Goldland Tower Condominium Corporation vs. Lim

An action for judicial foreclosure of a lien for unpaid condominium association dues does not require prior extrajudicial demand; the filing of the complaint in court constitutes the judicial demand contemplated by Article 1169 of the Civil Code.

Respondent Hsieh Hsiu-Ping owned a unit in Goldland Tower Condominium but failed to pay association dues amounting to PHP 4,362,208.14. Petitioner Goldland Tower Condominium Corporation annotated this debt as a lien on the unit's Condominium Certificate of Title (CCT) in August 2011. Subsequently, due to Hsieh's non-payment of real estate taxes, the City of San Juan levied and sold the unit at a public auction to respondent Edward Lim in February 2012. After the redemption period lapsed, a deed of conveyance was issued in Lim's favor. In February 2012, Goldland filed a complaint for judicial foreclosure against Lim and Hsieh, seeking payment of the dues or, in default, the foreclosure and sale of the unit.

• Nature of the Lien: Respondent Hsieh Hsiu-Ping's unpaid association dues to petitioner Goldland were annotated as a lien on the unit's CCT in August 2011, pursuant to the Condominium Act and the building's master deed.
• Tax Sale and Conveyance: Due to Hsieh's tax delinquency, the City of San Juan levied on the unit and sold it at public auction to respondent Edward Lim in February 2012. After the redemption period expired, an absolute deed of conveyance was issued to Lim.
• Foreclosure Complaint: In February 2012, Goldland filed a complaint for judicial foreclosure against Lim and Hsieh, seeking payment of the dues or, in default, the foreclosure of its lien.
• Lim's Defense: Lim argued that the tax sale extinguished Goldland's lien and that the action was premature due to the absence of an extrajudicial demand on him.
• RTC Decision: The RTC ruled for Goldland, finding its lien valid and prior. It ordered Lim to pay the dues, with the unit to be sold at auction if he failed to pay within a specified period.
• CA Amended Decision: The CA, on reconsideration, agreed the lien survived the tax sale but dismissed the complaint. It held that Goldland failed to allege or prove a prior extrajudicial demand on Lim, rendering the foreclosure action premature and void.

• Effect of Annotated Lien: Petitioner argued that the annotation of its lien on the CCT served as constructive notice to Lim of the existing obligation, which he assumed upon purchasing the unit.
• Nature of Judicial Demand: Petitioner maintained that the filing of the foreclosure complaint itself constituted the judicial demand required by law, making an extrajudicial demand unnecessary.
• Validity and Preference of Lien: Petitioner contended that its lien, annotated prior to the tax lien, was a prior and preferred right that subsisted notwithstanding the change in ownership.

• Necessity of Demand: Respondent countered that a cause of action requires a debtor's default, which cannot exist without a prior demand. He argued that neither the annotated lien nor the filing of the complaint satisfied the requirement for a demand.
• Extinguishment by Tax Sale: Respondent asserted that the tax sale, which foreclosed a superior government lien, extinguished Goldland's subordinate lien on the property.

• Demand vs. Notice: Whether the annotation of the lien on the CCT constituted the demand required by law to hold the new owner liable.
• Prematurity of Action: Whether the absence of an extrajudicial demand prior to filing the complaint rendered the judicial foreclosure action premature and dismissible.

• Demand vs. Notice: The concepts are distinct. Constructive notice from the annotation binds the property and creates a presumption of knowledge, thereby making the new owner assume the obligation. However, notice does not equate to demand. Demand is a question of fact requiring proof of service and receipt to establish default. The annotation served as notice, not demand.
• Prematurity of Action: The filing of the complaint for judicial foreclosure constituted the judicial demand under Article 1169 of the Civil Code. An extrajudicial demand is not a precondition for filing a judicial action for payment or foreclosure. The complaint's prayer for alternative reliefs—payment or foreclosure—was a valid exercise of the creditor's right to demand fulfillment. The CA erred in dismissing the complaint on this ground.

• Distinction Between Notice and Demand — Notice (actual or constructive) pertains to knowledge and good faith, creating a legal presumption of knowledge when constructive. Demand, however, is a factual matter requiring proof of service and receipt to establish a debtor's default. The two concepts are not interchangeable.
• Judicial Demand as Sufficient — Under Article 1169 of the Civil Code, a creditor may demand fulfillment of an obligation either judicially or extrajudicially. The filing of a complaint in court constitutes a judicial demand. Unless the law or the contract requires a prior extrajudicial demand, a judicial action may be filed immediately.

• "Notice determines the presence or absence of knowledge and good faith, while demand decides on whether a party has defaulted on a demandable obligation."
• "When petitioner filed her complaint... such filing constituted the judicial demand upon respondent to pay the latter's principal obligation and the interest thereon." (Citing Pineda v. De Vega)
• "Foreclosure is but a necessary consequence of the nonpayment of the indebtedness."

• Pineda v. De Vega, 851 Phil. 1106 (2019) — Controlling precedent holding that the filing of a complaint for collection or foreclosure constitutes judicial demand under Article 1169.
• BIR v. TICO Insurance Co., Inc., G.R. No. 204226, April 18, 2022 — Applied for the principle that prior annotation of a lien creates a preference, as registration is the operative act that binds the property.
• Ferndale Homes Homeowners Association v. Spouses Abayon, G.R. No. 230426, April 28, 2021 — Cited for the rule that a condominium corporation's lien for unpaid assessments is assumed by a purchaser at a tax sale.

• Article 1169, Civil Code — Defines when a debtor incurs in delay (default), stating that delay arises from judicial or extrajudicial demand, and enumerating exceptions where demand is not necessary.
• Section 20, Republic Act No. 4726 (The Condominium Act) — Grants the management body of a condominium a special property lien over a unit for unpaid assessments, enforceable through judicial or extrajudicial foreclosure.
• Section 59, Presidential Decree No. 1529 (Property Registration Decree) — Provides that subsisting encumbrances or annotations at the time of transfer shall be carried over to the new certificate of title.
• Rule 68, Rules of Court — Governs judicial foreclosure, providing the procedure where, after judgment, the debtor is given a period to pay, failing which the property is sold at public auction.

• Justice Alfredo Benjamin S. Caguioa (Chairperson)
• Justice Jhosep Y. Lazaro-Javier
• Justice Japar B. Dimaampao
• Justice Henri Jean Paul B. Inting