TRUST- JURADO Reviewer

1. Explain the concept of trust de son

tort.
A constructive trust is a form of implied trust created by equity
to meet the demands of justice. It arises contrary to intention against
one who, by fraud, duress, or abuse of confidence, undue influence or
mistake or breach of fiduciary duty or wrongful disposition of anothers
property, obtains or holds the legal right to property which he is not
entitled under the law.
2. Sometime in 1965, respondent Dolores Sandoval bought Lots 20
and 21, in Dasmarinas Village. But because it is the policy of the
subdivision owner to prohibit the acquisition of two lots by a single
individual, she registered Lot 20 in the name of petitioner Ricardo
Huang. Dolores asked Huang to execute in her favor a deed of
absolute sale in order to protect her rights as owner of Lot 20 to
which Huang conformed. Subsequently, Huang began challenging
Dolores ownership of the property. Upon a complaint filed by
Dolores, the trial court decreed that there is an implied trust
created between the parties to which the CA agreed.
a. Has an implied trust been created between the parties?
Ricardo Huang became the trustee of Lot 20 and its improvements for
the benefit of Dolores as owner. Article 1448 provides 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 beneficial
interest of the property. A resulting trust arises because of the
presumption that he who pays for a thing intends a benefit therein for
himself.
b. Has the action to compel the trustee to convey the property to
the cestui que trust prescribed?
No. The action to compel the trustee to convey the property registered
in his name for the benefit of cestui que trust does not prescribe. If at
all, it is only when the trustee repudiates the trust that the period of
prescription commences to run. The prescriptive period is 10 years from
the repudiation of the trust. This is so because the resulting trust and the
corresponding obligation to convey the property and the title thereto to
the owner are offsprings of the law. Hence, the action filed by Dolores
has not prescribed as Huang has not performed any unequivocal act of
repudiation amounting to an ouster of Dolores.
3. X being unable to pay the purchase price of a house and lot for
his residence requested Y, and Y agreed to lend him the money
under one condition, that the Certificate of Title be transferred to
him, in Ys 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 reason.
Article 1450 provides that, 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 Article 1450. 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 form Y.
4. May laches constitute a bar to enforce a trust?
We must distinguish. Under our law, express trusts are
created by the intention of the parties, while implied trusts are
exclusively created by operation of law. The express trust disables the
trustee from acquiring for his own benefit the property committed to his
management or custody, at least while he does not only repudiate the
trust, and make such repudiation known to the beneficiary. But in
implied trust, the rules is that laches constitutes a bar to actions to
enforce the trust, and no repudiation is required, unless there is a
concealment of the facts giving rise to the trust. Of course, this
presupposes that all of the elements of laches are present.

5. May an action for reconveyance of real property based upon an

implied trust be barred by the statute of limitations (prescription
extinctiva)?
Yes, an action for reconveyance of real property based upon an implied
or constructive trust resulting from fraud, may be barred by the statute of
limitations.

6. What is the period of prescription of an action for reconveyance

of real property based on an implied trust?
It depends.
1. If the action for reconveyance involves the annulment of a voidable
contract which became the basis for the fraudulent registration of the
subject property, then the period of prescription is four years from the
discovery of fraud (Article 1391, par. 4).
2. If the action does not involve the annulment of a contract, but there
was fraud in the registration of the subject property, then the period of
prescription is 1o years from the discovery of fraud (Art. 1144, No. 2).
3. If the action involves the declaration of the nullity or inexistence of a
void or inexistent contract which became the basis for the fraudulent
registration of the subject property, then the action is imprescriptible (Art.
1410).
4. 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.

7. 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 7 years they
found out what JJ dud and sued him for their respective shares. JJ
contended 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?
I will decide in favor HH and II.
In reality, the action commenced by the 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 7 years after the issuance of said Title, it
is obvious that it was commenced in time.

8. The land in question originally belonged to X. he died intestate in

1928, survived by his children, A, B, C and D. In 1937, D and a first
cousin, E, through a series of fraudulent acts, were able to register
the land. A Torrens title was issued in their names. In 1945, the two
subdivided the property and two new transfer certificates of title
were issued in their names. In 1960, A, B and C brought an action
against them for reconveyance on the ground of the existence of
an implied or constructive trust under Art. 1456 of the NCC. D and
E set up defense of laches and extinctive prescription. Will the
action prosper? Reasons.
The action will not prosper. As far as the defense of laches is
concerned, plaintiffs are in error in believing that like express trusts,
constructive trusts may not be barred by lapse of time. The express trust
disables the trustee from acquiring for his own benefit the property
committed to his management or custody, at least while he does not
openly repudiate the trust, and make such repudiation known to the
beneficiary. But in a constructive trust, the rules is that laches
constitutes a bar to enforce the trust, and repudiation is not required,
unless there is a concealment of the facts giving rise to the trust (Fabian
vs. Fabian).

As far as the defense of extinctive prescription is concerned, it

is well-settled in this jurisdiction that an action for reconveyance of real
property based upon a constructive or implied trust resulting from fraud
may be barred by prescription after 10 years, the period must be
counted from the date the trustee set up a title adverse to that of the
beneficiary. Naturally, this would take place at the time a new certificate
of title issued in the name of the trustee. Upon the undisputed facts in
the case at bar, not only had laches set in, but the right of the plaintiffs
to enforce the constructive trust had already prescribed.

9. The land in question originally belonged to A. he died intestate,

survived by his 3 children, B, C and D. C and D subsequently died.
In 1936, by agreement among the heirs, X, Cs husband, was
entrusted with the job of filing the answer in the cadastral
proceedings and obtaining title over the property for and in behalf
of the heirs. Instead, in 1939, X obtained on original certificate of
title issued in his name as well as in the names of his brothers, Y
and Z. in 1962, the heirs of A, who had always been in possession
of the property, discovered the fraud committed by X and his
brothers, Y and Z. as a consequence, they brought an action for
reconveyance against the three. The latter set up the defense of
prescription of action and reiterated this in a motion to dismiss.
The trial court a quo held that the action is predicated on the
existence of an implied trust and that such action prescribes in 10
years. Consequently, the case was dismissed. Is the dismissal in
accordance with law? Reasons.
The dismissal of the case is not in accordance with law.
Upon the general proposition that an action for reconveyance such as
the present is subject to prescription in 10 years the court a quo is
correct. The question here, however, is: from what time should the
prescriptive period be counted? It should be remembered that the
constructive trust arose by reason of the bad faith of X, compounded by
the bad faith of his brothers. Consequently, the cause of action must be
deemed to have accrued only upon the discovery by the heirs of A that
X, in violation of their agreement with him, had obtained registration of
the disputed property in his own name and in the names of his brothers.
It would not do to say that the cadastral proceeding was constructive
notice to them by virtue of its nature as a proceeding in rem for as far as
they were concerned, the cadastral answer they had authorized X to file
was not adverse to them; and neither he nor his brothers may invoke
the constructive notice rule on the basis of their own breach of the
authority thus given. On top of all of these, it was the appellants (heirs of
A) who were and are in possession of the property as owners,
continuously up to 1962, when for the first time X and his brothers
appeared upon the scene and tried to get such possession, thereby
revealing to them the fact of the fraudulent registration (Fabian vs.
Fabian).
It would be more in keeping with justice, therefore, to afford plaintiffs and
defendants the opportunity to lay their respective claims and defense
before the court in a full-blown litigation/ wherefore, the order appealed
from is set aside and the case is remanded for further proceedings.

10. 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 legitimate children, B and C. in 1955,
X also died, survived also by two 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.
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.
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 is 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 (Caragay-Layno vs. CA).

11. Can a trustee acquire absolute ownership over the property

held in trust by acquisitive prescription?
Whether the trust is express or implied, as a general rule, the trustee
cannot acquire absolute ownership over the trust by acquisitive
prescription. However, if (he repudiates the right of the beneficiary, and
(2) such act of repudiation is brought to the knowledge of such
beneficiary, and (3) the evidence thereon is clear and conclusive, he
may be able to acquire absolute ownership over the property held in
trust but only (4) after the lapse of the period fixed by law.
It must be observed, however, that the latest decisions of the SC
regarding the right of the trustee to acquire absolute ownership over the
property held in trust seems to imply that these requisites must be
strictly complied with only in express trusts (Sotto vs. Teves).
In implied trusts, there is a clear implication that the ordinary rules
regarding acquisitive prescription are applicable. This in Fabian vs.
Fabian, it was held that from the very moment the defendants set up a
title over the property in their possession adverse to the title of the
beneficiary, the period for acquisition of the right of ownership over said
property by prescription commenced to run.