G.R. No. L-54070. February 28, 1983.
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners, vs. COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C. PREYSLER and JOAQUIN B. PREYSLER, respondents.

FACTS

The petitioners, the Zambales spouses, were homestead patentees of a parcel of land in Palawan. They filed a damage suit (Civil Case No. 316) against the Nin Bay Mining Corporation, alleging unauthorized extraction of silica sand. This case was settled by a Compromise Agreement dated October 29, 1959. The agreement stipulated that the Corporation would pay a rental for past use and, critically, contained a reciprocal promise to buy and sell the land for a fixed price, enforceable on September 10, 1960. It also appointed the Corporation as the spouses’ attorney-in-fact with authority to sell the property on that date. Judgment was rendered based on this compromise. On September 10, 1960, the Corporation, acting under the power of attorney, sold the land to Joaquin B. Preysler.
Nearly a decade later, in 1969, the Zambaleses filed a new suit (Civil Case No. 678) to annul the sale. They alleged fraud, claiming they were unschooled, were misled by their lawyer, and never intended to sell the homestead. The trial court ruled in their favor, but the Court of Appeals reversed, upholding the validity of the Compromise Agreement and the subsequent sale.

ISSUE

The core issue is whether the Compromise Agreement and the subsequent sale executed pursuant to it are valid, considering the legal restrictions on the alienation of homestead lands under the Public Land Act (Commonwealth Act No. 141).

RULING

The Supreme Court reversed the Court of Appeals and declared both the bilateral promise to sell and the final sale null and void. The legal logic rests on the mandatory and prohibitory character of Section 118 of the Public Land Act, which states that lands acquired under a homestead patent cannot be alienated or encumbered within five years from the issuance of the patent. The patent here was issued on September 6, 1955. The Compromise Agreement, which contained the binding promise to sell and the irrevocable power of attorney to effect that sale, was executed on October 29, 1959. This was within the five-year prohibitory period, which would expire only on September 6, 1960. The Court ruled that this agreement constituted a present and effective alienation or encumbrance prohibited by law. It was not a mere executory contract to take effect after the five-year period; the grant of an irrevocable power of attorney to sell effectively disposed of the owners’ control over the property within the prohibited timeframe.
Consequently, the agreement was void from its inception under Article 1409 of the Civil Code, for being contrary to law and public policy. Being null and void, it produced no legal effects. The subsequent sale executed by the Corporation to Preysler on September 10, 1960, though after the five-year period, derived its authority from the void power of attorney and was therefore also void. The Court ordered reconveyance of the property to the homesteaders upon refund of the purchase price, with the Corporation liable for rentals from the filing of the complaint. The decision was without prejudice to any reversion action by the State under the Public Land Act.