Po Lam vs. Court of Appeals

The cancellation of a notice of lis pendens pursuant to a valid court order terminates the effects of such notice; consequently, purchasers who acquire property after such cancellation cannot be considered transferees pendente lite or purchasers in bad faith. The doctrine of lis pendens is founded on principles of public policy and necessity, not on constructive or implied notice, and must be strictly construed and applied.

The dispute originated from a familial conflict over inherited property between brothers Lim Kok Chiong and Felix Lim concerning Lots No. 1557 and 1558 in Legaspi City's commercial district. Felix Lim claimed a 3/14 pro-indiviso share in the lots sold by his brother to Legaspi Avenue Hardware Company (LAHCO) in the early 1960s. This spawned extensive litigation spanning over three decades, involving multiple cases before the Court of First Instance, Court of Appeals, and Supreme Court, complicated by the filing and cancellation of notices of lis pendens, a controversial redemption resolution by the Court of Appeals, and the subsequent assignment of Felix Lim's rights to Jose Lee.

• Lots No. 1557 and 1558 are prime commercial lots located in Legaspi City's commercial district, originally sold by Lim Kok Chiong to Legaspi Avenue Hardware Company (LAHCO) in the early 1960s.
• On December 4, 1964, Felix Lim (Lim Kok Chiong's brother) filed Civil Case No. 2953 to annul the deeds of sale, claiming a 3/14 pro-indiviso portion inherited from foster parents, and filed a notice of lis pendens on January 27, 1965 on TCT Nos. 2580 and 2581 covering the respective lots.
• On March 15, 1969, the Court of First Instance declared LAHCO the absolute owner and ordered cancellation of the notices of lis pendens; the notice on TCT No. 2580 (Lot 1557) was cancelled, but the notice on TCT No. 2581 (Lot 1558) remained uncancelled because the duplicate owner's copy was with Continental Bank as mortgagee.
• On May 28, 1970, while Felix Lim's appeal was pending (CA-G.R. No. 44770-R), LAHCO sold both lots to spouses Roy Po Lam and Josefa Ong Po Lam through a single deed of sale.
• On May 20, 1974, the Po Lam spouses caused the cancellation of the notice of lis pendens on TCT No. 2581 pursuant to the trial court's March 15, 1969 order; Felix Lim did not move for reinstatement of the cancelled notices.
• TCT Nos. 2580 and 2581 were cancelled and replaced by TCT Nos. 8102 and 13711 in the names of the Po Lam spouses.
• The Court of Appeals initially affirmed the trial court's decision on April 29, 1980, but later issued a resolution on March 11, 1981 allowing Felix Lim to redeem the lots by returning P20,000.00 to LAHCO, which was subsequently reinstated by the Supreme Court in Lim v. Court of Appeals (188 SCRA 23 [1988]).
• In June 1970, the Po Lam spouses leased Lot No. 1557 to Jose Lee; after September 1981, Lee refused to pay rentals claiming Felix Lim promised to sell the property to him.
• On October 29, 1990, Felix Lim assigned all his rights to the disputed lots to Jose Lee, who substituted as party plaintiff.
• In Civil Case No. 6767 for reconveyance, the RTC declared the Po Lams as transferees pendente lite and not purchasers in good faith on January 14, 1992, which the Court of Appeals affirmed on June 30, 1993 (CA-G.R. CV No. 37452).
• The Supreme Court initially affirmed the CA decision on October 13, 1999, but granted the Motion for Reconsideration on December 6, 2000.

• The Po Lam spouses argued that it was erroneous to hold them as purchasers in bad faith solely because of the subsistence of the notice of lis pendens on TCT No. 2581 (Lot 1558) at the time of purchase, given that there was a court order cancelling such notice and it was actually cancelled on May 20, 1974.
• They contended that they could not be considered aware of a flaw invalidating their acquisition since the alleged flaw (the lis pendens) was already being ordered cancelled at the time of purchase, and was subsequently cancelled pursuant to a valid court order.
• They argued that the cancellation of the notice of lis pendens terminated its effects, and to hold them still bound by it would render the cancellation a useless act (lex neminem cogit ad vana seu inutilia peragenda).
• They maintained that the doctrine of lis pendens is based on public policy, not constructive notice, and since the notice was cancelled, they could not be considered transferees pendente lite.
• They pointed out that Felix Lim's claim was barred by laches due to his long inaction in asserting his rights after the cancellation of the notices in 1969 and 1974, and his failure to move for reinstatement.

• Jose Lee (as assignee of Felix Lim) argued that the Po Lam spouses were transferees pendente lite and purchasers in bad faith because they purchased the properties while litigation was pending and while a notice of lis pendens was annotated on TCT No. 2581.
• He contended that the simultaneous sale of both lots in a single deed of sale meant that the circumstances surrounding Lot 1558 (where lis pendens subsisted) should alert the Po Lams regarding possible defects in the title to Lot 1557, despite the cancellation of the lis pendens on the latter.
• He maintained that the Po Lams could not close their eyes to facts which should put a reasonable man on guard, and that their purchase subject to pending litigation bound them to the outcome of the case.
• He argued that the March 11, 1981 resolution of the Court of Appeals allowing redemption should bind the Po Lams as transferees pendente lite.

• Procedural Issues:
  • Whether the Motion for Reconsideration should be granted to reverse the Court's earlier decision dated October 13, 1999.
• Substantive Issues:
  • Whether the Po Lam spouses are purchasers in good faith or transferees pendente lite of Lots No. 1557 and 1558.
  • Whether the cancellation of the notice of lis pendens on TCT No. 2581 on May 20, 1974 terminated the effects of the lis pendens doctrine.
  • Whether the doctrine of lis pendens is based on constructive notice or public policy.
  • Whether Felix Lim's claim is barred by the principle of laches.

• Procedural:
  • The Supreme Court granted the Motion for Reconsideration filed by the Po Lam spouses, vacated its decision dated October 13, 1999, and entered a new judgment declaring the spouses as purchasers in good faith and their titles valid.
• Substantive:
  • The Court ruled that the Po Lam spouses are purchasers in good faith, not transferees pendente lite. The sole basis for finding them purchasers in bad faith was the subsistence of the notice of lis pendens on TCT No. 2581 at the time of purchase. However, there was a court order cancelling the notice, and it was actually cancelled on May 20, 1974.
  • The Court held that a possessor in good faith is one unaware of any flaw invalidating acquisition. Since there was a court order cancelling the lis pendens at the time of purchase, and it was subsequently cancelled, the Po Lams could not be considered aware of a flaw.
  • The Court clarified that the doctrine of lis pendens is founded on public policy and necessity, not on constructive or implied notice. Its purpose is to keep the subject matter within the court's power until final judgment and to prevent defeat of the judgment by successive alienations.
  • The Court held that cancellation of the notice of lis pendens terminates its effects. To hold the Po Lams still bound after cancellation would render the cancellation useless and extend the doctrine arbitrarily without strict necessity.
  • The Court applied the principle of laches, noting that Felix Lim did not move to reinstate the cancelled notices in 1969 and 1974, nor did he act when new titles were issued, waiting until 1981 (seven years) to assert his claim.

• Lis Pendens — Defined as the jurisdiction, power, or control which a court acquires over property involved in a suit pending the continuance of the action. The filing of a notice of lis pendens serves as a warning that one who acquires an interest over the property does so at his own risk. It keeps the subject matter within the court's power until final judgment and binds purchasers to the judgment, but does not create a non-existent right or lien.
• Transferee Pendente Lite — A transferee pending litigation stands in the shoes of the transferor and is bound by any judgment or decree rendered for or against the transferor. However, this applies only while the notice of lis pendens remains uncancelled.
• Purchaser in Good Faith — Defined under Article 526 of the Civil Code as one who is unaware that there exists a flaw which invalidates his acquisition of the thing. Good faith consists in the possessor's belief that the person from whom he received the thing was the owner and could convey his title.
• Doctrine of Lis Pendens as Based on Public Policy, Not Notice — The doctrine is not founded on constructive notice but on principles of public policy and necessity to prevent litigants from giving rights to others pending litigation that would prejudice the adverse party. It must be strictly construed and applied.
• Laches — The failure or neglect for an unreasonable length of time to do that which by exercising due diligence could or should have been done earlier, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it.

• "A possessor in good faith has been defined as 'one who is unaware that there exists a flaw which invalidates his acquisition of the thing.' Good faith consists in the possessor's belief that the person from whom he received the thing was the owner of the same and could convey his title."
• "The filing of a notice of lis pendens in effect (1) keeps the subject matter of the litigation within the power of the court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien."
• "While the doctrine of lis pendens is frequently spoken of as one of implied or constructive notice, according to many authorities, the doctrine is not founded on any idea of constructive notice, since its true foundation rests... on principles of public policy and necessity."
• "The purchaser pendente lite is affected, not by notice, but because the law does not allow litigating parties to give to others, pending the litigation, rights to the property in dispute as to prejudice the opposite party. The doctrine rests upon public policy, not notice."
• "Lex neminem cogit ad vana seu inutilia peragenda. The law will not compel one to do useless things."
• "Since its operation is arbitrary and it may be harsh in particular instances, the doctrine of lis pendens is to be strictly construed and applied. It should not be extended without strict necessity."

• Habaluyas v. Japson (138 SCRA 46 [1985]) — Cited regarding the rule on motions for extension to file motions for reconsideration, which was applied prospectively in this case to validate Felix Lim's procedural actions.
• Lim v. Court of Appeals (G.R. No. 84145-55, 188 SCRA 23 [1988]) — Controlling precedent that reinstated the March 11, 1981 resolution of the Court of Appeals allowing Felix Lim to redeem the properties, and held that Habaluyas v. Japson must be applied prospectively.
• Piño v. CA (198 SCRA 434 [1991]) — Cited for the definition of good faith under Article 526 of the Civil Code.
• AFPMBAI v. CA (G.R. No. 104769, March 3, 2000) — Cited for the definition of lis pendens as a warning that one who acquires interest over litigated property does so at his own risk.
• Laroza v. Guia (134 SCRA 341 [1985]) — Cited for the principle that filing a notice of lis pendens charges strangers with notice and that the doctrine is founded on public policy and necessity.
• People v. Regional Trial Court of Manila (178 SCRA 299 [1989]) — Cited for the protective function of lis pendens and its foundation on public policy.
• Somes v. Government (62 Phil. 432 [1935]) — Cited for the effects of lis pendens, particularly that it does not create a non-existent right or lien.
• Tirado v. Sevilla (188 SCRA 321 [1990]) — Cited for the principle that the doctrine of lis pendens rests on public policy, not notice.

• Section 14, Rule 13 of the 1997 Rules of Civil Procedure — Defines the notice of lis pendens, its contents, effects, and the procedure for its cancellation. The Court cited this to explain that a purchaser is deemed to have constructive notice only from the time of filing and while the notice remains uncancelled.
• Article 526 of the Civil Code — Defines good faith in the context of possession, stating that a possessor in good faith is one who is unaware of any flaw invalidating his acquisition of the thing.