Bañez vs. Court of Appeals

No. L-30351. September 11,1974.

MAIN TOPIC – Extinguishment of Obligations – Compensation


In 1956 respondent Pio Arcilla occupied a parcel of land, located in East Avenue Subdivision,  Diliman, Quezon City, owned by the People’s Homesite and Housing Corporation (hereinafter  referred to as PHHC). He fenced the lot with wire, and erected a house and made some  plantings thereon. His moves to apply for the acquisition of the lot from the PHHC when the  same became available for disposition came to naught because the employees of the PHHC  whose help he sought merely regaled him with promises that the matter would be attended to. 

Notwithstanding respondent Arcilla’s occupancy, the lot was awarded, on May 20, 1960, to  Cristeta Laquihon pursuant to a conditional contract to sell executed by the PHHC, subject to  the standard resolutory conditions which includes construction of residential house on the lot  within a period of one year from the signing of the contract, non-compliance with which  conditions would result in the contract being “deemed annulled and cancelled”. In 1962,  grantee Cristeta Laquihon died, survived by her father, Basilio Laquihon, executed a deed of  adjudication in his favor of the rights and interests thus far acquired by his deceased daughter  over the lot in question. In said deed Basilio Laquihon also acknowledged an indebtedness of  the deceased to herein petitioner Aurea V. Bañez in the sum of P3,000.00 and agreed to assign  the rights thus adjudicated by way of payment of the debt. The corresponding request for the  transfer of the rights from Cristeta to Basilio L. Laquihon was made by the latter to the PHHC  on August 9, 1962, while an undated request for the approval of the assignment of said land to  Aurea V. Bañez as above stated was similarly filed with the PHHC. 

In 1963, Arcilla was given notice to vacate the lot occupied by him. He protested against the  award and transfer to Bañez claiming that the original awardee acquired no rights to the  aforesaid lot and that the transferee was disqualified from acquiring lots of the PHHC. Bañez  completed the installment payments on the land, and on October 29, 1964, the PHHC executed  the corresponding deed of sale over the lot in her favor. 

Arcilla went to court with his complaint to nullify the award of the lot in question in favor of  petitioner Aurea V. Bañez and to compel the PHHC to award the same to him, with prayer for  attorney’s fees and costs. The case was dismissed. 

Arcilla appealed to the Court of Appeals, wherein judgment was reversed. Declaring the  transfer was null and void because of the failure of Laquihon to construct a house in the lot  within a period of one (1) year from the signing of the contract to sell and ordering PHHC to afford appellant Pio Arcilla the opportunity, within thirty (30) days to  purchase the land.


(1) Whether or not Pio Arcilla has the personality to seek the annulment of the award and sale of the questioned lot belonging to the PHHC 

(2) Whether or not the awardee of the lot, Cristeta L. Laquihon, did not comply with the  resolutory condition of building a house; so, she acquired no rights that could be transmitted to  her father


(1) No. Article 1397 of the Civil Code provides that the action for annulment of contracts may be  instituted by all who are thereby obliged principally or subsidiarily. Hence strangers to the  contract who are not bound thereby have neither the right nor the personality to bring an action  to annul such contract. It cannot be gainsaid that respondent Pio Arcilla was a stranger to, and  not bound principally or subsidiarily by, the conditional contract to sell executed on May 20, 1960  by the PHHC in favor of Cristeta L. Laquihon, and the transfer of rights over the same lot from  Basilio Laquihon to Aurea V. Bañez. Hence respondent Pio Arcilla could not bring an action to  annul the same. 

There is, however, an exception to the rule laid down in Article 1397. Pio Arcilla might bring an  action for the nullity of the contracts aforesaid, he should have been not only prejudiced in his  rights with respect to one of the contracting parties, but must have also shown the detriment  which he would positively suffer from the contracts. Arcilla, a squatter can have no possessory  rights whatsoever, and his occupancy of the land is only at the owner’s sufferance, his acts are  merely tolerated and cannot affect the owner’s possession. 

(2) No. It is granted that by virtue of the resolutory condition, the resolution of the contract took  place by force of law and that there was no need of judicial declaration to resolve the contract. Non-fulfillment of resolutory condition may, however, be waived. In consenting to the transfer of the PHHC’s Board of Directors to Aurea Bañez, the PHHC necessarily waived any right that  might have accrued to it by virtue of the resolution of the contract before the transfer. 

The record does not show, PHHC ever notified in writing the awardee of the cancellation of the  contract to sell. Hence, the resolution of the contract never became effective. Consequently,  whatever rights the original awardee Cristeta Laquihon had over the disputed lot were  transmitted upon her death to her only legal and compulsory heir, her father Basilio (Art. 777,  Civil Code) which rights the latter could also convey to herein petitioners.


IN VIEW OF THE FOREGOING, the decision of the Court of Appeals, dated January 9, 1969, in  CA-G. R. No. 36227-R, is set aside, and the decision of the Court of First Instance of Quezon City  in Civil Case No. Q-7679, is affirmed. 

Costs against respondent Pio Arcilla.