Breach of Contract in the Philippines: Rescission and the Risks of Buying Property with a Notice of Lis Penden

The Philippine Supreme Court has long held that a notice of lis pendens is a warning to the whole world that a property is in litigation. In Seveses v. Court of Appeals (G.R. No. 102675, October 13, 1999), the Court applied this principle to a buyer who purchased land while a rescission case was pending. The ruling clarifies how breach of contract and rescission operate between a seller and buyer, and why a purchaser who buys property with notice of a pending case cannot claim protection as a buyer in good faith.

The Facts of the Case

Rexcon Philippines sold a parcel of land in Parañaque to Ramon Carreon under a Contract of Sale. Carreon took possession and paid his monthly installments. However, he later discovered that a mortgage had been annotated on the title just three days after the contract was signed. Although that mortgage was cancelled, a Deed of Absolute Sale then transferred the title to Rexcon's own president, Reynaldo Reyes, and another mortgage was placed on the property.

Carreon demanded that the title be restored to Rexcon, free of liens. When Reyes ignored the demand, Carreon stopped paying his amortizations. Reyes treated the non-payment as a breach and considered the sale rescinded. He filed a case for rescission, obtained a preliminary injunction, and dispossessed Carreon of the property. Carreon then annotated a notice of lis pendens on the title.

Reyes later sold the property to Henry Seveses. The notice of lis pendens was still on the title and was carried over to Seveses's new title. Seveses was told the case had ended, and he later obtained a certificate of finality, which led to the cancellation of the notice. Years later, however, the Court of Appeals reversed the trial court's decision, ruled in favor of Carreon, and ordered that he be restored to possession. A sheriff then served a notice on Seveses to vacate the property.

The Issue

The central issue was whether Seveses, who bought the property while the rescission case was pending, could intervene in the case or resist its enforcement. Seveses argued that he was a buyer in good faith and that the denial of his motion to intervene violated his right to due process.

The Ruling

The Supreme Court denied the petition. The Court ruled that Seveses could not qualify as a buyer in good faith because the notice of lis pendens was annotated on the title before he bought the property. A buyer in good faith is one who purchases property without notice that another person has a right to or interest in it. Since the notice was on the title, Seveses had notice.

The Court also held that the cancellation of the notice of lis pendens based on a mere certification by court personnel was improper. The rules require judicial authority for such cancellation. More importantly, as a transferee pendente lite—one who buys property while a case is pending—Seveses stood exactly in the shoes of Reyes. He was bound by the outcome of the litigation and could not claim protection from his certificate of title.

On the motion to intervene, the Court noted that it was filed late. Under the then-governing Rule 19 of the Rules of Court, a motion to intervene should be filed before judgment is rendered. Intervention cannot be allowed in a case already terminated by final judgment. Even if the motion had been timely, the Court cited Santiago Land Development Corporation v. Court of Appeals to explain that a purchaser pendente lite is represented in the action by the predecessor in interest and cannot claim a further right to intervene.

Practical Takeaways

• A notice of lis pendens is a public warning. Anyone who buys property with such a notice on the title takes the property at their own risk and is bound by the outcome of the pending case.
• Buyers must verify the status of any pending case. Relying on a seller's assurance or a court personnel's certification is not enough. A certificate of finality should be properly obtained with judicial authority.
• Rescission in a contract of sale is a remedy for breach. When one party fails to comply with reciprocal obligations—such as paying installments or delivering clean title—the other party may seek rescission under the Civil Code.
• A buyer who acquires property during litigation is not a buyer in good faith. Such a buyer steps into the shoes of the seller and cannot claim protection against the judgment.
• Intervention is not a remedy after final judgment. A party who fails to intervene before judgment cannot later ask the court to reopen a case that has already become final and executory.

The case of Seveses is a reminder that property rights are not absolute when a dispute is pending. Buyers who ignore a notice of lis pendens do so at their own peril, and courts will not rescue them from the consequences of a final judgment.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.