FILINVEST LAND, INC., EFREN C. GUTIERRE AND LINA DE GUZMAN-FERRER, PETITIONERS, VS. ABDUL BACKY, ABEHERA, BAIYA, EDRIS, HADJI GULAM, JAMELLA, KIRAM, LUCAYA, MONER, OMAR, RAMIR, …

Filinvest Land versus Backy

The Case

This is a petition for review on certiorari brought by Filinvest Land, Incorporated against the Ngilay family grantees of agricultural homestead and free patents in General Santos City. The respondents sued to declare null and void the deeds of conditional and absolute sale they had executed over their patented lands, and to secure a right of way. The case matters because it fixes the reach of the five-year prohibitory period on homestead patents under the Public Land Act: the ban strikes at the conveyance itself, not merely at a completed transfer of title, and a void sale carries with it the duty to return what was paid.

Procedural History

The respondents filed before the Regional Trial Court of Las Piñas, Branch 253, an action for declaration of nullity of the deeds of conditional and absolute sale and for the grant of a right of way. The trial court ruled for Filinvest, upholding the sale of all the properties in litigation and the grant of right of way, and dismissed the petition. The respondents elevated the case to the Court of Appeals, which modified the judgment. The Court of Appeals upheld the sale of the properties covered by the patents awarded in 1986, including the right of way over those lots, but nullified the disposition of the properties granted through patents in 1991 and the right of way over them, directing the Register of Deeds to cancel the titles issued in favor of Filinvest and to issue new ones in favor of the respondents. Filinvest moved for partial reconsideration, which the Court of Appeals denied. Hence, the petition for review on certiorari before the Supreme Court.

Facts

The respondents were grantees of agricultural public lands in Tambler, General Santos City, through homestead and free patents. Some patents were issued in November 1986, and others in November 1991, each covered by an original certificate of title from the Register of Deeds of General Santos City.

Sometime in 1995, negotiations were made by Filinvest, represented by Lina de Guzman-Ferrer, with the patriarch of the Ngilays, Hadji Gulam Ngilay. A Deed of Conditional Sale of the properties in favor of Filinvest was eventually executed, and the respondents delivered the original owner's duplicate copies of their certificates of title. On October 28, 1995, the respondents received the downpayment for the properties.

A few days later, the respondents learned that the sale of their properties was null and void, because it was made within the period when they were not allowed to sell, and because it lacked the approval of the Secretary of the Department of Environment and Natural Resources. They then filed the action for nullity and for a right of way. Filinvest, for its part, claimed that the Ngilays had prevailed upon its representatives to make an advance payment, with the understanding that it could demand return of the advance should the Ngilays fail to comply with the conditions of the sale, and that the Ngilays undertook to secure the necessary approvals of the Department of Environment and Natural Resources.

Issues

• Whether or not a deed of conditional sale over homestead lands executed within the five-year prohibitory period violates the prohibition against alienation under the Public Land Act, even if no actual transfer of title was perfected until the conditions of the deed were fulfilled.
• Whether or not registration is the operative act that conveys or disposes of rights in real property, such that an unregistered deed of conditional sale does not dispose of the homestead in violation of the Public Land Act.
• Whether or not the respondents must return to Filinvest what they received as downpayment, once the sale is declared void.

Applicable Provisions

Section 118 of Commonwealth Act Number 141, as amended by Commonwealth Act Number 456, otherwise known as the Public Land Act, provides:

Except in favor of the Government or any of its branches, units, or institutions, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

This is the prohibitory period whose breach nullified the sale of the 1991 patents, because the sale was consummated within five years from the issuance of those patents.

The same section continues:

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds.

This supplies the second requirement of prior approval for conveyances made after the five-year period, which the transaction also lacked.

Article 22 of the Civil Code, on unjust enrichment, is applied by the Court in ordering restitution, and provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

This is the basis for requiring the respondents to return the downpayment once the sale is struck down as void.

Ruling

On the first issue, the Court held that the prohibition does not distinguish between a consummated and an executory sale. The negotiations for the properties covered by the 1991 patents were made in 1995, and the downpayment was received on October 28, 1995. Applying the five-year prohibition, properties covered by a patent issued on November 24, 1991 could only be alienated after November 24, 1996. The sale, having been consummated on October 28, 1995, was within the prohibitory period and is void. The Court quoted with approval the rule that the prohibition is mandatory:

Thus, the law does not distinguish between executory and consummated sales. Where the sale of a homestead was perfected within the prohibitory period of five years, the fact that the formal deed of sale was executed after the expiration of the staid period DID NOT and COULD NOT legalize a contract that was void from its inception.

On the second issue, the Court rejected the argument that registration is the operative act of conveyance for purposes of the prohibition. The conditional sale entered into by the parties is still a conveyance of the homestead patent. The Court stressed that the conveyance of a homestead before the expiration of the five-year period is null and void and cannot be enforced, for it is not within the competence of any citizen to barter away what public policy by law seeks to preserve.

On the third issue, the Court ruled in favor of Filinvest. The declaration of nullity of a contract void from the beginning operates to restore things to the state and condition in which they were found before its execution. Allowing the respondents to keep the amount received would be judicial acquiescence to unjust enrichment. Since the sale that created Filinvest's obligation to pay was void, the respondents have the duty to return the downpayment, which the Court fixed at 14,000,000 pesos.

Doctrine

A homestead patent carries a mandatory five-year prohibitory period under Section 118 of the Public Land Act. Any sale or encumbrance of the homestead within that period is void from its inception, and the law does not distinguish between executory and consummated sales. A conditional sale perfected within the prohibitory period remains void even if the formal deed is executed after the period expires. Registration is not the test; the conveyance itself is struck down. The purpose is to preserve the land in the hands of the homesteader and his family. Finally, a contract void from the beginning produces no effect and the parties must be restored to their original positions; he who receives payment without a right to it must return it under Article 22 of the Civil Code on unjust enrichment.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed with the modification that the respondents return the 14,000,000 pesos given by Filinvest as downpayment for the sale ruled void from the beginning.

Remember This

Memorize this line: the prohibition on alienation of a homestead within five years does not distinguish between executory and consummated sales, and a sale perfected within the period is void from its inception. Examiners use this case to test the five-year prohibitory period under the Public Land Act and the restitutionary consequence of unjust enrichment when a void sale is annulled.