Can a testator use a trust to prevent the sale of his properties in saecula saeculorum after his death?
In her will, Doña Margarita Rodriguez provided for the creation of a trust to manage the income from her properties. She prohibited the mortgage or sale of certain of these properties, so that the income from these properties can be used for the benefit of the specified beneficiaries. She wrote:
CLAUSULA DECIMA O PANG-SAMPU: – Ipinaguutos ko na ang manga pagaareng nasasabi sa Clausulang ito ay pangangasiwaan sa habang panahon, at ito nga ang ipagbubukas ng “Fideicomiso” sa Jusgado pagkatapos na maayos ang naiwanan kong pagaare. Ang pangangasiwaang pagaare ay ang manga sumusunod . . .
Ang lahat ng pagaaring nasasabe sa Clusulang ito (hindi kasama ang “generator” at automovil) hindi maisasanla o maipagbibili kailan man, maliban sa pagaaring nasa Quezon Boulevard, Maynila, na maaring isanla kung walang fondo na gagamitin sa ipagpapaigui o ipagpapagawa ng panibago alinsunod sa kaayusang hinihingi ng panahon. (underscoring supplied)
At the time of her death in 1960, Margarita left no compulsory or forced heirs and, consequently, was completely free to dispose of her properties, without regard to legitimes, as provided in her will.
Almost four decades after her death, petitioners Hilarion, Jr. and Enrico Orendain, heirs of Hilarion Orendain, Sr. (who was mentioned in Clause 24 of Margarita’s will), moved to dissolve the trust on Margarita’s estate, which they argued had been in existence for more than 20 years, in violation of Article 870 of the Civil Code, among others.
Article 870 provides:
The dispositions of the testator declaring all or part of the estate inalienable for more than twenty years are void.
In 2005, the Regional Trial Court (RTC) ruled that while the testamentary disposition prohibiting the mortagage or sale of the property is void after the lapse of the 20 year period, the trust does not become void after the 20 year period. According to the RTC:
There is no question that the testamentary disposition of Doña Margarita Rodriguez prohibiting the mortgage or sale of properties mentioned in clause X of her Last Will and Testament forevermore is void after the lapse of the twenty year period. However, it does not mean that the trust created by [the] testatrix in order to carry out her wishes under clauses 12, 13 and 24 will also become void upon expiration of the twenty year period. As ruled by the Supreme Court in Emetrio Barcelon v. CA, “the codal provision cited in Art. 870 is clear and unequivocal and does not need any interpretation. What is declared void is the testamentary disposition prohibiting alienation after the twenty year period.” Hence, the trustees may dispose of the properties left by the testatrix in order to carry out the latter’s testamentary disposition.
In other words, the RTC ruled that:
(1) only the perpetual prohibition to alienate or mortgage is void;
(2) the trust over her properties stipulated in Clauses 12, 13 and 24 of the will remains valid; and
(3) the trustees may dispose of these properties in order to carry out the latter’s testamentary disposition.
The Supreme Court disagreed with the RTC’s ruling. According to the Supreme Court, the RTC was mistaken in denying petitioners’ motion to dissolve the trust and ordering the disposition of the properties in Clause 10 according to Margarita’s wishes. As regards these properties, intestacy should apply as the decedent did not institute an heir therefor (citing Article 782, in relation to paragraph 2, Article 960 of the Civil Code). The Supreme Court ruled that the trust on Margarita’s properties must be dissolved and remanded the case to the RTC to determine the following:
(1) the properties listed in Clause 10 of the will, constituting the perpetual trust, which are still within reach and have not been disposed of as yet; and
(2) the intestate heirs of the decedent, with the nearest relative of the deceased entitled to inherit the remaining properties.
The Supreme Court was conscious that its ruling may be read to be a departure from Palad, et al. vs. Governor of Quezon Province, et al., 46 SCRA 354 (1972), wherein the Supreme Court ruled that Article 870 is not violated by a trust created by the testator:
Article 870 of the New Civil Code, which regards as void any disposition of the testator declaring all or part of the estate inalienable for more than 20 years, is not violated by the trust constituted by the late Luis Palad; because the will of the testator does not interdict the alienation of the parcels devised. The will merely directs that the income of said two parcels be utilized for the establishment, maintenance and operation of the high school.
Said Article 870 was designed “to give more impetus to the socialization of the ownership of property and to prevent the perpetuation of large holdings which give rise to agrarian troubles.” The trust herein involved covers only two lots, which have not been shown to be a large landholding. And the income derived therefrom is being devoted to a public and social purpose – the education of the youth of the land. The use of said parcels therefore is in a sense socialized. There is no hint in the record that the trust has spawned agrarian conflicts.
The Supreme Court explained the difference as follows:
In this case, however, we reach a different conclusion as the testatrix specifically prohibited the alienation or mortgage of her properties which were definitely more than the two (2) properties in the aforecited case. The herein testatrix’s large landholdings cannot be subjected indefinitely to a trust because the ownership thereof would then effectively remain with her even in the afterlife.
The Supreme Court’s statement suggests that following Palad, a trust may be upheld if the testator does not expressly prohibit the mortgage or sale of the properties covered by the trust. (Hilarion, Jr. and Enrico Orendain, represented by Fe Orendain vs. Trusteeship of the Estate of Doña Margarita Rodriquez, G.R. No. 168660, June 30, 2009)