Filinvest Land, Inc. vs. Backy

A conditional sale of homestead land executed within the five-year prohibitory period is void ab initio, the prohibition under Section 118 of the Public Land Act making no distinction between consummated and executory sales; however, the buyer is entitled to restitution of payments made to prevent unjust enrichment under Article 22 of the Civil Code.

Respondents were grantees of agricultural public lands in General Santos City through homestead and fee patents issued in 1986 and 1991. In 1995, petitioner Filinvest Land, Inc., through its representative, negotiated with the Ngilay family patriarch for the purchase of these properties. A Deed of Conditional Sale was executed, and respondents received a P14,000,000.00 downpayment on October 28, 1995, delivering their owner's duplicate copies of the certificates of title. Respondents subsequently sought to nullify the sale, asserting that the transaction occurred within the five-year prohibitory period for the 1991 patents and lacked the required approval from the Department of Environment and Natural Resources (DENR).

• The Homestead Patents: Respondents acquired agricultural public lands in Tambler, General Santos City, through homestead and fee patents. Ten patents were issued on November 11, 1986, and ten on November 24, 1991, covering various parcels of land.
• The Negotiations and Sale: In 1995, Filinvest negotiated with the Ngilay patriarch for the purchase of the properties. An undated Deed of Conditional Sale was executed. On October 28, 1995, respondents received a P14,000,000.00 downpayment and delivered the original owner's duplicate copies of their certificates of title to Filinvest. Petitioner asserted that it made an advance payment with the understanding it could demand return if conditions were not met, and that the Ngilays undertook to secure DENR approval before the consummation of the sale.
• The Dispute: Shortly after executing the deeds, respondents discovered that the sale was void for being within the prohibitory period and for lacking DENR approval, prompting them to file a case for nullity and grant of right of way.

• Nature of the Contract: Petitioner argued that a conditional sale involving the 1991 patents did not violate the prohibition against alienation of homesteads under the Public Land Act because no actual transfer or disposition was perfected until all conditions of the deed were fulfilled.
• Operative Act of Transfer: Petitioner maintained that registration is the operative act that conveys or disposes of rights in real property; being unregistered, the Deed of Conditional Sale did not convey or dispose of the homesteads or any rights therein in violation of the law.
• Restitution: Petitioner contended that, assuming the nullity of the sale of the 1991 patents, the Court of Appeals should have ordered respondents as a matter of law to return what they received, as allowing them to keep the payment constitutes unjust enrichment.

• Violation of Public Land Act: Respondent countered that the Court of Appeals correctly held the deeds of conditional and absolute sale, as well as the right of way agreement for the 1991 patents, null and void for violating the Public Land Act.
• Lack of Merit in Petition: Respondent argued that the questions raised by the petitioner were unsubstantial and did not warrant consideration.

• Validity of Conditional Sale: Whether a conditional sale of homestead land executed within the five-year prohibitory period violates Section 118 of the Public Land Act.
• Restitution of Downpayment: Whether respondents are obligated to return the downpayment received for a sale declared void ab initio.

• Validity of Conditional Sale: The conditional sale executed within the prohibitory period is void. The prohibition under Section 118 of the Public Land Act is mandatory and makes no distinction between consummated and executory sales. Any act removing the property from the hands of the grantee within the five-year period is struck down. The execution of the deed and receipt of downpayment in 1995 for patents issued in 1991 clearly fell within the prohibition.
• Restitution of Downpayment: The return of the downpayment is warranted. The declaration of nullity of a void contract operates to restore the parties to their original state. Retaining the P14,000,000.00 payment constitutes unjust enrichment under Article 22 of the Civil Code, as respondents would be unjustly benefited at the expense of the petitioner without any right to retain the amount.

• Prohibitory Period on Alienation of Homesteads — Section 118 of Commonwealth Act No. 141 prohibits the alienation or encumbrance of lands acquired under free patent or homestead provisions for five years from the issuance of the patent. The prohibition is mandatory and makes no distinction between consummated and executory sales; any conveyance within this period is void ab initio, as the law aims to preserve the homestead for the grantee and their family.
• Unjust Enrichment — Under Article 22 of the Civil Code, a person who unjustly retains a benefit at the expense of another must return it. When a contract is declared void ab initio, the parties must be restored to their pre-contractual state, requiring the return of any payment made, as there is no longer any duty to pay and no right to receive it.

• "The prohibition of the law on the sale or encumbrance of the homestead within five years after the grant is MANDATORY. The purpose of the law is to promote a definite policy, i.e., 'to preserve and keep in the family of the homesteader that portion of the public land which the State has gratuitously given to him.' Thus, the law does not distinguish between executory and consummated sales."
• "To repeat, the conveyance of a homestead before the expiration of the five-year prohibitory period following the issuance of the homestead patent 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."

• Ortega v. Tan, G.R. No. 44617 (1990) — Followed. Held that the prohibition on the sale or encumbrance of a homestead within five years is mandatory and does not distinguish between executory and consummated sales; a sale perfected within the prohibitory period remains void even if the formal deed is executed after the period expires.
• Saltiga de Romero v. Court of Appeals, G.R. No. 109307 (1999) — Followed. Reiterated that the conveyance of a homestead before the expiration of the five-year prohibitory period is null and void.
• Development Bank of the Philippines v. CA, G.R. No. 110053 (1995) — Followed. Established that the declaration of nullity of a void contract operates to restore things to the state and condition in which they were found before the execution thereof.
• Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, G.R. No. 138088 (2006) — Followed. Defined unjust enrichment as existing when a person unjustly retains a benefit to the loss of another, or retains money or property of another against the fundamental principles of justice, equity, and good conscience.

• Section 118, Commonwealth Act No. 141 (Public Land Act) — Prohibits the encumbrance or alienation of lands acquired under free patent or homestead provisions for five years from the date of issuance of the patent. Applied to void the conditional sale executed in 1995 for patents issued in 1991, as the transaction fell within the five-year prohibitory period.
• Article 22, Civil Code of the Philippines — Provides that every person who through an act or 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. Applied to order the restitution of the P14,000,000.00 downpayment, preventing the respondents from being unjustly enriched by a void transaction.

Presbitero J. Velasco, Jr., Roberto A. Abad, Jose Portugal Perez, Jose Catral Mendoza