The Supreme Court held that a notice of lis pendens, which alerts potential buyers of a pending legal dispute involving a property, cannot be used to protect purely monetary claims. This ruling clarifies that lis pendens is only appropriate when the action directly affects the title to, or the right of possession of, the real property in question. It prevents parties from improperly using this legal tool to encumber property when the underlying dispute does not genuinely involve ownership or possession.

Mortgage Redemption: When a Verbal Agreement Doesn’t Tie the Bank’s Hands

The case of Epitacio R. Tongohan versus the Court of Appeals, et al., arose from a dispute over a piece of land in Tanay, Rizal. Pio Valencia mortgaged the land to UCPB Savings Bank but failed to redeem it. Epitacio Tongohan claimed that the bank’s branch manager verbally offered to sell him the foreclosed property. Based on this alleged agreement, Tongohan spent money on permits and clearing the land. However, the bank later refused to sell the land to Tongohan, prompting him to file a suit for specific performance, which was dismissed due to the branch manager’s lack of authority to sell bank assets. Subsequently, the Valencia heirs redeemed the property, leading Tongohan to file another case to annul the redemption and force the bank to sell the land to him. He also annotated a notice of lis pendens on the titles of the Valencia heirs, which they sought to cancel.

The central legal question was whether Tongohan, based on the alleged verbal offer from the bank’s branch manager, had a right to maintain the notice of lis pendens on the Valencia heirs’ titles. A notice of lis pendens is a legal mechanism used to warn potential buyers or encumbrancers that a property is subject to a pending lawsuit. The Supreme Court referenced Section 14, Rule 13 of the 1997 Rules of Civil Procedure, which stipulates that a notice of lis pendens is appropriate in “an action affecting the title or the right of possession of real property.” Additionally, Section 76 of Presidential Decree No. 1529 outlines similar conditions for the application of lis pendens.

Building on this framework, the Supreme Court cited Magdalena Homeowners Association, Inc. v. Court of Appeals to further delineate the situations where a notice of lis pendens is properly applied. These include actions to recover possession of real estate, quiet title, remove clouds on title, actions for partition, and other proceedings directly affecting the title, use, or occupation of the land. However, the Court determined that Tongohan’s complaint did not fall under any of these categories. Even though the complaint sought to annul the redemption and compel the sale of the land, the underlying claim was essentially a monetary dispute arising from an alleged verbal agreement. Here are some examples from the ruling:

Petitioner’s complaint for “Damages, Annulment and Setting Aside of the deed of Redemption, Adjudication and Reconveyance” does not fall under any of these situations. A reading of the complaint shows that there is no legal tie between petitioner and the bank that justifies the continuance of the annotation of a notice of lis pendens.

Furthermore, the Court emphasized that Tongohan’s initial complaint for specific performance had already been dismissed with finality, and he was “a mere bidder to the property xxx not a creditor, co-owner, co-heir, or tenant of the late Pio Valencia.” He lacked any legal standing to challenge the Valencia heirs’ title or to compel the bank to sell the property to him. The absence of a clear contractual right or legal interest in the property undermined his claim to maintain the notice of lis pendens.

The Court drew a distinction between actions affecting title or possession and those that merely seek a money judgment, citing cases where lis pendens is inapplicable, such as preliminary attachments, probate proceedings, and levies on execution. Because Tongohan’s claim was essentially a monetary dispute, the notice of lis pendens was deemed inappropriate and was correctly cancelled. The ruling underscores that a notice of lis pendens should not be used to encumber property when the primary aim is to secure a monetary claim that does not directly challenge the title or possession of the property. Ultimately, the Supreme Court affirmed the Court of Appeals’ decision, dismissing Tongohan’s petition and upholding the cancellation of the lis pendens.

Here is an illustration of actions where the doctrine of lis pendens applies and where it doesn’t:

Actions Where Lis Pendens Applies	Actions Where Lis Pendens Does Not Apply
Action to recover possession of real estate	Preliminary attachments
Action to quiet title	Proceedings for the probate of wills
Action to remove clouds on title	Levies on execution
Action for partition	Proceedings for administration of estate of deceased persons
Other proceedings directly affecting title or possession	Proceedings where the only object is recovery of a money judgment

FAQs

What is a notice of lis pendens?	A notice of lis pendens is a legal notice filed to inform the public that a lawsuit is pending that could affect the title to a piece of real estate. It warns potential buyers or lenders that the property’s ownership or possession is subject to a legal dispute.
When is a notice of lis pendens appropriate?	A notice of lis pendens is appropriate in actions directly affecting the title or right of possession of real property. Examples include actions to recover possession, quiet title, remove clouds on title, and partition actions.
Why was the notice of lis pendens cancelled in this case?	The notice of lis pendens was cancelled because the petitioner’s claim was primarily for damages and did not directly challenge the validity of the Valencia heirs’ title or right to possess the property. The court found that the underlying dispute was essentially a monetary claim.
What was the basis of Tongohan’s claim to the property?	Tongohan’s claim was based on an alleged verbal offer from a bank branch manager to sell him the foreclosed property. However, the court found that the branch manager lacked the authority to make such an offer, and Tongohan had no legal right to compel the bank to sell him the property.
What is the significance of the Valencia heirs redeeming the property?	The Valencia heirs’ redemption of the property restored their ownership rights, and Tongohan had no legal basis to challenge their title or claim a superior right to the property. He was neither a creditor, co-owner, nor an heir of the late Pio Valencia.
What does this case say about the authority of a bank branch manager?	This case reiterates that contracts between a corporation and third parties must be authorized by the board of directors. A branch manager generally does not have the authority to sell bank assets unless specifically authorized.
Can a verbal agreement for the sale of property be enforced?	Generally, verbal agreements for the sale of real property are not enforceable under the Statute of Frauds, which requires such contracts to be in writing. This case highlights the importance of formal written contracts in real estate transactions.
What are the implications of this ruling for property disputes?	This ruling clarifies the scope and limitations of a notice of lis pendens. It emphasizes that this legal tool should not be used to encumber property when the underlying dispute is merely a monetary claim and does not directly affect title or possession.

This case serves as a reminder of the importance of understanding the proper use of legal tools like the notice of lis pendens and the necessity of formalizing agreements, especially in real estate transactions. It prevents misuse that could unduly burden property owners and impede legitimate transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: EPITACIO R. TONGOHAN v. COURT OF APPEALS, G.R. No. 123852, December 21, 2004