LUIS PICHEL, petitioner,

vs.
PRUDENCIO ALONZO, respondent.

Facts: Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land
designated as Lot No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan, Basilan City
in accordance with Republic Act No. 477.

The award was cancelled by the Board of Liquidators on January 27, 1965 on the ground
that, previous thereto, plaintiff was proved to have alienated the land to another, in
violation of law. In 197 2, plaintiff's rights to the land were reinstated.

Plaintiff Alonzo and his wife sold to defendant Pichel the fruits of the coconut trees which
may be harvested in the land in question for the period, September 15, 1968 to January 1,
1976, in consideration of P4,200.00.

Even as of the date of sale, however, the land was still under lease to one, Ramon Sua, and
it was the agreement that part of the consideration of the sale, in the sum of P3,650.00,
was to be paid by defendant Alonzo directly to Ramon Sua so as to release the land from
the clutches of the latter. Pending said payment plaintiff Alonzo refused to snow the
defendant Pichel to make any harvest.

In July 1972, Pichel for the first time since the execution of the deed of sale in his favor,
caused the harvest of the fruit of the coconut trees in the land.

Alonzo filed an annulment of deed of sale

RTC: Although the agreement in question is denominated by the parties as a deed of sale of
fruits of the coconut trees found in the vendor's land, it actually is, for all legal intents and
purposes, a contract of lease of the land itself. According to the Court:

... the sale aforestated has given defendant complete control and enjoyment
of the improvements of the land. That the contract is consensual; that its
purpose is to allow the enjoyment or use of a thing; that it is onerous
because rent or price certain is stipulated; and that the enjoyment or use of
the thing certain is stipulated to be for a certain and definite period of time,
are characteristics which admit of no other conclusion. ... The provisions of
the contract itself and its characteristics govern its nature. 4

Before going into the issues raised by the instant Petition, the matter of whether, under the
admitted facts of this case, Alonzo had the right or authority to execute the "Deed of Sale"
in 1968, his award over Lot No. 21 having been cancelled previously by the Board of
Liquidators on January 27, 1965, must be clarified.

The case in point is Ras vs. Sua  7 wherein it was categorically stated by this Court that a
cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does
not automatically divest the awardee of his rights to the land. Such cancellation does not
result in the immediate reversion of the property subject of the award, to the State.
Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an
appropriate proceeding for reversion is instituted by the State, and its reacquisition of the
ownership and possession of the land decreed by a competent court, the grantee cannot be
said to have been divested of whatever right that he may have over the same property." 8

There is nothing in the record to show that at any time after the supposed cancellation of
herein respondent's award on January 27, 1965, reversion proceedings against Lot No. 21
were instituted by the State. Instead, the admitted fact is that the award was reinstated in
1972. Applying the doctrine announced in the above-cited Ras case, therefore, herein
respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under
Republic Act No. 477 during the period material to the case at bar, i.e., from the
cancellation of the award in 1965 to its reinstatement in 1972. Within said period,
respondent could exercise all the rights pertaining to a grantee with respect to Lot No. 21.

Issue: WON the contract was valid? YES

Ruling: Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely
what it purports to be. It is a document evidencing the agreement of herein parties for
the sale of coconut fruits of Lot No. 21, and not for the lease of the land itself as found by
the lower Court. In clear and express terms, the document defines the object of the contract
thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned
parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976."
Moreover, as petitioner correctly asserts, the document in question expresses a valid
contract of sale. It has the essential elements of a contract of sale as defined under Article
1485 of the New Civil Code which provides thus:

Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

The subject matter of the contract of sale in question are the fruits of the coconut trees
on the land during the years from September 15, 1968 up to January 1, 1976, which
subject matter is a determinate thing.

Under Article 1461 of the New Civil Code, things having a potential existence may be the
object of the contract of sale. And in Sibal vs. Valdez, 50 Phil. 512, pending crops which
have potential existence may be the subject matter of the sale. Here, the Supreme Court,
citing Mechem on Sales and American cases said which have potential existence may be the
subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American
cases said:

Mr. Mechem says that a valid sale may be made of a thing, which though not
yet actually in existence, is reasonably certain to come into existence as the
natural increment or usual incident of something already in existence, and
then belonging to the vendor, and the title will vest in the buyer the moment
the thing comes into existence. (Emerson vs. European Railway Co., 67 Me.,
387; Cutting vs. Packers Exchange, 21 Am. St. Rep. 63) Things of this nature
are said to have a potential existence. A man may sell property of which he is
potentially and not actually possess. He may make a valid sale of the wine
that a vineyard is expected to produce; or the grain a field may grow in a
given time; or the milk a cow may yield during the coming year; or the wool
that shall thereafter grow upon sheep; or what may be taken at the next case
 of a fisherman's net; or fruits to grow; or young animals not yet in existence;
or the goodwill of a trade and the like. The thing sold, however, must be
specific and Identified. They must be also owned at the time by the vendor.
(Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522-523).

We do not agree with the trial court that the contract executed by and between
the parties is "actually a contract of lease of the land and the coconut trees there."
(CFI Decision, p. 62, Records). The Court's holding that the contract in question fits the
definition of a lease of things wherein one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain and for a period which may be definite or
indefinite (Art. 1643, Civil Code of the Philippines) is erroneous.

Contract of lease vs Contract of sale

The essential difference between a contract of sale and a lease of things is that the delivery
of the thing sold transfers ownership, while in lease no such transfer of ownership results as
the rights of the lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

Since according to article 1543 of the same Code the contract of lease is
defined as the giving or the concession of the enjoyment or use of a thing for
a specified time and fixed price, and since such contract is a form of
enjoyment of the property, it is evident that it must be regarded as one of the
means of enjoyment referred to in said article 398, inasmuch as the terms
enjoyment, use, and benefit involve the same and analogous meaning
relative to the general utility of which a given thing is capable. (104
Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees can therefore be said
to be the possession and enjoyment of the land itself because the defendant-lessee in order
to enjoy his right under the contract, he actually takes possession of the land, at least
during harvest time, gather all of the fruits of the coconut trees in the land, and gain
exclusive use thereof without the interference or intervention of the plaintiff-lessor such that
said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial
court erred.

The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and
conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting
himself of all ownership or dominion over the fruits during the seven-year period. The
possession and enjoyment of the coconut trees cannot be said to be the possession and
enjoyment of the land itself because these rights are distinct and separate from each other,
the first pertaining to the accessory or improvements (coconut trees) while the second, to
the principal (the land). A transfer of the accessory or improvement is not a transfer
of the principal. It is the other way around, the accessory follows the principal. Hence, the
sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less
extended further to include the lease of the land itself.

AS TO THE VALIDITY OF SALE

Resolving now this principal issue, We find after a close and careful examination of the
terms of the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of
land under R.A. No. 477 is not prohibited from alienating or disposing of the natural and/or
industrial fruits of the land awarded to him. What the law expressly disallows is the
encumbrance or alienation of the land itself or any of the permanent improvements thereon.

Permanent improvements on a parcel of land are things incorporated or attached to the

property in a fixed manner, naturally or artificially. They include whatever is built, planted
or sown on the land which is characterized by fixity, immutability or immovability. Houses,
buildings, machinery, animal houses, trees and plants would fall under the category of
permanent improvements, the alienation or encumbrance of which is prohibited by R.A. No.
477. While coconut trees are permanent improvements of a land, their nuts are natural or
industrial fruits which are meant to be gathered or severed from the trees, to be used,
enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the
grantee of Lot No. 21 from the Government, had the right and prerogative to sell the
coconut fruits of the trees growing on the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations

and other qualified persons were given the opportunity to acquire government lands by
purchase, taking into account their limited means. It was intended for these persons to
make good and productive use of the lands awarded to them, not only to enable them to
improve their standard of living, but likewise to help provide for the annual payments to the
Government of the purchase price of the lots awarded to them. Section 8 was included, as
stated by the Court a quo, to protect the grantees from themselves and the incursions of
opportunists who prey on their misery and poverty." It is there to insure that the grantees
themselves benefit from their respective lots, to the exclusion of other persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of
his land. On the contrary, the aim of the law is thereby achieved, for the grantee is
encouraged and induced to be more industrious and productive, thus making it possible for
him and his family to be economically self-sufficient and to lead a respectable life. At the
same time, the Government is assured of payment on the annual installments on the land.
We agree with herein petitioner that it could not have been the intention of the legislature
to prohibit the grantee from selling the natural and industrial fruits of his land, for
otherwise, it would lead to an absurd situation wherein the grantee would not be able to
receive and enjoy the fruits of the property in the real and complete sense.

Respondent through counsel, in his Answer to the Petition contends that even
granting arguendo that he executed a deed of sale of the coconut fruits, he has the
"privilege to change his mind and claim it as (an) implied lease," and he has the "legitimate
right" to file an action for annulment "which no law can stop."

He claims it is his "sole construction of the meaning of the transaction that should prevail
and not petitioner. (sic). 10 Respondent's counsel either misapplies the law or is trying too
hard and going too far to defend his client's hopeless cause. Suffice it to say that
respondent-grantee, after having received the consideration for the sale of his coconut
fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the
prejudice of petitioner who contracted in good faith and for a consideration.