G.R. No. 141882 ; March 11, 2005
J.L.T. AGRO, INC., represented by its Manager, JULIAN L. TEVES, Petitioner, vs. ANTONIO BALANSAG and HILARIA CADAYDAY, respondents.

FACTS

Don Julian L. Teves had two marriages. With his first wife, Antonia Baena, he had two children: Josefa and Emilio. After Antonia’s death, he married Milagros Donio, with whom he had four children. A 1964 Compromise Agreement, approved by the Court of First Instance, partitioned Don Julian’s properties. Paragraph 13 of this agreement stipulated that upon Don Julian’s death, the properties specifically adjudicated to him (excluding a certain hacienda) would be inherited exclusively by his second wife, Milagros Donio, and their four children. Lot No. 63 was among the properties retained by Don Julian per this agreement. In 1973, however, Don Julian, together with Josefa and Emilio from the first marriage, executed a Supplemental Deed assigning Lot No. 63 to petitioner J.L.T. Agro, Inc., which subsequently obtained title. After Don Julian died in 1974, Milagros Donio and her children, believing Lot No. 63 was theirs under the Compromise Agreement, leased and later sold it to respondents Antonio Balansag and Hilaria Cadayday. Respondents discovered the existing title in petitioner’s name when they attempted to register their sale.

ISSUE

The core issue is whether the 1973 Supplemental Deed, which conveyed Lot No. 63 to the petitioner, is valid and effective, or whether its conveyance was void for violating the terms of the 1964 Compromise Agreement which earmarked the lot for the second family upon Don Julian’s death.

RULING

The Supreme Court ruled in favor of the respondents, declaring the Supplemental Deed void and upholding the Compromise Agreement. The legal logic is anchored on the nature of a compromise agreement and the principle of void contracts. A judicial compromise agreement, once approved by the court, has the force of res judicata and is immediately executory. Paragraph 13 of the 1964 Agreement created a stipulation pour autrui (a stipulation in favor of a third party) in favor of the second family, vesting in them a demandable right to the designated properties upon Don Julian’s death. While Don Julian retained ownership during his lifetime, his right was burdened by an obligation not to defeat the vested successional rights of the second family. By conveying the property via the Supplemental Deed, Don Julian and the children from the first marriage violated this obligation. Consequently, the Supplemental Deed constituted an act in fraud of the second family’s vested rights. Since the deed contravened a final judgment and involved a property already subject to a stipulation in favor of third parties, it was void from the beginning under Article 1409 of the Civil Code. Therefore, the subsequent title issued to the petitioner was also void, and the respondents, as buyers from the rightful heirs, were entitled to seek the cancellation of that title.