A.C. No. 8168 - Spouses Buffe vs. Gonzalez

Case Summary (A.C. No. 8168)

Factual Background

The controversy arose from Cad. Lot No. 4894, an unregistered parcel in Taberna, Bauang, La Union. The Aromins alleged that they bought portions of the parcel from Paulo Floresca by seven unregistered deeds of sale executed between 1990 and 1992 and paid a total of PHP 1,462,000 as acknowledged by Paulo. The Floresca siblings asserted that the entire lot was co‑owned by Paulo, their deceased brother Alberto, and their deceased sister Josefa, and that they filed a partition suit, Civil Case No. 832‑BG, in which a notice of lis pendens was registered on August 16, 1991. The partition suit was terminated by a judgment based on compromise dated February 10, 1993, whereby the parcel was partitioned one‑half to the plaintiffs (the siblings) and one‑half to the defendant (Paulo).

Consolidated Actions and Claims

Three actions concerning the same property were filed in RTC, Branch 67: Civil Case No. 921‑BG (specific performance by the Aromins against Paulo), Civil Case No. 938‑BG (quieting of title by the Aromins against the Floresca siblings and Paulo), and Civil Case No. 965‑BG (annulment of sale by the Floresca siblings against Paulo and the Aromins). The three cases were consolidated for trial. During pretrial the parties stipulated to multiple material facts, including the existence of the judgment in Civil Case No. 832‑BG, the filing and registration of a notice of lis pendens, and the execution dates of the deeds and receipts.

Trial Court Proceedings and Findings

The RTC rendered judgment on September 15, 2000 in favor of Wilfredo and Swarnie Aromin. The trial court disbelieved the siblings' claim of co‑ownership and credited Paulo's testimony that the property constituted his exclusive share from the estate of their parents. The RTC found the Aromins to be buyers in good faith. The court reasoned that the Aromins lacked notice of Civil Case No. 832‑BG, that the notice of lis pendens was not served on them, and that the siblings failed to implead the Aromins in the partition proceedings despite knowledge of prior dispositions. The RTC declared the judgment in Civil Case No. 832‑BG not binding upon the Aromins and awarded ownership of the property to the Aromins as buyers in good faith.

Court of Appeals Decision

On appeal, the Court of Appeals reversed the RTC. The CA held that the judgment based on compromise in Civil Case No. 832‑BG had the effect of res judicata and was immediately executory. The appellate court found that the question of co‑ownership had been adjudicated by the partition judgment and that the Aromins were privies‑in‑interest of Paulo because they acquired their rights after the partition suit was filed. The CA further held that the Aromins were not buyers in good faith. It observed that the Aromins had constructive notice by virtue of the notice of lis pendens filed and registered and that several deeds were executed after the partition suit had been instituted. The CA limited the Aromins' ownership to the one‑half share of Paulo and ordered restoration of one‑half of the property to the siblings. The CA also adjudged Paulo liable for moral damages and attorney's fees.

Questions Presented on Certiorari

The petitioners asserted that they were not bound by the partition judgment because they were not parties thereto and that res judicata required identity of parties. They argued that they were indispensable parties within the meaning of Sec. 1, Rule 69, Rules of Court and therefore the judgment could not bind them. The Aromins also contended that they were buyers in good faith and relied upon Sec. 113, Presidential Decree No. 1529 and the doctrine that registration under the Torrens system is without prejudice to third parties with better rights.

Parties' Principal Contentions

The Aromins contended that the judgment in Civil Case No. 832‑BG could not produce preclusive effect as to them because they were not impleaded and because they had purchased the property prior to the registration of the partition judgment. They invoked Article 497 and Article 499 of the Civil Code and argued for reimbursement should one‑half of the property be returned. The Floresca siblings maintained that the partition judgment was binding on the Aromins as their privies‑in‑interest, that the notice of lis pendens imparted constructive notice, and that the Aromins were negligent in failing to inquire into ownership and thus could not claim good faith.

Issues Resolved by the Supreme Court

The Court addressed whether the Aromins were bound by the partition judgment based on compromise in Civil Case No. 832‑BG and whether they were buyers in good faith entitled to ownership of the entire property. The Court also considered whether the Aromins were indispensable parties to the partition proceeding and whether the heirs of Paulo should be ordered to reimburse the Aromins for the portion of the purchase price corresponding to one‑half of the property.

Supreme Court Ruling

The Supreme Court affirmed the Court of Appeals in toto and denied the petition. The Court held that the judgment based on compromise constituted a final judgment on the merits and produced preclusive effect under Section 47, Rule 39. The Court concluded that the Aromins were privies‑in‑interest or successors‑in‑interest of Paulo because several deeds of sale were executed after the filing of Civil Case No. 832‑BG and after the registration of the notice of lis pendens. Accordingly, the Aromins were bound by the partition judgment on the question of co‑ownership.

Reasoning on Res Judicata and Privity

The Court explained that a judicial compromise is res judicata and is immediately executory unless set aside on grounds enumerated in Article 2038 of the Civil Code. The Court applied the concept of conclusiveness of judgment under Section 47, Rule 39 and emphasized that identity of issues and privity, rather than absolute identity of parties, suffices to invoke preclusion. The Court identified well‑established categories of privity, observed that successors‑in‑interest who acquire rights after filing or decision are bound, and held that the Aromins fell within that class because they succeeded to Paulo's interest. The Court also held that the Aromins were not indispensable parties to the partition proceeding because their interest derived from Paulo and could be resolved without them.

Reasoning on Notice, Good Faith, and Unregistered Lands

The Court treated the notice of lis pendens filed with the register of deeds as constructive notice to purchasers. It reiterated the principle that the issue of good faith is consequential for registered lands but is inapplicable to the purchase of unregistered lands. The Court observed that purchasers of unregistered lands buy at their peril. The Court relied on the Aromins' own testimony that they knew the property had been a co‑ownership and that they relied solely on Paulo's representations. That testimony established negligence amounting to bad faith and precluded the Aromins from claiming innocent purchaser status under the precedents cited, including Domingo v. Reed and Ac

Case Syllabus (A.C. No. 8168)

Parties and Procedural Posture

Wilfredo and Swarnie Aromin filed a petition for review on certiorari seeking reversal of the Court of Appeals Decision dated June 6, 2003 and its Resolution dated October 24, 2003 in CA-G.R. CV No. 69651.
Paulo Floresca was the original adverse party in the trial courts and was later substituted by his heirs following his death.
Victor Floresca, Juanito Floresca, and Lilia Floresca-Roxas were plaintiffs in Civil Case No. 832-BG and appellants before the Court of Appeals.
The petition sought to overturn the Court of Appeals’ reversal of the Regional Trial Court, Branch 67, Bauang, La Union decision which had favored the Aromins.

Key Facts

The disputed real property was designated as Cad. Lot No. 4894 and comprised riceland, sandy land and swampland with tax declarations bearing numbers including Tax Declaration Nos. 26377 and 25257.
Paulo executed seven unregistered deeds of sale between 1990 and 1992 conveying various portions aggregating 98,257 square meters to the Aromins and executed an acknowledgment receipt dated September 29, 1992 for PHP 1,462,000.00.
A complaint for partition was filed by Victor, Juanito and Lilia as Civil Case No. 832-BG and a Notice of Lis Pendens was registered on August 16, 1991.
The RTC, Branch 33, rendered a judgment based on compromise agreement in Civil Case No. 832-BG on February 10, 1993 partitioning the lot so that the plaintiffs and Paulo each received one-half of the riceland, sandy land and swampland.
Subsequent to the partition judgment, Paulo purportedly executed a Deed of Sale dated February 10, 1994 conveying the entire lot to the Aromins and the parties later jointly tried three consolidated actions involving the same property.

Procedural History

The Aromins filed Civil Case No. 921-BG for specific performance against Paulo and then commenced Civil Case No. 938-BG for quieting of title and defended Civil Case No. 965-BG initially filed by the Floresca siblings for annulment of sale.
The three cases were consolidated and tried before the RTC, Branch 67, Bauang, La Union, which rendered judgment on September 15, 2000 declaring the Aromins buyers in good faith and owners of the whole property sold to them.
Victor, Juanito and Lilia appealed to the Court of Appeals, which reversed the RTC in a Decision dated June 6, 2003, and denied the Aromins’ motion for reconsideration in a Resolution dated October 24, 2003.
The Aromins elevated the matter to the Supreme Court by way of a petition for review on certiorari under Rule 45, Rules of Court.

Issues Presented

Whether the Aromins were bound by the judgment based on compromise agreement in Civil Case No. 832-BG despite not being parties to that action.
Whether the Aromins were innocent purchasers in good faith entitled to ownership of the entire property conveyed by Paulo.
Whether Paulo could validly convey the entire property to the Aromins notwithstanding the partition judgment which adjudicated co-ownership.
Whether the heirs of Paulo should be ordered to reimburse the Aromins in equity for any portion they were compelled to surrender.

Contentions of the Parties

The Aromins contended that they were not parties to Civil Case No. 832-BG and thus were not bound by its judgment under the doctrine of res judicata, and they asserted status as buyers in good faith who acquired ownership prior to registration of