Herrera vs. Luy Kim Guan

The death of a principal does not render the acts of an agent unenforceable where the latter had no knowledge of such extinguishment of the agency, and a winning party may be awarded attorney's fees only where the opposing party's action is so untenable as to amount to gross and evident bad faith.

Natividad Herrera is the legitimate daughter of Luis Herrera, a Chinese-born property owner who held three parcels of land (Lots 1740, 4465, and 4467) in Zamboanga City under the Torrens system. Before departing for China in late 1931 or early 1932, Luis Herrera executed a general power of attorney authorizing Luy Kim Guan, among others, to administer and sell his properties. The constitutional restriction on aliens acquiring alienable public or private agricultural land, later enshrined in the 1935 Constitution, forms part of the legal backdrop against which the defendants' citizenship was challenged.

Luis Herrera was the registered owner of three parcels of land in Zamboanga City — Lots 1740, 4465, and 4467 — covered by Original Certificate of Title No. 8601 and Original Certificate of Title No. 0-14360, respectively, both registered in the name of "Luis Herrera, married to Go Bang." On December 1, 1931, before leaving for China, Luis Herrera executed a general power of attorney authorizing Luy Kim Guan to administer and sell his properties. On the same date, Herrera executed a second instrument that the parties hotly disputed: Luy Kim Guan asserted it was a deed of sale conveying one-half undivided interest in Lots 4465 and 4467, while Natividad Herrera claimed it was merely a lease contract over all three lots for twenty years in consideration of ₱2,000.00. The deed of sale was registered on September 30, 1936, shortly after the issuance of Original Certificate of Title No. 14360 pursuant to Decree No. 59093, and Transfer Certificate of Title No. 1304 was issued in the names of the conjugal partnership of Luis Herrera and Go Bang (one-half share) and Luy Kim Guan (one-half share).

Thereafter, a series of transactions followed. On July 23, 1937, Luy Kim Guan, acting as attorney-in-fact of Luis Herrera, sold the latter's one-half participation in Lots 4465 and 4467 to Nicomedes Salazar for ₱3,000.00, resulting in the issuance of Transfer Certificate of Title No. RT-657 in the names of Luy Kim Guan and Nicomedes Salazar as co-owners in equal shares. On August 4, 1937, both co-owners mortgaged the two parcels to the Bank of the Philippine Islands to secure a loan of ₱3,500.00. On August 17, 1937, they sold Lot 4465 to Carlos Eijansantos for ₱100.00, subject to the mortgage, and Transfer Certificate of Title No. T-2653 was issued in his name. On February 22, 1949, Nicomedes Salazar sold his one-half interest in Lot 4467 to Lino Bangayan for ₱3,000.00, and Transfer Certificate of Title No. T-2654 was issued in the names of Luy Kim Guan and Lino Bangayan as co-owners in equal shares. As for Lot 1740, Luy Kim Guan, again as attorney-in-fact, sold it to Luy Chay on September 11, 1939. Luy Chay mortgaged the property to the Zamboanga Mutual Building and Association in August 1941, then sold the entire lot to Lino Bangayan on January 31, 1947, resulting in the issuance of Transfer Certificate of Title No. T-2567.

Natividad Herrera, the legitimate daughter of Luis Herrera, filed a complaint for the recovery of all three parcels and their produce in the sum of ₱320,000.00, contending that all the foregoing transactions were fraudulent and executed after the death of her father, rendering the power of attorney inoperative. She supported her claim that Luis Herrera had died in August 1936 with a supposed letter from a certain "Candi" dated November 1936 from Amoy, but the letter was not properly identified. The defendants, for their part, produced a certification from the Register of Deeds of Dipolog confirming the registration of the December 1, 1931 deed of sale, and presented the testimony of witness Chung Lian, who stated that Luis Herrera visited him in Amoy in 1940 and was still alive. The trial court found the documentary evidence of the defendants more credible than the oral testimony of the plaintiff and her husband, which was given more than twenty-three years after the supposed instrument was read, and dismissed the complaint, awarding attorney's fees and litigation expenses to both defendants.

• Fraud and Death of Principal: Petitioner contended that all the transactions executed by the attorney-in-fact were fraudulent and void, having been executed after the death of Luis Herrera, when the power of attorney was no longer operative.
• Nature of the December 1, 1931 Deed: Petitioner asserted that the second instrument executed on December 1, 1931 was not a deed of sale but a lease contract over the three properties for a period of twenty years in consideration of ₱2,000.00, supported only by her own testimony and that of her husband.
• Disqualification of Defendants: Petitioner claimed that defendants Lino Bangayan and Luy Kim Guan were Chinese nationals and therefore disqualified from acquiring real properties in the Philippines.
• Attorney's Fees and Litigation Expenses: Petitioner contested the trial court's award of attorney's fees of ₱2,000.00 each and litigation expenses of ₱1,000.00 and ₱500.00 to defendants Lino Bangayan and Luy Kim Guan, respectively.

• Nature of the December 1, 1931 Deed: Respondent Luy Kim Guan asserted that the second instrument was a deed of sale conveying one-half interest in Lots 4465 and 4467, supported by a certification from the Register of Deeds of Dipolog and the resulting transfer certificate of title.
• Citizenship of Lino Bangayan: Respondent Lino Bangayan maintained that he was a Filipino citizen, as established by an opinion of the City Attorney concurred in by the Secretary of Justice.

• Nature of the December 1, 1931 Deed: Whether the second instrument executed by Luis Herrera on December 1, 1931 was a deed of sale or a lease contract.
• Validity of Agent's Acts After Principal's Death: Whether the transactions executed by the attorney-in-fact were void for having been made after the death of the principal.
• Citizenship Disqualification: Whether the defendants were disqualified from acquiring real properties in the Philippines on account of their citizenship.
• Propriety of Attorney's Fees and Litigation Expenses: Whether the trial court properly awarded attorney's fees and litigation expenses to the defendants.

• Nature of the December 1, 1931 Deed: No, the contention that it was a lease contract is untenable. The documentary evidence — a certification from the Register of Deeds and the resulting transfer certificate of title — outweighed the uncorroborated oral testimony of the plaintiff and her husband given more than twenty-three years after the fact.
• Validity of Agent's Acts After Principal's Death: No, the transactions were not rendered void. The date of Luis Herrera's death was not satisfactorily proven, and even assuming he died in 1936, there was no proof that the agent Luy Kim Guan had knowledge of the principal's death at the time of the sales.
• Citizenship Disqualification: No. Lino Bangayan sufficiently established his Philippine citizenship through an opinion of the City Attorney concurred in by the Secretary of Justice. Luy Kim Guan, while a Chinese citizen, acquired his one-half share in Lot 4467 in 1931, before the adoption of the Constitution, so his ownership could not be attacked on that ground.
• Propriety of Attorney's Fees and Litigation Expenses: No. The award was improper because the complaint was filed in good faith, and attorney's fees may be awarded only where the opposing party's action is so untenable as to amount to gross and evident bad faith.

• Nature of the December 1, 1931 Deed: The plaintiff's sole evidence consisted of her own testimony and that of her husband, who claimed to recall that the document was a lease contract, given more than twenty-three years after they supposedly read it. No other evidence was adduced. Against this, the defendant produced a certification from the Register of Deeds of Dipolog confirming that a deed of sale dated December 1, 1931 was registered on September 30, 1936 under Original Certificate of Title No. 14360, and that Transfer Certificate of Title No. 1304 was issued in the names of the conjugal partnership of Luis Herrera and Go Bang (one-half) and Luy Kim Guan (one-half). The trial court also observed that if the instrument had been a lease contract for twenty years, there would have been no purpose for Luis Herrera to simultaneously constitute Luy Kim Guan as his attorney-in-fact to administer the same properties. The documentary evidence, duly recorded and supported by appropriate certificates of title, prevailed over the belated oral testimony.

• Validity of Agent's Acts After Principal's Death: The only evidence of Luis Herrera's death was an unauthenticated letter from a certain "Candi" dated November 1936, which the lower court properly rejected for lack of identification. By contrast, witness Chung Lian testified that Luis Herrera visited him in Amoy in 1940, indicating that Herrera was still alive when the deeds were executed in 1937 and 1939. Even assuming arguendo that Herrera died in 1936, the plaintiff presented no proof that the agent Luy Kim Guan was aware of the principal's death at the time he sold the property. Pursuant to Article 1738 of the old Civil Code, the death of the principal does not render the act of an agent unenforceable where the latter had no knowledge of such extinguishment of the agency.

• Citizenship Disqualification: As to Luy Chay, while the lower court acknowledged the probability that he was actually a Chinese citizen, the property was subsequently purchased by Lino Bangayan, to whom a new certificate of title was issued. As to Bangayan's qualification, the lower court held that he had sufficiently established Philippine citizenship through an opinion of the City Attorney concurred in by the Secretary of Justice, and the Supreme Court found no reason to disturb that ruling. As to Luy Kim Guan, although he was a Chinese citizen, he acquired his one-half share in Lot 4467 in 1931, before the adoption of the Constitution, so his ownership could not be challenged on citizenship grounds.

• Propriety of Attorney's Fees and Litigation Expenses: The established rule is that in the absence of stipulation, a winning party may be awarded attorney's fees only where the opposing party's action or stand is so untenable as to amount to gross and evident bad faith. The trial court itself declared that the complaint was filed in good faith. Awarding attorney's fees simply because the judgment was favorable to the defendants would impose a premium on the right to redress grievances in court. Similarly, litigation expenses may be recovered only where the winning party was compelled to incur them by reason of the plaintiff's clearly unjustifiable claims or the defendant's unreasonable refusal of demands. Since the action was instituted in the honest belief that the plaintiffs had a valid cause of action, the awards were unwarranted.

• Agency survives principal's death unknown to agent — Under Article 1738 of the old Civil Code, the death of the principal does not automatically extinguish the agency or render the agent's acts unenforceable. Where the agent had no knowledge of the principal's death at the time of acting, the acts performed within the scope of the authority remain valid and enforceable. The Court applied this doctrine to uphold the sales executed by Luy Kim Guan as attorney-in-fact, there being no proof that he knew of Luis Herrera's death when the transactions were made.

• Attorney's fees require gross and evident bad faith — In the absence of stipulation, attorney's fees may be awarded to a winning party only where the opposing party's action or stand is so untenable as to amount to gross and evident bad faith. Litigation expenses may likewise be recovered only where the winning party was compelled to incur them by reason of the plaintiff's clearly unjustifiable claims. The Court applied this rule to strike down the awards, the trial court having itself declared that the complaint was filed in good faith.

• "The death of the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment the agency." — This passage states the controlling rule on agency that validated the attorney-in-fact's sales, and is the ratio decidendi for upholding the transactions despite the alleged death of the principal.

• "Attorney's fees, therefore, can not be awarded to defendants simply because the judgment was favorable to them and adverse to plaintiff, for it may amount to imposing a premium on the right to redress grievances in court." — This passage articulates the doctrinal basis for deleting the awards of attorney's fees, emphasizing that a favorable judgment alone is insufficient without proof of bad faith.

• "In the face of these documentary evidence presented by the defendants, the trial court correctly upheld the contention of the defendants as against that of plaintiff-appellant who claims that the second deed executed by Luis Herrera in 1931 was a lease contract." — This passage confirms the evidentiary principle that duly registered documentary evidence prevails over belated, uncorroborated oral testimony.

• Buason vs. Panuyas, 56 O.G. 6925 — Cited as supporting authority for the proposition, derived from Article 1738 of the old Civil Code, that the death of the principal does not render the agent's acts unenforceable where the agent had no knowledge of the extinguishment of the agency.
• Jimenez vs. Bucoy, G.R. No. L-10221, February 28, 1958 — Cited as controlling authority for the rule that attorney's fees may be awarded only where the opposing party's action is so untenable as to amount to gross and evident bad faith.
• Castillo vs. Samonte, G.R. No. L-13146, January 30, 1960 — Cited alongside Jimenez vs. Bucoy for the same rule on attorney's fees.

• Article 1738, Old Civil Code — Provides that the death of the principal does not extinguish the agency or render the agent's acts unenforceable where the agent had no knowledge of the principal's death. Applied to uphold the validity of the sales executed by Luy Kim Guan as attorney-in-fact, absent proof that he knew of Luis Herrera's death at the time of the transactions.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, and Dizon concurred.