G.R. No. 97973 - Gauvain vs. Court of Appeals

Case Summary (G.R. No. 97973)

Relevant Dates and Procedural Milestones

Important dates in the record include issuance of free patent and original certificate of title in late 1969, mortgage of the property to DBP on February 24, 1970, foreclosure in June 1977 (records reference June 1977 entries), registration of certificate of sale in January 1978, sale by DBP to the Benzonans in September 1979 (records reference September 1979 entries), respondent Pe’s written offer to repurchase in July 1983 and filing of the repurchase complaint on October 4, 1983. The trial court entered judgment for reconveyance; the Court of Appeals affirmed with modification; the Supreme Court granted review and reversed the Court of Appeals.

Applicable Law

Primary statutory provision: Section 119, Commonwealth Act No. 141 (as amended), which grants a five-year repurchase right to patentees of land acquired under free patent or homestead provisions. Civil Code provisions invoked in the decision: Article 8 (judicial decisions form part of the law) and Article 4 (non-retroactivity of laws). The 1987 Philippine Constitution is applied as the constitutional framework for the decision. Controlling jurisprudence considered includes Simeon v. Pena, Vargas v. Court of Appeals, Santana v. Marinas, Monge v. Angeles, Tupas v. Damasco, Belisario v. IAC, and Lim v. Cruz, among others cited by the courts below.

Factual Background

Respondent Pe acquired the 2.6064-hectare parcel by free patent and original certificate of title in 1969. Three months after acquisition he mortgaged the lot to DBP to secure a large commercial loan. He used loan proceeds to construct extensive commercial and industrial improvements (ricemill, warehouses, solar drier, office/residence, roadways, depository, dumping grounds, and machinery). After failing to pay the loan, DBP foreclosed in June 1977 and became the highest bidder; the certificate of sale was registered in January 1978. Pe failed to redeem within the statutory one-year redemption period. DBP sold the property to the Benzonans in September 1979 for P1,650,000 payable by amortizations. The Benzonans occupied the property and added improvements worth approximately P970,000. Pe later sought to repurchase, offering in July 1983 to pay P327,995; DBP disputed that figure, claiming substantial expenses in preservation and improvements and asserting other defenses.

Issues Presented to the Court

The principal issues include: (1) whether Pe retained the statutory repurchase right under Section 119 despite having converted the patented agricultural land to commercial/industrial use and having substantial other holdings and motives; (2) the proper computation of the five-year repurchase period—whether it runs from the date of the conveyance/foreclosure sale or from the day after expiration of the one-year statutory redemption period; (3) whether a later change in controlling jurisprudence (Belisario) should be applied retroactively to revive an otherwise expired repurchase right; and (4) collateral claims concerning the need for tender/deposit when filing repurchase actions and the rights of purchasers in good faith to reimbursement for improvements and payments.

Trial Court and Court of Appeals Rulings

The trial court ordered reconveyance to Pe upon payment of the repurchase price of P327,995 plus certain items and awarded exemplary and attorney’s fees, among other reliefs. The Court of Appeals affirmed the trial court’s judgment with the modification that DBP should reimburse the Benzonans amounts they paid for the land (minus interest) and that the Benzonans could remove their improvements without impairing them. The CA held that Pe’s repurchase action was timely when the five-year period was counted from the expiration of the one-year redemption period.

Supreme Court’s Threshold Ruling and Legal Approach

The Supreme Court granted review and framed the dispute around correct application of Section 119 and relevant doctrines. The Court examined the factual record on conversion, prior jurisprudence concerning the purpose and scope of the repurchase right, and the timing rule for the five-year period. It applied principles on judicial precedents and non-retroactivity (Civil Code Articles 8 and 4) together with established concerns regarding vested rights and reliance on then-prevailing law.

Conversion to Commercial/Industrial Use and Purpose of Section 119

The Court concluded that the factual record established conversion of the patented agricultural lot to commercial and industrial use very shortly after issuance of the patent: Pe mortgaged the property three months after acquisition and constructed permanent industrial improvements (ricemill, warehouses, solar drier, administration-residential building, perimeter fence, machinery). The Court emphasized the statutory purpose of Section 119—to preserve for the homesteader or patentee land gratuitously given by the State for agricultural use and family subsistence—and applied earlier controlling decisions (Simeon v. Pena, Vargas, Santana) which deny repurchase when the patentee’s purpose is speculative or for profit rather than to preserve the land for the family. On that basis the Court held that allowing repurchase here would defeat the statutory objective because Pe was not the class of poor farmer intended to benefit and used the lot for commercial enterprise and speculation.

Computation of the Five-Year Period and Non-retroactivity of New Doctrines

The Supreme Court addressed conflicting doctrines on when the five-year repurchase period begins: earlier cases (Monge, Tupas) treated the period as running from the date of conveyance or foreclosure sale; a later case (Belisario, 1988) held the five-year period begins to run from the day after expiration of the one-year redemption period. The Court held that Belisario established a new doctrine and, under principles of non-retroactivity and protection of vested rights, the Belisario rule should not be applied retroactively to revive rights that had already expired under the prior controlling jurisprudence. Citing Article 4 of the Civil Code and prior Supreme Court decisions on prospective application of new doctrines, the Court reasoned that

Case Syllabus (G.R. No. 97973)

Case Caption, Citation and Court

Decision reported at 282 Phil. 530, Third Division, G.R. No. 97973 (and related G.R. No. 97998), dated January 27, 1992.
Petitioners: Spouses Gauvain and Bernardita Benzonan (in G.R. No. 97973).
Co-petitioner/cross-petitioner in related case: Development Bank of the Philippines (DBP) (in G.R. No. 97998).
Respondent: Benito Salvani Pe; Court of Appeals is also a named respondent in petitions for review.
Opinion authored by Justice Gutierrez, Jr.; Justices Feliciano, Bidin, Davide, Jr., and Romero, JJ., concurred.

Summary of Reliefs Sought and Procedural Posture

Petitions seek review of the August 31, 1990 decision of the Court of Appeals which sustained respondent Benito Salvani Pe’s right to repurchase a parcel of land foreclosed by DBP and subsequently sold to petitioners Benzonan.
DBP in G.R. No. 97998 limited its petition to issues regarding the repurchase price and the governing law/contract between parties.
The petitions challenge the CA’s application of Section 119 of Commonwealth Act No. 141 (Public Land Act), the counting of the five-year repurchase period, retroactive application of later jurisprudence, adequacy of tender for repurchase, and remedies available to purchasers in good faith.

Relevant Statutory Provision Quoted (Section 119, CA No. 141)

The Court expressly cites and applies Section 119 of CA 141 as amended:
"Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of conveyance."

Factual Background — Title, Acquisition and Early Transactions

Respondent Benito Salvani Pe acquired a 26,064 square meter parcel by Free Patent No. 46128 issued October 29, 1969; Original Certificate of Title (OCT) No. P-2404 issued November 24, 1969.
On February 24, 1970 (three months after acquisition), Pe mortgaged the lot (together with another lot covered by TCT No. 3614 and chattels) to secure a commercial loan of P978,920.00 from DBP.
Proceeds were used to develop the lot into a commercial-industrial complex: ricemill and warehouse facilities, solar drier, office and residential building, roadway, garden, depository, dumping grounds and other permanent improvements (specific improvements testified to).
Pe operated ricemill business for about nine years until September 1979 and maintained substantial improvements and machinery on the property.

Foreclosure, Sale to Petitioners, Occupation and Improvements

DBP foreclosed the mortgage on June 28, 1977; on that date the total obligation amounted to P1,114,913.34.
DBP was highest bidder at foreclosure sale; certificates of sale issued in its favor: P452,995.00 for the two lots and P108,450.00 for the chattels.
Certificate covering the disputed lot registered with Registry of Deeds on January 24, 1978.
After foreclosure sale, Pe leased the lot and its improvements from DBP for P1,500.00/month; part also leased to National Grains Authority.
Respondent Pe failed to redeem within the one-year period after foreclosure.
On September 24, 1979 DBP sold the lot to petitioners Benzonan for P1,650,000.00 payable in quarterly amortizations over five years; petitioners occupied the lot and introduced further improvements worth P970,000.00.

Respondent Pe’s Repurchase Attempt and Trial Court Judgment

On July 12, 1983 Pe offered in writing to repurchase the lot for P327,995.00, claiming he acted within legal period to repurchase.
DBP countered that it had incurred P3,056,739.52 over the years for preservation, maintenance and introduction of improvements.
On October 4, 1983, Pe filed a complaint for repurchase under Section 119, CA No. 141, in the RTC of General Santos City (Case No. 280).
RTC judgment (November 27, 1986) ordered:
- DBP to reconvey Lot No. P-2404 to Pe for repurchase price of P327,995.00 plus legal interest from June 18, 1977 to June 19, 1978 only, and expenses of extrajudicial foreclosure.
- Expenses for registration and 10% attorney’s fees; defendants to vacate premises upon payment; defendants jointly and solidarily to pay Pe attorney’s fees of P25,000.00; exemplary damages of P50,000.00 against DBP; DBP to reimburse Benzonan spouses the amount they paid/advanced for purchase; defendants to pay costs of suit.
Trial court’s dispositive portion is quoted in full in the source.

Court of Appeals Disposition and Modification

Court of Appeals affirmed with modification:
- DBP shall reimburse Benzonan spouses all amounts they paid for the land, minus interest.
- Benzonan spouses may remove improvements they made, provided removal does not impair or damage the improvements.
Motion for reconsideration by petitioners denied by CA on March 19, 1991.

Issues Raised by Petitioners (G.R. No. 97973) — Enumerated Errors

Petitioners asserted five principal contentions (quoted/paraphrased from source):
- CA erred in holding that conversion and use of the land to industrial/commercial purposes and Pe’s motives (business/speculation) do not deprive him of repurchase right under Sec. 119, despite admissions/facts showing conversion (citing Santana v. Marinas; Vargas v. Court of Appeals; Simeon v. Pena).
- Even if Pe had repurchase right, CA erred in not counting the five-year period from date of foreclosure sale (June 18, 1977) or at most from registration (Jan 24, 1978), per prevailing doctrinal law at the time (Monge v. Angeles; Oliva v. Lamadrid; Tupas v. Damasco), thus rending Pe’s right expired.
- CA erred in applying retroactively Belisario v. IAC (1988) which held the five-year period is counted from the day after the one-year redemption period expired; retroactive application revived Pe’s lost right and defeated petitioners’ accrued ownership.
- CA erred in not holding that mere filing of action for repurchase without tendering/deposit of repurchase price did not satisfy requirements of repurchase; Pe’s failure to tender/deposit evidences speculative motive.
- CA erred in not ruling petitioners as possessors in good faith, thereby entitled to reimbursement of necessary and useful expenses under Art. 1616 Civil Code and refund of all amounts paid by reason of sale, with right of retention (citing Calagan v. CFI of Davao and Lee v. Court of Appeals).

Issues Raised by DBP (G.R. No. 97998) — Limited to Repurchase Price and Governing Law

DBP framed two issues:
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