Key Takeaway: The Supreme Court Upholds the Creation of Implied Trusts in Property Transactions

Spouses Ruth Dizon Devisfruto and Allan Devisfruto v. Maxima L. Greenfell, G.R. No. 227725, July 01, 2020

Imagine you’ve invested in a property, but the title is registered under someone else’s name. You trust this person to transfer it back to you when the time is right, but what happens if they refuse? This scenario played out in a recent Philippine Supreme Court case, where the court had to decide whether an implied trust was created when a property was purchased with someone else’s money but registered under another’s name.

In this case, Maxima Greenfell, a natural-born Filipino who became an Australian citizen, financed the purchase of a house and two lots in Botolan, Zambales. The properties were registered in the name of her niece, Ruth Dizon Devisfruto, who later refused to reconvey them to Greenfell after she reacquired her Philippine citizenship. The central legal question was whether an implied trust was established, obligating Ruth to transfer the properties back to Greenfell.

Legal Context: Understanding Implied Trusts and Property Ownership

In the Philippines, the concept of trusts is governed by the Civil Code, particularly Article 1448, which deals with implied trusts. An implied trust is created 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 in the property. The person to whom the title is conveyed is the trustee, while the one paying the price is the beneficiary.

This legal principle is crucial in situations where individuals use intermediaries to purchase property, especially when foreign ownership restrictions are involved. For instance, if a Filipino citizen living abroad wants to buy property in the Philippines but cannot do so directly, they might use a relative or friend to hold the title on their behalf. The understanding is that the property will be transferred back to them once they can legally own it.

Article 1448 of the Civil Code states: “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 the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary.”

This provision is essential in cases like Greenfell’s, where the intent behind the purchase was for her to retain beneficial ownership of the properties despite the title being in another’s name.

Case Breakdown: From Municipal Court to the Supreme Court

Maxima Greenfell’s journey to reclaim her properties began in 2011 when she filed a complaint for reconveyance and damages against her niece, Ruth Dizon Devisfruto, and her husband, Allan Devisfruto. Greenfell claimed that she had financed the purchase of the properties from the Magisa Spouses, with the understanding that Ruth would hold the title until Greenfell could legally own property in the Philippines again.

The Municipal Circuit Trial Court ruled in Greenfell’s favor, finding that an implied trust existed under Article 1448 of the Civil Code. The court noted that the Devisfruto Spouses had admitted in their answer that Greenfell provided the purchase money. The court concluded that Ruth was merely a depository of the legal title and was obligated to convey the property to Greenfell upon demand.

The Devisfruto Spouses appealed to the Regional Trial Court, which affirmed the lower court’s decision. They then took their case to the Court of Appeals, arguing that no trust was created and that the properties were given to them gratuitously. However, the Court of Appeals upheld the lower courts’ findings, stating that the intent to create a trust was clear and supported by the testimony of Dante Magisa, the original owner of the properties.

The Supreme Court, in its decision, emphasized the importance of the parties’ intent in creating an implied trust. The court quoted from the Civil Code, stating, “The former is the trustee, while the latter is the beneficiary.” The court also highlighted the testimony of Dante Magisa, who confirmed that Greenfell was the actual buyer and that Ruth was to transfer the titles back to her once permitted by law.

The Supreme Court rejected the Devisfruto Spouses’ argument that the trust was express rather than implied, as they had not raised this issue in the lower courts. The court noted, “As a general rule, issues may not be raised for the first time on appeal.”

Furthermore, the court dismissed the claim that the properties were given gratuitously, pointing out that no written evidence of such a donation existed, as required by Article 748 of the Civil Code.

Practical Implications: Navigating Property Transactions and Trusts

This Supreme Court decision reinforces the importance of understanding implied trusts in property transactions, especially in cases involving foreign ownership or familial arrangements. For individuals considering similar arrangements, it’s crucial to document the intent behind the purchase clearly, whether through a written agreement or other evidence that can be presented in court.

Property owners and buyers should be aware that the courts will look at the substance of the transaction rather than just the form. If you’re financing a property purchase but having it registered under someone else’s name, ensure that the agreement is clear and legally enforceable.

Key Lessons:

• Document the intent behind property transactions, especially when using intermediaries.
• Understand the legal implications of implied trusts under Article 1448 of the Civil Code.
• Be aware of the formal requirements for donations under Article 748 of the Civil Code.

Frequently Asked Questions

What is an implied trust?

An implied trust is created 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 in the property.

How can I prove the existence of an implied trust?

Proving an implied trust requires clear and convincing evidence of the parties’ intent. Testimonies from disinterested parties, like the original seller, can be crucial.

Can a verbal agreement create an implied trust?

Yes, an implied trust can be established based on the parties’ conduct and verbal agreements, but it’s always better to have written documentation.

What should I do if I’m financing a property purchase but registering it under someone else’s name?

Ensure that the agreement is documented in writing, clearly stating the intent to create a trust and the obligation to reconvey the property when required.

How does this ruling affect property transactions involving foreign nationals?

This ruling reinforces that foreign nationals can use implied trusts to secure property rights in the Philippines, provided the intent is clear and legally enforceable.

What are the formal requirements for donations under Philippine law?

Under Article 748 of the Civil Code, donations of personal property exceeding P5,000.00 must be made in writing to be valid.

ASG Law specializes in property law and trusts. Contact us or email hello@asglawpartners.com to schedule a consultation.