REPUBLIC OF THE PHILIPPINES REPRESENTED BY THE DIRECTOR OF LANDS, PLAINTIFF-APPELLEE, VS. ENRIQUE V. ATENCIO AND THE REGISTER OF DEEDS OF DAVAO DEL SUR, DEFENDANTS-APPELLANTS.

This case was certified to the Supreme Court by the Court of
Appeals because it involves a question of law: 
the effect of the amendment of Section 8, R. A. 477 which prohibited the
sale or encumbrance of land acquired under the provisions of said act within a
period of ten (10) years from the issuance of the certificate of title.

The antecedent facts are not disputed.

In October 1950, the National Abaca and Other Fibers Corporation
(NAFCO for short) sold to the defendant, Dr. Enrique V. Atencio,
Lot No. 179 with an area of 4.55 hectares in the Guihing
Plantation in Padada, Davao
del Sur, per deed of sale (Exh.
B), payable by installments over a period of ten (10) years.  The law authorizing NAFCO to sell lots to
qualified applicants is Republic Act 477 which was approved on June 9, 1950.  Section 8 of R. A. 477 provided:

“SEC. 8.  Except in favor of the Government or any of
its branches, units, or institutions, land acquired under the provisions of this
Act or any permanent
improvements thereon shall not be subject to encumbrance or alienation from the
date of the award of the land or the improvements thereon and for a term of ten
years from and after the date of issuance of the certificate of title, nor
shall they become liable to the satisfaction of any debt contracted prior to
the expiration of such period.

“Any occupant or applicant of lands under this Act who
transfers whatever rights he has acquired on said lands and/or on the
improvements thereon before the date of the award or signature of the contract
of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite
or residential lot, as the case may be, from the National Abaca and Other
Fibers Corporation; and such transfer shall be considered null and void.”

Hence, one of the conditions of the sale of Lot 179 to Dr. Atencio (Exh.
B) prohibits him from selling or encumbering
the property:

“(b)  The
VENDEE shall not sell and/or encumber
this property within a period of ten (10) years from the issuance of the
Certificate of Title except by way of mortgage to a Government Banking
Institution for the sole purpose of rehabilitating his major crops, abaca
and/or coconuts.”

On November 2, 1964,
a sales patent was issued to Dr. Atencio.  On November
16, 1964, he received OCT No. P-16675 (Exh.
C) which contained the aforementioned prohibition.

However, as early as 1956, or before the defendant received a
title for Lot 179, he had executed a “Sale of Fruits (Harvest)” of
Lot 179 in favor of Carmen Restauro and two others (Exh. D), for a consideration of P3,000
over a period of five years.  In 1961, he
executed a “Sale of Rights with the Right of Repurchase” (Exh. E), in
favor of Esteban Salutillo over the same lot, for the
sum of P4,000.

In 1962, defendant further executed a document, entitled
“Transfer of Rights” (Exh. F), over the lot
for the sum of P7,500 in favor of Santas
Vda. de Salutillo.  In all
these instruments, he delivered the possession of the land to the
transferee-vendee.

In September 1969, Dr. Atencio filed a
complaint (Civil Case No. 111) in the CFI of
Davao del Sur against Santas Vda.
de Salutillo, widow of
Esteban Salutillo, to annul and/or reform the above
documents.  The lower court declared the
transactions null and void in view of the prohibition in Section 8, R.A. 477
(NAFCO LAW) which prohibits the encumbrance or alienation of lands acquired
under that law within a term of ten (10) years from the issuance of the
certificate of title.  The court in Civil
Case No. 111 ordered the return of Lot 179 to Dr. Atencio (Appellant’s Brief, p. 4).

In September 1974, plaintiff
Republic of the Philippines
filed a complaint against Dr. Atencio and the
Register of Deeds of Davao del Sur
for annulment of patent and title
and the reversion of the land to the State for violation of the prohibition in
R.A. 477 (Civil Case No. 842-Court of First Instance of Davao
del Sur).

On December 24, 1975, the lower court rendered judgment finding
that Dr. Atencio had violated the terms of his
contract with the NAFCO; ordering the reversion of Lot 179 to the Republic of
the Philippines; and requiring the defendant, Dr. Atencio,
to deliver to the Board of Liquidators within ten (10) days from the finality
of the decision, the possession of the land
and its improvements with an accounting
of the fruits received by him from the filing
of the case until he surrenders possession of the land to the
Republic.  The court further ordered the
Register of Deeds of Davao del Sur,
upon the finality of the decision, to cancel Atencio’s
OCT No. P-16675
(Record on Appeal, p. 17).

The defendant appealed to the Court of Appeals (CA-G.R. No.
60754-R).  During the pendency
of his appeal, P.D. No. 967 was issued on July 24, 1976, amending Section 8 of Republic Act
No. 477 as follows:

“SEC. 8.  Any provision of law, executive order, rules
or regulations to the contrary notwithstanding, an applicant who has acquired
land pursuant to the provisions of this Act and to whom a certificate of title has been issued covering such land may
sell, cede, transfer, or convey his rights and interests therein, including the
permanent improvements on the land, to any interested party.”

Section 8 of Republic Act No. 477 was further amended by P. D.
No. 1304 on February 24, 1978,
as follows:

“SEC. 8.  – Any provision of law, executive order,
rules and regulations to the contrary notwithstanding, an applicant who has
acquired land pursuant to the provisions of this Act and to whom a certificate
of title has been issued covering such land may sell, cede, transfer, or convey
his rights and interests therein, including the permanent improvements on the
land, to any interested party; and all previous sales, transfers,
conveyances and encumbrances regarding such land
including the permanent improvements therein,
made and consummated prior to July 24,
1976, are hereby confirmed, ratified and
validated.”

This amendment of Section 8 of P.D. No. 967 eliminating the
prohibition against the sale, transfer, conveyance, and encumbrance of lands acquired
under R.A. No. 477 including the permanent improvements therein and validating
all those which had been consummated prior to July 24, 1976 has extinguished
the Government’s cause of action for
the recovery of the land from Atencio because the
conveyances made by him were prior to July 24, 1976.  (“Sale of Rights with Right to
Repurchase” in favor of Esteban Salutillo in
1956 and “Transfer of Rights”
in favor of Santas Vda. de Salutillo in 1962 which had been nullified in 1969 by the CFI of Davao in Civil Case No. 111).  The illegality of those transactions has been
washed away by P.D. No. 1304.  This
supervening circumstance has rendered the reversionary action of the Republic
against him moot and academic.

WHEREFORE, the decision of the Court of First Instance of Davao del Sur in Civil Case No.
842 is hereby reversed and set aside. 
The complaint therein of the Republic of the Philippines
against the defendant?appellant Enrique V. Atencio
is dismissed.  No costs.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.