G.R. No. L-39835 - PVAO vs. Anover

In 1954, defendant Filomeno Palaos secured OCT No. P-290 for Lot 81, covering approximately 87,829 square meters, located in the former barrio of Kitaotao in Bukidnon. This acquisition was by virtue of Homestead Patent No. V-23602.
The land grant falls under the Public Land Act, which imposes a prohibitory period of five years from the issuance of the patent during which alienation is generally barred.

On September 10, 1957, Filomeno Palaos and his wife Mahina Lagwas executed a deed of sale before a notary, selling a four-hectare portion of Lot 81 to Torcuato Suralta for the sum of P890.00.
Suralta immediately took possession of the four-hectare area, cultivated the land openly and continuously, constructed a house, and made improvements valued at approximately P20,000.00.

Around 1964, petitioners Francisca Arsenal and Remedio Arsenal became tenants on an adjacent property owned by Eusebio Pabualan and developed a neighborly relationship with Suralta.
Learning of Suralta’s acquisition, the petitioners expressed their own interest in purchasing the remaining portion of Lot 81 from Filomeno Palaos.

On March 14, 1967, Palaos and his wife executed a notarial Deed of Sale for a purported three-hectare portion of their land in favor of the petitioners, in consideration of P800.00.
Unbeknownst to the parties initially, the document erroneously covered the entirety of Lot 81—including the four-hectare portion previously sold to Suralta.
The deed was submitted for approval to the Office of the Commission on National Integration on account of the sellers being members of a cultural minority and unlettered; it was approved without inspection of the actual occupants.

After the sale, the petitioners took possession of the supposedly three-hectare portion, cultivated it, and on March 28, 1967, transferred the tax declaration of the entire lot into Francisca Arsenal’s name.
Despite knowing Suralta’s existence and his ongoing possession, the petitioners maintained arrangements, including Suralta’s contribution toward land tax payments from 1968 to 1973.
On July 11, 1973, Suralta attempted to register his Sales Contract, but it was refused because it was executed within the five-year prohibitory period.
To remedy the defect, Suralta had Filomeno Palaos execute a new Sales Contract covering the four-hectare portion, and subsequently, in August 1973, a segregation survey was conducted, identifying the disputed portion as Lot 81-A.

In December 1973, Suralta discovered the existence of a Deed of Sale executed by Palaos in favor of Francisca Arsenal that embraced the whole of Lot 81.
Suralta sought explanation from Palaos, who claimed that only three hectares were sold to the petitioners. Suralta then attempted to resolve the matter amicably with Arsenal, but she insisted on adherence to the contract.
Consequently, Arsenal registered her Deed of Sale on December 6, 1973, and secured Transfer Certificate of Title (TCT No. T-7879) covering the entire Lot 81 without Suralta’s knowledge.
A telegram dated January 17, 1974, from Suralta to the Secretary of Agriculture and Natural Resources requested suspension of the approval after learning of the registration.

On March 6, 1974, Suralta filed a case against Palaos, Lagwas, Arsenal, the petitioners’ spouse Remedio Arsenal, and the Register of Deeds of Bukidnon seeking annulment of TCT No. T-7879 as it pertained to the disputed four-hectare portion.
At trial, the Arsenals denied prior knowledge of Suralta’s purchase and raised defenses regarding the validity of Suralta’s 1957 sale, citing the prohibitory period under the Public Land Act and issues regarding the approval requirements for sales involving members of cultural minorities.
The trial court, on May 4, 1976, ruled in favor of Suralta, imputing bad faith to the petitioners, and declared them ineligible for protection as innocent purchasers under the Civil Code, even though they registered their purchase earlier.
The Intermediate Appellate Court affirmed the decision in toto on October 24, 1983.

On March 20, 1984, the petitioners filed a petition for review on certiorari with several assigned errors, including:

Lack of cause of action.
Erroneous interpretation of the benefit of the prohibitory provision of the Public Land Act not extending to third parties.
Improper affirmation of the trial court’s rulings regarding the 1957 sale and subsequent transactions.
Excessive weight given to findings of bad faith.
The decision declaring Suralta the legitimate owner and ordering cancellation and reissuance of the title.
The award of moral damages and attorney’s fees.

In defense, the petitioners asserted that the 1957 contract was void ab initio and that no subsequent action or confirmatory sale could validate a void transaction.

Whether the alienation of a homestead, executed within five years after the issuance of the patent—as occurred in the 1957 sale and in the subsequent 1967/1973 transactions—renders the contracts void under the Public Land Act.

Whether the execution of a new or confirmatory Sales Contract in 1973 can cure the defects arising from the 1957 transaction that occurred during the forbidden period.

Whether a third party (the petitioners in this case) may avail themselves of the prohibitory provision’s benefit to set aside a void transaction, despite registering their title prior to Suralta.

Whether the well-substantiated finding of bad faith by the petitioners should bar their claim to the four-hectare portion of the land.

Whether the trial court’s award of moral damages, attorney’s fees, and litigation expenses against the petitioners was proper in light of the void nature of the transactions and the established legal principles.