G.R. No. L-14778 - Manzano vs. Ocampo

Victoriano Manzano was granted a homestead patent on June 25, 1934, and the land was registered in his name on July 25, 1934, under Original Certificate of Title No. 4590.
At the time, the law prohibited any sale or encumbrance of homestead lands within five years from the issuance of the patent.

Manzano and respondent Rufino Ocampo entered into an agreement for the sale of the homestead at a price of P1,900.00.
A down payment of P1,100.00 was made by Ocampo on the same day, while the balance of P800.00 was to be paid through a promissory note executed by Ocampo in installments:

A “Mortgage of Improvements” was executed by Manzano in favor of Ocampo to secure the down payment, even though the subject matter of this mortgage was actually the homestead itself.

Three months after the original agreement, Manzano informed Ocampo that another buyer had offered P3,000.00 for the homestead.
Ocampo agreed to this higher price on the understanding that payment would be made after Manzano’s title ripened into absolute ownership.
The parties thus modified their arrangement, effectively increasing the sale price from P1,900.00 to P3,000.00.

On October 17, 1939, the Undersecretary of Agriculture and Natural Resources approved the proposed sale to Ocampo.
On October 19, 1939, a formal deed of sale was executed for the price of P3,000.00, and Ocampo paid the balance (taking into account the P1,100.00 already paid).
The deed of sale was accompanied by the release of the mortgage and the issuance of a transfer certificate of title (Exhibit “4”).
Ocampo did not immediately take possession because Manzano requested time to harvest the standing palay crop, and the tax declaration was later transferred to Ocampo’s name in 1940.

On June 22, 1954, Manzano commenced an action in the Court of First Instance of Nueva Ecija to annul the sale on the grounds that it was executed within the five-year prohibition period.
During the pendency of the case, Manzano died and was substituted by his heirs.
The trial court dismissed the complaint, and the Court of Appeals affirmed the dismissal.
Manzano’s heirs then appealed to the Supreme Court, arguing that the sale was perfected within the illegal five-year period and was void from the start.

Whether the contract of sale perfected on January 4, 1938, is valid despite being entered into within the statutory prohibitory period.
Whether the subsequent execution of the formal deed of sale on October 19, 1939, after the five-year period, has the effect of curing or validating the initial void transaction.
Whether the “Mortgage of Improvements” and the promissory note were genuine instruments or merely simulatory devices designed to circumvent the legal prohibition on the alienation of homestead lands.