G.R. No. L-2886; August 22, 1952
GREGORIO ARANETA, INC., plaintiff-appellant, vs. PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.

FACTS

Paz Tuason de Paterno was the registered owner of a subdivided residential land in Santa Mesa, Manila, subject to lease contracts with tenants who had a right of first refusal. She mortgaged the property to Jose Vidal to secure several loans. In 1943, Paz Tuason decided to sell the entire property for a net amount of P400,000 and entered into a “Promesa de Compra y Venta” (Promise to Buy and Sell) with Gregorio Araneta, Inc. The contract stipulated that the sale was subject to the preferred rights of the lessees and the mortgagee, Jose Vidal. Gregorio Araneta, Inc. advanced P190,000 to Paz Tuason, part of which was used to pay her debt to Vidal and for real estate taxes. Letters were sent to the lessees offering them the option to purchase their lots, which many accepted. After excluding the lots sold to the lessees, the remaining lots (Lots 1, 8-16, and 18) were sold to Gregorio Araneta, Inc. through an absolute deed of sale dated December 2, 1943. The purchase price for these lots was P139,083.32, with P125,174.99 considered paid from the P190,000 advance, and the balance of P64,825.01 returned to the vendee. The deed acknowledged that part of the advance was paid via checks issued to Jose Vidal, which Vidal had not yet collected. The vendee was to pay the 10% balance (P13,908.33) upon cancellation of the mortgage. Disputes arose, leading to litigation involving the validity of the sale, the effects of the mortgage, accounting issues, and the rights of the parties.

ISSUE

The primary issues involved the validity and effects of the sale between Paz Tuason and Gregorio Araneta, Inc., including whether the sale was void for violating the prohibition against an agent purchasing property entrusted to it, the implications of the unpaid mortgage, the accounting of rents and taxes, and the obligations of the parties under the contracts.

RULING

The Supreme Court, in its main decision and subsequent resolutions, ruled on multiple points. It held that the sale was not void under Article 1459 of the Civil Code, as Jose Araneta, who acted for Gregorio Araneta, Inc., was not an agent of Paz Tuason in the management or sale of the specific property in question. The Court found that the sale was subject to the mortgage in favor of Jose Vidal, and Gregorio Araneta, Inc. purchased the property with knowledge of this encumbrance. The vendee was not entitled to a reduction of the purchase price due to the mortgage. Regarding the P30,000 and P143,150 checks issued to Vidal, the Court ruled that Gregorio Araneta, Inc. must bear the loss, as Paz Tuason had acknowledged receipt of the funds and assumed the risk of Vidal not collecting the checks. The Court ordered a new trial for the accounting of rents and real estate taxes to determine any overcharges or amounts due between the parties. It also ruled that the separate “Penalidad” agreement between Paz Tuason and Vidal was not binding on Gregorio Araneta, Inc., as it was unregistered and the vendee was not a party to it. In a subsequent resolution, the Court denied a motion for rescission of the sale, finding no substantial breach that would justify rescission, as the non-payment of a portion of the price was not due to refusal or design, and the issue was part of the contested accounting.