G.R. No. 1786. August 12, 1905

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4 Phil. 643

[ G.R. No. 1786. August 12, 1905 ]




Prior to October 21, 1898, Thomas E. Evans and Walter Jackson were
the owners of an establishment known as “The Alhambra” situated on the
Escolta, Manila, consisting of a stock of goods, furniture, and
fixtures, and a lease for a term of years of the building in which the
business was conducted. They carried on there a drinking saloon and
later the place was used also for a theater. They were heavily in debt,
and Evans attempted to secure a loan from the defendant Paul Blum of
32,443.35 pesos. Blum agreed to make him the loan on the condition that
he (Evans) should buy the interest of his copartner, Jackson, should
convey to the defendant Whaley an undivided half of the property, and
should allow Whaley to manage the business as he (Whaley) saw fit.
Evans accepted these terms, acquired the interest of Jackson in the
property, and on October 21, 1898, conveyed to the defendant Whaley an
undivided half of the property, for the expressed consideration of $1.
Whether this consideration of $1 was paid by Blum or Whaley we consider
of no importance. It was not shown that the business was worth more
than the debt against it, and the evidence indicates that it was not.

On the same day Evans and Whaley executed to the defendant Paul Blum
a bill of sale of the entire property for the expressed consideration
of 32,443.35 pesos. On the same day Evans and Whaley on the one part
and Paul Blum on the other part executed an agreement in which it was
recited that the Alhambra had been mortgaged to Blum to secure the
payment of 32,443.35 pesos, it being further provided in this agreement
that Evans and Whaley should be equal partners in the business, which
Whaley should manage, and that the net receipts should be duly
deposited with the American Commercial Company. The copy of this
agreement in the bill of exceptions bears the date of the 2d of
October, 1898, but for the reason stated in the judgment of the Court
of First Instance in the case of Jackson vs. Blum,
hereinafter referred to, we think the correct date was the 21st. No
question is made in the case but that Paul Blum actually advanced at
this time the 32,443.35 pesos in cash, all of which was received by
Evans, and none of it by Whaley.

The business was apparently carried on under the terms of this
agreement up to the 4th of December, 1899, when the defendant Henry
Blum, acting for the defendant Paul Blum and the American Commercial
Company, notified Evans and Whaley in writing that the amount then due
upon the date aforesaid was 28,927.97 pesos, and that if this amount
was not paid at the first of the ensuing year they should take steps to
collect it. Nothing was done by Evans looking to the payment of this
sum or any part of it, and on the 4th day of January, 1900, Paul Blum
took possession of the establishment under the aforesaid two documents
of the 21st of October, 1898, Whaley, who was in possession at that
time, surrendered the property to him in payment and satisfaction of
the debt, and then delivered the keys into his possession. On the next
day Whaley notified Evans in writing that Paul Blum, on fee day before,
had made demand on him for the payment of the debt, but he was unable
to pay it, and that he had turned over the property to Blum in
satisfaction thereof, and had delivered him the keys.

Blum left Whaley in control and management of the business, and
there was no outward change in the appearance thereof. It is shown,
however, that the keys were delivered to Blum every night. This
condition of things continued until the 26th of January, 1900. On that
day four documents were executed and delivered. One of them was a deed
of the entire property by Paul Blum to Whaley; another was a deed of an
undivided half of the property by Whaley to the defendant Johnson; a
third was a mortgage by Whaley to Paul Blum of his undivided half of
the property, to secure 19,000 pesos; a fourth was a contract of
partnership between Whaley and Johnson for carrying on the said
business, by the terms of which it was provided that Whaley should
continue to act as the manager of the business, and exercise full
control over it until the mortgage made by him to Blum for 19,000 pesos
had been paid.

In payment of the undivided half of the property conyeyed by Whaley
to Johnson, Johnson paid to Whaley 15,000 pesos, and this money was
paid to Paul Blum as a part of the purchase price of the whole property
conveyed to him by Blum on the same day. The 15,000 pesos paid by
Johnson for this undivided half was the money of the deceased Samuel J.
Levy. Fourteen thousand pesos of it had been sent by Levy from Shanghai
to Johnson at Manila some time prior to the 26th of January, 1900,to be
invested in the purchase of an interest in the Alhambra. Some time
prior to January 26, 1900, Levy himself arrived in Manila and paid to
Johnson 1,000 pesos more, which made up the sum of 15,000 pesos paid by
Johnson to Whaley and by Whaley to Blum.

Whaley and Johnson at once took possession of the property, and
continued in the management of it until the month of July, 1901. The
business was then closed by reason of a law of the Commission passed at
that time prohibiting, the sale of liquor on the Escolta.

On the 22d of March, 1900, Johnson being about to leave for
Australia for the purpose of securing attractions for the theater, Levy
suggested to him that he (Levy) should have some document in writing
from Johnson showing his (Levy’s) interest in the Alhambra. Thereupon
Levy drew up and Johnson signed a document by the terms of which
Johnson promised to convey, on January 26,1901, to Levy, all his right
and interest in an undivided half of the property. Levy died in July,
1900 and the plaintiff was appointed administratrix of his estate.

In August, 1900, Jackson commenced an action against Johnson,
Whaley, Paul Blum, and Henry Blum, in which he alleged that he had
acquired the interest of Evans in the property; that he was the owner,
therefore, of an undivided half of it, subject to the payment of the
amount still due on the mortgage of 32,000 pesos, made by Evans and
Whaley to Blum. He asked for an accounting as to the amount due on the
mortgage, and a judgment that he was the owner of an undivided half,
subject to such balance. The defendants made a joint answer in the
case, and it was tried in the Court of First Instance of Manila, and
decided on the 11th of February, 1901, in favor of the plaintiff
Jackson, the court declaring that the attempted foreclosure of the
pledge or mortgage made by Paul Blum on January 4, 1900, was invalid;
that it did not destroy the interest of Evans in the property, and that
his assignee, Jackson, was the owner of one-half of it, subject to the
amount due on the mortgage. The defendants appealed from this judgment
to the Supreme Court, and this court, on the 28th of August, 1901,
affirmed the judgment in all its parts. At the time this final judgment
in the Supreme Court was rendered, the place had been closed, as before
stated, and a receiver was appointed in that suit, to take possession
of what assets there were left belonging to the establishment, and
dispose of them. This he did, showing a net balance of 6,000 pesos.
What disposition was made of this 6,000 pesos does not appear from the

On November 2, 1900, one of the present counsel for the plaintiff,
acting for her, notified the American Commercial Company in writing
that she was the owner of Johnson’s half interest in the Alhambra, and
that they should not permit the sale or other disposition of the
leasehold estate thereon to the prejudice of plaintiff’s interest.

On January 26, 1901, the same attorney, acting for the plaintiff,
made a demand upon Johnson for the possession of his half of the
property, pursuant to the agreement made between Levy and Johnson on
the 22d of March, 1900, under which Johnson had agreed to turn the
property over to Levy on that date (January 26, 1901). Johnson refused
to make such delivery.

In December, 1901, plaintiff commenced this action against Johnson,
Whaley, Paul Blum, and Henry Blum. Three amended complaints were filed.
In the last complaint plaintiff seeks to recover the 15,000 pesos upon
the ground that defendants, in January, 1900, entered into a fraudulent
conspiracy to cheat and defraud Levy out of 15,000 pesos and for that
purpose concocted this sale on the 26th of January, 1900, to Whaley by
Blum, and the subsequent sale of one-half by Whaley to Johnson,
plaintiff alleging that at that time Blum did not own the property, or
at least only one-half of it, and that Johnson acquired nothing at all
by his deed from Whaley. Judgment was rendered in the Court of First
Instance on the 25th of July, 1903, in favor of the plaintiff and
against the defendants Johnson and Whaley, and in favor of the
defendants Paul Blum and Henry Blum and against the plaintiff. From the
judgment, so far as it held Paul Blum and Henry Blum not responsible to
the plaintiff, plaintiff has appealed. Considerable time was devoted in
the trial below in showing the relations between Paul Blum and Henry
Blum on the one part and the American Commercial Company on the other.
It appeared that Paul Blum was director and manager of the American
Commercial Company, which was engaged in selling wines, liquors, and
beers in Manila, and that Henry Blum was also interested in the same
enterprise, but we do not think it is of any importance to determine
exactly what their relations were. It is,enough to say that all the
documents relating to this property were made in the name of Paul Blum,
and that if the plaintiff has any right of action against anyone
connected with the company she has it against him, and that if she has
no right of action against him she has no right of action against the

The claim of the plaintiff, reduced to its lowest terms, is that
Johnson, by his deed from Whaley of an undivided half of the property,
acquired no interest whatever therein, and that that contract was made
by the fraud of the defendants Paul and Henry Blum. There is no
evidence in the case that either Paul or Henry Blum made any
representations whatever, either to Johnson or Levy, as to the value of
the property or its condition. It appears affirmatively that Johnson
knew the exact condition of the title to the property prior to the 4th
of January, 1900, and knew that the only interest which Paul Blum had
at that time was the interest which he derived by virtue of this bill
of sale and pledge, and he was waiting for the foreclosure by Paul Blum
of his claims in order to make the purchase in behalf of Levy. There is
no doubt, under the evidence, but that Johnson had full authority from
Levy to invest the 15,000 pesos in this business, and there is nothing
to show that he had not the right to invest it on such terms and
conditions as he saw fit, and in any event there is no evidence to show
that Paul or Henry Blum knew of any limitations upon his authority in
this respect. A great deal of time was spent in the court below in
attempting to show that Paul and Henry Blum knew that the 15,000 pesos
paid by Johnson was furnished by Levy, but we consider this a matter of
no importance. Under the evidence in the case the rights of the parties
are exactly the same whether they knew or did not know of this fact. It
further appears that Levy arrived here between the 1st and 15th of
January, 1900; that he lived with Whaley and Johnson, and that he
investigated the whole matter and saw some if not all of the papers
that were made. Immediately after the purchase by Whaley and Johnson,
Levy went into the business as cashier and bookkeeper. He and his wife,
the plaintiff, lived in the upper story of the building occupied by the
Alhambra for some time,. and until his death, in July.

We see no evidence anywhere in the case showing any fraud whatever
on the part of Paul or Henry Blum. On, the 4th of January, 1900, Blum
held an absolute deed of the property, given to him by the owners of
it. For this deed he had paid more than 28,000 pesos, for which he had
not been reimbursed. Acting upon the advice of counsel, and accompanied
by counsel and witnesses, he went to the establishment and formally
demanded possession thereof under this document. Whaley, one of the
owners of the property, and the person who, under the terms of the
partnership between him and Evans, had the absolute control of it,
being unable to pay the debt, surrendered the property to Blum in
satisfaction thereof. Blum then took possession and retained
possession. That he had a valid claim against the property for over
28,000 pesos, which had not been paid; that he acted in good faith in
taking possession and in receiving the property in satisfaction of the
debt, and that he, on the 26th of January, 1900, believed that he had
good title to the property, is, we think, abundantly established by the
evidence. Whether or not he did thus acquire title to the property
depended altogether upon the decision of the Supreme Court. If that
decision had been the other way, and if this court had decided that the
proceedings taken by Blum on the 4th of January, 1900, were sufficient
to vest him with the title to the property, this case, of course, would
never have been heard of. There would have been no claim of conspiracy
or fraud, because Johnson would in any event have gotten by his deed
from Whaley what he paid for. That the legal question involved in that
suit of Jackson vs. Blum was not free from doubt, and that
Blum was justified in believing that his proceedings were sufficient to
transfer the title to him, is shown by an examination of the
authorities presented by the appellants in the argument of that case in
this court, and in the petition for re argument. It is difficult to
maintain an action for fraud, when the question as to the existence or
nonexistence of the fraud depends on a decision by a court of a
doubtful question of law.

To our minds the case involved, if anything, nothing more than a
breach of warranty of title under articles 1461, 1474, and the
following articles of the Civil Code. In her brief of 131 pages in this
court the appeljant devotes less than two pages to the discussion of
this phase of the case, giving some reasons why she did not commence
such an action. It is not, of course, necessary to decide whether, if
she had commenced such an action, she could have prevailed or not. It
is said repeatedly in appellant’s brief that Johnson got absolutely
nothing by his deed from Whaley of the undivided half, because the
particular half which was conveyed by Whaley was Jackson’s half, which
Blum did not own, and the appellant assumes that the half which Blum
did own went to Whaley, and was by him mortgaged back to Blum. We see
no ground whatever for this contention. Blum conveyed the entire
property to Whaley, without any distinction of parts, claiming that the
interest of Jackson, Evans, and Whaley had been extinguished. Whaley
conveyed an undivided half of the property to Johnson. This half was
not in any way identified. The title to an undivided half of the
property having failed, and it resulting that Johnson had an apparent
title to one-half, and Blum, through his mortgage, had an apparent
title to the other half, and Blum being the guarantor of the title to
the whole, it would seem that his half would be the half that was lost,
and that Johnson would be protected in his half; but, as we have said,
there is no necessity for deciding that question, for, notwithstanding
the claim made by the appellant in her reply brief, this is not an
action to recover on a warranty, but an action for fraud, and such
fraud has not been proved. Nor is there anything in the other points
made by the appellant in her reply brief. A simple failure of title to
property conveyed gives rise to an action under articles 1461 and 1474
of the Civil Code, but does not make a case of error under article
1265, nor a case of want of cause under article 1275. Moreover, there
was no want of cause in the contracts. Blum conveyed to Whaley and
Whaley conveyed to Johnson, and each promised to guarantee the title.
This was sufficient. (Art. 1274.) Under these conveyances Johnson went
into and remained in possession nearly a year and a half.

The appellant devotes some attention to another transaction
occurring at the time of the sale on the 26th of January, 1900, which
we think is of no importance. It appears that when Blum on that day
transferred the property to Whaley he gave to Whaley a check for 30,000
pesos, Whaley, in payment for the property, gave to Blum a check for
28,878,27 pesos, and some time after that (February 6) Whaley gave to
Blum another check for 1,121.73 pesos—the exact difference between
Blum’s check for 30,000 pesos and Whaley’s check for the purchase of
the property, 28,878.27 pesos. This shows that the transaction
connected with this 30,000 pesos check was a mere form, and did not in
any way affect the rights of any of the parties. Why this course was
pursued does not appear, although Blum testifies that it was done under
the advice of counsel.

It will have been noticed that when Whaley mortgaged his half to
Blum on January 26, 1900, the mortgage was made for 19,000 pesos, and
not for one-half of the purchase price of 28,878.27 pesos, and a good
deal of time was spent in trying to ascertain how the difference was
made up. We consider this a matter of no importance. Johnson had no
interest whatever in Whaley’s one-half. Whaley was entitled to encumber
that in any way he saw fit, and to any amount which would be
satisfactory to Blum. That the mortgage was for 19,000 pesos and not
for 13,000 pesos did not in any way prejudice the interests of Johnson,
upon whose half this mortgage, no matter what it was, was not a lien.

A great ,deal of space in the appellant’s brief is devoted to the
discussion of a mortgage made by Whaley to Blum on May 12, 1900, which
was satisfied and discharged on August 28,1900. The original mortgage
was not produced in evidence, but the satisfaction was. The appellant
claims that Whaley and Blum committed a criminal offense in executing
this instrument, in view of the fact claimed by the appellant to exist,
that Whaley in the mortgage represented himself to be the owner of the
entire property. As this mortgage was afterwards satisfied, we do not
see how it has any bearing upon the case; and moreover, it appears from
the evidence, and is not disputed, that this mortgage was made
practically at the request of Johnson, who at that time was in
Australia on business of the company, and that from the proceeds of the
mortgage (5,000 pesos) Whaley sent to Johnson in Australia 4,557.37
pesos. This was sent in two amounts, and the entries therefor were made
by Levy himself in the books of the company. The statement in the
appellant’s brief that this mortgage was made without Levy’s knowledge
or consent is not supported by the evidence. It will be noticed,
moreover, that under the terms of the partnership agreement between
Johnson and Whaley, Whaley had authority to mortgage the whole of the
property for the purposes of the partnership. Considerable fault was
found by the appellant with this provision of the articles of
partnership, but we do not see how that has any bearing upon the
question of fraud. Blum had a right to sell the property upon such
terms as he saw fit. He had a right to insist at this time, as he had
insisted in his dealings with Evans, that Whaley should be the manager
of the business. Johnson, as has been said, had authority to invest
this money of Levy’s on such terms as he (Johnson) saw fit, and Levy,
according to the evidence, was thoroughly informed as to the whole

It is said repeatedly in the appellant’s brief that in the Jackson
suit the defendants Paul and Henry Blum made a joint answer for all the
defendants, in which they denied that Johnson and Whaley had any
interest in the property, and that during the trial of the case they
concealed that fact, and that the Court of First Instance rendered the
judgment declaring that Blum was the sole owner of an undivided half of
the property, and Jackson of the other half. We find no evidence in the
record to sustain any one of these claims. Only a small part of the
answer made in that case appears in this record, and an examination of
that part does not support the contention of the appellant. It appears,
moreover, from the decision of the Court of First Instance in the
Jackson case, that Johnson testified in that case that when the summons
was served upon him he was acting as a partner of Whaley in the
Alhambra, and Whaley testified in the same trial that during the year
1900 he and Johnson announced themselves as proprietors of the
establishment. It is also to be noticed that the judgment of the court
orders, not that Blum should account to Jackson, but that all the
defendants, Paul Blum, Henry Blum, Whaley, and Johnson, should account,
and that they should pay to Jackson the value of his interest in the
property, which was one-half. The decision says nothing about the
ownership of the other half.

The appellant attempted to show at the trial that when Johnson, on
the 26th of January, 1901, refused to deliver possession to the
plaintiff of her half of the property, his action was advised by the
defendants Blum, or by their counsel. The evidence does not show such
advice, and if it did we do not see how that in any way could affect
the defendants Paul and Henry Blum. Johnson’s refusal to deliver in
accordance with the terms of his contract of March 22, 1900, with Levy,
might have made him liable to some action on the part of Levy’s
administratrix, but we do not see how it had any tendency to prove any
fraud on the part of Henry or Paul Blum. It is further to be noticed
that such delivery by Johnson might be claimed to be in violation of
the contract between Johnson and Whaley on the one part and Blum on the
other, entered into on the 26th of January, 1900, by the terms of which
the property was not to be disposed of by either Whaley or Johnson
until the mortgage of 19,000 pesos had been paid. There is no evidence
in the case that this sum ever has been paid. The appellant admits that
the evidence does not show whether the Alhambra made money or lost
money during the time that Johnson was connected with it, but it must
be apparent that when the place was closed by the operation of the
Manila liquor law of July, 1900, a great loss must have been suffered.

It is claimed repeatedly by the appellant in her brief that the
business was conducted in exactly the same way after the 26th of
January, 1900, as it was before. There is no evidence to support this
claim. On the contrary, the evidence is conclusive that after January
26, 1900, the daily receipts of the business were not paid either to
the American Commercial Company or to the Blums, but that the American
Commercial Company submitted bills once a month for merchandise sold to
Whaley and Johnson, and these bills were some of them paid. It also
appears from the evidence, and is not contradicted, that neither of the
Blums nor the American Commercial Company, after the 26th of January,
1900, had any interest whatever in the theatrical part of the

That the question of liability on the part of Paul and Henry Blum
rested entirely, in the opinion of counsel for the appellant, upon the
result of the Jackson suit, is shown by his conduct of the affairs of
the administratrix. In November, 1900, he gave notice to the American
Commercial Company that the Levy estate was the owner of one-half of
the property. He did not at that time take any action looking to a
rescission of the contract of the 26th of January, 1900, either on the
ground of fraud or any other ground. On the 26th of January, 1901, when
he made the demand for the possession of the property, he gave no
indication of a disaffirmance in any way of the contracts made between
Johnson and Whaley for the benefit of Levy. He testified at the trial
that he knew of the case between Jackson and Blum just before judgment
was rendered in the Court of First Instance, and that he knew from
Judge Rohde, counsel for the defendant in that case, that he had
obtained a judgment, but he took no action looking to the rescission of
the contract from the time of the decision in the Court of First
Instance, in February, until the decision of the Supreme Court in
August. He testified that he first knew of the relations between Levy
and Johnson when he discovered the document of March 22, 1900, which
was some time before Mrs. Levy was appointed administratrix.

The citation by the appellant of the cases relating to following
trust funds in the hands of third persons has no bearing upon this
case. There was no misapplication by Johnson of the 15,000 pesos in his
possession. He applied it to the very purpose for which it was given to
him, viz, the purchase of an interest in the Alhambra, and this
application was made with the knowledge and consent of Levy, and
practically in his presence. The fact that the title to a part of the
property thus purchased may have failed does not make the case one of
misapplication of trust funds.

The appellant, in her brief, in speaking of the claim of the
defendant Paul Blum to the effect that he believed that at the time of
executing these papers on the 26th of January, 1900, he was the sole
owner of the property and acted in good faith, says that the evidence
overwhelmingly discredits this statement. We do not agree with this
assertion. The evidence not only supports it but there is in our
opinion no evidence to show the contrary. Johnson, who was thoroughly
informed of the whole transaction, testified that he believed that Blum
or the Commercial Company was the owner.

The claim made on page 129 of the appellant’s brief to the effect
that Johnson never took possession of the property purported to be
conveyed to him by his deed from Whaley, finds no evidence in the
record to support it. The evidence is conclusive that Johnson did take
possession on the 26th of January, 1900, with Whaley, and that he
remained in such possession until the place was closed in July, 1901.
The judgment, so far as it relates to Paul Blum and Henry Blum, is
affirmed, with costs of this instance against the appellant, and after
the expiration of twenty days judgment will be entered in accordance
here with and the case returned to the lower court for execution. So

Arellano, C.J., Torres, Mapa, Johnson, and Carson, JJ., concur.

Date created: April 25, 2014


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