Ras vs. Sua

An action to declare the inexistence of a contract prohibited by law is imprescriptible, and the encumbrance or alienation of land acquired under Republic Act No. 477 within the 10-year prohibition does not automatically cause reversion to the State nor defeat the grantee’s right to recover the property from the transferee. The grantee retains personality to sue for annulment and recovery of possession until the State initiates and succeeds in an appropriate reversion proceeding.

Alejandro Ras acquired Lot No. 52, a four-hectare parcel in Basilan City, from the National Abaca and Other Fibers Corporation (NAFCO) on installment under Republic Act No. 477 on 31 August 1951. While in need of money and unaware of the statutory prohibition, Ras leased the land to spouses Ramon and Estela Sua on 25 February 1958. The initial three-year lease was extended through several subsequent contracts, each incorporating the obligation of the lessees to pay government amortizations and taxes and extending the total lease period to ten years—well within the prohibition under Section 8 of Republic Act No. 477 against encumbrance or alienation within ten years from the issuance of a certificate of title.

• Acquisition and Lease: Alejandro Ras bought Lot No. 52 from NAFCO on installment on 31 August 1951 under Republic Act No. 477. On 25 February 1958, while in need of money and unaware of the statute’s prohibition, he leased the four-hectare parcel to spouses Ramon and Estela Sua for three years (1 April 1958 to 1 April 1961) for P2,500.00. The lessees undertook to pay the yearly government installments and taxes during the lease term.
• Extensions: The parties executed four subsequent contracts extending the lease: (1) 1 October 1958 — extension to 2 April 1963 for P1,000.00 (Exh. D); (2) 1 December 1959 — extension to 2 April 1964 for P400.00 (Exh. E); (3) 29 July 1960 — extension to 2 April 1966 for P600.00 (Exh. F); (4) 26 January 1962 — extension to 2 April 1968 for P600.00 (Exh. G). Each extension expressly incorporated all stipulations of the original 1958 contract, including the lessees’ obligation to pay installments and taxes.
• Alleged Default: The lessor alleged that the lessees failed to pay taxes and the NAFCO amortizations as agreed, and refused to vacate upon demand. The complaint further claimed the lessees had harvested no less than 120,000 coconuts since 1958 valued at P7,200.00. The lessees denied violation of the lease terms and contested the court’s jurisdiction and the lessor’s right to repossession.
• Lower Court Findings: The trial court found that the lessees had violated the lease conditions and that the lease transactions were prohibited under Section 8 of Republic Act No. 477. It annulled only the two later extension contracts (Exhibits F and G) which remained unenforced, ordered the lessees to pay P110.00 monthly from 2 April 1964 until possession was restored, and directed Ras to return the consideration of P1,200.00 with legal interest.

• Prescription: Appellants contended that the action was one for rescission under Article 1191 of the Civil Code, which prescribes in four years; because the original lease was executed on 25 February 1958 and suit was filed on 6 May 1963, the cause of action was already barred.
• No Substantial Breach: Appellants maintained that the appellee failed to prove any violation of the lease terms, and that any breach was casual and slight, insufficient to warrant rescission.
• Lack of Personality and Jurisdiction: Appellants argued that if the action were treated as one for annulment based on violation of Republic Act No. 477, the proper party to sue was the Republic of the Philippines, not the appellee, and jurisdiction to order the return of the land resided with the Board of Liquidators, not the courts.
• Pari Delicto: Appellants invoked the pari delicto doctrine, asserting that the appellee could not recover the property because both parties were equally at fault in entering into a prohibited lease.

• Nature of Action and Prescription: Appellee countered that the complaint, while captioned “for rescission,” also averred his unawareness of Republic Act No. 477, thereby placing the legality of the lease directly at issue. The right to seek a declaration of inexistence of a contract prohibited by law is imprescriptible; moreover, the subsequent extension contracts were distinct and not yet barred.
• Right to Recover Possession: Appellee maintained that the violation of the statutory prohibition did not automatically divest him of ownership; no reversion proceedings had been initiated by the State, and he retained the right to recover possession from the transferees.

• Prescription: Whether the action was barred by the four-year prescriptive period for rescission.
• Personality to Sue: Whether the plaintiff-appellee had the legal personality to file the action for annulment and recovery of possession, or whether the State was the exclusive proper party.
• Pari Delicto: Whether recovery of the land was barred by the pari delicto principle given the prohibition under Republic Act No. 477.

• Prescription: The defense of prescription was rejected. The extension contracts (Exhibits D, E, F, and G) were treated as distinct contracts with their own effective periods; thus, even if the action were considered purely for rescission, the causes of action pertaining to Exhibits F (effective 1964–1966) and G (effective 1966–1968) still subsisted when the complaint was filed in 1963. With stronger reason, the action was not barred because the complaint actually sought the declaration of inexistence of a contract prohibited by law—a right that is imprescriptible. The caption and certain allegations referring to rescission did not control; the nature of the action is determined by the allegations in the pleading, and the complaint clearly raised the issue of illegality under Section 8 of Republic Act No. 477 by stating that the lease was entered into while appellee was unaware of the law’s prohibition.
• Personality to Sue: The appellee had personality to bring the suit. Republic Act No. 477 does not provide that a prohibited encumbrance or alienation automatically reverts the land to the State; the law is silent on the consequence of a post-sale violation within the ten-year period. Reversion is penal in nature and cannot be implied; strict construction is warranted where the interest of the individual outweighs the public interest. Under Section 9 of Republic Act No. 477, the disposition of NAFCO lands is governed by the Public Land Act (C.A. 141), and settled jurisprudence provides that a violation of the conditions of a land grant does not ipso facto cause reversion; until the State institutes an appropriate proceeding and a court decrees reacquisition, the grantee remains vested with rights over the property and may recover it from the transferee.
• Pari Delicto: The doctrine was held inapplicable. The prohibition under the public land law is designed for the protection of the grantee, and public policy is enhanced by allowing recovery under Article 1416 of the Civil Code. Moreover, consistent with prior rulings, the forfeiture of a homestead or similar grant is a matter exclusively between the State and the grantee; as against the vendor or his heirs, the purchaser “is no more entitled to keep the land than any intruder.” Consequently, the appellee could not be prevented from regaining possession on the ground of equal fault.

• Imprescriptibility of action for declaration of inexistence of a prohibited contract — An action to declare the inexistence of a contract that is contrary to law does not prescribe. The right to seek such judicial declaration is perpetual, as the contract produces no legal effect and is void ab initio. In this case, the lease agreements executed in violation of Section 8 of Republic Act No. 477 fell within this class, so the suit could be brought at any time.
• No automatic reversion of public land grants — A violation of the prohibition against alienation or encumbrance within ten years under Republic Act No. 477 does not automatically transfer ownership back to the State. Reversion is not implied; it requires a positive act of the State through appropriate judicial proceedings. Until a competent court decrees reversion, the grantee retains sufficient title and the right to recover the property from the transferee.
• Pari delicto inapplicable to prohibited transfers of public land grants — The pari delicto principle cannot be invoked by a transferee of land acquired under a public land grant to resist recovery by the grantee. The underlying policy of the Public Land Act treats forfeiture as a matter between the State and the grantee, and the transferee, who is in no better position than an intruder, may not retain the property against the grantee. Allowing the transferee to keep the land would defeat the State’s policy of preserving the grant for the deserving grantee until formal reversion is effected.

• “The right to seek the declaration of the inexistence of a contract, for being in violation of law, is imprescriptible.” — This passage anchors the ruling on the perpetual nature of the action for nullity of a prohibited contract, distinguishing it from the four-year prescriptive period for rescission.
• “[T]he pari delicto doctrine may not be invoked in a case of this kind since it would run counter to an avowed fundamental policy of the State that the forfeiture of the homestead is a matter between the State and the grantee or his heirs, and that until the State has taken steps to annul the grant and asserts title to the homestead, the purchaser is, as against the vendor or his heirs, ‘no more entitled to keep the land than any intruder.’” — This excerpt, drawn from prior jurisprudence, explains the relational framework of rights and underscores why the grantee may recover possession despite the prohibited transaction.

• Mapalo vs. Mapalo, L-21489 & L-21628, 19 May 1966 — Cited as authority for the imprescriptibility of an action to declare the inexistence of a contract.
• Asturias vs. Court of Appeals, L-17895, 30 September 1963 — Referenced alongside Mapalo for the same rule.
• Catalina de los Santos vs. Roman Catholic Church of Midsayap, 94 Phil. 405 — Established that the pari delicto doctrine does not apply to public land grants because forfeiture is a matter between the State and the grantee.
• Acierto vs. De los Santos, 95 Phil. 887 — Reiterated that until the State annuls the grant, the purchaser is no more than an intruder vis-à-vis the vendor; this principle was expressly reaffirmed in Angeles vs. Court of Appeals, 102 Phil. 1006.

• Section 8, Republic Act No. 477 — Prohibits the encumbrance or alienation of land acquired under the Act from the date of award until ten years after the issuance of the certificate of title. Applied to declare the lease contracts void for having been executed within the prohibited period.
• Section 9, Republic Act No. 477 — Provides that the disposition of NAFCO lands be governed by the Public Land Act (C.A. 141). Used to import the jurisprudential rules on non-automatic reversion into claims arising under RA 477.
• Article 1416, Civil Code — Allows recovery of what has been paid or delivered under a contract that is not illegal per se but merely prohibited, when the prohibition is designed for the protection of the plaintiff and public policy is enhanced by recovery. Invoked to support the grantee’s right to recover possession against the transferee despite the prohibited lease.

Chief Justice Concepcion and Justices Dizon, Makalintal, Sanchez, Castro, Angeles, and Fernando concurred. Justice Zaldivar took no part.