Quiz No.

21 (May 7, 2018)

Coverage: Trusts [Art. 1440-1457]

Cases:

1. Magallon vs. Montejo, December 16, 1986

Albano
During the existence of the marriage between A and B, they
filed an application for homestead. Before B died, they were
able to comply with all the requirements under the law, and
before the patent could be issued, B died. A married C,
afterwards, a patent was issued under the name of A and C.
The son of A and B filed an action for partition seeking for
the ½ portion of the homestead as the share of his mother.
Will the action prosper? Why?

ANS. Yes, because A and C merely hold the said portion in

trust for the true owner, and they have the obligation to
convey to plaintiff that portion of the land in question to
which he now claims as said portion rightfully pertains to
plaintiff’s deceased mother as her share in the conjugal
partnership with A. (Magallon vs. Montejo, December 16,
1986).
 2. De los Santos vs. Reyes, et. al., L-45027, January 27, 1992

Albano
Joaquin Reyes bought from Julio Cruz a residential lot of 300
square meters in Quezon City for which Joaquin paid Julio
the amount of P300,000.00. When the deed was about to be
prepared, Joaquin told Julio that it be drawn in the name of
Joaquina Roxas, his acknowledged natural child. Thus, the
deed was so prepared and executed by Julio. Joaquina then
built a house on the lot where she, her husband, and children
resided. Upon Joaquin's death, his legitimate children sought
to recover possession and ownership of the lot claiming that
Joaquina Roxas was but a trustee of their father. Will the
action against Joaquina Roxas prosper?

ANS. Yes, because there was an implied trust. In De los Santos

vs. Reyes, et al., L-45027, January 27, 1992, it was-said that
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. However, if the person to whom 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 was a gift in favor of the
child. It is clear from the facts that a trust was really created:

3. PNB vs. IAC, September 18, 1990

Albano
X executed a real estate mortgage in favour of PNB to secure
the payment of Y’s obligation. One year later, Y executed a
renewal of the loan and the mortgage representing X who
granted him a Special Power of Attorney for that purpose as
there was an agreement that the proceeds of the renewal of
the loan would be divided between X and Y. After Y got the
money, he failed to deliver the ½ share of X, hence, he went
to the manager of PNB and delivered asking that in case Y
would renew his loan the following year, his property should
not be included in the list of collaterals and in effect revoking
the special power of attorney of Y. When the loan was
renewed, his property was again included, despite the
assurance of the manager of the PNB that X’s property would
not be included. Y failed to pay his obligation, hence, the
foreclosure of the mortgage. Is the foreclosure valid? Why?

ANS. No, because under the doctrine of promissory estoppel,

the act or assurance of the PNB manager that he shall not
include the property of X as collateral for any renewal of the
loan of Y is binding upon the bank. Having given that
assurances, the bank may not turn around and do the exact
opposite of what it should not do. One may not go back on
his own acts and representations to the prejudice of the other
party who relied upon them. (PNB vs. IAC, September 18,
1990).

4. Doliendo vs. Depiño, 12 Phil. 758; Alano vs. Babasa, 10

Phil. 511; PNB vs. IAC, September 18, 1990
Albano
Can the PNB, in the problem above, interpose the defense
that the revocation of the SPA is not valid since it was not in
a public instrument? Explain.

ANS. No. While it is true that under Art. 1358, NCC, the law
requires that acts or contracts which have for their object the
extinguishment of real rights over immovable property must
appear in a public instrument; nevertheless, a revocation
embodied in private writing is valid and binding between the
parties. (Doliendo vs. Depiño, 12 Phil. 758). The requirement
that it be in public instrument is a mere condition of form in
order that such contract may be valid against third persons.
(Alano vs. Babasa, 10 Phil. 511; PNB vs. IAC, September 18,
1990).

5. De Buencamino vs. De Matias, et. al., 16 SCRA 849

Albano
X and Y are married. They have children, A, B, and C. During
their lifetime, they transferred a real property to D, their
granddaughter. After their death, A, B, and C filed an action
for partition against D, who interposed the defense of
prescription, the same having been based on an implied trust.
Is the defense proper? Why?

ANS. No, because while the implied trust or constructive

trust prescribes in 10 years, the rule does not apply where the
fiduciary relation exists and is recognized by the trustee.
Here, there was reliance in D’s integrity and fidelity in
carrying out the wishes of her grandparents. As long as the
trustee recognizes the trust, the defense of prescription does
not apply. (De Buencamino vs. De Matias, et. al., 16 SCRA
849).

6. Salvatierra vs. CA, et. al., G.R. No. 107797, August 26,
1996, 73 SCAD 586; Ramos, et. al. vs. CA, 61 SCRA 284
Albano
In 1930, Enrique Salvatierra died without any issue. He was
survived by his brothers Tomas, Bartolome, Venancio,
Macario, and a sister named Marcela. He left several
properties but it appeared that Anselmo registered Lot No. 26
in his name with evident bad faith. The question raised
before the SC was the determination of the applicable
prescriptive period to file an action, whether it is based on
Ant 1391 or Art. 1144 of the Civil Code. Decide.

ANS. The prescriptive period is based on Art. 1144 of the

Civil Code as it involved fraud in registering Lot No. 26 in
Anselmo's name. In effect, an implied trust was created by
virtue of Art. 1456 of the Civil Code which, says 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. The period is 10 years. (Salvatierra vs. CA, et
al., G.R. No. 107797, August 26, 1996, 73 SCAD 586).

Implied 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 and is further subdivided
into resulting and constructive trust. (Ramos, et al. vs. CA, 61
SCRA 284). While resulting trust is one raised by implication
of law and presumed to have been contemplated by the
parties, constructive trust, on the other hand, is one raised by
construction of law or arising by operation of law. (Ramos, et
al. vs. CA, supra.).
This case more specifically involves constructive trust.
In a more restricted sense, it 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.

Albano
Within what time should an action for reconveyance of
registered land based on implied trust be filed? Why?

ANS. An action for reconveyance of registered land based on

an implied trust may be barred by lathes. The prescriptive
period of such actions is ten (10) years from the date the right
of action accrued. (Vda. de Nacalaban vs. CA, 80 SCRA 428).
It was held in Armamento vs. Guerrero, 96 SCRA 178, that
an action for reconveyance of registered land based on an
implied trust, prescribes in ten (10) years even if the decree
of registration is no longer open to review.

In Duque vs. Domingo, 80 SCRA 654, it was also said:

"The registration of an instrument in the Office of the
Register of Deeds constitutes constructive notice to the
whole world, and, therefore, discovery of the fraud is
deemed to have taken place at the time of registration. Such
registration is deemed to be a constructive notice that the
alleged fiduciary or trust relationship has been repudiated. It
is now settled that an action on an implied or constructive
trust prescribes in ten (10) years from the date the right of
action accrued." (Salvatierra vs. CA, et al., G.R. No. 107797,
August 26, 1996, 73 SCAD 586).

7. Policarpio vs. CA, et. al., G.R. No. 116211, March 7,

1997, 80 SCAD 302
Case Digest:
FACTS:
(1) Petitioner (along with his co-plaintiffs in the antecedent
cases, namely, Rodolfo Gayatin, Jose Villacin and Jocelyn
Montinola) and private respondent Rosito Uy were former
tenants of the 30-door Barretto Apartments formerly owned
by Serapia Realty, Inc.

(2) Sometime in April 1984, private respondent was elected

President of the Barretto Tenants Association (hereafter
referred to as the "Association") which was formed, among
others, "to promote, safeguard and protect the general
interest and welfare of its members."

(3) In a letter dated July 30, 1984, private respondent as

president of the Association sought the assistance of the then
Minister of Human Settlements to cause the expropriation of
the subject property under the Urban Land Reform Program
for subsequent resale to its tenants.

(4) Failing to get the assistance of the government, the

tenants undertook to negotiate directly with the owners of
the Barretto Apartments. Initially, Private Respondent
Rosito Uy orally expressed to Mrs. Rosita Barretto Ochoa the
tenants' desire to purchase their respective units. Later, in a
letter dated May 29, 1985, signed by thirty (30) tenants of the
commercial and residential units, the tenants formally
expressed to Mrs. Ochoa their intent to purchase.

(5) One and a half years later, on March 12, 1987, petitioner
and his co-plaintiffs were notified that private respondent
was the new owner of the apartment units occupied by
them.

Applicable Laws:
(1) Article 1924. The agency is revoked if the principal
directly manages the business entrusted to the agent, dealing
directly with third persons. (n)

(2) 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.

(3) Article 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.

ISSUE: Whether or not a constructive trust existed between

the plaintiffs and the defendant.

RTC: The trial court found that private respondent had been
designated and entrusted by plaintiffs to negotiate with the
Barretto family for the sale of the units. It also found that a
constructive trust was created between the private
respondent as "the cestui que trust [should be trustee] and
plaintiffs as beneficiaries [or cestuis que trust] vis-a-vis the
subject units."
CA: Reversed the RTC decision and denied the subsequent
motion for reconsideration.
HELD: There was a constructive trust.
RATIO: (1) Implied trust was created by the agreement
between petitioner (and the other tenants) and private
respondent. Implied trusts are those which, without being
expressed, are deducible from the nature of the transaction
by operation of law as matters of equity, independently of
the particular intention of the parties. Constructive trusts are
created in order to satisfy the demands of justice and prevent
unjust enrichment. They arise 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.

(2) The tenants could not be faulted for not inquiring into the
status of private respondent's negotiation with the owners of
the apartments. They had a right to expect private
respondent to be true to his duty as their representative and
to take the initiative of informing them of the progress of his
negotiations.

OTHER NOTES:
(1) "A constructive trust is substantially an appropriate
remedy against 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."
(2) "Every person who through an act of performance by
another, or any other means, acquires or comes into
possession of something at the expense of the latter without
just or legal ground, shall return the same to him."
8. Heirs of Moreno vs. Mactan-Cebu International Airport
Authority, 413 SCRA 507 [2003]
FACTS:
1. MORENO: successors of 2 parcels of land
1. MACTAN wanted to acquire land:
i. Government assured landowners that they
could repurchase their lands once Lahug
Airport was closed or its operations transferred
to Mactan Airport
ii. Moreno refused offer.
iii. Civil Aeronautics Administration as the
successor agency of the National Airport
Corporation filed a complaint with the Court of
First Instance of Cebu, for the expropriation of
land.
iv. Trial court promulgated public use upon
payment of just compensation.
v. MORENO were paid; no appeal.
vi. Certificates of title were issued.
2. LAHUG AIRPORT CEASED OPERATIONS, lands not
utilized.
1. Moreno plead for repurchase of land.
i. Filed complaint for reconveyance and damages.
ii. Averred that they have been convinced not to
oppose since they could repurchase.
iii. MCIAA did not object.
3. ENCHUAN FILED FOR MOTION OF TRANSFER
1. Acquired through deeds of assignment the rights of
land.
2. DPWH claimed it leased in good faith from MCIAA
to Regional Equipment Services and Region 7
Office.
 4. TRIAL COURT GRANTED RIGHT TO REPURCHASE
but subject to the alleged property rights of Richard E.
Enchuan and the leasehold of DPWH.
5. CA reversed: rights gained by MCIAA were indicative of
ownership in fee simple

ISSUE:
Do they have right to repurchase? Or right to reversion?

HELD:
PETITION GRANTED. CA DECISION REVERSED AND
SET ASIDE.

1. Return or repurchase of the condemned properties of

petitioners could be readily justified as the manifest legal
effect or consequence of the trial court’s underlying
presumption that “Lahug Airport will continue to be in
operation” when it granted the complaint for eminent
domain and the airport discontinued its activities.

2. ARTICLE 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.”
a. In the case at bar, government obliged itself to use of land
for the expansion of Lahug Airport
i. Failure to keep its bargain: can be compelled to
reconvey, otherwise, petitioners would be denied
the use of their properties upon a state of affairs that
 was not conceived nor contemplated when the
expropriation was authorized.

3. ARTICLE 1189: “If the thing is improved by its nature,

or by time, the improvement shall inure to the benefit of the
creditor.”
a. CREDITOR: person who stands to receive something as
a result of the process of restitution.
i. Petitioners must pay MCIAA the necessary expenses
in sustaining the properties and services.
ii. Government may keep whatever income or fruits it
may have obtained from the parcels of land.
iii. Petitioners need not account for the interests that
the amounts they received as just compensation may
have earned in the meantime.

9. Caragay-Layno vs. CA, 133 SCRA 718

Jurado
What is the period of prescription of an action for
reconveyance of real property based on an implied trust?

ANS: It depends.
If the action for reconveyance is in reality an action to quiet
title and the legitimate owner of the subject property which
was fraudulently registered in the name of another had
always been in possession thereof so that the constructive
notice rule cannot be applied, then the action is
imprescriptible, This finds support in the case of Caragay-
Lagno vs. CA(133 SCRA 718).

Jurado
In 1935, X was able to register a parcel of land belonging to
A in his (X) own name without the knowledge of the latter.
A died in 1945 without knowing that the land was already
titled in the name of X. He was survived by two (2) legitimate
children, B and C. In 1955, X also died, survived also by two
(2) legitimate children, D and E. In 1985, D and E demanded
extrajudicially from B and C that they vacate the premises of
the property on the ground that their father, X, is the
registered owner of the property. B and C refused and
immediately instituted the present action for reconveyance
of the subject property based on fraud. D and E, however,
have interposed the defenses of prescription and laches. If
you were the judge, how will you decide the controversy?
Reasons.

ANS: If I were the judge, I shall decide the controversy in

favor of the plaintiffs, B and C. The reason is obvious. They
have acquired the subject property by succession from their
father, A, But then, how about the defenses of extinctive
prescription and laches? Are not these defenses meritorious?
The above defenses are not meritorious. As far as the defense
of prescription is concerned, it must be observed that the
plaintiffs and their predecessor-in-interest have always been
in possession of the subject property. The constructive notice
rule, therefore, cannot be invoked as against them.
Consequently, D and C are deemed to have discovered the
fraud only in 1985 when D and E made a demand upon them
to vacate the premises. Besides, and this even more decisive,
the present action is in reality an action to quiet title. It is, of
course, well-settled that an action to quiet title is
imprescriptible.

Anent the defense of laches, suffice it to state that if

anybody is guilty of laches, it should be the defendants. They
had a period of more than 40 years within which to assert
their rights as registered owners. They slept on their rights.
They should not, therefore, be allowed to invoke the
doctrine of stale demands. (See Caragay-Layno vs. Court of
Appeals, 133 SCRA 718.)

10. Estate of Margarita D. Cabacungan vs. Marilou Laigo,

G.R. No. 175073, August 15, 2011
FACTS:

Unknown to the other children of Margarita, the mother

transferred the tax declarations of her three (3) lands to her
son, Roberto, to support his application for travel to the US.
Upon returning, Roberto married Estella and adopted her
two children, Pedro and Marilou. Sometime later, Roberto
sold one of the lands to the spouses Campos, and separately
sold the two remaining lands to his two adopted children.
Margarita came to know of the sale during the wake of
Roberto. Hence, Roberto’s siblings filed a complaint for
annulment of the said sales and for the recovery of ownership
and possession of the land.

The trial court ruled against the plaintiffs on the basis

that there was no express trust between Roberto and his
mother. The Court of Appeals affirmed the decision of the
trial court.

ISSUE:

Whether the trial and appellate court’s ruling were correct.

RULING:

Yes. The Court held that “A trust is the legal relationship

between one person having an equitable ownership of
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 the exercise of
certain powers by the latter. Trusts are either express or
implied.”
 The Court also held that “Express or direct trusts are
created by the direct and positive acts of the parties, by some
writing or deed, or will, or by oral declaration in words
evincing an intention to create a trust.”

The Court, moreover, held that “Implied trusts—also

called “trusts by operation of law,” “indirect trusts” and
“involuntary trusts”—arise by legal implication based on the
presumed intention of the parties or on equitable principles
independent of the particular intention of the parties. They
are those which, without being expressed, are deducible from
the nature of the transaction as matters of intent or,
independently of the particular intention of the parties, as
being inferred from the transaction by operation of law
basically by reason of equity.”

In addition, the Court held that “Implied trusts are

further classified into constructive trusts and resulting trusts.
Constructive trusts, on the one hand, come about in the main
by operation of law and not by agreement or intention. They
arise 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.”

The Court further held that “Resulting trusts arise from the
nature or 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. This is based on the equitable doctrine that
valuable consideration and not legal title is determinative of
equitable title or interest and is always presumed to have
been contemplated by the parties.”

Finally, the Court held that “A trust will follow the

property—through all changes in its state and form as long
as such property, its products or its proceeds, are capable of
identification, even into the hands of a transferee other than
a bona fide purchaser for value, or restitution will be
enforced at the election of the beneficiary through recourse
against the trustee or the transferee personally. This is
grounded on the principle in property law that ownership
continues and can be asserted by the true owner against any
withholding of the object to which the ownership pertains,
whether such object of the ownership is found in the hands
of an original owner or a transferee, or in a different form, as
long as it can be identified.”

Additional Questions:

Jurado
“X” being unable to pay the purchase price of a house and lot
for his residence has requested “X” and “Y” agreed to lend
him the money under one condition, that the Certificate of
Title be transferred to him, in Y’s own name for his
protection and as security of the loan. Later on, “Y”
mortgaged the property to the bank without the knowledge
of “X.” When the mortgage became due, “Y” did not redeem
the mortgage and the property was advertised for sale. “X”
retained you as his lawyer. What advice would you give your
client and what legal ground provided by the Code would
you assert to defend his rights? Give reasons.

ANS: It is clear that in the instant problem, the provision of

Art. 1450 of the NCC is applicable. This article provides: “If
the price of the 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.” It must be observed, however, that the mortgage of
the property by Y to the bank is perfectly valid inasmuch as
the bank was not aware of any flaw or defect in the title or
mode of acquisition of Y since the right of X has not been
annotated in the Certificate of Title; in other words, the bank
had acted in good faith. Consequently, the only way by
which I would be able to help X would be to advise him to
redeem the mortgaged property from the bank. After this is
done, X can then institute an action to compel Y to reconvey
the property to him pursuant to the provision of Art. 1450 of
the NCC. In this action for reconveyance, the amount paid
by X to the bank in redeeming the property can then be
applied to the payment of his debt to Y. If there is an excess,
he can recover the amount from Y.

Jurado

“HH,” “II” and “JJ” inherited from their parents a large parcel
of land. “HH” and “II” went abroad to reside in Canada. In
their absence, “JJ” applied for the registration of the whole
land in his name only. In due time, “JJ” obtained a Torrens
Title for the land.

When “HH” and “II” returned from Canada after seven (7)
years, they found out what “JJ” did and sued him for their
respective shares. “JJ” contented that the decree of title can
no longer be reviewed or changed because of the lapse of
more than one year from its issuance.

In whose favor would you decide? (1980)

ANS: I will decide in favor of “HH” and “II.”

In reality, the action commenced by plaintiffs against

defendant is an action for reconveyance of their respective
shares in the subject property based on the constructive trust
recognized and sanctioned by the NCC which declares that
if the 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. Since the obligation is created by law, the
action commenced by the beneficiaries against him shall
prescribe and the period of prescription is 10 years which
shall be counted from the time of the discovery of the fraud.
When did the plaintiff discover the fraud committed by
defendant? Under the constructive notice rule, they are
deemed to have discovered the fraud as of the date the trustee
set up in himself a title adverse to the title of the
beneficiaries. Normally, this would be the date the trustee
“JJ” obtained his Torrens title. Since the instant action was
commenced seven (7) after the issuance of said Title, it is
obvious that it was commenced in time. (Note: See Art. 1456,
NCC; Art. 1144, NCC; and decided cases.)