AUREA BANEZ AND RAMON BANEZ, SUBSTITUTED BY THEIR LEGAL HEIR, OSCAR VIRATA BANEZ, PETITIONERS, VS. COURT OF APPEALS AND PIO ARCILLA, RESPONDENTS.

Banez versus Court of Appeals

The Case

This is a petition for review of a decision of the Court of Appeals, brought by Aurea Banez and Ramon Banez, later substituted by their legal heir Oscar Virata Banez, against the Court of Appeals and Pio Arcilla. The dispute concerns a residential lot in the East Avenue Subdivision in Diliman, Quezon City, owned by the People's Homesite and Housing Corporation. Pio Arcilla occupied the lot as a squatter and asked the courts to nullify its award and transfer to the Banez spouses and to compel the corporation to award the lot to him instead. The case matters because it teaches who may sue to annul a contract, what rights a squatter has, and how a resolutory condition in a contract to sell actually operates.

Procedural History

Left without recourse before the corporation, Pio Arcilla filed a complaint in the Court of First Instance to nullify the award of the lot in favor of Aurea Banez and to compel the corporation to award the same to him, with a prayer for attorney's fees and costs. After trial on the merits, the trial court found for the Banez spouses and dismissed the complaint, without costs. Arcilla appealed to the Court of Appeals, which reversed the trial court. It declared null and void the transfer of rights over and the award of the lot in favor of Aurea Banez, and ordered the corporation to give Arcilla the opportunity, within thirty days from the finality of the decision, to perfect his preferential right to purchase the lot and thereafter to execute the necessary deed of sale. The Banez spouses then filed the present petition for review with the Supreme Court. During its pendency, Ramon Banez died in March 1972 and Aurea Banez died in August 1972, and their heir Oscar Virata Banez was substituted for them.

Facts

In 1956 Pio Arcilla occupied a lot owned by the People's Homesite and Housing Corporation. He fenced it with wire, built a house, and made plantings. His attempts to apply for the lot when it became available failed because the employees he approached merely promised that the matter would be attended to. His occupancy was nonetheless recorded in a later census of occupants and squatters.

Despite Arcilla's occupancy, the lot was awarded in May 1960 to Cristeta Laquihon under a conditional contract to sell. The contract imposed standard resolutory conditions, including an undertaking to eject trespassers, intruders or squatters, and to construct a residential house on the lot within one year from signing, noncompliance with which would render the contract deemed annulled and cancelled. Arcilla was not notified of the award, and no step was taken to oust him until April 1963. In May 1962 Cristeta Laquihon died, survived by her father Basilio Laquihon. He executed a deed of adjudication in his own favor, acknowledged the deceased's debt of 3,000 pesos to Aurea Banez, and agreed to assign the rights to her in payment. The corporation's Board of Directors approved the transfer to Aurea Banez in November 1962 as a meritorious case, and she continued paying the installments until the deed of sale was executed in her favor in October 1964.

Arcilla learned of these developments only in 1963, when he was told to vacate. He protested before the corporation, but the investigating committee considered itself without power to review the Board's action and dismissed the protest. He then went to court.

Issues

• Whether or not Pio Arcilla, a stranger to the contracts, has the personality to seek their annulment.
• Whether or not Pio Arcilla has a preferential right to purchase the lot he occupied.
• Whether or not the award to Cristeta Laquihon was null and void for failure to build a house within one year, so that she transmitted no rights to her father and he could convey none to the Banez spouses.
• Whether or not the Court of Appeals erred in holding that the approval of the transfer was due to the intercession of a senator.

Applicable Provisions

Article 1397 of the Civil Code provides:

The action for annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.

This fixes who may sue to annul a contract, and the Court uses it to test Arcilla's personality.

Article 1191 of the Civil Code, referred to in the discussion of resolutory conditions, provides the injured party the option to demand fulfillment or rescission. The Court discusses it in asking whether a stipulated resolution leaves the creditor any option.

Article 777 of the Civil Code provides:

The rights to the succession are transmitted from the moment of the death of the decedent.

This is the basis for holding that whatever rights Cristeta Laquihon had passed upon her death to her father Basilio.

Ruling

On the first issue, the Court held that under Article 1397 a stranger to a contract has neither the right nor the personality to bring an action to annul it. Arcilla was a stranger to the conditional contract to sell and to the transfer of rights to Aurea Banez. The exception recognized in jurisprudence requires that the plaintiff be prejudiced in his rights with respect to one of the contracting parties and show the detriment he would positively suffer. Arcilla showed neither, because as a squatter he had no possessory rights whatsoever; his occupancy was merely tolerated and bound him to an implied promise to vacate upon demand.

On the second issue, the Court held that Arcilla's claimed preferential right was not substantiated. The resolutions he relied on were adopted in 1962 and 1963, after the award in 1960 and the approval of the transfer in 1962. Those resolutions gave squatters no preference by reason alone of prior occupancy, and any preferential award was limited to resettlement projects and to squatters not evicted through court proceedings. Arcilla never filed an application and had in fact been ejected through court proceedings.

On the third issue, the Court held that the contract was indeed resolved by operation of law, but the resolution never became effective because the contract itself provided that it takes effect only from the date written notice is sent by the corporation to the applicant, and no such notice was shown. Hence the awardee's rights passed to her father and then to the Banez spouses. In any event, the corporation waived the effects of the resolutory condition when its Board approved the transfer. The awardee was also not obliged to eject Arcilla, since the contract required ejectment only of squatters who build on the lot from the date of the contract, and Arcilla had squatted four years before the award.

On the fourth issue, the Court held that the Court of Appeals should not have considered the alleged intercession of the senator, because it was not stated in the assignment of errors nor argued in the brief, as Section 7 of Rule 51 requires, and the evidence on which the finding rested had been rejected by the trial court.

Doctrine

A stranger to a contract may not sue to annul it under Article 1397, save when he is prejudiced in his rights with respect to one of the contracting parties and shows the detriment he would positively suffer. A squatter has no possessory rights whatsoever; his occupancy is at the owner's sufferance and binds him to an implied promise to vacate upon demand. Where a contract to sell makes the resolution effective only upon written notice, the resolution does not take effect until that notice is sent, and the grantee's rights descend to his heirs under Article 777. A party may waive the effects of a resolutory condition, as when the owner approves a transfer of rights.

Disposition

The Supreme Court granted the petition, set aside the decision of the Court of Appeals, and affirmed the dismissal of Pio Arcilla's complaint.

Remember This

Memorize the rule that a stranger to a contract cannot sue to annul it unless he is prejudiced and shows positive detriment, and that a squatter has no possessory rights at all. Examiners use this case on the personality to annul contracts under Article 1397 and on the operation of resolutory conditions in contracts to sell.