De Santos vs. City of Manila

The right of pre-emption or redemption under Article 1622 of the Civil Code arises only when the urban land is so small and so situated that a major portion cannot be used for any practical purpose within a reasonable time and was bought merely for speculation; absent these conditions, an adjoining owner has no such right and cannot annul an exchange to which he is not a party.

Antonio G. de Santos acquired Lot No. 4, Block 2646, Manila Cadastre, from Enrique C. Lopez, whose property adjoined a portion of the partially dried bed of the Estero de San Miguel or Sampaloc. The City of Manila owned lots in that estero area, while Arellano University, Inc. owned adjoining parcels on Legarda Street. Article 1622 of the New Civil Code governs an adjoining owner's right of pre-emption or redemption over small urban land bought merely for speculation.

On October 1, 1958, the City of Manila and Arellano University, Inc. executed a contract of exchange pursuant to Resolution No. 442 of the Municipal Board of Manila, adopted on August 15, 1958 and approved by the City Mayor on August 22, 1958. Under the exchange, five parcels of land belonging to the City of Manila — Lots 1, 2, 3, 4 and 5, Psu-167195, with an aggregate area of 2458.3 square meters — were exchanged for three parcels of land belonging to Arellano University, Inc. — Lots 4-A, 9-A and 10-A, Psd-53347, with an aggregate area of 2171.4 square meters — which were needed for the construction of the Azcarraga, now Claro M. Recto, Extension. The lot under controversy, Lot No. 1 of Psu-167195, contains 221.50 square meters, was a part of the partially dried bed of the Estero de San Miguel or Sampaloc, and is situated south of Lot No. 4, Block 2646, Manila Cadastre, which contains an area of 1460 square meters and was acquired by petitioner on January 31, 1958 from Enrique C. Lopez. Lot No. 1 also adjoins properties belonging to Arellano University, Inc.

By letter of May 14, 1957, the City of Manila advised Arellano University, Inc. that about 2,400 square meters of its site on Legarda Street were needed by the City for the construction of the Azcarraga extension. Arellano University answered on May 21, 1957, proposing that in exchange for the 2,400 square meters, the City cede to the University the esteros adjoining the Arellano site, on the basis of 2 square meters of filled estero for every square meter of Arellano land, or, in case of unfilled esteros, on a 3-to-1 basis. The negotiations culminated in the passage of Resolution No. 442 and the execution of the contract of exchange.

Enrique C. Lopez, predecessor-in-interest of petitioner Antonio G. de Santos, having been advised that his property, Lot No. 4, Block 2646, would be affected by the widening of Legarda Street, Sampaloc, and that the necessary area of 56 square meters would be expropriated, wrote the City Engineer on August 8, 1957, proposing that the required area be exchanged with City property back of the same Lot No. 4, which was at present a part of the Estero de San Miguel. The City Appraisal Committee stated that the exchange of Lopez's lot affected by the widening of Legarda Street with the lot formerly a part of the abandoned estero bed may be made on the basis of meter for meter, with the excess area in favor of the City to be paid for at P45.00 per square meter. The papers were forwarded to the City Mayor by the City Engineer per indorsement of April 15, 1958. Meanwhile, on January 31, 1958, Lot No. 4, Block 2646, Manila Cadastre, was exchanged by Enrique C. Lopez for six parcels of land situated in Jose Abad Santos belonging to petitioner, a copy of the deed of exchange being Exhibit F.

By letter dated February 25, 1959, the City Mayor informed petitioner that his Office approved an indorsement of the Officer in charge of the Department of Engineering and Public Works of the City, recommending that action on the claim of Dr. Antonio Santos as successor-in-interest of Mr. Lopez be held in abeyance. The reasons stated were that the Azcarraga Extension was planned long before the war as a major thoroughfare to bypass Legarda; that after the war, with the creation of the National Planning Commission, the Azcarraga Extension was again incorporated in its plans; that the extension passes through the property of Arellano University and San Beda College, against which an expropriation proceeding was pending; and that negotiations for the widening of Legarda Street even on a piece-meal basis were suspended temporarily in view of the tremendous cost of expropriation and the proposed opening of the Azcarraga Extension. The City Mayor thus stated that any exchange involving the widening of Legarda Street with any property of the City should be held in abeyance, and efforts should be concentrated on the acquisition of properties along the Azcarraga Extension.

The trial court found that the area of the controverted lot, 221.50 square meters, was bigger than the average size of lots in Manila. The Court of Appeals found that Lot No. 1 is a portion of a partially dried bed of Estero de San Miguel or Sampaloc, that the City of Manila did not acquire it by purchase, and that it is also adjacent to the lots of Arellano University, Inc. Arellano University alleged that, as an educational institution whose present site is not enough for its needs, it can devote the parcel of land to serve public interest. The dispute led petitioner to file an action on March 25, 1959 against the City of Manila and Arellano University, Inc.

• Right of Pre-emption or Redemption: Petitioner-appellant argued that he was entitled to pre-empt or redeem Lot No. 1 of Psu-167195 as adjoining owner under Article 1622 of the New Civil Code and under precedents and established policy of the City of Manila.
• Annulment of the Exchange: Petitioner-appellant sought, as an alternative cause of action, annulment of the contract of exchange insofar as Lot No. 1 was concerned, and in the event that the lot did not belong to the City, to enjoin the City to respect his right of pre-emption.
• Attorney's Fees: Petitioner-appellant contested the award of attorney's fees on the ground that it is not sound policy to place a penalty on the right to litigate.

• Ownership and No Preferential Right (City of Manila): The City alleged that it owned Lot No. 1 of Psu-167195 and that petitioner had no preferential or better right than Arellano University to acquire the lot by pre-emption, legal redemption, sale, exchange, or other form of acquisition.
• Policy and Precedents Recommendatory (City of Manila): The City maintained that the alleged precedents and policy invoked by petitioner were at most only recommendatory to its Municipal Board.
• Public Interest Use (Arellano University): Arellano University asserted that, as an educational institution whose present site was not enough for its needs, it could devote the parcel to public interest, entitling it to preference under the last paragraph of Article 1622.
• Attorney's Fees and Counterclaim (Arellano University): Arellano University filed a counterclaim for P5,000.00 for services of counsel to protect its interests and defend against petitioner's unfounded complaint.

• Right of Pre-emption or Redemption: Whether petitioner-appellant, as an adjoining owner, has a right of pre-emption or redemption over Lot No. 1 of Psu-167195 under Article 1622 of the New Civil Code.
• Annulment of the Contract of Exchange: Whether petitioner-appellant may seek annulment of the deed of exchange executed between the City of Manila and Arellano University, Inc.
• Attorney's Fees: Whether the award of P5,000.00 as attorney's fees in favor of Arellano University is justified.

• Right of Pre-emption or Redemption: No. Article 1622 requires that the urban land be so small and situated that a major portion cannot be used for any practical purpose within a reasonable time and that it was bought merely for speculation; petitioner neither alleged nor proved these conditions.
• Annulment of the Contract of Exchange: No. A non-party to a contract may seek its nullity only if prejudiced in his rights and can show positive detriment; petitioner had no pre-emption or redemption right, so the exchange was not detrimental to him.
• Attorney's Fees: Yes. The award is discretionary with the trial court, and Article 2208, paragraph 4, of the Civil Code authorizes attorney's fees when the action is clearly unfounded; no abuse of discretion was shown.

• Right of Pre-emption or Redemption: Article 1622 grants the adjacent owner a right of pre-emption if the urban land is about to be re-sold, and a right of redemption if the re-sale has been perfected. Both rights are premised on two conditions: (1) the piece of urban land is so small that it cannot be used for any practical purpose within a reasonable time; and (2) such small urban land was bought merely for speculation. Petitioner did not allege or prove either condition, nor that the lot was about to be re-sold. The Court of Appeals found that Lot No. 1 was a portion of a partially dried bed of Estero de San Miguel or Sampaloc, that the City did not acquire it by purchase, and that it was adjacent to Arellano University's lots. The lot's area of 221.50 square meters was bigger than the average size of lots in Manila as found by the trial court. Arellano University, as an educational institution whose present site was not enough, could devote the parcel to public interest, entitling it to preference under the last paragraph of Article 1622. The City exchanged the lot because it needed Arellano's properties for the Azcarraga Street extension, and no intention to sell the property was alleged or shown. Thus, petitioner was not entitled to the benefits of Article 1622. The communications between City officials and Enrique Lopez regarding a possible exchange for the Legarda widening did not create an enforceable right because action on that matter was held in abeyance and the Azcarraga extension was given priority; the negotiations between the City and Arellano antedated Lopez's and petitioner's claims and culminated in the exchange. Any nebulous right of pre-emption or redemption vanished.
• Annulment of the Contract of Exchange: A person who is not a party obliged principally or subsidiarily under a contract may exercise an action for nullity if he is prejudiced in his rights with respect to one of the contracting parties and can show detriment positively resulting to him from a contract in which he had no intervention. Because petitioner had neither the right of pre-emption nor redemption over the disputed lot, the contract of exchange was not detrimental to his right or interest. He therefore could not legally seek annulment of the deed of exchange.
• Attorney's Fees: The award of attorney's fees is essentially discretionary with the trial court. Paragraph 4 of Article 2208 of the Civil Code authorizes such an award because the instant action was clearly unfounded. No abuse of discretion having been shown, the award should not be disturbed.

• Requisites for Pre-emption and Redemption under Article 1622 — Article 1622 of the New Civil Code grants an adjoining owner the right of pre-emption when a small urban land is about to be re-sold and the right of redemption when the re-sale has been perfected. Both rights require: (1) the piece of urban land is so small and so situated that a major portion cannot be used for any practical purpose within a reasonable time; and (2) the land was bought merely for speculation. When two or more adjoining owners wish to exercise the right, the owner whose intended use appears best justified is preferred. In this case, petitioner neither alleged nor proved the two conditions; the City did not acquire the lot by purchase; the lot measured 221.50 square meters and was bigger than the average Manila lot; and Arellano University's intended public use entitled it to preference. No right of pre-emption or redemption therefore existed.
• Action for Nullity by a Non-Party to a Contract — A person who is not a party obliged principally or subsidiarily under a contract may exercise an action for nullity if he is prejudiced in his rights with respect to one of the contracting parties and can show detriment positively resulting to him from a contract in which he had no intervention. The doctrine was applied to bar petitioner's alternative action because he had no pre-emption or redemption right and thus suffered no detriment from the exchange.
• Attorney's Fees for a Clearly Unfounded Action — Under Article 2208, paragraph 4, of the Civil Code, attorney's fees may be awarded when the action is clearly unfounded. The award is essentially discretionary with the trial court and will not be disturbed absent abuse of discretion. The Court sustained the P5,000.00 award to Arellano University because petitioner's action was clearly unfounded and no abuse was shown.

• "The exercise of either right, however, is premised on the existence of two conditions, namely: (1) the piece of urban land is so small that it cannot be used for any practical purpose within a reasonable time; and (2) such small urban land was bought merely for speculation." — This passage states the controlling requisites for the Article 1622 rights of pre-emption and redemption, which petitioner failed to satisfy.
• "A person, who is not a party obliged principally or subsidiarily under 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 detriment which would positively result to him from the contract in which he had no intervention." — This defines the exception allowing a non-party to seek contract nullity and supplies the rule that defeated petitioner's alternative cause of action.
• "The said contract of exchange is not detrimental to the right or interest of petitioner-appellant; because he has neither the right of pre-emption nor redemption over the disputed lot." — This is the Court's application of the non-party nullity rule to the facts, showing that absence of a legal right negates prejudice.
• "However, the award of attorney's fees is a matter essentially discretionary with the trial court. Paragraph 4 of Article 2208, Civil Code, authorizes such an award, since the instant action is clearly unfounded, and no abuse of discretion having been shown, the award should not be disturbed." — This passage affirms the attorney's fees award and states the standard of review for such discretionary awards.

• De la Cruz vs. Cruz, L-27759, Apr. 17, 1970, 32 SCRA 307, 311, 313 — Cited for the requisites of Article 1622 and for the rule on attorney's fees in a clearly unfounded action.
• Soriente vs. Court of Appeals, L-17343, Aug. 31, 1963, 62 O.G. 7013, 8 SCRA 750, 755-756 — Cited with De la Cruz vs. Cruz for the conditions governing the right of pre-emption or redemption under Article 1622.
• Teves vs. People's Homesite & Housing Corporation, L-21498, June 27, 1968, 23 SCRA 1141, 1147-1148 — Cited for the rule that a non-party to a contract may sue for its nullity only when prejudiced and able to show positive detriment.
• Ibañez vs. Hongkong & Shanghai Bank, Feb. 26, 1912, 22 Phil. 572 — Cited with Teves vs. People's Homesite & Housing Corporation for the same rule on an action for nullity by a non-party.
• Lopez, et al. vs. Gonzaga, et al., L-18788, Jan. 31, 1964, 10 SCRA 167, 180 — Cited as authority for the discretionary award of attorney's fees.
• Francisco vs. GSIS, L-18287, March 30, 1963, 7 SCRA 577, 578 — Cited in support of the attorney's fees award.
• Heirs of Justiva, et al. vs. Gustilo, et al., L-16396, Jan. 31, 1963, 7 SCRA 72, 73-74 — Cited in support of the attorney's fees award.

• Article 1622, New Civil Code — Grants an adjoining owner the right of pre-emption over a small urban land about to be re-sold and the right of redemption if the re-sale has been perfected, provided the land is so small and situated that a major portion cannot be used for any practical purpose within a reasonable time and was bought merely for speculation. The provision was applied to deny petitioner's claim because the conditions were not alleged or proved, the City did not acquire the lot by purchase, and Arellano University's intended public use was preferred.
• Article 2208, Paragraph 4, Civil Code — Authorizes attorney's fees when the action is clearly unfounded. It was applied to sustain the trial court's award of P5,000.00 to Arellano University.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.