IN THE MATTER OF THE TRUSTEESHIP OF MINORS BENIGNO, ANGELA., AND ANTONIO, ALL SURNAMED PEREZ Y TUASON. J. ANTONIO ARANETA, PETITIONER-APPELLEE, VS. ANTONIO PEREZ, JUDICIAL GUARD…

Araneta versus Perez

The Case

This is a case about a trustee who gave away trust property, and a guardian who said he could not. J. Antonio Araneta, the trustee of a testamentary trust, donated a parcel of trust land to the City of Manila. Antonio Perez, the father and judicial guardian of the minor beneficiaries, opposed the donation and appealed the trial court's approval of it. The case matters because it fixes two rules a reviewee must hold: a trustee's power to donate is measured by the law in force when the trust was created, and a donation that plainly benefits the trust is not the kind of gift the prohibition against trustees' donations was meant to reach.

Procedural History

The trust was administered in a trusteeship proceeding before the Court of First Instance of Rizal. On April 4, 1957, that court issued an order approving, upon the trustee's petition, the deed of donation he had executed in favor of the City of Manila, over the opposition of the guardian. The guardian appealed to the Court of Appeals, which certified the appeal to the Supreme Court because it involved a purely legal question. The Supreme Court thus decided the appeal directly.

Facts

Angela S. Tuason died on March 20, 1948. Her will established a trust over the legacies left to her grandchildren, the children of her daughter Angela, and named J. Antonio Araneta as administrator with the broadest powers of a trustee permitted by law, subject to the duty to render quarterly accounts and to deliver to each legatee his share of the net rents. Araneta was appointed trustee on March 24, 1950 and qualified on May 5, 1950. The beneficiaries are Benigno, Angela, and Antonio, all surnamed Perez y Tuason; the last two are represented by their father and judicial guardian, Antonio Perez.

On April 30, 1955, the trustee executed a deed of donation in favor of the City of Manila covering a lot of 853.1 square meters pertaining to the trusteeship. The lot had been used as a street since before the testatrix acquired it. That street leads to other trust lots with an area of 8,176.6 square meters, and the tenants of those lots pass through it going to and from their houses. The trustee had been paying a yearly realty tax of 100 pesos on the lot.

The trial court found that the trust lots would be converted into a residential subdivision, that the corresponding plan had been prepared, and that the donated lot appears on the plan among the street lay-outs required by law. The donation would save the trusteeship the realty tax and relieve it of maintaining the lot as a street. The guardian did not deny these benefits; he argued only that the donation was invalid under Article 736 of the Civil Code, which forbids guardians and trustees from donating properties entrusted to them.

Issues

• Whether or not Article 736 of the Civil Code, which prohibits guardians and trustees from donating properties entrusted to them, applies to a testamentary trust established upon a death that occurred before the Civil Code took effect.
• Whether or not the donation of trust property to the City of Manila is valid, considering that it was made for the benefit of the trust and not out of pure liberality.

Applicable Provisions

Article 736 of the Civil Code provides:

Los tutores y los administradores no pueden donar los bienes confiados a su administración.

This is the prohibition the guardian invoked, and the Court held it does not apply retroactively to this trust.

Article 2253 of the Civil Code provides:

Las disposiciones del presente Código que se refieran a la sucesión por causa de muerte, se aplicarán a las que se causen después de su vigencia.

This fixes the governing law by the date the succession opened, which here was before the Civil Code took effect.

Article 2255 of the Civil Code provides:

Las disposiciones del presente Código relativas a las obligaciones y contratos se aplicarán a los actos y contratos otorgados después de su vigencia.

This bars retrospective application of the new prohibition to acts and events that took place under former laws.

Ruling

On the first issue, the Court held that Article 736 does not apply. It is a new provision of the Civil Code, which took effect only on August 30, 1950, and the trust was established upon the death of Angela S. Tuason on March 20, 1948. Articles 2253 and 2255 provide against retrospective operation on acts or events that took place under former laws. Nothing in the old Civil Code prohibited a trustee from donating properties under trusteeship, and the powers given to the trustee are of a plenary character, subject only to the limitation that they be permissible under the law. When the testatrix conferred such powers, she must have had in mind the law then in force.

On the second issue, the Court held the donation valid. A trust is created for the benefit of the cestuis que trust, that is, the trust beneficiaries, and here the trustee's acts are subject to the supervision of the Court. The prohibition in the new Civil Code exists for the protection of the trust beneficiaries and evidently contemplates gifts of pure beneficence, those supported by no other cause than the liberality of the donor. When the donation is clearly in the beneficiaries' interest, to say it cannot be done would be contrary to the spirit and intent of the law.

Doctrine

First, the prohibition in Article 736 of the Civil Code against donations by guardians and trustees is a new provision that does not apply retroactively to a testamentary trust established upon a death occurring before the Civil Code took effect, by force of Articles 2253 and 2255. Second, even within the reach of the prohibition, it contemplates gifts of pure beneficence, and a donation that is clearly in the interest of the trust beneficiaries is not barred, for that would defeat the spirit and intent of the law. Third, a trust is created for the benefit of the cestuis que trust, and the trustee's plenary powers are exercised under the supervision of the Court.

Disposition

The Court affirmed the order of the trial court approving the donation, with costs against the appellant, so the trustee prevailed.

Remember This

The line to memorize is that Article 736 reaches only gifts of pure beneficence, and it does not reach back to a trust that opened before the Civil Code took effect. Examiners use this case on the retroactivity of the Civil Code and on the limits of a trustee's power to donate trust property.