Good Faith and the Lis Pendens Rule: Lessons from Cunanan v. Jumping Jap Trading

A notice of lis pendens is one of the most powerful warnings in Philippine property law. It tells the whole world that a piece of land is tied up in litigation. In Cunanan v. Jumping Jap Trading Corporation (G.R. No. 173834, April 24, 2009), the Supreme Court reminded mortgagees and buyers that ignoring this warning carries serious consequences — even when a court order cancelling the notice has already been issued.

What Happened in the Case

Carmencita Nemoto owned a house and lot in Ayala Alabang Village, Muntinlupa City, covered by Transfer Certificate of Title No. 213246. Jumping Jap Trading Corporation, represented by its president Reuben Protacio, had earlier sued Nemoto in Civil Case No. 01-098, claiming a superior right over the same property and seeking its reconveyance.

While that case was pending, the corporation annotated a notice of lis pendens on the title. Despite this, Nemoto mortgaged the property to Isabelita and Carolyn Cunanan to secure a P10 million loan.

The timing matters. The mortgage deed was signed on 20 July 2001. The Regional Trial Court had earlier ordered the dismissal of the case and the cancellation of the notice of lis pendens, but that order was issued on 18 July 2001 and was never registered. The Register of Deeds cancelled the annotation only on 23 July 2001 — three days after the mortgage was executed. The corporation promptly moved for reconsideration, and the trial court later reinstated the notice. The corporation ultimately won Civil Case No. 01-098.

The Cunanans foreclosed the mortgage in 2002, prompting the corporation to file a second case seeking to nullify the mortgage and the foreclosure. Both the trial court and the Court of Appeals ruled for the corporation. The Cunanans elevated the matter to the Supreme Court.

The Ruling: A Mortgagee Deals With the Property at Its Own Risk

The Supreme Court affirmed the lower courts. A notice of lis pendens, the Court explained, is an announcement to the whole world that a particular property is in litigation. It serves as a warning that anyone who acquires an interest over the property does so at his own risk and gambles on the outcome of the case.

Under Section 77 of Presidential Decree No. 1529 (the Property Registration Decree), a notice of lis pendens is deemed cancelled only upon registration of a certificate of the clerk of court stating how the case was disposed of — such as a final judgment for the defendant or a disposition that finally terminates the plaintiff's rights over the property.

Here, the notice was still annotated when the mortgage was executed. The unregistered 18 July 2001 order did not change that, and the amended order of 23 July 2001 came too late — the mortgage had already been executed and was effective between the parties as of that date.

Why the Cunanans Were Not Mortgagees in Good Faith

The Court went further. Even if the mortgage had been signed after the cancellation, the result would be the same.

A person dealing with Torrens-registered land may generally rely on the face of the title and is charged only with notice of annotations. But this rule has a well-known exception: it does not apply when the party has actual knowledge of facts that would prompt a reasonably cautious person to inquire into the status of the title.

The Cunanans knew that the dismissal order was not yet final. That alone should have made them wary of further developments — and indeed, a motion for reconsideration was filed and later granted. Their knowledge of the pending litigation made them mortgagees in bad faith.

The Court distinguished Po Lam v. Court of Appeals (G.R. No. 116220, December 6, 2000), where buyers were considered in good faith because no motion for reconsideration or reinstatement of the notice had been filed. In Cunanan, the opposite was true: the order was not final, and the notice was eventually reinstated.

Practical Takeaways

• Verify the status of any lis pendens annotation. Do not rely solely on a court order cancelling it. Confirm whether the order is final and whether it has been registered with the Register of Deeds.
• A pending motion for reconsideration is a red flag. If the order dismissing the case is not yet final, treat the property as still in litigation.
• Good faith requires inquiry. Actual knowledge of circumstances suggesting a defect in the seller's or mortgagor's title defeats the protection of the Torrens system.
• A mortgage executed while a notice of lis pendens subsists binds the mortgagee to the outcome of the case. The mortgagee gambles on the litigation and may lose the security entirely.
• Corporate authority to sue may be broad. The Court held that authority to demand and collect a corporation's claims includes the power to institute actions, execute the verification, and sign the certification against forum shopping.

The case is a cautionary tale for lenders and buyers: the Torrens system rewards the diligent, not the hurried. A mortgage or purchase made in the shadow of litigation — or with knowledge that litigation may resume — can be struck down as an act of bad faith.

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