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Beginnings of Trust Law in the Philippines

(Article published in the Sep 8, 2010 issue of Manila Standard Today)   

If a civil law term may be used to describe the development of the common law institution of trust in the Philippines, the proper word is alluvion.  Riding with the waves of American statutes that continually washed the Philippine shores since the beginning of the century, trust, as it had done in other places where common law had gone, slipped into the country’s statute books steadily, slowly, and almost imperceptively.

 The first significant trust provisions came with the enactment in 1901 of Act 190 by the Philippine Commission.  Chapter XXVII thereof, which was patterned after the Massachussetts law, and made up of Secs. 582 to 595, contained the procedural rules to be followed by the courts of first instance in the exercise of their jurisdiction over trusts and trustees conferred by Sec. 56 of Act 136.  A little more than a year later, the same Commission enacted the Land Registration Act which was modeled after the Massachussetts Land Registration Act of 1898.  Secs. 65 to 69 of this Act dealt with the registration of lands held under trust.  Then two temporary acts followed in 1904 which created a trust fund for the payment of the Friar Lands Bonds.  Later, on March 1, 1906, the Corporation Law, which has been described as “a sort of codification of American corporate law, provided the rules concerning the organization and operation of corporate trustees.  The Insolvency Law, for the most part a copy of the Insolvency Act of California of 1895 and the U.S. Bankruptcy Act of 1898, completed the accretion of the first decade.  Sec. 17 of that law required the inclusion in the insolvent’s inventory of his property all property held in trust for him.
 










     

 The accretion was relatively slower during the succeeding years and consisted merely of an isolated provision in the Insurance Act, which was “taken verbatim from the law of California,” and in Sec. 15 of Act 3518 which inserted voting trust rules in the corporation law.  It apparently ceased in 1939, with the approval of Commonwealth Act 434, vesting in the country’s treasurer certain supervisory functions over trusts for charitable uses and with the approval of the Internal Revenue Code, Secs. 56 to 62 of which provided for the income taxation of trusts.  Thereafter and until the effectively of the new Civil Code, the body of statutory trust rules has remained substantially unaltered although several relocations were made by subsequent legislation.

 Parallel to this accumulation of statutory trust rules is the development of trust law as enunciated by the courts’ decisions.  A chronological review of the trust rulings prior to 1950 shows a pattern similar to that followed by the decisions on common law.

 Judicial attitude was at first unfavorable.  In the earliest trust case, which involved a claim against trust funds held by the city of Manila, the Supreme Court, relying on the finding that the contracts on which the claim was based were not entered into by the city in a representative capacity, declined to go into a discussion of the trust relation inspite of counsel’s treatment of the subject.  But five years later, the same court was faced by the case of Roman Catholic Bishop of Jaro vs. De la Peña which did not give it an opportunity to decline a trust ruling.  In that case, a certain Fr. de la Peña, as authorized representative of the trustee of a charitable trust established for the construction of a leper hospital, deposited in his own personal account at the Hongkong and Shanghai Bank at Iloilo some money turned over to him for the purposes of the trust.  He was later arrested by the American military authorities on charges of subversion, and the personal funds in his account together with the trust funds commingled with them were confiscated.  In deciding what rules to apply in order to resolve the question of De la Peña’s liability, the Supreme Court refused to apply the pertinent trust rules, saying:

 “That branch of the law known in England and America as the law of trusts had no exact counterpart in the Roman law and has none under the Spanish law.  In this jurisdiction, therefore, Fr. de la Peña’s liability is determined by those portions of the Civil Code which relate to obligations.”

 Before long, however, the Supreme Court found itself invoking trust principles as additional support for its holdings.  In 1916, the high court called on trust rules as formulated by English and American authorities to buttress its decision to uphold the government’s right to recover funds held in trust by its predecessor for the public.  Again, in 1923, Anglo-American trust precedents were cited, together with Spanish and Philippine cases, to show the strict requirements of the fiduciary relationship involved in the contract of agency.  Likewise, mention was made, in a later case, of foreign trust rulings which declare the invalidity of trust intended to circumvent the law.  It thus appears that in less than twelve years since the De la Peña ruling, and contrary to its import, trust principles had become accepted supplemental aids to judicial decisions.  This was only one step away from the final acceptance of trust principles as binding rules.

     

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