FACTS:

The case involves the sale of a parcel of agricultural land covered by a free patent during the five-year prohibitory period under the Public Land Act. Eusebio Borromeo acquired the land through a homestead patent and sold it to the Maltos Spouses within the prohibitory period. The trial court dismissed the heirs' complaint to nullify the sale and reconvey the title due to failure to establish their status and for selling the land within the prohibitory period. The Court of Appeals reversed the decision, stating that the property should revert to the state but that the government must file an action for reversion. The property was ordered to be reconveyed to Borromeo's heirs upon refunding the purchase price to the Maltos Spouses and to cancel the transfer certificate of title and revive the original certificate of title.

ISSUES:

1. Whether the sale of the land within the five-year prohibitory period is valid

2. Whether the in pari delicto rule applies to this case

3. Whether the sale should be nullified based on public policy

4. Whether the principle of pari delicto applies in a case of ejectment between squatters.

5. Whether the principle of unjust enrichment applies to a claim for the return of money.

6. Whether the respondents, as the heirs of Eusebio Borromeo, have a valid claim to the subject property.

7. Whether the petitioners are entitled to reimbursement for the improvements made on the land.

8. Whether a private individual can bring an action for reversion or cancellation of a free patent and certificate of title, resulting in the land covered by the title reverting to the public domain.

9. Whether the remedy of reversion is the same as the remedy of declaration of nullity of free patents and certificate of title.

10. Whether the issuance of a free patent confers ownership and title to the land.

11. Whether Section 101 of the Public Land Act applies to the case.

RULING:

1. The sale of the land within the five-year prohibitory period is invalid, and the property should revert to the state.

2. The in pari delicto rule does not apply in cases where public policy would be violated.

3. The sale should be nullified based on public policy, specifically the aim of the homestead law.

4. The principle of pari delicto does not apply in a case of ejectment between squatters. Applying the principle of pari delicto in such a case would invite mayhem and lawlessness. Squatters would feel emboldened to oust other squatters from their illegally occupied lots, knowing that the courts would not provide any relief. Ejectment cases seek to prevent petty warfare over possession of properties, and even property owners must go to court to regain possession of their property. Therefore, relief should not be denied to squatters on the ground of pari delicto.

5. The principle of unjust enrichment applies to a claim for the return of money. Unjust enrichment exists when a person retains a benefit at the expense of another, against the principles of justice, equity, and good conscience. Preventing unjust enrichment is a recognized public policy of the State. Article 22 of the Civil Code provides that anyone who acquires something at the expense of another without just or legal ground must return it. Thus, the principle of unjust enrichment should be applied, and the money should be returned.

6. The Court of Appeals did not err in ruling that the respondents, as the spouse and children of Eusebio Borromeo, are the heirs of the deceased. Their claim to the subject property remains unrebutted and, therefore, valid.

7. The Court of Appeals correctly determined that the petitioners are not entitled to reimbursement for the improvements made on the land. The value of the improvements introduced by the petitioners should be compensated by the fruits they received from the improvements. The expenses they incurred for the improvements should already be compensated by the benefits they received during their 20 years of possession of the land.

8. No, a private individual cannot bring an action for reversion or cancellation of a free patent and certificate of title. Only the State, through the Office of the Solicitor General or the officer acting in his stead, can institute reversion proceedings under Section 101 of the Public Land Act.

9. The remedy of reversion is not the same as the remedy of declaration of nullity of free patents and certificate of title. In an action for 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 certificate of title, the allegations would include the plaintiff's ownership of the contested lot prior to the issuance of the free patent and certificate of title.

10. The issuance of a free patent does not confer ownership and title to the land. It merely confers a provisional right to take possession of the land and comply with the requirements prescribed by law. Only after the applicant complies with the requisites of the law and a patent is issued can the land be considered permanently disposed of by the government.

11. Section 101 of the Public Land Act applies to the case. Since a free patent was issued to Eusebio Borromeo, it shows that he already had title to the property when he sold it to petitioner Eliseo Maltos.

PRINCIPLES:

• Section 101 of the Public Land Act provides that any acquisition, conveyance, or transfer made within the prohibitory period shall be null and void and shall cause the reversion of the property to the state.

• The principle of in pari delicto, as stated in Articles 1411 and 1412 of the Civil Code, applies when the nullity of a contract arises from the illegality of its cause or object and when both parties are guilty. However, this principle is not absolute and may be disregarded when its enforcement runs counter to public policy.

• The public policy behind the homestead law is to preserve and protect family homes and cultivation of public lands. In cases involving public lands, the in pari delicto rule may not be applied if it would prevent the reacquisition of the land by the rightful owner.

• The application of the principle of pari delicto should not be rigid and may be excepted if it contravenes well-established public policy.

• Unjust enrichment occurs when a person retains a benefit at the loss of another, against the principles of justice, equity, and good conscience.

• Preventing unjust enrichment is a recognized public policy of the State.

• Article 22 of the Civil Code provides that anyone who acquires something at the expense of another without just or legal ground must return it.

• The rule on in pari delicto does not apply to the sale of a homestead property, as it is contrary to the public policy enunciated in the homestead law. However, the value of the products gathered from the land by the buyer and the value of necessary improvements made by the buyer can still be forfeited.

• Reversion of lands to the state is not automatic. It requires the appropriate action of the government, usually initiated by the Office of the Solicitor General, to file a lawsuit for reversion in order to restore public land fraudulently awarded and disposed of to private individuals or corporations.

• Only the State can institute reversion proceedings under Section 101 of the Public Land Act. (Alvarico v. Solau)

• An action for reversion is different from an action for the declaration of nullity of free patents and certificate of title. (Cawis, et al. v. Hon. Cerilles, et al.)

• Reversion under Section 29 of the Public Land Act is self-operative and does not require the Office of the Solicitor General to institute reversion proceedings. (Francisco v. Rodriguez, et al.)

• The issuance of a free patent does not automatically confer ownership and title to the land but only grants a provisional right to take possession and comply with the requirements prescribed by law.

• A patent is necessary to permanently dispose of the land by the government.

• Section 101 of the Public Land Act applies when a free patent has already been issued.