G.R. No. 132196. December 9, 2005.
SPOUSES SEGUNDO RAMOS and FELISA VALDEZ, Petitioners, vs. HON. COURT OF APPEALS, LEILA VALDEZ-PASCUAL, et al., Respondents.

FACTS

Petitioners Spouses Ramos purchased a parcel of land from Gregorio Valdez in 1948, evidenced by an absolute deed of sale annotated on the back of Gregorio’s Original Certificate of Title (OCT) No. 48824. Upon Gregorio’s death in 1991, his children (private respondents) filed an action for Quieting of Title, Ownership, and Possession against the petitioners. They alleged that the petitioners had renounced their rights to the subject land through a Compromise Agreement dated June 2, 1977, executed in a separate Land Registration Case (LRC No. U-843). The respondents claimed that after their father’s death, the petitioners disturbed their possession by fencing and cultivating the land.
The petitioners countered that the 1977 Compromise Agreement pertained to a different, untitled parcel of land that was the subject of the land registration case, not the titled land they purchased in 1948. They argued that the respondents’ claim, based on this agreement, constituted a cloud on their title and thus prayed for the quieting of their own title. The Regional Trial Court ruled in favor of the petitioners, declaring them the lawful owners. The Court of Appeals reversed this decision, holding that the Compromise Agreement effectively renounced the petitioners’ rights to the subject land in favor of Gregorio Valdez.

ISSUE

Whether the Compromise Agreement of June 2, 1977, extinguished the petitioners’ ownership rights over the subject land purchased in 1948, thereby entitling the respondents to quiet their title.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the RTC decision, ruling in favor of the petitioners. The legal logic centered on the principle of relativity of contracts under Article 1311 of the Civil Code and the proper interpretation of the Compromise Agreement. The Court found that the Land Registration Case (LRC No. U-843) involved an application for registration of an untitled parcel of land. The Compromise Agreement executed therein specifically described the property subject to the parties’ settlement as the “southern portion” of the land applied for, which was distinct from the “northern portion” already covered by OCT No. 48824 and previously sold to the petitioners.
The agreement could not have validly conveyed or renounced rights over the petitioners’ titled land because Gregorio Valdez was not a party to that land registration case; he was a stranger to it. A compromise agreement binds only the parties thereto and their successors-in-interest. It cannot prejudice a third person, like Gregorio, who did not participate. Consequently, the agreement did not extinguish the obligation under the 1948 deed of sale. The respondents’ claim, based on this inapplicable agreement, was therefore invalid and constituted the very cloud upon the petitioners’ title that necessitated the quieting action. The petitioners remained the lawful owners by virtue of the 1948 sale.