Voidable Contracts

Baez vs CA, Pio Arcilla

GR L-30351

September 11, 1974

Facts
In 1956, Pio Arcilla occupied a lot owned by the People's Homesite and Housing Corporation (PHHC). He made
improvements to said lot, however, he was not able to purchase said lot because the promises made to him by PHHC
employees became naught. Nevertheless, his occupancy was made in record by PHHC.
Sometime in 1960, notwithstanding the occupancy of Arcilla, said lot was awarded to Cristeta Laquihon. However,
she died and was survived by his father, who was adjudicated in his favor the rights for the said lot. Her father, Basilio
Laquihon, nonetheless acknowledge Cristetas indebtedness to Aurea Baez and thus adjudicated his rights over said lot
to Baez as a matter of payment of said debt. The transfer of rights was then approved by PHHC board of directors.
Arcilla only found out of the developments when he received a notice to vacate the premises. Finding no recourse
before the PHHC, he went to the court, in which the Court of Appeals declared the transfer of rights null and void, and
ordered the PHHC to afford Pio Arcilla the opportunity to have a right to purchase.
However, the Supreme Court ruled that Pio Arcilla has no rights over the land he squats on, thus setting aside the
decision of the Court of Appeals.
Issue
Whether Pio Arcilla can assail the transfer of rights between Laquihon and Baez
Rationale
(Person not party to a contract may file action to annul it if prejudiced in his rights) A person who is not a
party obliged principally or subsidiarily in a contract may exercise anaction 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.
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. Baez. 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. This Court, in Teves vs. People's
Homesite and Housing Corporation, L-21498, June 27, 1968 1 citing Ibaez vs. Hongkong and Shanghai Bank 2 , held
that "a person who is not a partly 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." Pursuant to said doctrine, in order that
respondent 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. It becomes, therefore, necessary to inquire,
whether respondent Pio Arcilla's rights were prejudiced by the aforesaid contracts, and as to what detriment, if
any, he suffered because of those contracts.
(Squatters; A squatter has no possessory right on land he squats on) A squatter can have no possessory
rights whatsoever, and his occupancy of the land is only at the owners sufferance, his acts are merely tolerated and
cannot affect the owners possession. The squatter is necessarily bound to an implied promise that he will vacate upon
demand.