Araneta, Inc. v.

Del Paterno (1952)

Tuason, J.

FACTS:
Defendant Paz Tuason de Paterno (Tuason) was the registered owner of several parcels of land in
Sta. Mesa, Manila.
The lots were subdivided and were occupied by tenants who had lease contracts. It was stipulated
that in the event the owner and lessor should decide to sell the property, the lessees were to be
given priority over other buyers if they should desire to buy their leaseholds, all things being equal.
In 1940 and 1941, Tuason obtained several loans from Jose Vidal (Vidal) amounting to P90,098. The
loans were secured by mortgages executed over the subject property.
In 1943, Tuason obtained additional loans amounting to P50,000 upon the same security. The
mortgage contracts were renewed.
It was alleged that there was another agreement (Agreement), all copies of which were destroyed
during the war. This contained stipulations as to the manner and time of payment, as well as the
corresponding penalties.
Tuason later decided to sell her property to plaintiff Gregorio Araneta, Inc. (Araneta, Inc).
o They executed an agreement to buy and sell (Exhibit 1). This contract provided that subject
to the preferred right of the lessees and that of Jose Vidal as mortgagee, Paz Tuason would
sell to Gregorio Araneta, Inc. and the latter would buy for the said amount of P400,000 the
entire estate.
o Some of the lessees exercised their right to purchase their respective leaseholds.
o An absolute deed of sale was then executed by the parties over the remaining lots (Exhibit
A). The total amount to be paid was P190k, broken down as follows:
P13,476.62 Paz Tuason;
P3,373.38 City Treasurer of Manila
P30,000 Jose Vidal
P143,150 Jose Vidal1
o The deed of sale contained a stipulation that should the vendor lose the checks issued, the
vendee shall not be held liable for such loss.
The day after the consummation of the sale, Tuason tendered payment to Vidal by offering the
check drawn by Araneta, Inc. Vidal refused to accept the payment, alleging that according to the
Agreement, payment of the mortgage was not to be effected totally or partially before the end of
four years from April, 1943.
Thus, Tuason, with the help of her attorney Ponce Enrile, commenced an action against Vidal to
compel the latter to accept payment. The checks were deposited with the clerk of court.
The action was never tried and all the records, including the checks, were lost during the war.
After the war, the value of the property increased tremendously. Tuason is now repudiating Exhibits
1 and A.
Araneta, Inc. filed the present action to compel Tuason to deliver clear title to the lots subject of the
sale free from all liens and encumbrances. It also seeks the cancellation of the mortgage to Vidal.
The latter filed a cross-claim against Tuason to foreclose the mortgage.
TC ruled in favor of defendant; it declared Exhibit A void.

ISSUES + RULING:

Is Exhibit A (absolute deed of sale) valid? YES.

Trial court based its decision on the alleged variance between the terms of Exhibit 1 (agreement to
buy and sell) and Exhibit A. It is the SCs submission that the lower courts interpretation of Exhibit
1 was wrong.
o One of the conditions in Exhibit 1 is that the deed of sale is to be executed only when Tuason
has already determined which lots she can validly dispose of. After the lessees exercised
their right to repurchase, she was already in a position to sell the remaining lots.
Tuason claims that the sale was effected through fraud as the document was written in English, a
language she did not understand. Had she known how one-sided its provisions were, she would not
have affixed her signature thereto.

1 Both checks issued in order to satisfy the mortgage obligation.

 o Court finds this hard to believe. She had an able attorney who assisted her throughout the
proceedings. Further, her suit against Vidal was instituted precisely to enforce the provisions
of the sale.
o Also, she had a son who was a leading citizen and businessman. He took active part in the
negotiations that led to the execution of the sale.
o Court doubts the defendants veracity. She as probably gambling on the chance that no
signed copy of the document had been saved from the war.
ON THE ISSUE OF AGENCY: It is argued that the sale is invalid because Jose Araneta was both the
defendants agent and the President of Araneta, Inc.
o Trial court simply disposed of the issue by saying that he was not an agent. However, this is
contrary to the clear weight of the evidence.
In Exhibit 1, Jose Araneta was referred to as defendants agent or broker who acts in
this transaction, entitled to a commission of 5%.
o The trial court, hypothetically admitting the agency relationship, pointed out that it was the
Corporation (Araneta, Inc.) and not the person (Jose Araneta) who purchased the property,
thus it does not come within the prohibition of the old Civil Code.
o Tuason would have the SC pierce the veil of corporate fiction in this case. There is, however,
no basis for the application of the rule.
Araneta, Inc. had long been engaged in the real estate business. Clearly, it was not
constituted merely to circumvent the prohibition of the old CC.
The principle invoked by defendant is applicable only as a measure of protection
against deceit and not to open the door to deceit.
o The corporate theory aside, granting that the two entities are in fact identical, the relation
between Tuason and Araneta still did not fall within the prohibition found in Art. 1459 2, Old
Civil Code.
Citing the commentaries of Scaevola, the Court said that the rationale behind the
prohibition rests in the fact that both the agent and the principal form one juridical
person.
In American jurisprudence, commentators are of the opinion that the law does not
trust human nature to resist the temptations likely to arise out of antagonism
between the interst of the seller and the buyer.
Par. 2 connotes the idea of trust and confidence; where the relationship does not
involve considerations of good faith and integrity, the prohibition should not apply.
Using the test of trust and confidence, it can be seen that Jose Araneta was nothing
more than a middleman between the defendant and purchaser.
He was not to sell and did not sell the property. He was not authorized to enter into a
contract on behalf of Tuason.
Defendant also claims that there was a conflict of interest as the attorneys who represented her in
the sale negotiations were the Attys. Araneta.
o Not likely. Ponce Enrile was already representing her in the case against Vidal so it would be
reasonable to assume that it was also he who assisted her in negotiating the sale.
o Assuming arguendo that they were in fact lawyers of Tuason, such fact would not bar them
from purchasing her property. What is prohibited is the sale of property under litigation, and
in this case the sale was effected even before the present action.

Should Tuason be held liable for the loss of the certified checks lost in the war? NO.
While Exhibit A is valid, the provision relieving the vendee (Araneta, Inc.) for liability arising from
Vidals failure to collect the checks is VOID.
o Prevailing bank regulations: checks have to be encashed within 90 days otherwise they will
be considered void (EO 49).
o The stipulation in Exhibit A that the defendant or seller shall not hold the vendee
responsible for any loss of these checks was unconscionable, void and unenforceable
insofar as the said stipulation would stretch the defendants liability for these checks beyond
90 days.

2 Art. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the
mediation of another:
2. An agent, any property of which the management or sale may have been intrusted to him;
 o Tuason cannot be held liable for the checks after they expired and became absolutely
useless.

Is Vidal entitled to payment in fulfillment of the mortgage obligation? YES.

Tuason offered to pay the loans before they fell due, but Vidal refused to accept payment because
he wanted interest to accrue.
The question then is: Did Tuasons offer to pay before the due date operate to suspend the accrual
of interest?
o The Court is of the opinion that it did.
o Two checks were tendered to Vidalone for P143,150 (covering the principal) and P30,000
(penalty).
o Penalty clause embodied in the Agreement: such penalty takes the place of interest in the
event the mortgagor chooses to pay before the due date.
o To say, as Vidal says, that the debtor could not pay the mortgage within four years and, at
the same time, that there would be penalty if she paid after that period, would be a
contradiction. Moreover, adequate remedy was provided for failure to pay on or after the
expiration of the mortgage: increased rate of interest, foreclosure of the mortgage, and
attorneys fees.

DISPOSITION: Judgment modified.