A notice of lis pendens, which warns potential buyers of a pending lawsuit involving a property, cannot be used in a simple collection suit for unpaid construction services and materials. The Supreme Court has clarified that such a notice is inappropriate because the lawsuit doesn’t directly affect the title, use, or possession of the property in question. This means a contractor seeking payment must pursue the claim through proper legal channels without unnecessarily encumbering the property owner’s title.

Construction Dispute: Can a Payment Claim Justify a Cloud on the Title?

Atlantic Erectors, Inc. (AEI) and Herbal Cove Realty Corporation entered into a construction contract. A dispute arose regarding payment for services rendered, leading AEI to file a collection suit against Herbal Cove. Simultaneously, AEI annotated a notice of lis pendens on the titles of Herbal Cove’s properties. Herbal Cove moved to cancel the notice, arguing that the suit was a personal action for money and did not directly affect the property titles. The Regional Trial Court (RTC) initially granted the cancellation but later reversed its decision, reinstating the lis pendens. The Court of Appeals (CA) then set aside the RTC’s orders, leading AEI to elevate the matter to the Supreme Court.

The primary issue before the Supreme Court was whether AEI’s money claim, representing the cost of materials and labor for constructing houses on Herbal Cove’s property, constituted a proper lien for annotating a notice of lis pendens on the property title. The court emphasized that a notice of lis pendens is typically appropriate only in actions to recover possession of real estate, actions for partition, or other proceedings that directly affect the title, use, or occupation of land. While it can also apply to suits seeking to establish a right or enforce a lien against specific real property, the critical factor is that the underlying action must directly involve those property rights.

In this case, AEI’s complaint merely sought payment for construction services and materials, plus damages. The claim made no mention of, and certainly did not assert, a lien or encumbrance over the property. The Supreme Court pointed out that the nature of an action is determined by the allegations in the complaint. Even if AEI had alleged a lien under Article 2242 of the Civil Code, a complaint for collection and damages is not the proper method for enforcing a contractor’s lien. Article 2242 identifies certain credits, including those of contractors and material suppliers, that enjoy preference concerning specific immovable property. However, as explained in J.L. Bernardo Construction v. Court of Appeals, Article 2242 applies when multiple creditors have claims against the same property, and its value is insufficient to pay all debts.

“Specifically, the contractor’s lien claimed by the petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed.”

Therefore, such liens should be enforced in proceedings where the claims of all preferred creditors can be adjudicated, such as insolvency proceedings. Moreover, the fact that AEI filed the action in the RTC of Makati—a court without jurisdiction over Herbal Cove’s property in Tagaytay City—further weakened the argument that it intended to assert a real claim over the property.

Building on this principle, the Supreme Court also addressed the issue of the RTC’s jurisdiction to cancel and reinstate the notice of lis pendens. The Court clarified that the RTC lost jurisdiction over the case when AEI filed its notice of appeal. Therefore, any order issued before that date would be considered valid, while subsequent orders would lack legal effect. The Supreme Court emphasized the impropriety of AEI challenging the RTC’s jurisdiction after initially invoking it to seek relief. This ruling underscores the principle that parties cannot simultaneously seek a court’s assistance and then disavow its authority when the outcome is unfavorable.

FAQs

What is a notice of lis pendens?	A notice of lis pendens is a warning recorded on a property’s title, informing potential buyers that there is a pending lawsuit affecting the property.
When is a notice of lis pendens appropriate?	It is appropriate in actions involving the recovery of real estate, partition of property, or any case directly affecting the title, use, or possession of land.
Can a simple money claim justify a notice of lis pendens?	Generally, no. A simple money claim, such as one for unpaid construction services, is usually considered a personal action and does not directly affect property title.
What is a contractor’s lien under Article 2242 of the Civil Code?	It’s a preferred claim for unpaid contractors, laborers, and material suppliers against the specific property they worked on. However, it’s typically enforced when multiple creditors are claiming against the same property in insolvency proceedings.
Why was the notice of lis pendens canceled in this case?	Because AEI’s lawsuit was a personal action for the collection of money and did not directly assert any right or interest in Herbal Cove’s property.
What happens if a court lacks jurisdiction over a property?	Any actions taken by the court concerning the property, such as issuing orders affecting its title, are generally considered invalid.
Can a party challenge a court’s jurisdiction after initially seeking its help?	Generally, no. A party cannot invoke a court’s jurisdiction to obtain relief and then later question that jurisdiction when the outcome is unfavorable.
What should a contractor do to enforce their claim for payment?	A contractor must pursue the collection through the appropriate legal channels, such as a separate lawsuit or arbitration, without improperly encumbering the property’s title with a notice of lis pendens.

The Supreme Court’s decision reinforces the principle that a notice of lis pendens should only be used when a lawsuit directly affects property rights. By clarifying this boundary, the Court protects property owners from unwarranted encumbrances on their titles stemming from mere collection suits.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Atlantic Erectors, Inc. v. Herbal Cove Realty Corporation, G.R. No. 148568, March 20, 2003