Notice of Lis Pendens: How It Affects Mortgagees and Subsequent Property Transactions

A notice of lis pendens is a powerful legal tool that warns the public that a property is involved in litigation. For mortgagees and buyers, ignoring this warning can be costly. In Cunanan v. Jumping Jap Trading Corporation (G.R. No. 173834, April 24, 2009), the Supreme Court clarified when a notice of lis pendens binds a mortgagee and why a court order cancelling it does not automatically protect subsequent transactions.

The Facts of the Case

Carmencita Nemoto owned a property in Ayala Alabang covered by TCT No. 213246. Jumping Jap Trading Corporation filed a case against her seeking to annul the deed of sale and title over the property. On April 19, 2001, the corporation annotated a notice of lis pendens on the title.

On July 20, 2001—while the notice was still annotated—Nemoto executed a real estate mortgage over the property in favor of Isabelita and Carolyn Cunanan to secure a P10 million loan. The trial court had earlier ordered the dismissal of the case and cancellation of the notice, but that order was not yet final.

The Register of Deeds cancelled the notice on July 23, 2001, and immediately annotated the mortgage. However, the trial court later reconsidered its dismissal and ordered the reinstatement of the notice of lis pendens in October 2001. When the mortgage was foreclosed, the corporation sued to nullify the mortgage and foreclosure, arguing the Cunanans were mortgagees in bad faith.

The Issue

The central question was whether the Cunanans, as mortgagees, were bound by the notice of lis pendens even though the trial court had ordered its cancellation before the mortgage was executed.

The Ruling

The Supreme Court ruled against the Cunanans, affirming that they were bound by the notice of lis pendens and were mortgagees in bad faith.

A notice of lis pendens is a warning to the whole world. The Court described it as an announcement that a property is in litigation, serving as a warning that anyone acquiring an interest does so at their own risk. A person who deals with the property after the notice is annotated gambles on the outcome of the case.

The notice was still subsisting when the mortgage was executed. The mortgage deed was signed on July 20, 2001, but the Register of Deeds only cancelled the notice on July 23, 2001. On the date of execution, the annotation was still on the title. The Court held that the trial court's order dismissing the case did not help the Cunanans because that order was not registered and did not preclude the notice from continuing in effect.

A court order alone does not cancel a notice of lis pendens. Under Section 77 of Presidential Decree No. 1529 (the Property Registration Decree), a notice of lis pendens is deemed cancelled only upon the registration of a certificate from the clerk of court stating how the case was finally disposed. Without such registration, the notice remains effective.

Actual knowledge defeats good faith. Even if the mortgage had been executed after the cancellation, the result would have been the same. The Court noted that the Cunanans knew the dismissal order was not final. The filing of a motion for reconsideration and the subsequent reinstatement of the notice showed the litigation was ongoing. One who has actual knowledge of a pending case cannot claim to be an innocent mortgagee for value.

Distinguishing Po Lam v. Court of Appeals

The petitioners relied on Po Lam v. Court of Appeals, where buyers were considered in good faith despite an annotated notice of lis pendens. The Court distinguished that case: in Po Lam, there was no pending motion for reconsideration or reinstatement, and the buyers had no knowledge of any defect. In contrast, the Cunanans knew the litigation was unresolved.

Practical Takeaways

• A notice of lis pendens binds everyone. Before accepting a property as security or buying it, always check the title for any annotated notice of lis pendens.
• A court order cancelling the notice is not enough. The cancellation takes effect only when properly registered with the Register of Deeds. Verify that the cancellation has actually been annotated.
• Actual knowledge defeats the protection of the Torrens system. Even if the title appears clean, knowledge of an ongoing litigation makes a mortgagee or buyer act in bad faith.
• A pending motion for reconsideration is a red flag. If a case is not yet final, the notice of lis pendens may be reinstated, and any transaction made in the interim is at risk.
• Due diligence saves money. Mortgagees should require proof that any litigation affecting the property has been finally resolved and the notice cancelled before releasing funds.

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