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Trust principles to the rescue

(Article published in the Oct 18, 2006 issue of Manila Standard Today)  

The practice of estate planning, or, more precisely, the deliberate attempt to put in order one’s financial affairs before dying, recently received a welcome endorsement from the Supreme Court.  In the case of The Estate of Edward Miller Grimm v. The Estate of Charles Parsons, et al, G.R. No. 159810, promulgated 09 October 2006, Justice Cancio-Garcia, writing for the court, observed:

 “Because legal and situational ambiguities often lead to disagreements even between or amongst the most agreeable of persons, it behooves all concerned to put their financial affairs and proprietary interests in order before they depart for the great beyond. Leaving legal loose ends hanging or allowing clouds to remain on property titles when one can do something about them before the proverbial thief in the night suddenly comes calling only opens the door to bruising legal fights and similar distracting inconveniences.”

 In the law on trusts, the rules that seek to tie up those “legal loose ends” for those who during their lifetimes failed to do so are embodied in that portion of the subject known as “resulting trusts.” Typically, the factual background involves the conferment of ownership over property to a person under such ambiguous circumstances that it is not clear what the true intent of the parties were.  In the absence of clear evidence to the contrary, the law steps in to state that a trust has in fact resulted in favor of the person whom the law assumes was intended to be benefited by the arrangement.

A resulting trust has been described in another jurisdiction as “the last resort to which the law has recourse when the draftsman has made a blunder or failed to dispose of that which he has set out to dispose of” (Re Cochrane [1955] Ch. 309, per Harman J). Sometimes, though, it is not just the lawyer’s fault.  As in Grimm, the parties simply did not, on account of their relationship, consider it worth their while to cross the “T”s and dot the “I”s of their actions.

 In 1952, Charles Parsons (Parsons) and Edward Miller Grimm (Grimm), together with Conrado Y. Simon (Simon), formed a partnership registered  under the name G - P and Company. Before September 1964, Parsons and Grimm each owned proprietary membership share in Manila Golf and Country Club. Parsons owned Membership Certificate (MC) No.374 for 100 units and Grimm owned MC No. 590 which was issued to him on May 25, 1960.  On 07 September 1964, Grimm transferred his MC No. 590 to Parsons.  MC No. 590 was subsequently replaced by MC No. 1088.

 When the case eventually got to court, the person whose name appears in the certificate and his successors-in-interest did not claim ownership over the certificate. The problem of before the court was for whom was certificate held by Parsons and his successors-in-interest?  Two parties claimed to be the beneficial owners, the estate of Edward Miller Grimm and a partnership named G.P. & Co., which traces its origins to G-P and Company mentioned above.

 Many arguments have been marshaled by both contenders, but, for purposes of this item, I am interested only in how trust principles were invoked to resolve the issue. The good justice prefaced his disquisition with a summary of what I used to teach at the opening sessions of the Trust Course annually conducted by the Trust Institute Foundation of the Philippines:

 Trust is the legal relationship between one having an equitable ownership in 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. Trust relations between parties may be express, as when the trust is created by the intention of the trustor. An express trust is created by the direct and positive acts of the parties, by some writing or deed or by words evidencing an intention to create a trust; the use of the word trust is not required or essential to its constitution, it being sufficient that a trust is clearly intended. Implied trust comes into existence by operation of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to any such intention.   

 Then the court looked at the circumstances that attended the transfer of MC No. 590 from Grimm to Parsons.  Sometime in early 1964, Parsons recommended to Manila Golf Club’s management the approval of a certain Mr. Yoshida’s  Application For Waiting List Eligible To [Club] Proprietary Membership.  Then, in a letter of August 10, 1964 to  the golf club’s Board of Directors, Parsons endorsed the application of Yoshida as Club member.  The application was apparently not given due course exactly as requested, since later Parsons addressed a letter to the club’s honorary secretary, E.C. von Kauffman requesting that Yoshida be taken in as a Company assignee.

 In his reply-letter of August 29, 1964, Kauffman explained why he cannot, under Club rules,  favorably act on Parsons’ specific request, but suggested a viable solution that essentially meant a transfer be made of some of Grimm’s interest to Parsons followed by an assignment by Parsons of some of the latter’s playing rights to Yoshida. In response, Parsons suggested simply a more direct approach: Grimm was to transfer his playing rights to Yoshida.

 For some reason or another, the practical solution took the legal form of a transfer of MC No. 590 from Grimm to Parsons.  But the court was quick to point out that “the conclusion easily deductible from the foregoing exchanges is that, given existing Club restrictions, the simplest way to accommodate and qualify Yoshida for Club membership was for Grimm to transfer his 100-unit share to Parsons who will then assign the playing rights of that share to Yoshida.”

 Other circumstantial evidence was invoked to buttress the court’s conclusion that the true intent behind the transfer was a temporary one.  Testimonial and documentary proof, both from persons who dealt with the situation as well as from Parsons and Grimm themselves, appeared to overwhelmingly support the view that the true intention of the parties was not really to transfer ownership over the certificate but simply to overcome technical objections from the rules of the club. 

 In fact, Grimm in a letter to the club, maintained that the certificate “is still my property and I wish it recorded as such in the Club’s file.” 

 Parsons for his part, wrote:

 “Reference to the transfer of [MC] #590 in the name of Mr. E.M. Grimm to my name, for which I now have the new Certification No. 1088 …, please be advised that this transfer was made on a temporary basis and that said new certificate is still the property of Mr. E.M. Grimm and I enclose the certificate duly endorsed by me for safekeeping.”

 Arguments posed for the other contending party, to be sure, are not lacking in logic and strength.  In fact, they were convincing enough to get the nod of the Court of Appeals.  But, at the end of the day, situations like this hinge on what the court of last resort believes was the true intent of the parties.

 The moral lesson, as my English teacher at the Lakan Dula Elementary School always concludes her classes, is: Spare no effort to document what you really intend by your transaction.  Let not hiya nor friendship with the other party nor intellectual sloth nor understandable distaste for paying any amount to your lawyer deter you from making clear what is your true intention.  Otherwise, you bequeath to your heirs, as the good justice points out, the legacy of “bruising legal fights and similar distracting inconveniences.”