September 14, 2015

G.R. No. 172720

ELISEO MALTOS and ROSITA P. MALTOS, Petitioners

DECISION

LEONEN, J.:

The sale of a parcel of agricultural land covered by a free patent during the five-year prohibitory
period under the Public Land Act is void. Reversion of the parcel of land is proper. However,
reversion under Section 101 of the Public Land Act is not automatic. The Office of the Solicitor
General must first file an action for reversion.

On February 13, 1979, Eusebio Borromeo was issued Free Patent No. 586681 over a piece of
agricultural land located in San Francisco, Agusan del Sur, covered by Original Certificate of Title
No. P-9053. 1

On June 15, 1983, well within the five-year prohibitory period, Eusebio Borromeo sold the land to
Eliseo Maltos. 2

Eusebio Borromeo died on January 16, 1991. His heirs claimed that prior to his death, he allegedly
told his wife, Norberta Borromeo,  and his children to nullify the sale made to Eliseo Maltos and have
3

the Transfer Certificate of Title No. T-5477 cancelled because the sale was within the five-year
prohibitory period. 4

On June 23, 1993, Norberta Borromeo and her children (heirs of Borromeo) filed a Complaint for
Nullity of Title and Reconveyance of Title against Eliseo Maltos, Rosita Maltos, and the Register of
Deeds of Agusan del Sur.  The case was docketed as Civil Case No. 946.
5 6

Eliseo Maltos and Rosita Maltos (Maltos Spouses) filed their Answer, arguing that the sale was
made in good faith and that in purchasing the property, they relied on Eusebio Borromeo's title.
Further, the parties were in pari delicto. Since the sale was made during the five-year prohibitory
period, the land would revert to the public domain and the proper party to institute reversion
proceedings was the Office of the Solicitor General. 7

The Register of Deeds of Agusan del Sur also filed an Answer, arguing that the deed of sale was
presented for Registration after the five-year prohibitory period, thus, it was ministerial on its part to
register the deed. 8

The heirs of Borromeo countered that good faith was not a valid defense because the prohibitory
period appeared on the face of the title of the property. 9

The Regional Trial Court  of Prosperidad, Agusan del Sur narrowed down the issues to the
10

following:

1. Whether or not the herein plaintiffs are the legal heirs of the late Eusebio Borromeo.
2. Whether or not the sale of the disputed property within the prohibitory period is valid or binding. 11

The trial court dismissed the Complaint on the ground of failure to state a cause of action.  Also, the
12

heirs of Borromeo did not have a right of action because they were unable to establish their status
as heirs of the late Eusebio Borromeo.  They may have declared themselves the legal heirs of
13

Eusebio Borromeo, but they did not present evidence to prove their allegation.  Further, the
14

determination of their rights to succession must be established in special proceedings. 15

The trial court also ruled that "[t]he sale was null and void because it was within the five (5) year
prohibitionary [sic] period"  under the Public Land Act.  The defense of indefeasibility of title was
16 17

unavailing because the title to the property stated that it was "subject to the provisions of Sections
118, 119, 121, 122 and 124"  of the Public Land Act.  Since the property was sold within the five-
18 19

year prohibitory period, such transfer "result[ed] in the cancellation of the grant and the reversion of
the land to the public domain." 20

As to the defense of in pari delicto, the trial court ruled against its applicability,  citing Egao v. Court
21

of Appeals (Ninth Division). 22

The rule of pari delicto non oritur action (where two persons are equally at fault neither party may be
entitled to relief under the law), admits of exceptions and does not apply to an inexistent contract,
such as, a sale void ab initio under the Public Land Act, when its enforcement or application runs
counter to the public policy of preserving the grantee's right to the land under the homestead
law.  (Citation omitted)
23

The trial court further held that since the sale was null and void, no title passed from Eusebio
Borromeo to Eliseo Maltos.  The dispositive portion of the trial court's Decision states:
24

WHEREFORE, for lack of merit, the complaint under consideration is hereby ordered DISMISSED.
No pronouncement as to costs.

SO ORDERED. 25

On appeal, the heirs of Borromeo argued that they were able to prove their status as heirs through
the testimony of their mother, Norberta Borromeo. 26

The heirs of Borromeo also argued that the trial court should have ordered the "revival of [Original
Certificate of Title] No. P-9053 in the name of the Heirs of EUSEBIO BORROMEO." 27

The Court of Appeals  reversed the Decision of the trial court and held that since Eusebio Borromeo
28

sold his property within the five-year prohibitory period, the property should revert to the
state.  However, the government has to file an action for reversion because "reversion is not
29

automatic."  While there is yet no action for reversion instituted by the Office of the Solicitor General,
30

the property should be returned to the heirs of Borromeo.  The dispositive portion of the Court of
31

Appeals' Decision states:

WHEREFORE, premises considered, the instant Appeal is GRANTED. The Decision of the court a
quo in Civil Case No. 946 is hereby SET ASIDE and another one is entered (1) ordering Appellee
ELISEO MALTOS to reconvey the property subject matter of this litigation to Appellants upon the
refund by the latter to Appellee ELISEO MALTOS the sum of P36,863.00, all expenses for the
reconveyance to be borne by the buyer, ELISEO MALTOS, herein Appellee and (2) ordering the
Register of Deeds of Prosperidad, Agusan del Sur to cancel TCT No. T-5477 and revive OCT No. P-
9053.

Let a copy of this Decision be furnished the Office of the Solicitor General (OSG) for its information
and appropriate action and to inform this court within a period of thirty (30) days from receipt hereof
of the action done under the premises.

SO ORDERED.  (Emphasis supplied)

The Maltos Spouses filed a Motion for Reconsideration, arguing that since the prohibition on
transfers of property is provided by law, only the heirs of Borromeo should be
punished.  Punishment, in this case, would come in the form of preventing the heirs of Borromeo
33

from re-acquiring the land.  Instead, the land should revert back to the state.  The Maltos Spouses
34 35

also prayed that they be reimbursed for the improvements they introduced on the land.  Assuming 36

that they would be found to be also at fault, the principle of in pari delicto should apply. 37

The Court of Appeals  denied the Motion for Reconsideration,  reasoning that it could not rule on the
38 39

issue of who between the parties had the better right to the property.  Also, it was the government
40

who should decide whether the heirs of Borromeo "should retain ownership of the land."  With 41

regard to the applicability of the in pari delicto doctrine, the Court of Appeals held that in pari delicto
does not apply in cases where its application will violate the policy of the state. 42

On May 10, 2006, the Maltos Spouses filed a Petition  for Review before this court, questioning the
43

Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 77142. 44

This court, in a Resolution  dated July 5, 2006, required the heirs of Borromeo to file their Comment.
45

The heirs of Borromeo filed their Comment,  which was noted by this court in a Resolution  dated
46 47

September 25, 2006. In the same Resolution, this court required the Maltos Spouses to file their
Reply.48

In a Resolution  dated March 28, 2007, this court required Attys. Ma. Cherell L. De Castro and
49

Gener C. Sansaet, counsels for the Maltos Spouses, to show cause why they should not be
disciplinarily dealt with for their failure to file a Reply. They were also required to comply with the
Resolution dated September 25, 2006. 50

Counsels for the Maltos Spouses filed a] Compliance,  together with the Reply.  In a
51 52

Resolution  dated August 15, 2007, this court noted and accepted the Compliance, and also noted
53

the Reply.

The Maltos Spouses argue that the heirs of Borromeo did not present evidence to prove that they
are indeed the heirs of Eusebio Borromeo. The heirs of Borromeo did not present the death
certificate of Eusebio Borromeo, the marriage certificate of Eusebio Borromeo and Norberta
Borromeo, or any of the birth certificates of the children of Eusebio.  While Norberta Borromeo and
54

two of her children testified,  their testimonies should be considered as self-serving.  The Maltos
55 56

Spouses cite Article 172  of the Family Code, which enumerates how filiation may be established.
57 58
The Maltos Spouses also contest the Court of Appeals' ruling stating that they did not rebut the
testimonies of the heirs of Borromeo because they continuously argued that the heirs of Borromeo
were unable to prove their status as heirs. 59

The Maltos Spouses further argue that it was error for the Court of Appeals not to apply the in pari
delicto rule, considering that the sale violated Section 118  of the Public Land Act.  Since both
60 61

parties are at fault, it follows that Article 1412  of the Civil Code applies.
62 63

In addition, the Maltos Spouses pray for the reimbursement of the value of the improvements on the
property to prevent unjust enrichment on the part of the heirs of Borromeo.  The Maltos Spouses
64

enumerate the following circumstances to show why they should be reimbursed:

a. EUSEBIO has already long received and enjoyed the amount of the purchase price of the subject
land from petitioners.

b. The value of the purchase price of PHP36,863.00 paid in 1983 have since then greatly
depreciated. If petitioners had deposited that money in bank or loaned it to another person instead of
purchasing EUSEBIO's property, it would have at least earned some interest. However, the Court of
Appeals incorrectly assumed that the return of the purchase price would be sufficient compensation
to the petitioners.

c. The value of the improvements introduced by petitioners on the subject property is much greater
than the purchase price that they initially paid on the land. Petitioners estimate the value of the
improvements, including hundreds of various fruit-bearing trees and four residential houses, to be at
least PHP900,000.00. Because of these improvements, not only can respondents sell the land at a
much higher price, they can even sell the improvements and profit from them. It would be the height
of injustice if all the petitioners would receive in turning over the subject property to the respondents
is the purchase price that was previously paid EUSEBIO under the deed of sale. 65

On the other hand, the heirs of Borromeo argue that the testimonies of Norberta Borromeo and
Susan Borromeo Morales on their relationship to Eusebio Borromeo were not refuted by the Malios
Spouses. Thus, they were able to prove their status as heirs. 66

The heirs of Borromeo also argue that the in pari delicto rule is not applicable because in Santos v.
Roman Catholic Church of Midsayap, et al.,  this court stated that the in pari delicto rule does not
67

apply if its application will have the effect of violating public policy.
68

With regard to the claim for reimbursements, the heirs of Borromeo argue that the Maltos Spouses
did not raise their claim for reimbursement in their Answer to the Complaint. They are now barred
from claiming reimbursement since this was not raised at the first instance. 69

Based on the arguments of the parties, the issues for resolution are:

First, whether the Court of Appeals erred in reversing the Decision of the trial court and ordering the
reconveyance of the property from petitioners Spouses Eliseo Maltos and Rosita Maltos to
respondents heirs of Eusebio Borromeo;

Second, whether the Court of Appeals erred in not applying the doctrine of in pari delicto; and

Finally, whether the Court of Appeals erred in ruling that petitioners Spouses Eliseo Maltos and
Rosita Maltos are not entitled to reimbursement for the improvements they introduced on the land.
 II

The five-year period prohibiting the sale of land obtained under homestead or free patent is provided
under Section 118 of the Public Land Act, which states:

SECTION 118. Except in favor of the Government or any of its branches, units, or institutions, or
legally constituted banking corporations, lands acquired under free patent or homestead provisions
shall not be subject to encumbrance or alienation from the date of the approval of the application
and for a term of five years from and after the date of issuance1 of the patent or grant, nor shall they
become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the
improvements or crops on the land may be mortgaged] or pledged to qualified persons,
associations, or corporations.

The reason for prohibiting the alienation or encumbrance of properties covered by patent or grant
was explained in Metropolitan Bank and Trust Company v. Viray. 70

In Metropolitan Bank, Edgardo D. Viray and his wife contracted several loans with Metrobank which
they failed to pay.  Metrobank filed a Complaint for sum of money before the Regional Trial Court in
71

Manila.  In 1982, during the pendency of the case, free patents over three parcels of land were
72

issued in favor of Viray.  The Complaint for sum of money was decided in 1983 in favor of
73

Metrobank.  In 1984, the trial court issued a writ of execution over the parcels of land.  An auction
74 75

sale was held, and Metrobank emerged as the winning bidder.  Viray filed an action for annulment of
76

sale.  This court ruled that the auction sale was made within the five-year prohibitory period  and
77 78

explained that:

[T]he main purpose in the grant of a freq patent of homestead is to preserve and keep in the family
of the homesteader that portion of public land which the State has given to him so he may have a
place to live with his family and become a happy citizen and a useful member of the society.
In Jocson v. Soriano, we held that the conservation of a family home is the purpose of homestead
laws. The policy of the state is to foster, families as the foundation of society, and thus promote
general welfare. . . .

Section 118 of CA 141, therefore, is predicated on public policy. Its violation gives rise to the
cancellation of the grant and the reversion of the land and its improvements to the government at the
instance of the latter. The provision that "nor shall they become liable to the satisfaction of any debt
contracted prior to that expiration of the five-year period" is mandatory and any sale made in
violation of such provision is void and produces no effect whatsoever, just like what transpired in this
case. Clearly, it is not within the competence of any citizen to barter away what public policy by law
seeks to preserve.  (Citations omitted)
79

In Republic v. Court of Appeals,  Josefina L. Morato applied for free patent over a parcel which was
80

granted.  Morato mortgaged and leased a portion of the land within the five-year prohibitory
81

period.  Later on, it would also be discovered that Morato's land formed part of Calauag Bay.  The
82 83

Republic filed a Complaint for cancellation of title and reversion of the parcel of land.  This court held
84

that "lease" and "mortgage" were encumbrances on the parcel of land.  This court also discussed
85

the policy behind the five-year prohibitory period:

It is well-known that the homestead laws were designed to distribute disposable agricultural lots of
the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent
intention the State prohibits the sale or encumbrance of the homestead (Section 116) within five
years after the grant of the patent. After that five-year period the law impliedly permits alienation of
the homestead; but in line with the primordial purpose to favor the homesteader and his family the
statute provides that such alienation or conveyance (Section 117) shall be subject to the right of
repurchase by the homesteader, his widow or heirs within five years. This section 117 is
undoubtedly a complement of Section 116. It aims to preserve and keep in the family of the
homesteader that portion of public land which the State had gratuitously given to him. It would,
therefore, be in keeping with this fundamental idea to hold, as we hold, that the right to repurchase
exists not only when the original homesteader makes the conveyance, but also when it is made by
his widow or heirs. This construction is clearly deducible from the terms of the statute. 86

The effect of violating the five-year prohibitory period is provided under Section 124 of the Public
Land Act, which provides:

SECTION 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed
in violation of any of the provisions of sections one hundred and eighteen, one hundred and twenty,
one hundred and twenty-one, one hundred and twenty-two, and one hundred and twenty-three of
this. Act shall be unlawful and null and void from its execution and shall produce the effect of
annulling and cancelling the grant, title, patent, or permit originally issued, recognized or confirmed,
actually or presumptively, and cause the reversion of the property and its improvements to the State.

In this case, Section 101  of the Public Land Act is applicable since title already vested in Eusebio
87

Borromeo's name. Both the trial court and the Court of Appeals found that the sale was made within
the five-year prohibitory period. Thus, there is sufficient cause to revert the property in favor of the
state. However, this court cannot declare reversion of the property in favor of the state in view of the
limitation imposed by Section 101 that an action for reversion must first be filed by the Office of the
Solicitor General.

III

The doctrine of in pari delicto non oritur actio is inapplicable when public policy will be violated.

The in pari delicto rule is provided under Articles 1411 and 1412 of the Civil Code. Article 1411
pertains to acts that constitute criminal offenses, while Article 1412 pertains to acts that do not
constitute criminal offenses. These provisions state:

ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,  and
the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or the
price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply with his promise.

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfilment of what has been promised him. The other, who is not
at fault, may demand the return of what he has given without any obligation to comply with his
promise.

Santos involved the sale of a parcel of land within the five-year prohibitory period.  The Roman
88

Catholic Church raised the defense of in pari delicto.  It was also argued by the Roman Catholic
89

Church that the effect of the sale would be the reversion of the] property to the state.  This court
90

held that:

Section 124 of the Public Land Act indeed provides that any acquisition, conveyance or transfer
executed in violation of any of its provisions shall be null and void and shall produce the effect of
annulling and cancelling the grant or patent and cause the reversion of the property to the State, and
the principle of pari delicto has been applied by this Court in a number of cases wherein the parties
to a transaction have proven to be guilty of effected the transaction with knowledge of the cause of
its invalidity. But we doubt if these principles can now be invoked considering the philosophy and the
policy behind the approval of the Public Land Act. The principle underlying pari delicto as known
here and in the United States is not absolute in its application. It recognizes certain exceptions one
of them being when its enforcement or application runs counter to an avowed fundamental policy or
to public interest. As stated by us in the Rellosa case, "This doctrine is subject to one important
limitation, namely, [']whenever public policy is considered advanced by allowing either party to sue
for relief against the transaction[']"

The case under consideration comes within the exception above adverted to. Here appellee desires
to nullify a transaction which was done in violation of the law. Ordinarily the principle of pari delicto
would apply to her because her predecessor-in-interest has carried out the sale with the presumed
knowledge of its illegality, but because the subject of the transaction is a piece of public land, public
policy requires that she, as heir, be not prevented from re-acquiring it because it was given by law to
her family for her home and cultivation. This is the policy on which our homestead law is predicated.
This right cannot be waived. "It is not within the competence of any citizen to barter away what
public policy by law seeks to preserve." We are, therefore, constrained to hold that appellee can
maintain the present action it being in furtherance of this fundamental aim of our homestead
law.  (Emphasis supplied, citations omitted)
91

The non-application of the in pari delicto rule where public policy would be violated has also been
applied in other cases.

In Pajuyo v. Court of Appeals,  this court held that in pari delicto "is not [applicable to [e]jectment
92

[c]ases"  and cited Drilon v. Gaurana,  which discussed the policy behind ejectment cases:
93 94

It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the
actual condition of the title to the property, the party in peaceable quiet possession shall not be
turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the
statute is to prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in the courts to
assert their claims.95

This court elucidated that:

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the
latter had illegally occupied, emboldened by the knowledge that the courts would leave them where
they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior
possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery
of possession seek to prevent. Even the owner who has title over the disputed property cannot take
the law into his own hands to regain possession of his property. The owner must go to
court.  (Citation omitted)
96

In Loria v. Muñoz, Jr.,  Carlos Loria asked Ludolfo Muñoz, Jr. "to advance [₱]2,000,000.00 for a
97

subcontract of a [₱]50,000,000.00 river-dredging project in Guinobatan."  Loria informed Muñoz that

the project would be awarded to Sunwest Construction and Development Corporation, and Sunwest
would subcontract to Muñoz.  Muñoz agreed to Loria's proposal.  When the river-dredging project
99 100

was finished, Loria did not return the ₱2,000,000.00 despite Muñoz's demand.  Complaint for sum
101

of money.  Loria raised the argument that Muñoz "should not be allowed to recover the
102

money"  since they were in pari delicto.  This court held that under the principle of unjust
103 104

enrichment, the sum of money should be returned.  In so ruling, this court cited Gonzalo v. Tarnate,
105

Jr.  where it was explained that:

. . . the application of the doctrine of in pari delicto is not always rigid.  An accepted exception arises
1âшphi1

when its application contravenes well-established public policy. In this jurisdiction, public policy has
been defined as "that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to hi injurious to the public or against the public good." Unjust enrichment
exists, according to Hulst v. PR Builders, Inc., "when a person unjustly retains a benefit at the loss of
another, or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience." The prevention of unjust enrichment is a recognized public
policy of the State, for Article 22 of the Civil Code explicitly provides that "[e]very person who through
an act of performance by another, or any other meins, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him." It is
well to note that Article 22 "is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as basic principles to be observed for the rightful relationship
between human beings and for the stability of the social order; designed to indicate certain norms
that spring from the fountain of good conscience; guides for human conduct that should run as
golden threads through society to the end that law may approach its supreme ideal which is the
sway and dominance of justice." 107

As the in pari delicto rule is not applicable, the question now arises as to who between the parties
have a better right to possess the subject parcel of land. This issue was addressed in Santos:

What is important to consider now is who of the parties is the better entitled to the possession of the
land while the government does not take steps to assert its title to the homestead. Upon annulment
of the sale, the purchaser's claim is reduced to the purchase price and its interest. As against the
vendor or his heirs, the purchaser is no more entitled to keep the land than any intruder. Such is the
situation of the appellants. Their right to remain in possession of the land is no better than that of
appellee and, therefore, they should not be allowed to remain in it to the prejudice of appellee during
and until the government takes steps toward its reversion to the State.  (Emphasis supplied, citation
108

omitted)

In Binayug v. Ugaddan,  which involved the sale of two properties covered by a homestead
109

patent,  this court cited jurisprudence showing that in cases involving the sale of a property covered
110

by the five-year prohibitory period, the property should be returned to the grantee. 111
Applying the ruling in Santos and Binayug, this court makes it clear that petitioners have no better
right to remain in possession of the property against respondents.

Hence, the Court of Appeals did not err in ruling that while there is yet no action for reversion filed by
the Office of the Solicitor General, the property should be conveyed by petitioners to respondents.

III

Petitioners' argument that respondents failed to establish their status as heirs is belied by their
admissions during trial and in their pleadings. Petitioners t know the identity of Eusebio Borromeo's
wife. As quoted in the trial court's Decision, petitioners alleged in their Answer that:

[I]t was the late Eusebio Borromeo and his wife who came along in Bayugan 2, San Francisco,
Agusan del Sur, requesting the said defendants to purchase their land because they badly need
money and notwithstanding the fact that they have a little amount and out of pity bought the said
land.112

In the Reply, respondents alleged:

The allegation that the late Eusebio Borrjomeo and his wife went to Bayugan II, San Francisco,
Agusan del Sur in order to sell the land to the defendant Eliseo Maltos has no factual basis, the truth
of the matter is that the late Eusebio Borromeo, together with defendant Eliseo Maltos went to
Esperanza, Sultan Kudarat to secure the signature of the wife. 113

In addition, when petitioner Eliseo Maltos was presented in court, he identified the signatures of the
witnesses on the deed of sale as the signatures of Eusebio Borromeo's children, namely, Susan,
Ana, and Nicolas Borromeo. 114

Respondents' allegation that they are the heirs of Borromeo is admitted by petitioners. Thus, the
Court of Appeals did not err in ruling that "the fact that Appellants [referring to respondents] are the
spouse and children of the late EUSEBIO remains unrebutted." 115

IV

With regard to the claim for reimbursement, respondents argue that it was not raised as a
counterclaim in the Answer to the Complaint.

During trial, petitioner Eliseo Maltos testified that when he entered the land, there were around 100
trees, including coconut trees and a few banana trees. He then planted additional coconut trees
which, at the time of the trial, were already bearing fruit.  Petitioner Eliseo Maltos' testimony was not
116

rebutted by respondents.

The general rule is that "[a] compulsory counterclaim . . . not set up shall be barred."  Further, the
117

computation of the value of the improvements on the land entails findings of fact.

In any case, the Court of Appeals did not err when it stated in its Resolution dated April 7, 2006 that:

With respect to Appellees' claim for the reimbursement of the improvements on the land in question,
they are hereby declared to have lost and forfeited the value of the necessary improvements that
they made thereon in the same manner that Appellants should lose the value of the products
gathered by the Appellees from the said land. 118
The Court of Appeals cited Angeles, et at v. Court of Appeals, et al.  and Arsenal v. Intermediate
119

Appellate Court.  In Angeles, this court discussed that:

The question that now poses is whether the return of the value of the products gathered from the
land by the defendants and the expenses incurred in the construction of the dike—all useful and
necessary expenses—should be ordered to be returned by the defendants to the plaintiffs. While we
believe that the rule of in pari delicto should not apply to the sale of the homestead, because such
sale is contrary to the public policy enunciated in the homestead law, the loss of the products
realized by the defendants and the value of the necessary improvements made by them on the land
should not be excepted from the application of the said rule because no cause or reason can be
cited to justify an exception. It has been held that the rule of in pari delicto is inapplicable only where
the same violates a well-established public policy.

....

We are constrained to hold that the heirs of the homesteader should be declared to have lost and
forfeited the value of the products gathered from the land, and so should the defendants lose the
value of the necessary improvements that they have made thereon. 121

In Arsenal, the property covered by a homestead patent had been sold to Suralta in 1957,  while the
122

Complaint was filed before the trial court in 1974.  The case was decided by this court in
123

1986.  Thus, Suralta had been in possession of the property for approximately 17 years before a
124

Complaint was filed. This court held that:

The value of any improvements made on the land and the interests on the purchase price are
compensated by the fruits the respondent Suralta and his heirs received from their long possession
of the homestead. 125

Angeles and Arsenal both involved the sale of a parcel of land covered by a homestead patent within
the five-year prohibitory period. These cases also involved the introduction of improvements on the
parcel of land by the buyer.

Restating the rulings in Angeles and Arsenal, this court finds that while the rule on in pari delicto
does not apply policy, if its effect is to violate public policy it is applicable with regard to value of the
improvements introduced by petitioner Eliseo Maltos. Petitioners had been in possession of the land
for 20 years before the heirs of Borromeo filed a Complaint. The expenses incurred by petitioners in
introducing improvements on the land for which they seek reimbursement should already be
compensated by the fruits they received from the improvements.

Reversion is a remedy provided under Section 101 of the Public Land Act:

SECTION 101. All actions for the reversion to the Government of lands of the public domain or
improvements thereon shall be instituted by the Solicitor-General or the officer acting in his stead, in
the proper courts, in the name of Commonwealth of the Philippines.

The purpose of reversion is "to restore public land fraudulently awarded and disposed of to private
individuals or corporations to the mass of public domain." 126

The general rule is that reversion of lands to the state is not automatic, and the Office of the Solicitor
General is the proper party to file an action for reversion.
In Villacorta v. Ulanday,  defendant-appellee Vicente Ulanday admitted that his purchase of a parcel
127

of land covered by a homestead patent was made within the five-year prohibitory period, but argued
that since the sale was in violation of law,  the property should automatically revert to the
128

state.  This court held that reversion was not automatic, and government must file an appropriate
129

action so that the land may be reverted to the state. 130

Ortega v. Tan  involved the sale and mortgage of a parcel of land covered by a free patent.  The
131 132

series of transactions for the sale and mortgage of the property had been initiated within the five-
year prohibitory period but was finalized after the prohibitory period.  This court held that the sale
133

and mortgage violated Section 118 of the Public Land Act and that reversion was proper.  This court 134

also clarified that:

[Reversion] is not automatic. The government has to take action to cancel the patent and the
certificate of title in order that the land involved may be reverted to it. Correspondingly, any new
transaction would be subject to whatever steps the government may take for the reversion to
it.  (Citation omitted)
135

Alvarico v. Sola  involved a miscellaneous sales application over a parcel of land by Fermina
136

Lopez.  Subsequently, Lopez executed a deed of self-adjudication and transfer of rights in favor of
137

Amelita Sola.  The Bureau of Lands approved the transfer of rights, and title was issued in Sola's
138

name.  Castorio Alvarico then filed an action for reconveyance, claiming that the parcel of land was
139

donated to him.  He also alleged that Sola acquired the property in bad faith.  This court held that
140 141

Alvarico's allegation of bad faith was not supported by evidence and that in any case, "only the State
can institute reversion proceedings under Sec[tion] 101 of the Public Land Act."  This court restated
142

Section 101 of the Public Land Act:

[A] private individual may not bring an action for reversion or any action which would have the effect
of canceling a free patent and the corresponding certificate of title issued on the basis thereof, such
that the land covered thereby will again form part of the public domain. Only the Solicitor General or
the officer acting in his stead may do so. Since [the] title originated from a grant by the government,
its cancellation is a matter between the grantor and the grantee.  (Citations omitted)
143

The rule in Alvarico was cited in Cawis, et al. v. Hon. Cerilles, et al.  In Cawis, the validity of a sales
144

patent and original certificate of title over a parcel of land in Baguio was questioned.  This court
145

denied the Petition  and ruled that the Complaint was actually a reversion suit, which can be filed
146

only by the Office of the Solicitor General or a person acting in its stead. 147

It was also discussed in Cawis that:

The objective of an action for reversion of public land is the cancellation of the certificate of title and
the resulting reversion of the land covered by the title to the State. This is why an action for reversion
is oftentimes designated as an annulment suit or a cancellation suit. 148

We clarify that the remedy of reversion is not the same as the remedy of declaration of nullity of free
patents and certificate of title. In reversion, the "allegations in the complaint would admit State
ownership of the disputed land[,]"  while in an action for the declaration of nullity of free patent and
149

certificate of title, the allegations would include "plaintiffs ownership of the contested lot prior to the
issuance of [the] free patent and certificate of title[.]"
150

Since an action for reversion presupposes that the property in dispute is owned by the state, it is
proper that the action be filed by the Office of the Solicitor General, being the real party-in-interest.
There is, however, an exception to the rule that reversion is not automatic. Section 29 of the Public
Land Act provides:

SECTION 29. After the cultivation of the land has begun, the purchaser, with the approval of the
Secretary of Agriculture and Commerce, may convey or encumber his rights to any person,
corporation, or association legally qualified under this Act to purchase agricultural public lands,
provided such conveyance or encumbrance does not affect any right or interest of the Government
in the land: And provided, further, That the transferee is not delinquent in the payment of any
installment due and payable. Any sale and encumbrance made without the previous approval of the
Secretary of Agriculture and Commerce shall be null and void and shall produce the effect of
annulling the acquisition and reverting the property and all rights to the State, and all payments on
the purchase price theretofore made to the Government shall be forfeited. After the sale has been
approved, the vendor shall not lose his right to acquire agricultural public lands under the provisions
of this Act, provided he has the necessary qualifications. (Emphasis supplied)

In Francisco v. Rodriguez, et al,  this court differentiated reversion under Sections 29 and 101 of the
151

Public Land Act.  This court explained that reversion under Section 29 is self-operative, unlike
152

Section 101 which requires the Office of the Solicitor General to institute reversion
proceedings.  Also, Section 101 applies in cases where "title has already vested in the
153

individual[.]"  The Director of Lands sought to execute the Decision in Francisco v. Rodriguez which
154

petitioner Ursula Francisco opposed, arguing that only 29 hectares were reverted to the state since
she was in possession of the remaining four hectares.  This court held that the entire property
155

reverted to the state.  This court also explained why Francisco v. Rodriguez was covered by Section
156

29 and not Section 101 of the Public Land Act:

By transgressing the law, i.e., allowing herself to be a dummy in the acquisition of the land and
selling the same without the previous approval of the Secretary of Agriculture and Natural
Resources, plaintiff-appellant herself [referring to Ursula Francisco] has eliminated the very source
(Sales Application) of her claim to Lot No. 595, as a consequence of which, she cannot later assert
any right or interest thereon. This is the imperative import of the pronouncements in G.R. No. L-8263
and in G.R. No. L-15605 that the invalidity of the conveyance by plaintiff-appellant "produced as a
consequence the reversion of the property with all rights thereto to the State." As a matter of fact,
Section 29 of the Public Land Law (Commonwealth Act No. 141) expressly ordains that any sale and
encumbrance made without the previous approval of the Secretary of Agriculture and Natural
Resources "shall be null and void and shall produce the effect of annulling the acquisition and
reverting property and all rights thereto to the State, and all payments on the purchase price
theretofore made to the Government shall be forfeited." . . . .

In fact, even if a sales application were already given due course by the Director of Lands, the
applicant is not thereby conferred any right over the land covered by the application. It is the award
made by the Director to the applicant (if he is the highest bidder) that confers upon him a certain
right over the land, namely, "to take possession of the land so that he could comply with the
requirements prescribed by law." It is at this stage, when the award is made, that the land can be
considered "disposed of by the Government," since the aforestated right of the applicant has the
effect of withdrawing the land from the public domain that is "disposable" by the Director of Lands
under the provisions of the Public Land Act. . . . However, the disposition is merely provisional
because the applicant has still to comply with the requirements prescribed by law before . . . . any
patent is issued. After the requisites of the law are complied with by the applicant to the satisfaction
of the Director [of] Lands, the patent is issued.  It is then that the land covered by the application
may be considered "permanently disposed of by the Government."  (Citations omitted)
157
In this case, a free patent over the subject parcel of land was issued to Eusebio Borromeo. This
shows that he already had title to the property when he sold it to petitioner Eliseo Maltos. Thus,
Section 101 of the Public Land Act applies.

WHEREFORE, the Petition is denied, and the Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 77142 are AFFIRMED, without prejudice to the appropriate institution of a case for
reversion.

Let a copy of this Decision be furnished the Office of the Solicitor General for its appropriate action
with respect to the reversion of the land in question.

SO ORDERED.

marvic m.v.f. LEONEN