Lis Pendens: Why a Cancelled Notice Can Still Bind Property Buyers in the Philippines

When buying property in the Philippines, a clean title is paramount. However, even a seemingly clear title can harbor hidden risks, especially if there’s a history of litigation. This case highlights the crucial concept of lis pendens and the continuing duty of buyers to conduct thorough due diligence, even when a notice of lis pendens has been cancelled. Failing to do so can mean being bound by the results of a lawsuit you weren’t even a party to, potentially losing your property despite having purchased it in good faith.

G.R. No. 132294, August 26, 1999

INTRODUCTION

Imagine finding your dream property, completing all the paperwork, and finally holding the title in your hands, only to discover later that your ownership is being challenged due to a lawsuit you knew nothing about. This is the unsettling reality that property buyers can face in the Philippines if they fail to conduct comprehensive due diligence, especially regarding notices of lis pendens. The Supreme Court case of Voluntad v. Dizon serves as a stark reminder that a cancelled notice of lis pendens does not always guarantee a clean slate and that buyers must investigate beyond the face of the title.

In this case, the Voluntad family fought to redeem their foreclosed property, initially mortgaged to a rural bank and later acquired by the Dizon spouses. Unbeknownst to the Voluntads, the Dizons sold the property to the Reyes spouses while the redemption case was still pending. The Reyeses claimed they were buyers in good faith, relying on a title where a previously annotated lis pendens had been cancelled. The central legal question became: are the Reyes spouses, as buyers during litigation, bound by the court’s decision in the case between the Voluntads and the Dizons, despite the cancelled lis pendens?

LEGAL CONTEXT: LIS PENDENS AND BUYERS IN GOOD FAITH

The concept of lis pendens, Latin for “pending suit,” is a crucial legal principle in Philippine property law. It essentially serves as a warning to the world that a particular property is involved in litigation. Section 14, Rule 13 of the Rules of Court governs lis pendens, stating:

“SEC. 14. Notice of lis pendens.—In an action affecting the title or the right of possession of real estate, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. It shall only be effective from the time of the recording thereof.

A notice of lis pendens, once annotated on the title of a property, aims to protect the rights of the party who caused the annotation. It informs potential buyers or encumbrancers that they purchase or deal with the property at their own risk, subject to the outcome of the pending litigation. As the Supreme Court has consistently held, the purpose of lis pendens is to keep the subject matter of the suit within the power of the court until the entry of the final judgment, and to prevent the defeat of the judgment by subsequent alienation.

Philippine law also protects “buyers in good faith,” also known as “innocent purchasers for value.” These are individuals who purchase property for a fair price, without notice of any defect in the seller’s title. The general rule is that a person dealing with registered land can rely on the Torrens Certificate of Title and is not required to go beyond what appears on its face. However, this protection is not absolute. The Supreme Court has carved out exceptions, particularly when the buyer has actual knowledge of circumstances that would impel a reasonably cautious person to investigate further.

This “duty to investigate” arises when there are “red flags” – circumstances that should alert a prudent buyer to potential problems with the title. A previous annotation of lis pendens, even if cancelled, can be such a red flag. The cancellation might be premature or erroneous, and the underlying litigation might still be ongoing or subject to appeal. Therefore, relying solely on the current “cleanliness” of a title, without investigating the history of annotations, can be a risky proposition for property buyers.

CASE BREAKDOWN: VOLUNTAD VS. DIZON – THE DEVIL IN THE DETAILS

The story of Voluntad v. Dizon unfolds with a loan, a foreclosure, and a family’s fight to reclaim their land. Here’s a step-by-step breakdown:

1. Loan and Foreclosure: The Voluntad family obtained a loan from Rural Bank of Pandi, securing it with a mortgage on their land. They defaulted, and the bank foreclosed on the mortgage, becoming the highest bidder at the public auction.
2. Assignment to Dizons: After the redemption period expired, the bank assigned its rights to the Dizon spouses without informing the Voluntads.
3. Mandamus Case and Lis Pendens: The Voluntads filed a mandamus case against the Dizons, seeking to redeem the property. They also annotated a notice of lis pendens on the title to warn potential buyers of the ongoing dispute.
4. Premature Cancellation of Lis Pendens: The trial court initially dismissed the Voluntads’ case and ordered the cancellation of the lis pendens. Critically, this cancellation happened just four days after the order, before the Voluntads’ appeal period even expired.
5. Sale to Reyeses: While the Voluntads appealed the dismissal and the cancellation of lis pendens, the Dizons sold the property to the Reyes spouses. The Reyeses relied on the title which, at the time of sale, showed the lis pendens as cancelled.
6. Appellate Court Reversal: The Court of Appeals reversed the trial court’s dismissal, reinstating the Voluntads’ case and effectively nullifying the basis for the lis pendens cancellation.
7. Trial Court Victory for Voluntads: The trial court eventually ruled in favor of the Voluntads, granting them the right to redeem the property. This judgment became final and executory.
8. Refusal to Issue Alias Writ Against Reyeses: When the Voluntads sought to enforce the judgment against the Reyeses (who now owned the property), the trial court refused to issue a second alias writ of execution, arguing that the Reyeses were not parties to the original case.
9. Supreme Court Intervention: The Voluntads elevated the matter to the Supreme Court, which ultimately sided with them.

The Supreme Court emphasized that the Reyeses were transferees pendente lite – buyers who purchased the property while litigation was ongoing. Even though the lis pendens was cancelled at the time of purchase, the Court reasoned that the cancellation was premature and the Reyeses should have been alerted by the history of annotations on the title.

Quoting from the decision, the Supreme Court stated:

“From the attendant circumstances, it is crystal clear that an examination of the certificate of title and the annotations therein would disclose that a civil action was filed with the trial court involving the property described in the title. The annotation in the title that the property was involved in a suit should have prompted the prudent purchaser to inquire and verify if the suit was finally terminated and the property freed from any legal infirmity or judicial inquiry.”

Furthermore, the Court highlighted the premature cancellation of the lis pendens as a critical factor:

“Although the notice of lis pendens was cancelled pursuant to the order of the trial court dismissing the civil action, the cancellation effected after barely four (4) days was premature because the court order was not yet final, as petitioners still had the remaining period of eleven (11) days to appeal the order. In fact, a mere inquiry with the trial court which issued the order of dismissal and the cancellation of the lis pendens would reveal that petitioners timely appealed the dismissal to the Court of Appeals.”

Because the Reyeses failed to conduct this further inquiry, the Supreme Court concluded they could not be considered buyers in good faith and were bound by the judgment in favor of the Voluntads. The Court ordered the issuance of a second alias writ of execution against the Reyeses, compelling them to allow the Voluntads to redeem the property.

PRACTICAL IMPLICATIONS: DUE DILIGENCE IS KEY

The Voluntad v. Dizon case carries significant implications for property buyers and sellers in the Philippines. It underscores that:

• Cancelled Lis Pendens Does Not Erase History: A cancelled lis pendens is not necessarily a guarantee that the property is free from litigation risks. Prudent buyers must investigate the reason for the cancellation and the status of the underlying case, especially if the cancellation was recent.
• Duty to Investigate Beyond the Title: While the Torrens system aims for title security, buyers cannot blindly rely solely on the face of the title. Circumstances like prior annotations, even if cancelled, trigger a duty to investigate further. This includes checking court records and inquiring with relevant parties.
• Transferees Pendente Lite are Bound: Anyone who buys property while it is under litigation (transferee pendente lite) steps into the shoes of the seller and is bound by the outcome of the lawsuit. This applies even if the buyer was unaware of the litigation, especially if a notice of lis pendens was properly annotated (or should have been considered).

Key Lessons for Property Buyers:

• Conduct Thorough Title Search: Go beyond just checking the current title. Examine the history of annotations, encumbrances, and cancellations.
• Inquire About Past Annotations: If you see any past annotations, especially lis pendens, investigate why they were annotated and why they were cancelled. Don’t assume a cancellation means the issue is resolved.
• Check Court Records: Verify with the courts if there are any pending or recently decided cases related to the property, especially if there’s a history of lis pendens.
• Due Diligence is Your Protection: Engage a lawyer to assist with thorough due diligence before purchasing any property, especially if there are any red flags or complexities in the title history.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: What is Lis Pendens?

A: Lis pendens is a notice annotated on a property title indicating that the property is subject to a pending lawsuit. It warns potential buyers that they acquire the property subject to the outcome of the litigation.

Q: What happens if I buy a property with a Lis Pendens?

A: As a buyer of property with a lis pendens, you become a transferee pendente lite. This means you are bound by the court’s decision in the ongoing case. If the seller loses the case, you could lose the property, even if you were unaware of the lawsuit.

Q: Is a cancelled Lis Pendens always a good sign?

A: Not necessarily. A lis pendens might be cancelled for various reasons, including the dismissal of the case. However, as Voluntad v. Dizon shows, a cancellation can be premature or erroneous. Always investigate the reason for cancellation and the status of the underlying case.

Q: What is a Buyer in Good Faith?

A: A buyer in good faith is someone who purchases property for a fair price, without knowledge or notice of any defects in the seller’s title or rights to the property. Good faith is crucial for protection under the Torrens system.

Q: How can I ensure I am a Buyer in Good Faith?

A: Conduct thorough due diligence! This includes a detailed title search, inspecting the property, and inquiring about any potential issues or claims. If there are any red flags, investigate further. Consulting with a lawyer is highly recommended.

Q: What are the risks of not conducting due diligence?

A: Failing to conduct due diligence can lead to significant financial losses and legal battles. You could end up buying property with hidden encumbrances, liens, or ongoing litigation, potentially losing your investment and the property itself.

Q: Should I still investigate if the title is clean?

A: Yes. While a clean title is a good starting point, it’s not a guarantee. Hidden defects or past issues might not be immediately apparent. Due diligence provides an extra layer of protection.

Q: What kind of lawyer should I consult for property purchase due diligence?

A: Consult a real estate lawyer or a litigation lawyer experienced in property law. They can conduct thorough title searches, review documents, and advise you on potential risks.

Q: What is a Transferee Pendente Lite?

A: A transferee pendente lite is someone who acquires property that is currently under litigation. They are considered to have bought the property with notice of the lawsuit and are bound by its outcome.

Q: Where can I get help with property due diligence and disputes in the Philippines?

A: ASG Law specializes in Real Estate Law and Civil Litigation in the Philippines. Contact us or email hello@asglawpartners.com to schedule a consultation.