create it by the trustor or the parties; or
 Implied trust, or one which comes into being by operation of law (Arts. 1447
– 1457; this latter trust being either:
1. Resulting trust or one in which the intention to create a trust is implied
or presumed in law; or
2. Constructive trust or one imposed by law irrespective of, and even
contrary to, any such intention for the purpose of promoting justice,
frustrating fraud, or preventing unjust enrichment. It is otherwise
known in American law as trust ex maleficio, trust ex delicto, and de
son tort..
In other words, a trust intentional in fact is an express trust; one intentional in law is a
resulting trust; and one imposed irrespective of intention is a constructive trust.
The classification of “voluntary” and “involuntary” trusts is sometimes employed in
referring to express trusts and implied trusts.

2. Effectivity. – From the viewpoint of whether they become effective after the deatih of the
trustor or during his life, they may be either:
Testamentary trust or one which is to take effect upon the trustor’s death. It is usually
included as part of the will and does not have a separate trust deed (Tuazon vs
Caluag, [Unrep.] 96 Phil 981 [1995]; Lorenzo vs Posadas, 64 Phil. 353 [1937].); or
Trist inter vivos (sometimes called “living trust”) or one established effective during
the owner’s life. The grantor executes a “trust deed,” and once the trust is created,
legal title to the trust property passes to the named trustee with duty to administer the
property for the benefit of the beneficiary.

3. Revocability. – From the viewpoint of whether they may be revoked by the trustor, they
may be either:
Revocable trust or one which can be revoked or cancelled by the trustor or another
individual given the power; or
Irrevocable trust or one which may not be terminated during the specified term of the
trust.

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

Whether a trust is revocable or irrevocable depends on the wordings or language used

in the creation of the trust. It will be presumed revocable unless the creator has
expressed a contrary intention in the trust deed.

Elements of express trust.

Basically, these elements include:
1. A competent trustor and trustee;
2. An ascertainable trust res; and
3. Sufficiently certain beneficiaries
The trustee must also have some power of administration other than a mere duty to
perform a contract although the contract is for some 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. (Mindanao Development Authority vs. Court of Appeals, 113
SCRA 429 [1982].) Since the trustee takes title to property and administers it, it
follows that he must be capable of owning property.

Consideration is not required to establish a trust.

Article 1442. The Principles of the general law of trusts, insofar as they are not in
conflict with this Code of Commerce, the Rules of Court and special laws are hereby
adopted.

Principles of the general law of trusts adopted.

This provision is similar to Article 1432 which adopts the principle of estoppel as known
in American jurisprudence. “This article incorporates a large part of American law on
trusts and thereby the Philippine legal system will be amplified and will be rendered more
suited to a just and equitable solution of many questions” (Report of the Code
Commission, p. 60; see 24 Roa, Jr. vs. Court of Appeals, 123 SCRA 3 [1983], under
Art, 1456.)

Pursuant to Article 1442, it has been held that the question of whether the proceeds from
the sale of property held in trust constitute profits or not within the purview of the
internal revenue laws depends upon the provisions of the latter, regardless of the will of
the trustor. (Perez vs. Araneta, 4 SCRA 430 [1962].)

A trust or a provision in the terms of a trust would be invalid if its enforcement is against
the law even though its performance does not involve the commission of a criminal or
tortious act. It likewise must follow that what the parties are not allowed to do expressly
is one that they also may not do impliedly as, for instance, in the guise of a resulting trust.
(Heirs of L. Yap vs. Court of Appeals, 312 SCRA 603 [1999].)

Termination of express trust

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Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

1. Expiration of period fixed. – Ordinarily, a trust instrument states the termination of date of
the trust or the event (e.g. when the beneficiary reaches a certain age) on which the trustor
wishes it to terminate.

2. Accomplishment of purpose. – If the trust purpose (e.g. education of a child) is fulfilled

before the date, the trust will terminate; otherwise, on the date specified even when the
purpose has not yet been fulfilled. Of course, whether or not a date is expressly stated, a trust
will terminate when its purpose has been fulfilled, or has became unlawful or impossible.

3. Mutual agreement of beneficiaries. – Under some circumstances, the trust may terminate
by mutual agreement of all the beneficiaries.

4. Exercise of power to terminate. – Under the terms of the trust deed, the trustor, trustee, or
someone else may have the power to terminate the trust.

Upon termination of a trust, any balance of funds reverts to the trustor or is disposed of in
accordance with the instructions contained in the trust. If the trust does not make any
provision, they can be distributed to those entitled thereto under the law.

Article 1443. No express trusts concerning an immovable or any interest therein may be
proved by parol evidence.

Rule 130
B. DOCUMENTARY EVIDENCE

3. Parol Evidence Rule

Section 9. Evidence of written agreements. — When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after
the execution of the written agreement.
The term "agreement" includes wills.

Article 1444. No particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended.

Civil law expert Tolentino further elucidated on the express trust:

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Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

“No particular form of words or conduct is necessary for the manifestation of intention to
create a trust. It is possible to create a trust without using the word trust or trustee.
Conversely, the mere fact that these words are used does not necessarily indicate an intention
to create a trust. The question in each case is whether the trustor manifested an intention to
create the kind of relationship which to lawyers is known as trust. It is immaterial whether or
not he knows that the relationship which he intends to create is called a trust, and whether or
not he knows the precise characteristics of the relationship which is called a trust.”- (Heirs of
Maximo Labanon vs. Heirs of Constancio Labanon, G.R. No. 160711, August 14, 2004)

Article 1445. No trust shall fail because the trustee appointed declines the designation,
unless the contrary should appear in the instrument constituting the trust.

Art. 1445 governs cases in express trusts where the trustee declines the trust.
Recall that this article is part of the provisions on express trusts, so in this case, a trustor has
expressly designated a person to be the trustee of the trust and the said designated person,
does not want or cannot assume the responsibility, and so, declines to accept.

As a rule, acceptance of a trust by the trustee designated is necessary to charge him with
the office of the trustee and administration of the trust

However, the designated trustee’s acceptance of the trust is not necessary for the validity
or existence of the trust. This is the general rule.

The trust is still created even though the trustee refuses to be such, unless trustee’s
acceptance is made a requisite for the validity of the trust, in the instrument creating the
trust.

If the designated Trustee declines the trust, the courts may appoint a trustee to fill the
office.

The appointment of the trustee is done by the RTC:

(a.) where the will was allowed (if the trust is created pursuant to a will); or
(b.) where the property or portion thereof affected by the trust is situated (if trust is
created by a written instrument other than a will)

What is the legal effect of declination? - The refusal by the trustee frees him from any legal
or equitable duty or liability under the trust.

The trustee who accepts does not assume personal liability on the trust as to properties
outside the trust estate

After acceptance by the trustee, renunciation of a trust may only be by resignation or

retirement under the following conditions:

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Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

(a.) with court approval;

(b.) with agreement of the beneficiaries;
(c.) satisfaction of all legal liabilities of the trustee in connection with the trust

Obligations of the Trustee

not specified under the civil code, but provided under Rule 98 of the Revised Rules of Court

trustee must file a bond with the appointing court before entering into his duties. (Sec. 5,
R98, Revised Rules of Court)

the bond is conditioned on the following (Sec. 6, R98, Revised Rules of Court):

(a.) Trustee will make a true inventory of real and personal properties belonging to
him as trustee
(b.) Management and disposition of the estate according to law; faithful discharge of
trust
(c.) Render, under oath, at least once a year, true account of his management
(d.) Settlement of accounts of trustee upon expiration of the trust

Note:
trustee is generally entitled to fair compensation (Sec. 7, R98, Revised Rules of Court)
-if the compensation is not determined by the instrument creating the trust, the compensation
may be fixed by the appointing court.

Article 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.

Article 1446 deals with acceptance of the trust by the beneficiary

As a general rule, acceptance of the trust by beneficiary is necessary for its validity

(recall: the trustor himself may be the beneficiary of the trust)

When Acceptance by Beneficiary Presumed:

If the trust imposes no onerous condition upon the beneficiary, acceptance by beneficiary
is presumed if there is no proof to the contrary

If the trust imposes an onerous condition, acceptance cannot be presumed

Read together, Arts. 1445 and 1446 thus give us two of the requisites for the validity of a
trust:

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Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

(a.) Acceptance of the trust by the trustee; and

(b.) Acceptance of the trust by the beneficiary

How Express Trusts Terminated:

(a.) Destruction of the Corpus - loss of the entire trust estate (the corpus/subject matter or
‘body’ of the trust the property constituting the trust, extinguishes any legal relationship
between trustee and beneficiary

(b.) Revocation by Trustor - in revocable express trusts, the trustor may simply invoke the
revocation or termination clause. (note that unless the power to revoke has been reserved,
general rule is that express trusts are irrevocable)

(c.) Happening of condition provided for extinguishment or achievement of objective of

trust - when the trust provides conditions or events that will terminate it, the achievement or
happening terminates the trust

(d.) Merger of Legal and Beneficial Title - Trustee of an existing trust becomes the
beneficiary thereof or vice versa. A person cannot owe fiduciary duties to himself.

(e). Breach of Trust - breach of loyalty constitutes renunciation of trustee and beneficiaries
may maintain an action to remove the unfaithful trustee

(f.) Death of Trustee - Unless expressly stipulated, death, insanity, insolvency, or civil
interdiction does not necessarily terminate the trust. A new trustee will be appointed

Article 1447. 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.

Articles 1448 to 1456 of the Civil Code enumerate implied trusts, but the list according to
Article1447 is not exclusive of others which may be established by the general law on trusts
so long as the limitations laid down in Article 1442 are observed, that is, they are not in
conflict with the New Civil Code, the Code of Commerce, the Rules of Court and special
laws. (Cabacungan vs Laigo, G.R. 175073, 2011)

Concept of implied trust

 Implied trusts, also called trusts by operation of law, indirect trusts and
involuntary trusts, arise by legal implication based on presumed intention of the
parties, or on equitable principles independent of the particular intention of the
parties.
 They are those which, without being express, are deducible from the nature of the
transaction as matters of intent or, independently of the particular intention of the
parties as being inferred from the transaction by operation of law basically by reason
of equity. (Cabacungan vs Laigo, G.R. 175073, 2011)

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

Classification of implied trusts

1. Constructive trust – a trust which arises contrary to intention and in invitum, against one
who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of
wrong, or by any form of unconscionable conduct, artifice or concealment, or questionable
means, or who in any way against equity and good conscience, either has obtained or holds
the legal right to property which he ought not, hold and enjoy; characterized as fraud-defying
trust.
It is substantially an appropriate remedy against unjust enrichment, that it should be returned
by the person holding it. (Sumaoang vs Judge, RTC Br 31, Guimba, N Ecija)
Illustrated in Articles 1450, 1454, 1455, 1456

2. Resulting trusts—arise from the nature of circumstances of the consideration involved in

a transaction whereby one person becomes invested with legal title, but is obligated in equity
to hold his title for the benefit of another.
It is based on the equitable doctrine that valuable consideration, and not the legal title, is
determinative of equitable title or interest and is always presumed to have been contemplated
by the parties. (Cabacungan vs Laigo, G.R. 175073, 2011)
Illustrated in Articles 1448, 1449, 1451, 1452, 1453

Express, implied trusts compared

1. Creation of trust: Express trusts created by the intention of the trustor and parties;
implied trusts come into being by operation of law.
2. Proof of trust: Express trusts concerning immovable property cannot be proved by parol
evidence; implied trust may be proved by oral evidence.
3. Repudiation of trust: Express repudiation made known to beneficiary required to enforce
it; implied trust need no repudiation, unless there is concealment of the fact giving rise to the
trust.
4. Existence of fiduciary relations: Trustee and beneficiary linked by confidential relation
in express trust; neither a promise nor any fiduciary relation to speak of in constructive trust.
(De Leon, 9th edition 2014)

Article 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.

Purchase Money Resulting Trust (Art. 1448)

 a kind of implied resulting trust
 created in order to effectuate what the law presumes to have been the intention of the
parties in the circumstances when property is sold, and the legal estate is granted to one
party but the price is paid by another party for the purpose of having the beneficial
interest of the property

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

Requisites:

a. An actual payment of money, property or services or an equivalent, constituting valuable

consideration; and
b. Such consideration must be furnished by the alleged beneficiary of a resulting trust.

Exceptions:

a. Where A pays the purchase money and title is conveyed by absolute deed to A’s child or
to a person to whom A stands in loco parentis and who makes no express promise, a trust
does not result, the presumption being that a gift was intended;
b. Where an actual contrary intention is proved; and
c. Where the purchase is made in violation of an existing statute and in evasion of its
express provision, no trust can result in favor of the party who is guilty of fraud.

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.

Art. 1450. If the price of a sale of property is loaned or paid by one person for the benefit
ofanother 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 its is paid. The latter may redeem the property and compel a conveyance
thereof to him.

Purchase with borrowed funds:

1. Trust in favor in favor of LENDER

Gen. Rule: Nor trust in favor of the lender

2. Trust in favor in favor of Borrower

When:
 Money is borrowed to purchase property
 Conveyance is made to the lender – to secure the loan
There is an implied Trust - by operation of law.

Art.1451. When land passes by succession to any person to any person and he causes the
legal title to be put in the name of another, a trust is established by implication of the law
for the benefit of the true owner.

Case: Custodio v Casiano

FACTS: There are one brother and three sisters who agreed that the title of the land which they
inherited from their father be registered in the name of their brother Ciriaco Custodio. The three
sisters after the registration of the land took possession of the land.

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

After 25 years, the children of Ciriaco intended to sell the land, thus the children of the three
sisters instituted an action before the court to assert their right over the land. RTC rendered
decision declaring the plaintiffs and the defendants are co-owners of the land. The Court of
Appeals reversed the decision of the RTC.

ISSUE: Whether or not Ciriaco held the title of the land in a trust capacity.

HELD: The Court decided that Ciriaco is only a trustee of the land. The appellants are entitled to
their pro-rata shares notwithstanding the fact that the certificate of the registration of the land is
in his name.

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 favour of the others in proportion to the interest of each.

Case: Miguel Ossorio Foundation Inc [MJOPFI] v. Court of Appeals

FACTS: MJOPFI is a non-stock, non-profit corporation organized for the purpose of holding
title to and administering the Employees Trust Fund, established for the benefit of the employees
of VMC employees. It, along with VMC and VFC bought a Madrigal Business Park lot and
through a notarized Memorandum Agreement agreed that they are co-owners of the property and
that the ownership are stated as MJOPFI-49.59%, VMC-32.23%,VFC-18.18% and they have a
common consent that the lot they co-owned shall be registered in the name of VMC only.

When the lot is sold, VMC is subjected to a withholding tax of P6,125,625 out of which the
amount of P3,037,500 is shouldered by MJOPFI on account of its 49.59 ownership thereof.
Later MJOPFI wrote BIR , claiming for a refund of tax it erroneously paid owing to the fact that
Employees Trust it represents is exempted from income tax, consequently it is exempted from
withholding tax. But BIR is not convinced and it fails to act on it. Both CTA and CA denies the
appeals.

ISSUE: Whether the MJOPFI is estopped from claiming that the Employees Trust Fund is the
beneficial owner of 49.59% of MBP lot and VMC merely holds 49.59% in trust for Employees
Trust Fund.

IF petitioner or Employees Trust Fund is not estopped whether they have sufficiently established
that the Employees Trust is the beneficial owner of 49.59% of the MBP lot and thus entitled to
tax exemption for its share in the proceeds of the sale of the MBP lot.
HELD: The Court grants the petition. The law expressly allows a co-owner [first co-owner] of
a parcel of land to register his proportionate share in the name of his co-owner in whose name
the entire land is registered .

Therefore the Court decided that the petitioner is entitled to a tax refund of P3,037,500 which is
erroneously paid in the sale of MBP lot. The CIR is directed to refund the MJOPFI as trustee of
the Employees Trust Fund in the amount of P3,037,500 representing income tax erroneously
paid

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

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.

TRUST is based on the PROMISE or REPRESENTATION of the grantee to:

 Hold the property conveyed for, OR
 Transfer it to another or the grantor.

The rule in this Article is founded upon EQUITY 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 another.
(Rosario vs Court of Apprals, 310 SCRA 464 (1999)

Article 1453 would apply if the person conveying the property did not expressly state that he was
establishing the trust. (Cuaycong vs Cuaycongm 21 SCRA 1192 (1976)

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 grantor offers the fulfillment of the obligation when it becomes due, he
may demand the reconveyance of the property to him.
Ordinarily, the creditor will require the execution by the debtor of a mortgage (Art. 2124) or a
pledge (Art. 2093) as security for the fulfillment of the latter’s obligation. In this case, the
mortgagee or pledgee DOES NOT becomes a trustee.
BUT if an absolute conveyance of property is made instead in order to guarantee the
performance of an obligation of the grantor toward the grantee, an implied trust is created by
operation of law for the benefit of the grantor.

Article 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.

“The rule stands on the moral obligation to refrain from placing one’s self in positions which
ordinarily excite conflicts between self-interest and integrity. It seeks to remove the temptation
that might arise out of such a relation to serve one’s self-interest at the expense of one’s integrity
and duty to another, by making it impossible to profit by yielding to temptation. It applies
universally to all who come within its principle.” (Severino vs. Severino, 44 Phil. 343)
Use of Trust Funds
This is a “constructive trust” because the purpose is to prevent unjust enrichment. A trustee
should not profit out of the handling of a trust estate.
Rule: Where money held upon trust is misapplied by the trustee and placed into an unauthorized
investment in property of any nature, the investment thus made, in the absence of a bona fide
ownership by a third person, may be treated by the cestui que trust as made for his benefit.
Example
An agent using his principal’s money purchases land in his own name. He also registers it under
his name. Here, he will be considered only a trustee, and the principal is the beneficiary. The

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

principal can bring an action for conveyance of the property to himself, so long as the rights of
innocent third persons are not adversely affected. (Camacho vs. Mun. of Baliwag, 28 Phil. 466)

Reasons for the Rule

(a) Fiduciary or trust relations
(b) Estoppel
(c) To remove the temptation to place self-interest above all other things, and at the expense
of one’s integrity and duty to another. (Severino vs. Severino, 44 Phil. 343)
Cases
Sing Joco vs. Sunyantung, et al. 43 Phil 589

Facts: A trusted employee to whom confidential matters concerning the purchase of a hacienda
were disclosed, offered and succeeded in buying the hacienda in the name of his wife and not for
his employer, when the option to buy was given to the employer.
Issue: Can the employer sue his employee for damages?
Held: The act of the employee constituted a breach of the trust reposed in him and he thereby
becomes liable for the damages caused to his employer.

Escobar vs. Locsin 74 Phil. 86

Facts: The owner of a parcel of land was illiterate and could not prosecute her claim to such land
in the cadastral proceedings, so she requested defendant to help her. Defendant committed a
breach of trust by claiming the land for himself and the land was adjudicated in his favor.
Issue: May he be ordered to convey the land to the real owner?
Held: The Court held that a trust was created between plaintiff and defendant, and defendant was
ordered to reconvey the land to plaintiff.

Article 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.

Constructive Trust
 Created by law where a party acquires through mistake or fraud a legal title to property to
which another has a better right.
 In favor of the aggrieved party who is truly entitled to it or his successors-in-interest, and
grants to the latter the right to recover his or their title over the property by way of
reconveyance while the same has not yet passed to an innocent purchaser for value, in
keeping with primary principle of law and equity that one should not unjustly enrich
himself at the expense of another. (Philippine National Bank vs. Court of Appeals, 217
SCRA 347)

Philippine National Bank vs. Court of Appeals, 217 SCRA 347

FACTS: MATA is a private corporation engaged in providing goods and services to shipping
companies. Since 1966, it has acted as a manning or crewing agent for several foreign firms, one
of which is Star Kist Foods, Inc., USA (Star Kist). As payment for its services, Star Kist, through
PNB, paid MATA amounting to $ 1,400. Anther payment was erroneously effected by PNB to
MAta amounting to $14,000.

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

ISSUE: Whether or not based on a constructive trust under Article 1456 of the Civil Code, PNB
has a right to recover the said amount it erroneously credited to respondent Mata

RULING: While petitioner may indeed opt to avail of an action to enforce a constructive trust or
the quasi-contract of solutio indebiti, it has been deprived of a choice, for prescription has
effectively blocked quasi-contract as an alternative, leaving only constructive trust as the feasible
option.

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. 21 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.

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.

What must be alleged in a complaint?

All that much be alleged in the complaint are two (2) facts:
(a) That the plaintiff was the owner of the property
(b) That the defendant had illegally disposed him of the same.
NOTE: The creation of a constructive trust is an appropriate remedy against unjust
enrichment.

Article 1457. An implied trust may be proved by oral evidence.

Proof of Implied Trust

(a) An implied trust, whether involving realty or personalty, may be proved by oral evidence
to avoid unjust enrichment by the formal holder of property or title, the very evil the
equitable doctrine of implied trust was devised to remedy.
(b) An implied trust cannot be established contrary to the recitals of a Torrens Title, upon
vague and inconclusive proof.
(c) The doctrine of implied trust finds no application where there are no proven facts to
support it.
(d) The bare existence of confidential relation between grantor and grantee does not,
standing alone, raise the presumption of fraud.

Oral Evidence for Trust Must Be Trustworthy

Salao vs. Salao L-26699, March 16, 1976

Facts: The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal
begot four children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died.

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

His eldest son, Patricio, died in 1886 survived by his only child, Valentin Salao. After
Valentina’s death, her estate was administered by her daughter Ambrosia.

The documentary evidence proves that prior to the death of Valentina Ignacio her two children,
Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title in their names for a forty-seven-
hectare fishpond.

It was alleged in the said case that Juan Y. Salao, Sr and Ambrosia Salao had engaged in the
fishpond business. Where they obtained the capital is not shown in any documentary evidence.
According to the plaintiff, Valentin and Alejandra were included in that joint venture, that the
funds used were the earnings of the properties supposedly inherited from Manuel Salao, and that
those earnings were used in the acquisition of the Calunuran fishpond. There is no documentary
evidence to support that theory.

The heirs of Valentin are now claiming 1/3 interest on the said fishpond and argued on the theory
that the fishpond was held in trust for Valentin by Juan and Ambrosia. This was categorically
denied by the heirs of Juan. They argued that Juan and Ambrosia were the sole owners of said
fishpond as shown in the Torrens title issued.

Held: Implied trust come into being by operation of law. Implied trusts are 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 matter of equity, independently of the
particular intention of the parties.
In the instant case, plaintiff’s pleadings and evidence cannot be relied upon to prove an implied
trust. They failed to measure up to the yardstick that 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 (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273).
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).
Trusts; 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).
The foregoing rulings are good under article 1457 of the Civil Code which, as already noted,
allows an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to
prove an implied trust because, oral evidence can be easily fabricated.
On the other hand, a Torrens title is generally a conclusive of the ownership of the land referred
to therein. A strong presumption exists that Torrens titles were regularly issued and that they are
valid. The real purpose of the Torrens system is, to quiet title to land.
There was no resulting trust in this case because there never was any intention on the part of Juan
Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive
trust because the registration of the two fishponds in the names of Juan and Ambrosia was not

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 Report on Trust (Article 1440-1457) Atty. Joseph Cerezo
Agency, Trust, Partnership December 8, 2016

vitiated by fraud or mistake. This is not a case where to satisfy the demands of justice it is
necessary to consider the Calunuran fishpond ” being held in trust by the heirs of Juan Y. Salao,
Sr. for the heirs of Valentin Salao.

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