Constructive Trust
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.
Also known as trusts ex maleficio, trusts ex delicto and trusts de son tort
Construed against one who by actual or constructive fraud, duress, abuse of confidence,
commission of a wrong or any form of unconscionable conduct, artifice, concealment of
questionable means, or who in any way against equity and good conscience has obtained or
holds the legal right to property which he ought not, in equity and good conscience, hold and
enjoy.
imposed by equity to satisfy the demands of justice and to defeat or prevent the wrongful act of
one of the parties.
Constructive Trusts
Trust by construction of equity to satisfy the demands of justice and prevent unjust enrichment.
Does not give rise by agreement of the parties but by operation of law against one who, by
fraud, duress or abuse of confidence holds legal right to property he is not entitled to hold
Purchase with borrowed funds (1450)
Person purchases property with funds borrowed from another person and title passes to the
lender
Trustee – lender
Beneficiary – person who purchased property
Illustration
A borrows money from B to buy a car.
Title to the car is in the name of B with the condition that he will convey it to A upon payment.
B is the implied trustee while A is the implied beneficiary.
Automatic appropriation of the property when the loan is not paid is equivalent to pactum
commissarium (Nakpil v. IAC, 225 SCRA 456)
Conveyance to secure an obligation (1454)
When property is absolutely conveyed to a person to secure the performance of obligation by the
grantor to the grantee. If grantor fulfills his obligation, he can ask for reconveyance
Trustee – grantee
Beneficiary – grantor
Illustration
Instead of a mortgage, absolute conveyance of the SM is made in favor of a lender.
Upon payment, grantee shall execute a deed of reconveyance to the grantor/obligor.
Purchase of property with trust funds (1455)
Trustee, guardian or person holding fiduciary relationship purchases property with trust funds
and legal title is under said trustee or a 3rd person.
Trustee – one who has legal title
Beneficiary – one who owns funds
Illustration
A is the guardian of B
A uses B’s money to buy a car. Title is under A’s name but B uses the car
A is the trustee, B is the beneficiary
Acquisition of property through mistake or fraud (1456)
Property is acquired through mistake or fraud.
Trustee - person obtaining the property
Beneficiary - person where property came from
Illustration
A widow mortgages a parcel of land belonging to the estate of her husband.
A buyer at a public auction is only entitled to ½ interest on the land corresponding to the widow’s
share since the other half belongs to the children (Salvatierra v, CA, 260 SCRA 45)
Bar 2005
DPO bought a pack of cigarettes worth P225.00. He gave P500 to the vendor RRA. DPO received
a change of P375. Was there a discount, an oversight or error? What would be DPO’s duty in
case of excess in the change. How is this situational relationship between DPO and RRA
denominated?
Answer
DPO has the duty to return the excess change of RRA. There was implied trust between the parties
under Article 1456 of the Civil Code. If property is acquired through mistake or fraud, the
person obtaining it, through force of law, is considered an implied trustee.
Basis
Express
Trust
Implied
Trust
Creation
By parties
By
operation of
law
Evidence
Parol
evidence is
unacceptabl
e if the SM
is real
property
Oral
evidence is
acceptable
even if the
SM is real
property
Enforcemen
t of Rights
General
Rule: No
prescription
Exception:
Laches and
prescription
bar an
action if
trustee
repudiates
trust and
this was
made
known to
beneficiary
General
rule: Laches
bars actions
even if there
was no
repudiation
Exception:
facts giving
rise to trust
were
concealed