DUMAGUIN vs.

REYNOLDS

On May 1929, Paulino M. Dumaguin was admitted to a psychopathic hospital and said to be suffering
from "paranoia" as per Memorandum submitted by the hospital.

On October 15, 1929, Dr. Toribio Joson, assistant alienist of said Hospital, submitted that Dumaguin is
well-behaved, oriented in all spheres, coherent in his speech and has no more illusion or hallucinations;
but is having a delusion that one of the patients in the Hospital is trying to chloroform him. He
consequently keeps away from the said patient.

3. This type of insanity which Paulino M. Dumaguin is suffering from is therefore that of Paranoia, which
runs a very chronic course of usually a lifetime, but which may show improvement as the patient grow
older.

In November 11, 1929, Paulino was discharged. In order to enable his wife to withdraw his retirement
gratuity from the government, on September 16, 1930, she filed guardianship proceedings in the CFI
Cam Sur. Said court relying presumably on the report of Dr. Joson above-quoted, granted the petition
and appointed her as Paulino's guardian.

In 1934, the guardianship proceedings were closed.

In 1930, defendants Reynolds and Harrison as gold prospectors had located some mineral claims in
Benguet. They employed Fructuoso Dumaguin, brother of plaintiff Paulino, in their work as prospectors.
Paulino, left his home in Camarines Sur, went up to Baguio and worked with Fructuoso together in the
mining business for Reynolds and Harrison.

The theory of the plaintiffs was they were employed only to relocate defendants' mining claims while
the defense claims that like his brother Fructuoso, Paulino was employed not only to relocate mining
claims within the Anaconda Group but also to stake and locate new mining claims for them..

In 1931, Dumaguin brothers staked and located ten mining claims which were registered in the name of
Paulino as locator in the office of the Mining Recorder. By virtue of two Deeds of Transfer, Paulino
conveyed and transferred to defendants such mineral claims.

Later, Reynolds as vendee of said mining claims, by virtue of a Deed of Sale, sold and transferred the
same to the defendant Big Wedge Mining Company.
In 1934, Paulino initiated this case in the CFI alleging the following: that when he executed the deeds of
transfer he was under guardianship and did not possess the mental capacity to contract and so asked
the court that the said two deeds be declared null and void; that those two deed being void, Reynolds
and Harrison had no title to transmit to the Big Wedge Mining Co., by virtue of the deeds of sale; and
that he, should be declared the owner of the ten mining claims or fractions in question.

Finally, he claimed that the Big Wedge Mining Co., had illegally taken possession of the ten mining
claims and profitably worked or operated them and so he asked that said company be ordered to render
an accounting of its operations and profits made therefrom, and that the defendants should be ordered
jointly and severally to pay to the plaintiff such profits, as may have been derived by the Big Wedge
Mining Co. as shown by its accounts.

Defendants Reynolds and Harrison claimed that Paulino and his brother Fructuoso had been expressly
employed by them to locate and stake mineral claims, and that said two brothers staked and located the
ten mineral claims in question for them (defendants), and that there was an understanding between the
two brothers and the two defendants that the said mineral claims so located would eventually be
transferred to them. In its turn defendant Big Wedge Mining Co., followed the theory of Reynolds and
Harrison about Paulino having been employed by them and having made the location of the mineral
claims in question for their employers, and that the company was not aware of the alleged mental
incapacity of plaintiff at the time that he executed the deeds of transfer in favor of Reynolds and
Harrison, and that even if the plaintiff was under guardianship at the time, yet he confirmed and ratified
the deeds of transfer by his acts and letters after his release from guardianship, and that said company
bought the said mineral claims in good faith and for valuable consideration from the registered owners.

Hearing was held on July 31, 1940. The evidence submitted was mainly documentary. Only three
witnesses took the witness stand. Atty. Alberto Jamir was presented by the Big Wedge Mining Co. to
identify a copy of a decision rendered by the Securities and Exchange Commission. Defendant Reynolds
testified for the defense. For the plaintiff, only Fructuoso Dumaguin testified for his brother. Why
Paulino, the plaintiff, did not take the witness stand, if not to support the allegations of his complaint, at
least to refute the evidence for the defense particularly that which tended to show that he was
employed by defendants Reynolds and Harrison to stake and locate mineral claims for them with the
understanding that he would later transfer said claims to his employers, is not known to this court.

After trial, CFI rendered judgment on January 16, 1941, dismissing the complaint.

Paulino Dumaguin appealed from that decision. His Record on Appeal was approved on April 16, 1941
and the brief was filed on November 3, 1941 and the brief for the Big Wedge Mining Co. was filed or
rather is dated December 31, 1941. It is not known whether defendants Reynolds and Harrison ever
filed a brief. The fact is that the record of the case was lost or destroyed during the war and only copies
of the record on appeal and the briefs were salvaged. As to the oral and documentary evidence which
was lost, only those portions of the transcript and documents reproduced and appearing in the briefs
are now available. But the parties have agreed to the correctness of these portions so quoted in the
briefs.

After the reconstitution of the case, the Court of Appeals which had taken charge of the appeal found
that the amount involved was beyond its jurisdiction and so certified the case to us. Neither Reynolds
nor Harrison has appeared before the Court of appeals or before this Court. Appellant's attorney
represented that Harrison's counsel could not appear in the appeal due to lack of authority, not having
heard from his client since liberation and being of the belief that his client is dead. There was also
information to the effect that defendant Reynolds had been killed during the early part of the
occupation by the Japanese. So, only the Big Wedge Mining Co., is opposing the present appeal.

Issue: Whether or not Paulino and his brother acted as employees and agents of defendants Reynolds
and Harrison

Ruling: Yes. The said claims were located for Reynolds and Harrison by Paulino and Fructuoso as
employees, and that the latter were purposely employed and paid for this work. All the expenses
incident to the skating and location of said claims and registration of the corresponding declarations of
location were paid by Reynolds and Harrison. It is true that in one part of his testimony, Fructuoso
claimed that he and his brother were employed merely to relocate the mining claims of the defendants
within the Anaconda Group but later on, he admitted in his testimony and also in his affidavit (Exhibit 1)
which was prepared before these proceedings were initiated in court that he and his brother Paulino
working together were paid by the defendants Reynolds and Harrison to locate new mining claims
outside the Anaconda Group; that as a matter of fact, Paulino engaged in this work at the beginning, but
because he Fructuoso found that Paulino physically was not equal to the arduous work of climbing up
and down mountains to stake and locate claims, he was placed in charge of the payroll of the
defendants and detailed to do paper work which, it is presumed, included in the registration of the
declarations of location of the mining claims in the office of the Mining Recorder, in his name. Fructuoso
also admitted that there was an understanding before and pending the staking and location of said
mining claims that they would eventually be transferred to their real owners, Reynolds and Harrison.

This conveys the idea that Paulino was merely transferring to the real owners property which technically
and in name were registered as his own. Otherwise, if he really owned these mining claims, the two
Deeds of Transfer would have been more appropriately entitled "Deed of Sale" and the body of said
instruments should have stated that he was selling the mining claims. On the other hand, we have the
instruments (Exhibits C and D) wherein Reynolds and Harrison sold said mining claims or fractions to the
Big Wedge Mining Co., and the documents were each entitled "Deed of Sale".

It would really be unfair, even against public policy to allow a person employed to stake and locate
mining claims for his employer to make locations on his own account and for his own benefit though
done outside hours of work or employment, because there is an obvious incompatibility and conflict of
interest between those of the employer on the one hand and those of the employee on the other,
unless there is a clear and express agreement to the contrary. Judge Carlos in his well-considered
decision correctly states the fiduciary relation between Paulino and his employers Reynolds and
Harrison and the sound and correct rule and public policy on this matter.

The fiduciary relation between the Paulino and Reynolds and Harrison, is very clear from the evidence.
Fructuoso M. Dumaguin, has clearly stated that his brother, Paulino M. Dumaguin, was working under
him while he was locating the claims in question for A.I. Reynolds and E.J. Harrison. There can be no
doubt that these claims in question were among those which these defendants wanted staked because,
according to Fructuoso Dumaguin himself, they all adjoined the Anaconda Group, which ground he was
specially instructed to stake for the said defendants. The plaintiff, herein, therefore, learned of the
existence, especially of the fractional mineral claims, because he was with the party who staked the rest
of the claims in that locality. To permit the plaintiff herein to assert his claim of ownership over these
claims in question would be tantamount to allowing him to violate and infringe all the sound and age-
old rules which govern principal and agent. There can be no doubt that this relation existed because
Fructuoso M. Dumaguin, the sole witness for the plaintiff, stated categorically in his affidavit Exhibit I
that all the claims subject of this litigation, except G. Ubalde mineral claim, had been located and staked
by him for A.I. Reynolds and E.J. Harrison, though the same were recorded in the name of his brother
Paulino. It is quite evident, therefore, that even if no transfers were made or Exhibit "A" and "B did not
exist, these two defendants would still be entitled to an assignment of the said claims. The evidence of
the fiduciary relation between plaintiff and the defendants A.I. Reynolds and E.J. Harrison was given by
none other than Fructuoso M. Dumaguin, the brother the only witness of the plaintiff in this case.

Any act of an agent, the object or tendency of which is to commit a fraud or breach of the agency,
should be discouraged. In the first place, such acts are condemned by public policy. They are against the
morals; therefore, they should never be tolerated. An agent or trustee, or anybody who acts in a
fiduciary capacity, should never be permitted to capitalize on his fiduciary position to mulct or take
advantage of his principal or employer.

It has been the practice of miners to employ others to stake mining claims for them. This is usually done
after the prospectors have assured themselves that a mine exists in a certain locality. The man who
place the stake could easily leave fractional mineral claims in between the claims without reporting the
existence of this fractions to his principal. Later he could stake and claim them. If this is permitted to
happen, bona fide miners can easily be held up by the very man whom they have employed to stake
their mining claims. If the mining industry shall be protected and the exploitation of the natural resource
of this country encouraged, such practice should not be tolerated. The wrong or the damage that can be
done is unlimited. If agents or employees or laborers are permitted to conceal or withhold certain
mining claims ordered staked by their employer who gave them specific instructions to stake the entire
ground in a certain locality, the effect will practically be the condonation and legalization of a holdup.
For this reason Mechem on Agency, Sec. 1224, said the following:
"The well-settled and salutary principle that person who undertakes to act for another shall not be in the
same matter, act for himself, results also in the other rule, that all profits made and advantage gained by
the agent in the execution of the agency belong to the principal. And it matters not whether such profit
or advantage be the result of the performance or of the violation of the duty of the agent if it be the
fruit of the agency. If his duty be strictly performed, the resulting profit accrues to their principal as the
legitimate consequence of the relation. If profit accrues from his violation of duty while executing the
agency, that likewise belongs to the principal, not only because the principal has to assume the
responsibility of the transaction, but also because the agent cannot be permitted to derive advantage
from his own fault.

"It is only by rigid adherence to this rule that all temptation can be removed from one acting in a
fiduciary capacity, to abuse his trust or seek his own advantage in the position which it affords him."

In view of our conclusion and holding that these mining claims were staked and located for the benefit
of the defendants Reynolds and Harrison, the other points and questions involved in the appeal
exhaustively, in detail and with a wealth of authorities, discussed by counsel for both appellant and
appellee with ability and skill, become incidental and not of much if any relevancy whatsoever, although
we may discuss one or two of them not so much to strengthen our decision but rather to render more
clear our views.

Appellants contends that the deeds of transfer (Exhibits A and B) should be annulled for lack of mental
capacity because at the time of their execution he was under guardianship for insanity. It is contended
that altho in a case of execution of a will by a testator who was under guardianship for mental
derangement, the presumption of insanity is only juris tantum, subject to rebuttal, and nevertheless,
mental incapacity as regards contracts, particularly those transferring property, under similar
circumstances, involves a conclusive presumption which cannot be rebutted by evidence, We have
studied the arguments and authorities adduced by both counsel on this point and we are inclined to
agree with counsel for appellee that the better rule is that even in the execution of contracts, in the
absence of a statute to the contrary, the presumption of insanity and mental incapacity is only prima
facie and may be rebutted by evidence; and that a person under guardianship for insanity may still enter
into a valid contract and even convey property, provided it is proven that at the time if entering into said
contract, he was not insane or that his mental defect if mentally deranged did not interfere with or
affect his capacity to appreciate the meaning and significance of the transaction entered into by him.

Section 66. Generally. — Of course, not every substandard mentality or even every mental infirmity has
the effect of rendering the afflicted person disabled for the purpose of entering into contract and
making conveyance. . . . A reasonable test, suggested by several courts for the purpose of determining
whether an infirmity operates to render a person incapable of binding himself absolutely by contract, is
whether his mind has been so affected as to render him incapable of understanding the nature and
consequences of his acts, or more exactly, whether his mental powers have become so far affected as to
make him unable to understand the character of the transaction in question. . . . Some authorities take a
view that a grantor may be competent to execute a deed notwithstanding his disability to transact
business generally, provided he understands the nature of what he is doing and recollects the property
of which he is making a disposition and to whom he is conveying it. Other authorities, however, take the
position that to sustain a deed, the grantor must have the ability to transact ordinary business. In any
event, if it appears that the grantor in a deed was incapable of comprehending that the effect of the
instrument, when made, executed, and delivered, would be to divest him of title to the land covered by
the instrument, it is not binding upon him. . . . (28 Am. Jur., Insane, etc., See Sec. 66, pp. 701-702.)

. . . Even partial insanity will not render a contract voidable unless it exists in connection with or is
referable to the subject matter of the contract. Similarly, a delusion if unconnected with the transaction
in question, is not sufficient to affect the validity of a contract consummated by the person thus
affected. Monomania or a mental fixation or abnormality respecting a matter disconnected with the act
of conveying property will not affect the validity of the conveyance. . . . (Ibid, p. 703.)

There are many case of persons mentally deranged who although they have been having obsessions and
delusions for many years regarding certain subjects and situations, still are mentally sound in other
respects. There are others who though insane, have their lucid intervals when in all respects they are
perfectly sane and mentally sound.

In the case of Paulino M. Dumaguin, according to the doctor who observed and examined him, and who
made his report on October 15, 1929, and that was more than two years before Exhibits A and B were
executed, he (Paulino) while in the hospital was "well-behaved, oriented in all spheres, coherent in his
speech and has no more illusions or hallucinations; but is having a delusions that one of the patients in
the hospital is trying to chloroform him. He consequently keeps away from said patient and that he was
"not sure that his former officemates whom he erroneously believed chloroformed him before would
not chloroform him anymore when he gets home". This was in 1929. The same year Paulino was
discharged from the hospital presumably because his condition had improved, and on February 2, 1931,
Paulino and his wife in a motion assured the court of Camarines Sur that Paulino was already re-
established (ya esta restablecido). Several months later he went to Baguio looking for work. It is to be
presumed that he was then no longer insane. It is equally to be presumed that his brother Fructuoso
would not have recommended him for employment by defendants Reynolds and Harrison and actually
let him work for them, at the beginning climbing up and down mountains to stake and locate claims for
his employers; and if Paulino was then insane, it was not likely that Reynolds and Harrison would employ
him to do the work of staking and locating claims to say nothing of taking charge of the payroll of their
employees, and registering with the Mining Recorder the declarations of location of mining claims.
There is every reason to believe as we do and hold that at least from about the beginning of the year
1931 when Paulino began working for his employers Reynolds and Harrison, and when he executed
Exhibits A and B, he had the mental capacity to transact ordinary business and was mentally capable of
validity entering into a contract even conveying property to another. But even assuming that at the time
of executing Exhibits A and B, Paulino were still mentally incapacitated, still, because of his moral and
legal obligation to transfer said claims to his employers, he could through his guardian have been
compelled by the court to execute said transfer, or after termination of his guardianship obliged
personally to execute said transfer to his employers. He acted as a trustee for his employers and the law
will not allow him to invoke insanity or mental in capacity to violate his trust.

In relation with this alleged incapacity of Paulino, it is interesting to note that when he and his lawyers
filed his first complaint in 1934, that is, about three years after executing Exhibits A and B, they said
nothing about being mentally incapacitated in 1931. They did not ask for the annulment of the deeds of
transfer (Exhibits A an B) on the ground of lack of mental capacity. They assumed and took it for granted
and led others to believe that said deeds of transfer were valid. They only asked for the payment of
damages. It was not until five years later in the year 1939 when they filed the first amended complaint
that they raised this question of mental incapacity. It took him and his lawyers almost five years to
discover and claim that he (Paulino) was not mentally capable to enter into a contra when he executed
exhibits A and B. In view of all this, we may well and logically presume that all the time that Paulino was
employed by Reynolds and Harrison to locate and register mining claims for them, and at the same time
he executed Exhibits A and B and for several years thereafter when he continued in their employ,
neither Fructuoso, Paulino's brother nor defendants Reynold and Harrison had any reason to suspect,
much less, to believe that Paulino was other than a sane, responsible and mentally capable individual,
able to take care not only of him and his interest but also of the interest of his employers. Neither did
the other employees of Reynolds and Harrison to whom Paulino paid wages on pay-days, be being in
charge of the payroll, and the Mining Recorder before whom he executed proper and valid affidavits of
locations for purpose of registration, note any mental incapacity on the part of Paulino. All this goes to
reinforce the finding that Paulino was mentally sane and capable in 1931.

Counsel for appellant next contends that Exhibits A and B should be declared void for lack of
consideration. Said two deeds each mentions P1.00 and other valuable consideration, the receipt
whereof was acknowledge, to be the consideration. We believe that consideration is sufficient, this
aside from the provision of law (Article 1277 of the Civil Code), that consideration in a contract will be
presumed and that it is licit, unless the debtor prove the contrary which Paulino in this case failed to
establish. Furthermore, according to Reynolds, in consideration of the transfer of these mining claims,
he had later paid Paulino between P3,000 and P5,000. This was not refuted by Paulino. Moreover, under
the view we take of the mining claims having been located for the benefit of defendants Reynolds and
Harrison, by Paulino in his capacity as their employee, paid for that purpose, no consideration for the
conveyances was even necessary. He was merely fulfilling an obligation and complying with a trust.

In conclusion we find and hold that Exhibits A and B were valid conveyances executed by one who was
mentally capable. Consequently, Reynolds and Harrison had a valid title to convey as they did convey to
defendant Big Wedge Mining Co., in Exhibits C, D, and J.1âwphïl.nêt
In view of the foregoing, finding no reversible error in the decision appealed from the same is hereby
affirmed, with costs.

Paras, C.J., Bengzon, Padilla, Jugo, Bautista Angelo and Labrador, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Escueta v. Lim

Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a hold-departure order] from the Philippines against Ignacio E.
Rubio. Respondent amended her complaint to include specific performance and damages.

Rufina alleged that she bought the hereditary shares of Ignacio Rubio the heirs of Luz Baloloy; that said
vendors executed a contract of sale dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of
Luz Baloloy received earnest money (downpayment) in the amount of P102,169.86 and P450,000,
respectively; that it was agreed in the contract of sale that the vendors would secure certificates of title
covering their respective hereditary shares; that the balance of the purchase price would be paid to
each heir upon presentation of their individual certificates of title; that Ignacio Rubio refused to receive
the other half of the down payment which is P100,000; that Ignacio Rubio refused to deliver to
respondent the certificates of title covering his share on the two lots; that with respect to the heirs of
Luz Baloloy, they also refused and still refuse to perform the delivery of the two certificates of title
covering their share in the disputed lots.

As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been
sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was
effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondent’s title.

In their separate amended answers, petitioners denied the material allegations of the complaint and
alleged inter alia the following:

For the heirs of Luz Baloloy

Respondent has no cause of action, because the subject contract of sale has no more force and effect as
far as the Baloloys are concerned, since they have withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase price as orally promised on or before May 1, 1990.

For petitioners Ignacio Rubio and Corazon Escueta

Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that
he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia
Rubio Laygo Lim, who was the one who represented him in the sale of the disputed lots in favor of
respondent; that the P100,000 respondent claimed he received as down payment for the lots is a simple
transaction by way of a loan with Lim.
RTC rendered judgment in favor of Rufina Lim and ordered heirs of Baloloy to execute a deed of sale in
favor of the former.

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an [Absolute] Deed of Sale
over their hereditary share in the properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or consignation of said amount in Court.
[For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of Sale
over their hereditary share in the property covered by TCT No. T-74392 and TCT No. T-74394 in favor of
[respondent], the Clerk of Court is ordered to execute the necessary Absolute Deed of Sale in behalf of
the Baloloys in favor of [respondent,] with a consideration of P[1,500,000]. Further[,] [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P[50,000] and P[20,000] for attorney’s fees. The adverse claim annotated at
the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and
Bayani Baloloy are concerned[,] [is] ordered cancelled.

RTC ruled against Escueta and Rubio. Rubio is ordered to return to Rufina Lim the amount of P102,169.8.

SO ORDERED.4

On appeal, the CA affirmed the trial court’s order and partial decision, but reversed the later decision.
The dispositive portion of its assailed Decision reads:

WHEREFORE, upon all the foregoing premises considered, this Court rules:

1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment and Orders
dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED. The Order appealed from
is AFFIRMED.

2. the Decision dismissing [respondent’s] complaint is REVERSED and SET ASIDE and a new one is
entered. Accordingly,

a. the validity of the subject contract of sale in favor of [respondent] is upheld.

b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the payment of the balance of
the purchase price by [respondent] within 30 days from the receipt of the entry of judgment of this
Decision.

c. the contracts of sale between Rubio and Escueta involving Rubio’s share in the disputed properties is
declared NULL and VOID.

d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the amount of P[20,000]
as moral damages and P[20,000] as attorney’s fees.

3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED.

SO ORDERED.5

Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this petition.

The issues are:

THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM JUDGMENT
FILED BY THE BALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN AWARDING
MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING
THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN VIRGINIA LAYGO-LIM AND
RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA LAYGO-LIM IS A CONTRACT TO
SELL AND NOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER THE CONTRACT TO SELL
THEREBY WARRANTING THE CANCELLATION THEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE CONTRACT OF SALE
WITH IGNACIO E. RUBIO.

III

THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON L. ESCUETA IS VALID.

IV

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS’ COUNTERCLAIMS.

Issue: Whether the contract of sale between the petitioners and Rufina Lim is valid

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding petitioners’ failure to appear at the pre-
trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because
petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order.
Neither did the former counsel of record inform him. Consequently, the order declaring him in default is
void, and all subsequent proceedings, orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.
Petititioners argue that the sale by Virginia to respondent is not binding. Petitioner Rubio did not
authorize Virginia to transact business in his behalf pertaining to the property. The Special Power of
Attorney was constituted in favor of Llamas, and the latter was not empowered to designate a substitute
attorney-in-fact. Llamas even disowned her signature appearing on the "Joint Special Power of
Attorney," which constituted Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.

Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also the
nature and extent of the former’s authority. Besides, Virginia exceeded the authority for failing to
comply with her obligations under the "Joint Special Power of Attorney."

The amount encashed by Rubio represented not the down payment, but the payment of respondent’s
debt. His acceptance and encashment of the check was not a ratification of the contract of sale.

Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The real
character of the contract is not the title given, but the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full payment of the purchase price. Together with
taxes and other fees due on the properties, these are conditions precedent for the perfection of the
sale. Even assuming that the contract is ambiguous, the same must be resolved against respondent, the
party who caused the same.

Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to sell
his properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold to
her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.

Yes. The contract of sale between petitioners and respondent is valid.

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer to
the original complaint and amended complaint, the allegations relating to the personal circumstances of
the Baloloys are clearly admitted.

"An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the need x
x x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto
or inconsistent therewith should be ignored whether objection is interposed by a party or not."9
Besides, there is no showing that a palpable mistake has been committed in their admission or that no
admission has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives such notice and attends the pre-
trial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of
attorney in favor of their former counsel, not that they have not received the notice or been informed of
the scheduled pre-trial. Not having raised the ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was properly declared in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of
the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after
such judgment or final order was entered, or such proceeding was taken; and must be accompanied
with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts
constituting the petitioner’s good and substantial cause of action or defense, as the case may be.

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is
reckoned from the time the party acquired knowledge of the order, judgment or proceedings and not
from the date he actually read the same."13 As aptly put by the appellate court:

The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the former
counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993 on April 5,
1994. At that time, said former counsel is still their counsel of record. The reckoning of the 60 day period
therefore is the date when the said counsel of record received a copy of the partial decision which was
on April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994 which means that 90
days have already lapsed or 30 days beyond the 60 day period. Moreover, the records further show that
the Baloloys received the partial decision on September 13, 1993 as evidenced by Registry return cards
which bear the numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.

The Baloloys apparently in an attempt to cure the lapse of reglementary period to file a petition for
relief from judgment, included in its petition the two Orders dated May 6, 1994 and June 29, 1994. The
first Order denied Baloloys’ motion to fix the period within which plaintiffs-appellants pay the balance of
the purchase price. The second Order refers to the grant of partial execution, i.e. on the aspect of
damages. These Orders are only consequences of the partial decision subject of the petition for relief,
and thus, cannot be considered in the determination of the reglementary period within which to file the
said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for
relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x x
x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence could
not have guarded against, and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable negligence "caused
by failure to receive notice of x x x the trial x x x that it would not be necessary for him to take an active
part in the case x x x by relying on another person to attend to the case for him, when such other person
x x x was chargeable with that duty x x x, or by other circumstances not involving fault of the moving
party."18

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor
of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the
authority given by her father, but she will have to be "responsible for the acts of the sub-agent," among
which is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the contract of sale and "produce the
effects of an express power of agency."20 "[H]is action necessarily implies that he waived his right of
action to avoid the contract, and, consequently, it also implies the tacit, if not express, confirmation of
the said sale effected" by Virginia Lim in favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To
countenance such repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."21

Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be reserved in or "retained by the vendor until full payment
of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.23 Even the argument that a purchaser need not inquire beyond what
appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that
the subject properties are registered in common, not in the individual names of the heirs.

Nothing in the contract "prevents the obligation of the vendor to convey title from becoming
effective"24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer
fails to pay within a fixed period."25 Petitioners themselves have failed to deliver their individual
certificates of title, for which reason it is obvious that respondent cannot be expected to pay the
stipulated taxes, fees, and expenses.

"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as:
(1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or
its equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay for the subject properties. "The offer and the
acceptance are concurrent, since the minds of the contracting parties meet in the terms of the
agreement."27

In fact, earnest money has been given by respondent. It shall be considered as part of the price and as
proof of the perfection of the contract. It constitutes an advance payment to be deducted from the total
price.