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Finally, Philippine law accepts trust

(Article published in the Sep 15, 2010 issue of Manila Standard Today)   

The final step for the judicial acceptance of trust took place on Dec. 10, 1924.  On that day, the Supreme Court promulgated a decision holding that since trust rules were all based on civil law principles, trust precedents in the United States, absent local provisions, were valid sources of applicable rules.  Enunciating this rule for the first time, the high court maintained:

 “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.”

 Acting in consonance with this revised position, the Supreme Court was consequently more at ease with trust when it was once more confronted with the issue posed by the Aguado case.  In Ten Senguan and Co. vs. Philippine Trust Co., the high court freely discussed the trust relation and instead of merely stating that the contract did now show the trustee acting in a representative capacity, as it did in Aguado, it went on to cite American trust precedents holding the trustee liable in his individual capacity whenever there was no express stipulation in the contract, upon which the claim is based, that makes the trust estate chargeable.


 By 1940, there was already discerned growing appreciation of the need for upholding dispositions of property made through the medium of trust instead of searching for reasons for avoiding them or dealing with them with any degree of disfavor.

 The foregoing observations support the conclusion that trust, even prior to 1950, was already a known institution in Philippine law.  However, these observations also clearly demonstrate the glaring inadequacy of the law at that time.  For while the typography of the statutes showed islands of rules on income taxation of trusts, judicial procedure relating to trusts and trustees, registration of trust lands, operation of corporate trustees and scattered provisions in Section 27 of the Corporation Law, Section 51 of the Insurance Act, Section 17 of the Insolvency Law, and Sections 1 and 2 of the C.A. 434, still nowhere to be found were the crucial rules on the more central aspects of trust, such as the rights and duties of the parties involved, the permitted instances of state interference with trust terms, and even the essential requisites of the trust arrangement.  True, there was some judicial attempt, manifested in Abadilla, to lay a basis for filling in these defects.  But then its scope was severely limited, since it apparently confined its operation to principles which can be said to have been derived by common law from civil law and is based on a rationale resting on what I, and others believe, to be an erroneous historical assumption.

 Title V on Trusts of the New Civil Code’s Book IV on Obligations removed these limitations.  In 18 articles, it defined the parties to a trust, classified trusts according to origin, provided for the methods of its proof, regulated some of its important aspects, such as the formality required, the consequence of the need for a trustee and the necessity of acceptance by the beneficiary.  In the area of implied trusts, it made a non-exclusive list of nine factual situations where the law imposed either a constructive or resulting trust.  But most important, Article 1442 thereof adopted the general law on trust insofar as they are not in conflict with the Civil Code, the Code of Commerce, the Rules of Court and special laws, thereby filling up the spaces left blank by the express provisions of the code or of any previous enactment.  Through this massive increment to trust law, accomplished in the single event of the code’s enactment, Congress completed by avulsion what was started as alluvion.