Araneta v Paterno

August 22, 1952

GREGORIO ARANETA, INC.
vs.
PAZ TUASON DE PATERNO and JOSE VIDAL
TUASON, J.:
SUMMARY: Gregorio Araneta Inc filed an action to compel Paz Tuason to deliver to it, a clear title to the lots described in Exhibit A free
from all liens and encumbrances, and a deed of cancellation of the mortgage. Paz Tuason argues that the Deed of Absolute Sale
(Exhibit A) executed between her and Gregorio Araneta Inc. is not valid as it is in violation of Article 1459 which provides that an agent
cannot buy property under his management. She avers that Jose Araneta, Araneta Incs President is her agent; that Gregorio Araneta
Inc. and Jose Araneta are identical invoking the principle of equity to disregard the fiction of corporate entity; and thus, Gregorio
Araneta Inc. cannot validly purchase her property. SC: Jose Araneta is not Tuasons agent but is a broker. (Hindi talaga sinabi na
broker siya expressly pero yung [broker] sa doctrine ay si Jose.)
DOCTRINE: [A broker] is nothing more than a go-between or middleman between the defendant and the purchaser, bringing them
together to make the contract themselves. There was no confidence to be betrayed [since the broker] was not authorized to make a
binding contract for the [purported principal]. He was not to sell and he did not sell the property. He was to look for a buyer and the
owner herself was to make, and did make, the sale. He was not to fix the price of the sale because the price had been already fixed in
his commission. He was not to make the terms of payment because these, too, were clearly specified in his commission. In fine, [the
broker] was left no power or discretion whatsoever, which he could abuse to his advantage and to the owner's prejudice.
PARTIES:

Paz Tuason: Mortgagor, Seller, Alleged Principal

Jose Vidal: Mortgagee

Jose Araneta: Alleged Agent, President of Gregorio Araneta Inc.

Gregorio Araneta Inc.: Buyer

FACTS:

Paz Tuason de Paterno is the registered owner of a 40,703 sq.m. big block of residential land in the district of Santa Mesa, Manila
which was subdivided into city lots.

Most of these lots were occupied by lessees who had contracts of lease which were to expire on Dec. 31,1952, and carried a
stipulation 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.

Paz Tuason obtained from Jose Vidal several loans totalling P90,098 and constituted a first mortgage on the aforesaid property to
secure the debt. She obtained additional loans of P30,000 and P20,000 upon the same security.
o Each time, the previous contract of mortgage was renewed and the amounts received were consolidated.
o In the first novated contract (Jan. 1943), the time of payment was fixed at 2 years and in the second (April 1943) at
4 years.
o There was also a separate written agreement entitled "Penalidad del Documento de Novacion de Esta Fecha" ("Penalty
Document Novation of This Date) which, unlike the principal contracts, was not registered.

Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered into negotiations with Gregorio Araneta,
Inc. for this purpose.

Oct. 19, 1943: Contract called "Promesa de Compra y Venta" ("Promise to Buy and Sell" also Exhibit 1) was executed. It
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 under these terms.

For the Tenants:

o 40% paid together with the letter of acceptance of the tenant
o 20 % at the execution of deed of sale agreement (Contract to Sell??)
o 40% at the execution of deed of final sale, which will be granted after the mortgage has been canceled
o Par. 8: 5% commission corresponding to Jose Araneta will be paid at the execution of the deed of sale agreement

He was referred to as defendant's agent or broker "who acts in this transaction" and who as such was to
receive a commission of 5 per cent, although the commission was to be charged to the purchasers
o Par. 13: Paz Tuason promised, in consideration of Jose Araneta's services rendered to her, to assign to him all her right,
title and interest to and in certain lots not embraced in the sales to Gregorio Araneta, Inc. or the tenants
o At the expiry of the period (Dec. 31,1952), Paz Tuason will grant the corresponding deeds of sale to tenants who have
decided to buy their lots.
o Any tenant who decides to buy the lot may choose to order the immediate execution in his favor of Deed of Final Sale if
50% of the price besides the 40% included in his letter of acceptance was paid and the remaining 10% paid immediately
after mortgage was canceled

For Gregorio Araneta Inc:

o Paz Tuason, acknowledges receipt of P190, 000 as an advance of the sale price from Gregorio Araneta, Inc.
o The amount that Paz Tuason receives in this act will be applied to pay her debt to Jose Vidal
o The lots which were not bought by the lessees will immediately be sold in favor of Gregorio Araneta, Inc.
o Gregorio Araneta, Inc., to pay the sale price as follows: 90% of upon execution of Deed of Final Sale discounting
P190,000 already paid at the Execution of this Contract. Remaining 10% will be paid once the mortgage over property
was canceled
o If P190, 000 exceeds the 90% of the price to be paid by Gregorio Araneta Inc., the balance will be paid immediately by
Paz Tuazon, taking it from the amounts received from tenants on the sale of the lots

Letters were sent the lessees giving them until Aug. 31, 1943, an option to buy the lots they occupied, at the price and terms stated
in said letters. Most took advantage of the opportunity and after making the stipulated payments were given their deeds of
conveyance.
In the end, Lots 1, 8-16 and 18 (aggregate area of 14,810.20 sq.m.) remained unencumbered, except for the mortgage to Jose
Vidal.
Dec. 2, 1943: Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an ABSOLUTE?? DEED OF SALE
(Exhibit A) the terms of which, except in two respects, were similar to those of the sale to the lessees
o Price: P139,083.32 (90% is P125,174.99)
o Paz (Vendor) having received P190,000 from Gregorio, Inc (Vendee) upon the execution of "Promesa de Compra y
Venta, returned the excess balance of P64,825.01

P190,000 was delivered by the Vendee to the Vendor by virtue of 4 checks issued by the Gregorio Inc.
against BPI 1 in favor of Paz (P13,476.62), 2 in favor of Jose Vidal (P143,150 + 30,000), 1 in favor of City
Treasurer (3,373.38)

Nov. 2, 1943: The return of P64,825.01 was made by Paz to Gregorio Inc. liquidated as follows: Payments from
tenants Dumas, Sycip, Pabalan, del Rosario amounted to P68,563.21 from which 5% commissions of de
Pabalan, Tuason, Dumas amounting to 3,244.97 and check to Paz amounting to 493.23 were deducted
o In view of the foregoing liquidation, the vendor acknowledges fully and unconditionally, having received
P125,174.99 of the present legal currency and hereby expressly declares that she will not hold the Vendee
responsible for any loss that she might suffer due to the fact that 2 of the checks paid to her by the Vendee were
issued in favor of Jose Vidal and the latter has, up to the present time, not yet collected the same.
o 10% balance of the purchase price (P13,908.33) not yet paid will be paid by the Vendee to the Vendor when the existing
mortgage over the property sold by the Vendor to the Vendee is duly cancelled in the office of the Register of Deeds, or
sooner at the option of the Vendee.
Oct. 20, 1943: Before the execution of this Absolute deeds of Sale, Paz Tuason had already offered to Vidal the check for
P143,150 mentioned in Exhibit A, in full settlement of her mortgage obligation
o Vidal refused to receive that check or to cancel the mortgage, contending that by the separate agreement before
mentioned payment of the mortgage was not to be effected totally or partially before the end of 4 years from April, 1943.
Oct.-Nov. 1943: Paz Tuason, through Atty. Enrile, commenced an action against Vidal but the record of that case was destroyed
and no copy of the complaint was presented in evidence.
o They deposited with the clerk of court a check for P143,150 previously turned down by Vidal, another certified
check for P12,932.61, also drawn by Gregorio Araneta, Inc., in favor of Vidal, and one ordinary check for P30,000
issued by Paz Tuazon.
o 3 checks were supposed to cover the whole indebtedness to Vidal including the principal and interest up to that time and
the penalty provided in the separate agreement.
o The action against Vidal never came on for trial and the record and the checks were destroyed during the war operations
in Jan. or Feb., 1945; and neither was the case reconstituted afterward.
This failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction of the checks tendered to the
mortgagee, the nullification of the bank deposit on which those checks had been drawn, and the tremendous rise of real estate
value following the termination of the war, gave occasion to the breaking off the schemes outlined in Exhibits 1 and A
Paz Tuason, after liberation, repudiated them for certain reasons. She alleges that Exhibit A is not valid because:
o There are discrepancies between the Promise to Buy and Sell (Exhibit 1) and Absolute Deed of Sale (Exhibit A)

Exhibit 1, under par. 8, there was to be no absolute sale to Gregorio Araneta, Inc., unless Vidal's mortgage was
cancelled.

Exhibit A had no counterpart in Exhibit 1 by which Gregorio Araneta Inc. would hold Paz Tuason liable for the
lost checks. No person in his or her right senses would knowingly have agreed to a covenant so iniquitous and
unreasonable.
o There was undue rush on the part of Gregorio Inc., to push across the sale.
o Paz Tuason was deceived into signing

Attys. Salvador Araneta and J. Antonio Araneta of Araneta & Araneta, who had drawn Exhibit A, did not inform
her about its contents

Being English, she had not read the deed of sale; that if she had not trusted the said attorneys she would not
have been so foolish as to affix her signature to a contract so one-sided.
o Technical objections are made against the deed of sale.

Jose Araneta, since deceased, was defendant's agent and at the same time the president of Gregorio Araneta,
Inc.

The law firm of Araneta & Araneta who represent Gregorio Araneta, Inc. were her attorneys also.
Gregorio Araneta, Inc. thus filed an action to compel Paz Tuason to deliver to the plaintiff a clear title to the lots described
in Exhibit A free from all liens and encumbrances, and a deed of cancellation of the mortgage to Vidal.
Vidal was summoned by order of the court, and filed a cross-claim against Paz Tuazon to foreclose his mortgage.

MAIN ISSUE 1: Whether the deed of sale (Exhibit A) is valid despite:

a) The alleged agreement in the Promise to Buy and Sell (Exhibit 1, par. 8) that there was to be no execution of the deed of absolute
sale to Gregorio Araneta, Inc., unless Vidal's mortgage was cancelled? (Wrong interpretation, Deed of Sale Valid)
b) Discrepancies between the Promise to Buy and Sell and the Deed of Sale and allegations of fraud in the execution of the Deed of
Absolute Sale? (YES, no fraud)

c)
d)

Being a sale between the agent and his principal? (Jose Araneta is not an agent of Tuason but a BROKER, Deed of Sale
valid)
Being drawn by lawyers of the buyer who are at the same time lawyers of the seller? (Araneta firm is not the lawyer of Tuazon,
Deed of sale valid)

RATIO 1:
Exhibit A Valid Despite Non-Cancellation of Mortgage

LC: Contract was invalid based on Exhibit 1, par. 8 that there was to be no absolute sale to Gregorio Araneta, Inc., unless Vidal's
mortgage was cancelled.

SC: The contemplated execution of an absolute deed of sale was not contingent on the cancellation of Vidal's mortgage but as
provided once determined by Paz Tuason, may sell to Gregorio Araneta, Inc."

The lots which could be sold to Gregorio Araneta, Inc. were definitely known by the expiry of the tenants' option to buy. Exhibit A
was then in a condition to be made.

Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it, and the parties were confident
that the suit against the mortgagee would succeed. The only doubt in their minds was in the amount to which Vidal was entitled.
The failure of the court to try and decide the case was not foreseen either.

There was no undue rush on the part of Gregorio Inc., to push across the sale. The fact that similar deeds were given to the
lessees who bought their leaseholds and these were never questioned by Tuason dispels any suspicion of bad faith on Gregorio
Inc.

If anyone was in a hurry it could have been Paz Tuason as she was pressed for cash. The payment of the mortgage was only an
incident, or a necessary means to effectuate the sale. Otherwise she could have settled her mortgage obligation merely by selling
a portion of her estate.

Whatever the terms of Exhibit 1, Tuason and Gregorio Araneta Inc. were at perfect liberty to make a new agreement different from
or even contrary to the provisions of that document. The validity of the subsequent sale must of necessity depend on what it said
and not on the provisions of the promise to buy and sell.
Exhibit A Valid: No Fraud, Substantial Compliance with Exhibit 1

Except in two particulars, Exhibit A was a substantial compliance with Exhibit 1 in furtherance of which Exhibit A was made.

FIRST DIFFERENCE: 10 % of the purchase price should be paid only after Vidal's mortgage should have been cancelled.
o It is not onerous or unusual that the vendee should withhold a small portion of the purchase price before all the
impediments to the final consummation of the sale had been removed.
o The tenants who had bought their lots had been granted the privilege to deduct as much as 40%
o Seller has already received from the tenant purchasers 90% of the purchase money.
o Had Gregorio Araneta, Inc. not insisted on charging to Tuason the loss of the checks deposited with the court, the sale in
question would have gone the smooth way of the sales to the tenants as declared by Dindo Gonzales, Paz's son in his
testimony.

SECOND DIFFERENCE: The stipulation by which Gregorio Araneta Inc. would hold Paz Tuason liable for the lost checks. (See
above in Exhibit A-bold and underline)
o Difficult to believe that Paz Tuason was deceived into signing Exhibit A, in spite of the provision of which she and her son
complain of.
o Paz Tuason had an able attorney (JPEnrile) who was assisting her in the suit against Vidal and a son (Dindo Gonzales)
who is leading citizen and a business-man and knew the English language very well if she did not.
o She denied or at least pretended in her answer to be ignorant of the existence of Exhibit A, and only after she was
confronted with the signed copy of the document on the witness did she spring up the defense of fraud. It would look as if
she gambled on the chance that no signed copy of the deed had been saved from the war.
o From the unreasonableness and inequity of Exhibit A it is not to be presumed that she did not understand it.
JOSE ARANETA: NOT AGENT BUT BROKER

Paz Tuazon: Gregorio Inc.s President, Jose Araneta is Tuazons agent and applying the principle stated in 18 C.J.S. 380: " The
courts, at law and in equity, will disregard the fiction of corporate entity apart from the members of the corporation when it is
attempted to be used as a means of accomplishing a fraud or an illegal act, Jose Araneta and Gregorio Inc. is one and the same.
Thus, Gregorio cannot buy Tuazons property.

TC: Jose Araneta, Gregorio Incs President, was not Paz Tuason's agent or broker. However, hypothetically admitting the
existence of an agency relation between Paz Tuason and Jose Araneta, Gregorio Araneta, Inc. was the purchaser and not Jose
Araneta citing the well-known distinction between the corporation and its stockholders. The sale to Gregorio Araneta, Inc. was not
a sale to Jose Araneta, the agent or broker.

SC as to TC Ruling: TC disregarded evidence. In par. 8 of Exhibit 1, Jose Araneta was referred to as Tuasons agent or broker
"who acts in this transaction" and who as such was to receive a commission of 5 %, while in par. 13, Tuason promised, in
consideration of Jose Araneta's services rendered to her, to assign to him all her right, title and interest to and in certain lots not
embraced in the sales to Gregorio Araneta, Inc. or the tenants.

SC as to Corporate Theory: This principle does not fit in with the facts of the case. Gregorio Araneta, Inc. entered into the
contract for itself and for its benefit as a corporation. The contract and the roles of the parties who participated therein were exactly
as they purported to be and were fully revealed to the seller. There is no pretense, nor is there reason to suppose, that if Paz
Tuason had known Jose Araneta to be Araneta, Inc's president, she would not have gone ahead with the deal. It would have made
no difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta was the purchaser.

SC Relation bet. Tuason&Araneta: Not w/n Art. 1459: Granting Jose & G.A.Inc. were identical and that the acts of one where
the acts of the other, the relation between Tuason and Jose Araneta did not fall within the purview of article 1459 of the Spanish
Civil Code.

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: An agent, any property of which the management or sale may have been intrusted to him

Agency is defined in article 1709 in broad terms, and we have not come across any commentary or decision dealing directly with
the precise meaning of agency as employed in article 1459.
o Manresas Opinion: Agent, in the sense there used, is one who accepts another's representation to perform in his name
certain acts of more or less transcendency.
o Scaevolas Opinion: The agent's incapacity to buy his principal's property rests in the fact that the agent and the
principal form one juridicial person. In this connection, the fear that greed might get the better of the sentiments of
loyalty and disinterestedness which should animate an administrator or agent, is the reason underlying various classes of
incapacity enumerated in article 1459.
o American Courts: The law does not trust human nature to resist the temptations likely to arise of antogonism between the
interest of the seller and the buyer.

The ban of par. 2 of Art. 1459 connotes the idea of trust and confidence; and so where the relationship does not involve
considerations of good faith and integrity the prohibition should not and does not apply. To come under the prohibition, the agent
must be in a fiduciary with his principal.
CASE AT BAR (Parang what is a broker):

Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. He was to be nothing more than a
go-between or middleman between the defendant and the purchaser, bringing them together to make the contract
themselves. There was no confidence to be betrayed.

Jose Araneta was not authorized to make a binding contract for the defendant. He was not to sell and he did not sell the
defendant's property. He was to look for a buyer and the owner herself was to make, and did make, the sale.

He was not to fix the price of the sale because the price had been already fixed in his commission. He was not to make the
terms of payment because these, too, were clearly specified in his commission.

In fine, Jose Araneta was left no power or discretion whatsoever, which he could abuse to his advantage and to the
owner's prejudice.
Araneta&Araneta: Not Tuasons Lawyers

Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal, it was not likely that she employed Atty. Salvador
Araneta and J. Antonio Araneta as her attorneys in her dealings with Gregorio Araneta, Inc., knowing their identity with the buyer.

The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 and A could very well have been written in
furtherance of Gregorio Araneta's own interest.

Granting that Attorney Araneta and Araneta were attorneys for the Tuason, yet they were not forbidden to buy the property in
question. Attorneys are only prohibited from buying their client's property which is the subject of litigation. (Art. 1459, No. 5,
Spanish Civil Code) The questioned sale was effected before the subject thereof became involved in the present action.
ISSUE 2: Whether Exhibit A being valid, Tuason is liable for the loss of the certified checks payable to Vidal for P143,150 and
P12,932.61 as consigned in court? (NO, Araneta is liable for such loss, in effect no payment)
RATIO:

The matter of who should bear this loss does not depend upon the validity of the sale but on the extent and scope of the clause.

The checks were deposited with the certification stating that they were to be "void if not presented for payment within 90 days from
date of acceptance."

Under banking laws and practice, the funds represented by the check were transferred from the credit of the maker to that of the
payee or holder, and, thus the latter became the depositor of the drawee bank, with rights and duties of one such relation." But the
transfer of the corresponding funds from the credit of the depositor to that of that of the payee had to be co-extensive with the life of
the checks, which in the case was 90 days.

If the checks were not presented for payment within that period, they became invalid and the funds were automatically restored to
the credit of the drawer though not as a current deposit but as special deposit

The checks were never collected and the account against which they were drawn was not used or claimed by Gregorio Araneta,
Inc.; and since that account "was opened during the Japanese occupation and in Japanese currency," the checks "became
obsolete as the account subject thereto is considered null and void in accordance with Executive Order No. 49 of the President of
the Philippines", according to the Bank.

However, Paz Tuason cannot be responsible for those checks after they expired. It would be like holding an obligor to answer for
the loss or destruction of something which the obligee kept in its safe with no power given the obligor to protect it or interfere with
the obligee's possession.

Thus, 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 in so far as the said stipulation would stretch the defendant's liability for the checks
beyond 90 days and thus, was without consideration. That Gregorio Araneta, Inc. knew that Vidal had not cashed the checks within
90 days is not, and could not successfully be denied.

What Gregorio Inc, could have done? Keep the funds accessible for the purpose of paying the mortgage, by writing new checks
either to Vidal or to the defendant
ISSUE 3: Whether Vidals counterclaim should be granted? (YES, W/ reservations)

Vidal: Pay Loan, Interest, and Penalty up to this date. Mortgage still exists.

SC: The technical defects of the consignation did not discharge the mortgage. However, as to the payment of interest, Tuason to
pay only up to October 1943 when she offered to pay the loan

Tuason's offer to pay Vidal in October, 1943, was in accordance with the parties' contract and terminated the debtor's obligation to
pay interest. The matter of the suspension of the running of interest on the loan stands of a different footing and is governed by
different principles. These principles regard reality rather than technicality, substance rather than form.
o

Good faith of the offer or and ability to make good the offer should in simple justice excuse the debtor from paying interest after
the offer was rejected. A debtor can not be considered delinquent who offered checks backed by sufficient deposit or ready to pay
cash if the creditor chose that means of payment.

Technical defects of the offer cannot be adduced to destroy its effects when the objection to accept the payment was based on
entirely different grounds. If the creditor had told the debtor that he wanted cash or an ordinary check, which Vidal now seems to
think Paz Tuason should have tendered, certainly Vidal's wishes would have been fulfilled, gladly.

The plain truth was that the mortgagee bent all his efforts to put off the payment, and thanks to the defects which he now, with
obvious inconsistency, points out, the mortgage has not perished with the checks.
DISPOSITIVE:

The contract of sale Exhibit A was valid and enforceable, but the loss of the checks for P143,150 and P12,932.61 and invalidation
of the corresponding deposit is to be borne by the buyer, Gregorio Araneta, Inc. the value of these checks as well as the several
payments made by Paz Tuason to Gregorio Araneta, Inc. shall be deducted from the sum of P190,000 which the buyer advanced
to the seller on the execution of Exhibit 1.

Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to October 20,1943, plus the penalty of
P30,000, provided that the loans obtained during the Japanese occupation shall be reduced according to the Ballantyne scale of
payment, and provided that the date basis of the computation as to the penalty is the date of the filing of the suit against Vidal.

Paz Tuason shall pay the amount that shall have been found due under the contracts of mortgage within 90 days from the time the
court's judgment upon the liquidation shall have become final, otherwise the property mortgaged shall be ordered sold provided by
law.

Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is hereby declared subject to said mortgage. Should
Gregorio Araneta, Inc. be forced to pay the mortgage, it will be subrogated to the right of the mortgagee.

This case will be remanded to the court of origin with instruction to hold a rehearing for the purpose of liquidation as herein
provided. The court also shall hear and decide all other controversies relative to the liquidation which may have been overlooked at
this decision, in a manner not inconsistent with the above findings and judgment.

The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders. Among other reasons: the bulk of
the debt was a pre-war obligation and the moratorium as to such obligations has been abrogated unless the debtor has suffered
war damages and has filed claim for them; there is no allegation or proof that she has. In the second place, the debtor herself
caused her creditor to be brought into the case which resulted in the filing of the cross-claim to foreclose the mortgage. In the third
place, prompt settlement of the mortgage is necessary to the settlement of the dispute and liquidation between Gregorio Araneta,
Inc. and Paz Tuason. If for no other reason, Paz Tuason would do well to forego the benefits of the moratorium law.