PAULINO DUMAGUIN, PLAINTIFF AND APPELLANT, VS. A. I. REYNOLDS, E. J. HARRISON AND BIG WEDGE MINING COMPANY, DEFENDANTS AND APPELLEES.

For purposes of this decision, the following facts may be said
to he agreed upon by the parties or to he without dispute. Because the plaintiff
Paulino M. Dumaguin would appear to be the central figure in this case, we shall
begin by making reference to his background and his status at the time he
entered into the transactions and executed the deeds of conveyance whose
legality is now the subject of the present petition.

Paulino M. Dumaguin was a teacher in the public elementary
schools for a year and a half, and from 1916 to 1918 was the Manager of the Head
Waters Mining Company in Baguio. As Manager of said mining company Paulino
acquired some knowledge of mining. On or before May 21, 1929, he was a
supervising line-man of the Bureau of Posts. On that date (May 21, 1929) he was
admitted to the Insular Psychopathic Hospital at San Felipe Neri (now the
National Psychopathic Hospital), Mandaluyong, Rizal, said to be suffering from
“paranoia”. On October 15, 1929, Dr. Toribio Joson, assistant alienist of said
Hospital, submitted the following memorandum:

“MEMORANDUM

“To: the Alienist in Charge Insular Psychopathic Hospital, San
Felipe Neri, Rizal.

“Subject: Paulino M. Dumaguin—Male, married, 33 years old,
Ex-Supervising Lineman of the Bureau of Posts, admitted to the hospital at 11:25
am., on May 21, 1929.

“1. The patient 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.

“2. He is also not sure that his former officemates whom he
erroneously believed chloroformed him before, would not chloroform him anymore
when he goes home.

“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 life time, but which may show improvement as the patient grows
older“. (See Exhibits 42, folio 195; Italics ours)

After Paulino’s discharge from the hospital on or about
November 11, 1929, in order to enable his wife to withdraw his retirement
gratuity from the Government, on September 16, 1930, she filed guardianship
proceedings in the Court of First Instance of Camarines Sur. Said court relying
presumably on the report of Dr. Joson above quoted, granted the petition and
appointed her as Paulino’s guardian.

On February 2, 1931, Paulino and his guardian in a joint motion
before the Court of Camarines Sur among others alleged that—

“4. Que en la actualidad, el citado Paulino M. Dumaguin, ya
esta restablecido, por Io que se le ha permitido dejar el Hospital y ahora vive
con su familia en esta localidad, que es su residencia.

“5. Que el mencionado Paulino M. Dumaguin ha recibido un cheque
del Gobierno por la cantidad de P412.38, como parte de su pension.

“6. Que los comparecientes necesitan el importe de dicho cheque
para atender a su subsistencia, pues se hallan en la actualidad faltos de todo
necesario.”

and asked that they be authorized to cash said check and use its
proceeds for their support:

“”POR TANTO, suplican al Juzgado que se les autorice a cambiar
el referido cheque, y disponer de su producto para su
manutencion.”

In 1934, the guardianship proceedings were closed.

In and before the year 1930, defendants A. I. Reynolds and E.
J. Harrison as gold prospectors had located some mineral claims in the Itogon
District, subprovince of Benguet, Mountain Province, known as the “ANACONDA
GROUP”. They employed Fructuoso Dumaguin, brother of plaintiff Paulino, in their
work as prospectors.

At the beginning of 1931, Fructuoso Dumaguin was thus working
for said defendants Reynolds and Harrison relocating some of their mining claims
previously located and locating new ones, for which work he was paid P5.00 a
day. About the same time his brother Paulino M. Dumaguin, plaintiff herein,
leaving his home in Camarines Sur went up to Baguio in search of work. To help
him, Fructuoso got him employed by the defendants and the two brothers worked
together in the mining business for the defendants.

The theory of the plaintiff is that he was employed only to
relocate defendants’ mining claims in the Anaconda Group 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. For said work Paulino was also paid by the day by
defendants.

During the months of May, June and July of that year 1931 the
two brothers Pructuoso and Paulino staked and located ten mining claims or
fractions thereof named Victoria, Greta, Triangle, Lolita, Prank, Paul, Leo,
Loreto, Arthur and G. Ubalde, all said claims or fractions being later
registered in the name of Paulino M. Dumaguin as locator in the office of the
Mining Recorder. By virtue of an instrument (Exhibit A) entitled “Deed of
Transfer” dated September 10, 1931, Paulino M. Dumaguin conveyed and transferred
to defendants A. I. Reynolds and E. J. Harrison nine of the ten mineral claims
just mentioned, and in another instrument (Exhibit E) on the same date September
10, 1931, Paulino transferred and conveyed to defendant Reynolds the remaining
claim Victoria.

Later, Reynolds as vendee of the mining claim Victoria by
virtue of a deed of sale (Exhibit C) dated November 2, 1931 sold and transferred
said claim to the defendant Big Wedge Mining Co. In another deed of sale
(Exhibit D) dated June 2, 1933, Reynolds and Harrison sold and transferred to
the same defendant Big Wedge Mining Co. the claims Frank, Paul, Leo, Loreto and
Arthur. In still another deed of sale (Exhibit J), Reynolds and Harrison sold
and transferred to the same Big Wedge Mining Co. the Greta, Lolita and Triangle
fractions or mineral claim. As a result, all the ten mineral claims or fractions
transferred by Paulino to Reynolds and Harrison, with the exception of the claim
G. Ubalde were in turn sold and transferred to the Big Wedge Mining Co. What was
done with this last claim or fraction G. Ubalde, does not appear on the record,
but it must still remain in the name of Reynolds and Harrison.

Plaintiff Dumaguin initiated this case in the Court of First
Instance of Baguio by filing his original complaint on November 5, 1934, later
amending it on July 26, 1939 and finally reamending it on June 4, 1940. Under
his reamended complaint which contains three causes of action, he alleges that
when he executed the deeds of transfer (Exhibits A and B) 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. He also alleged
that those two deeds being void, Reynolds and Harrison had no title to transmit
to the Big Wedge Mining Co., by virtue of the deeds of sale, Exhibits C and D
(plaintiff evidently overlooked the deed, Exhibit J), and therefore those two
deeds of sale (Exhibits C and D) should also be declared null and void, and that
he (Paulino) 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 the 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 filed their original answers
on January 30, 1935 and April 12, 1935, respectively, both superseded by their
amended answers on January 22, 1936. Defendant Big Wedge Mining Co., filed its
answer on January 30, 1935, which was amended on January 18, 1936 and later
reamended on February 5, 1940. Reynolds and Harrison claimed in their answers
that plaintiff 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 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, said 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
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, Judge Jose R. Carlos before
whom the hearing was held, 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. Appellant’s 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.

The decisive and pivotal question here is whether plaintiff
Paulino M. Dumaguin and his brother Fructuoso acting on their account staked and
located these mining claims or fractions in dispute for Paulino, or whether they
acting as employees and agents of defendants Reynolds and Harrison, staked and
located said claims for and in behalf of their employers. We agree with the
trial court that the great preponderance of evidence is to the effect that these
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 staking and location of said claims and the
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
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 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.

In consonance with this correct theory that these mining claims
were located for defendants Reynolds and Harrison,as counsel for appellee well
observes, Exhibit A and E are both entitled “Deed of Transfer”. 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 (Exhibits A and B) 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 tho done outside hours of
work or employment, because there is an obvious incompatibility and conflict of
interests 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 plaintiff and the
defendants A. I. Reynolds and E.J. 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 M. Dumaguin himself, they all adjoin the Anaconda Group, which ground
he was specifically instructed to stake for the said defendants. The plaintiif
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 the
G. Ubalde mineral claim, had been located and staked by him for A. I. Reynolds
and E. J. Harrisson, 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 the 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 places the
stake could easily leave fractional mineral claims in between the claims without
reporting the existence of these fractions to his principal. Later he could
stake and claim them. If this is permitted to happen, bona fide miners can
easily be held tip 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 resources 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
or fractions thereof in between the 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 the 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
default.

‘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 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.

Appellant 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, 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 of 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.

“SEC. 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
conveyances. * * * 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 Ms mental powers have become
so far affected as to make him unable to understand the character of the
transaction in question. * * * Some authorities take the 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., 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 cases 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 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 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 goes 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 Keynolds 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 em-ployers 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 validly 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 the 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
incapacity 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 snid
nothing about being mentally incapacited in 1931. They did not ask for the
annulment of the deeds of transfer (Exhibits A. and 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 contract 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 time that he executed Exhibits A
and B and for several years thereafter when he continued in their employ,
neither Fructuoso, Paulino’s brother nor defendants Reynolds 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
himself and his interest but also of the interests of his employers. Neither did
the other employees of Reynolds and Harrison to whom Paulino paid wages on
pay-days, he being in charge of the payroll, and the Mining Recorder before whom
he executed proper and valid affidavits of locations for purposes 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 acknowledged, to
be the consideration. We believe that 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.

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.