ENCARNACION TEVES, PLAINTIFF-APPELLANT, VS. THE PEOPLE’S HOMESITE AND HOUSING CORPORATION, ET AL., DEFENDANTS-APPELLEES.

From the order of the Court of First Instance
of Quezon City dismissing her complaint against
defendants People’s Homesite and Housing Corporation
and spouses Melisenda L. Santos and Cesar L. Santos, in Civil Case No. Q-6904, plaintiff Encarnacion
Teves interposed the present appeal.

The pertinent averments of the complaint in this case, filed on January 9, 1963, read as follows:

“2. That sometime in October, 1950, the herein plaintiff and
her husband Celestino Teves
who died in a plane crash with the late President Ramon Magsaysay
x x x occupied a portion of land of the Diliman Estate Subdi­vision, known as the Quezon Memorial Grove, belonging to the defendant PHHC, said por­tion of land with an area of
252 square meters, more or less, is known and desig­nated as Lot 9, Block K-70
of the Diliman Estate Subdivision located in Diliman, Que­zon City.

“3. That since then (October, 1950) the herein plaintiff and her
deceased husband have continuously occupied said por­tion of land and have
constructed thereon their residential house with an assessed value of P3,250.00
and which still remains existing to the present time.

“4. That, because at the time that portion of the Diliman Estate Subdivision known as the Quezon
Memorial Grove was not intended for subdivision and distribution the occupants thereof, including the herein
plaintiff and her deceased husband, have joined themselves together and made
repeat­ed requests and insistent representations with the officials of the PHHC
and, with the help and assistance of the Social Welfare Administration, the
Board of Directors of the defendant PHHC acceded to the oc­cupants’ petition and by virtue of Resolu­tion
No. 21, Fiscal Year 1951-52, adopted on September 19, 1951, converted said
estate into a subdivision for distribution and sale to the actual occupants
thereof who are qualified to acquire residential lots under the rules and
regulations of the defendant PHHC.

“5. That, after due investigation conducted sometime before August,
1951, the then Chief of the Sales Division of the defendant PHHC found the
husband of the here­in plaintiff to be the actual occupant of said Lot 9, Block
K-70 of the Diliman Es­tate Subdivision and, having
been found to be likewise qualified to acquire said lot by purchase it was recommended that same be awarded
to him.

“6. That after the
death of the plaintiff’s husband on March 17, 1957, the here­in plaintiff filed
another application in her own name to purchase said Lot 9, Block K-70 of the Diliman Estate Subdivision and thereafter made repeated and
insistent re­quests and representation
with the officials and personnel of the Sales
Division of the defendant PHHC to process and forward her application for approval by the Board of Directors of the said
defendant corporation but said officials and person­nel of the Sales Division
of defendant cor­poration in flagrant disregard and violation of their duties and with evident bad faith prejudicial to
the rights of the plaintiff deliberately refused to act on the requests and
insistent representation of the plaintiff.

“7. That on or about February 23, 1961, the defendant Melisenda L. Santos, through her attorney-in-fact Estela Leyva, filed with the
Sales Division of the defendant PHHC her
application to purchase said Lot 9, Block K-70 of the Diliman Estate Subdivision, and in spite of the fact that the officials and personnel of the said
office have actual know­ledge that said
lot has long been occupied and applied for by the herein plaintiff they
deliberately concealed from the latter the filing of the application of the
defendant Melisenda L. Santos, thus depriving said
plain­tiff of her legal rights to oppose the ap­proval of said application and
to bring to the higher authorities her preferential rights to acquire the said
lot in question.

“8. That by reason of the negligent acts and deliberate refusal of
the officials and personnel of the defendant PHHC to act accord­ingly on the plaintiff’s application, x x x the defendant Melisenda
L. Santos, with the help and assistance of an influential politician, was able to
secure the approval of her application and the consequent execution in her
favor of the deed of sale of the lot in question, x x x.

“9. That, upon registration of the deed of sale x x x with the Office of the Register of Deeds of Quezon City, said office, on January 23, 1962, issued the corresponding
Transfer Certificate of Title No. 59796 in favor of the defendant Melisenda L. Santos.

“10. That the deed of sale x x x and Transfer Certificate of Title No. 59796 x x x in the name of the defendant Melisenda
L. Santos are null, and void and of no ef­fect whatsoever by reason of the fact that
the same were secured by means
of acts and omissions amounting to fraud and misrep­resentations, and political
influence, aside from the fact that said sale
was made in violation of the established policy, rules and regulations
of the defendant PHHC, particular­ly Resolution No. 21, fiscal year 1951-52 of
the Board of Directors of the defendant corporation.

“11. That, as a consequence of the ano­malous and illegal
transaction between the defendants with respect to the lot in question the
herein plaintiff was unlawfully deprived of her rights to acquire the same thus
causing her great mental anguish for which she is entitled for a judgment for moral and exemplary
damages x x x actual damages x x x attorneys fees and x x x incidental expenses x x x.”

The complaint prayed, among others, that judg­ment be rendered
declaring the deed of sale in favor, and the transfer certificate of title
issued in the name of defendant Melisenda L. Santos
null and void, and directing defendant PHHC to execute in favor of plain­tiff
the corresponding deed of sale over the lot in con­troversy on installment
basis under the terms and con­ditions prescribed by the rules and regulations
of said corporation.

On February 6 and 12, 1963, defendant PHHC and defendants Melisenda L. Santos and Cesar L. Santos, res­pectively,
filed separate motions to dismiss, both motions based principally upon the
ground that the com­plaint states no cause of action.  On February
16, 1963, the lower court issued an order dismissing plaintiff’s complaint.  The order of dismissal stated that as
plaintiff was
not a party to the deed of sale
executed between the PHHC and
defendant Melisenda L. Santos, she cannot maintain an action to annul the same.

Plaintiff’s motion for
reconsideration of the order of February 16, 1963 having been denied, she brought the present
appeal directly to this Court, on a question of law, contending that “the
lower court erred in dismissing the plaintiff-appellant’s com­plaint on the alleged
ground of failure to state a cause of action against the defendants-appellees.”

We find merit in
plaintiff’s appeal.

A cause of action is
defined as “an act or omis­sion of one party in violation of the legal
right or rights of the other; and its essential elements are legal right of the
plaintiff, correlative obligation of the defendant, and act or omission of the
defendant in violation of said legal right.”^[1] The rule is well-settled that when the motion to dismiss a complaint is based upon the ground that it states no cause
of action, the sufficiency of the cause of action can only be determined on the
basis of the facts alleged in the complaint,^[2] and admitting the facts as alleged, whether
or not the court can render a valid
judgment against the defendant based upon said facts as prayed for in the complaint. ^[3]

The paragraphs of the
complaint, hereinbefore quoted, contain allegations of facts, which show that
the plaintiff had acquired a right — a preferential right to buy Lot 9, Block
K-70 of the Diliman Estate Subdivision, that the
defendants were aware of plain­tiff’s
right, and that defendants had committed acts in violation of plaintiff’s
rights; and such being the case, the plaintiff is entitled to a relief as against the defendants.

The right asserted by the plaintiff, in her com­plaint, has for
its basis the policy that was adopted
by the PHHC, an instrumentality of the government, as embodied in its
Resolution No. 21, Fiscal Year 1951-52, the resolutory
part of which provides as follows:

“RESOLVED, that in the sale of lots in the former Quezon Memorial Grove site, the occupants therein be given
the first chance in purchasing said lots; Provided, however, that no sale shall
be made to any person, whether an occupant or an outsider unless previously
investigated and cleared by the MIS; and Provided further, that nothing in this
resolution shall be construed to affect nor encroach the rights and pre­rogatives
of the corporation.”^[4]

The complaint alleges that since October, 1950 plaintiff and her
husband had been occupying Lot 9, Block K-70 of the Diliman
Estate Subdivision (formerly known as the
Quezon Memorial Grove), and they had built thereon
their residential house with an assessed value of P3,250.00; that upon due
investigation conducted sometime before August, 1951 the Chief of the Sales Di­vision
of the PHHC found plaintiff’s husband to be the actual occupant of said land
and having been found to be qualified to acquire said land by purchase it was recommended that the lot be sold to
plaintiff’s husband; that plaintiff’s husband died on March 17, 1957, before
the lot was actually sold to him, and so plaintiff, as successor in interest of
her husband, filed an application in her own name to purchase the lot in
question; that thereafter plaintiff made repeated and insistent requests and
representations with the officials and per­sonnel of the Sales Division of the
PHHC to process and forward her application to the Board of Directors of the
PHHC for approval, but said officials and personnel ignored the requests and
representations of the plaintiff; that instead of respecting plaintiff’s
preferential right, and in spite of the fact that the officials and person­nel
of the PHHC knew that plaintiff was the actual occupant of the lot,  and without giving notice to the plaintiff
that a party was applying to purchase the same lot, the PHHC sold the same Lot
to defendant Melisenda L. Santos who applied for it
only on February 23, 1961 through an agent; that on January 12, 1962, a deed of
sale of the lot — with the full price actually paid – was executed, and
shortly thereafter, or on January 23, 1962, Transfer Certificate of Title No.
95976 covering the lot was issued by the Register of Deeds of Quezon City in favor of said defendant.  The complaint contains al­legations that the
plaintiff was fraudulently deprive of
her preferential right to buy
the lot in question, and
that defendant Melisenda L. Santos was able to secure
the approval of her application to purchase the lot and the execution of the
deed of sale in her favor through the help of an influential politician.

A perusal of the complaint would elicit the position of the
plaintiff in her case against the defendants, to wit:  she had a right which she had acquired
pursuant to the very policy promulgated by the defendant PHHC; she was deprived
of the enjoyment of that right when defendant PHHC sold the lot in question to
defendant Melisenda L. Santos who was never an
occupant of the lot and who ap­plied to purchase said lot through an agent much
later; the sale of the lot to
the defendant Melisenda L. Santos was made without
her knowledge, much less with her con­sent, and was in violation of the policy
of the PHHC, so that the sale
should not be given effect; that she was deprived of her rights through fraud
and/or bad faith, on the part of the officials and personnel of the PHHC and of
defendant Melisenda L. Santos; that defendant Melisenda L. Santos had taken advantage over
her by availing of the help of an
influential politician; and that she had suffered damages.

In
contending that the complaint states no cause of action, the defendants urge that since
plaintiff is not a party to the deed of sale which was executed between the
PHHC and defendant Melisenda L. Santos, and neither
was there in said deed any stipulation referring to plaintiff, the plaintiff
cannot maintain an action to annul the deed of sale.  The defendants cite the provision of Article
1397 of the Civil Code which states that “The action for the annulment of
contract may be instituted by all who are thereby obliged principally or subsidiarily…”, and point out that because in the
deed of sale plaintiff was
not:  a party and she has no obligation under that deed, either principally or
subsidiarily, she cannot maintain the action to annul
said deed.  The lower court sustained the
contention of the defendants.

We note, however, in reading the complaint, that the plaintiff is
seeking the declaration of the nullity of the deed of sale not as a party in the deed, or
because she is obliged principally or subsidiarily
under the deed, but because she has an interest that is affected by the
deed.  This Court has held that a person
who is not a party obliged principally or subsidiarily
in a contract may exercise an
action for nullity of the contract if he is prejudiced in his rights with
respect to one of the contracting parties, and can show the detriment which
would positively result to him from the contract in which he had no
intervention.^[5]
Indeed, in the case now before Us, the complaint
alleges facts which show that plaintiff suffered detriment as a result of the
deed of sale entered into by and between defend­ant PHHC and defendant Melisenda L. Santos. 
We believe that the
plaintiff should be given a chance to present evidence to establish that she
suffered detriment and that she is entitled to relief.

We gather from the reading of the complaint that plaintiff seeks
the declaration of the nullity of the deed of sale because it was executed
contrary to public policy and that fraud was exercised by defendants PHHC and Melisenda L. Santos in its execution.  The complaint, therefore, had posed before
the trial court the question of whether that deed of sale was null and void because it was executed in violation of a
public policy, and whether that contract was executed in fraud of a third
person.

The ruling of this Court in the case of Huerta
vs. Acosta, G.R. No. L-20497, promulgated on January 31, 1966, has
relevance to the question of whether the plain­tiff in the case now before Us has a cause of action based on the
policy, in
connection with the sale of re­sidential lands owned by the government,
of giving pre­ferential right to purchase the land to persons who are prior
actual occupants of the Land.  In this case it appears: that long before the
Government acquired the Fabie Estate through expropriation proceedings
under Republic Act 1162 for the purpose of subdividing the same and
reselling the subdivided lots to the tenants or occupants or other persons qualified under the law to acquire said lots,
Antonia Vda. de Huerta had
occu­pied a portion of the aforementioned estate.  In order to carry out the function of
subdividing the Fabie Estate into small lots the Land
Tenure Administration prepared a plan showing the subdivided lots and allotted
the sub­divided lots to the tenants or occupants.  Antonia Vda. de Huerta filed an application to purchase Lot
No. 14 and an agreement to sell covering said lot was entered into between her
and the Land Tenure Administration.  Dionisio H. Acosta filed
an application to buy Lot No. 13, which
adjoins Lot 14 that was sold to Huerta, and an outright
sale was executed in Acosta’s favor and Transfer Certificate of Title No. 50570
was issued in his name.  Finding later
that the septic tank of her house and other improvements previously put up by
her are found in portion of Lot 13, Huerta requested the Land Tenure
Administration to award to her Lot 13
in addition to Lot 14, or that:
portion of Lot 13 where her septic tank is found be segregated and made part of
Lot 14 inasmuch as said portion was never occupied by Acosta.  Huerta’s request was denied.  Since Huerta continued occupying the disputed
portion of Lot 13, Acosta filed an action before the Court of First Instance of
Manila to recover possession and owner­ship
of that portion of Lot 13 occupied by Huerta.  Huerta, in her answer, set up the defense
that she had a preferential right to
purchase the disputed portion because she was the bona fide
tenant or occupant thereof.  The trial
court decided the case in favor
of Huerta, and adjudicated to her the portion of Lot 13
where her septic tank was located,
with an area of thirty square meters. 
The Court of Appeals reversed the decision of the trial court, but on
appeal to this Court the decision of the Court of Appeals was reversed. This
Court said:

“It is admitted
that the disputed portion of Lot 13 containing 30 sq. m.
had never been occupied by Dionisio Acosta, for even
long before the Government acquired the Fabie Estate
through expropriation proceedings said portion had been occupied by Antonia Vda. de Huerta
on which she had constructed a house of strong materials and other
permanent improvements including a septic
tank, and that portion formed part of the lot which she was than leasing from
the former owner of the Fabie Estate.  Huerta, therefore, had the preferential
right to purchase the disputed portion
from the Government under the provisions of Republic Act No. 1162, as
amended, particularly Section 3 which provides that the estate should be
subdivided into small lots x x x and shall be sold at cost only to tenants
or occupants …..” 
(Underscoring supplied)

It is our considered view that the complaint in the
case at bar states a cause of action,
because it contains allegations clearly showing violation of plaintiff’s rights
by the defendants.  It can be said that
at least, the complaint alleges facts which show violation of plaintiff’s rights under the provisions of Chapter 2
of the Preliminary Title of the Civil Code, on the subject of human
relations.  It is alleged in the complaint that the defendants had not acted in good faith; that the
employees of the defendant PHHC, in
the performance of their duties,
had not given the plaintiff her due; that the defendants had wilfully caused injury to the plaintiff in violation of a
policy of the PHHC which is a government instrumentality; and that the
plaintiff, in her dealings with defendant PHHC, found herself at a disadvantage
because she was up against defendant Melisenda L.
Santos who had availed of the help of an influential politician — a circumstance which may justify a recourse to
the court for the protection of her right.^[6] If these allegations are supported by
evidence, it is obvious that
plaintiff is entitled to relief.

Accordingly, We hold that the complaint in the case at bar states a cause
of action.

WHEREFORE, the order appealed from is set aside, and this case is remanded to
the court a quo for further proceedings, with costs at this instance
against defendants-appellees Melisenda L. Santos and
Cesar Santos.

IT IS SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Castro, Angeles and Fernando, JJ., concur.

^[1]
Ma-ao Sugar Central Co., vs.
Barrios, 79 Phil., 66.

^[2]
Dimayuga vs. Dimayuga,
96 Phil., 859; Mindanao Realty Corporation vs. Kintanar,
et al., L-17152, November 30, 1962; Dalandan, et al.,
vs. Julio, et al., L-19107, February 29, 1964; World Wide Ins., &
Surety Co., vs.
Manual., 51 O.G., 6214.

^[3]
Amedo v.
Rio y Olabarrieta, Inc., 92 Phil., 214; Blay
v. Batangas Transportation Company, 80 Phil.,
373.

^[4]
Page 33, Record on Appeal.

^[5]
Ibañez vs. Hongkong
and Shanghai Bank, 22 Phil. 572, 584-585

^[6]
Articles 19, 21, 24, Civil Code