Atlantic Erectors, Inc. v. Herbal Cove Realty Corporation
REITERATIONFacts
The Antecedents: Atlantic Erectors, Inc. (AEI) entered into a Construction Contract with Herbal Cove Realty Corporation (HCRC) for the construction of townhouses and a single detached unit. AEI claimed delays and additional costs were attributable to HCRC, while HCRC alleged defective workmanship and non-compliance with specifications by AEI. Subsequently, AEI filed a complaint for a sum of money with damages against HCRC and its president, Ernest L. Escaler, seeking payment for unpaid construction services, materials, unrealized income, and other damages. Procedural History: AEI filed a complaint for sum of money with damages and simultaneously filed a notice of lis pendens on the titles of HCRC's properties. HCRC and Escaler moved to dismiss the complaint, arguing that the construction contract mandated arbitration and that the complaint failed to state a cause of action. The Regional Trial Court (RTC) initially dismissed the complaint. HCRC then moved to cancel the notice of lis pendens, which the RTC granted. However, the RTC later reversed its decision, reinstating the notice of lis pendens. HCRC moved for reconsideration, which the RTC denied. HCRC then filed a Petition for Certiorari with the Court of Appeals (CA). The CA granted the petition, annulling the RTC's orders that reinstated the lis pendens and reinstating the order to cancel it. The Petition: AEI filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging the CA's decision. AEI raises two main issues: (1) whether money claims for construction materials and labor constitute a proper lien for the annotation of a notice of lis pendens on a property title, and (2) whether a trial court, after declaring itself without jurisdiction over a case, can still decide on the substantial issue of the case. AEI argues that its money claim is a lien that justifies the annotation and that the RTC's orders were issued without jurisdiction.
Issue(s)
Whether money claims representing the cost of materials and labor for houses constructed on a property are a proper basis for the annotation of a notice of lis pendens on the property title. Whether the trial court, after having declared itself without jurisdiction to try the case, may still decide on the substantial issue of the case.
Ruling
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The Court held that the annotation of a notice of lis pendens was improper and ordered its cancellation.
Ratio Decidendi
On the first issue: The Court reiterated that a notice of lis pendens is generally applicable only in actions to recover possession of real estate, for partition, or in other court proceedings that directly affect the title to the land or the building thereon, or the use or occupation thereof. While it can apply to suits seeking to enforce a lien, charge, or encumbrance, the petitioner's complaint in this case was a purely personal action for sum of money and damages. The complaint did not allege or assert any lien or encumbrance over the property, nor did it claim ownership or right of possession. The Court clarified that Article 2242 of the Civil Code, which enumerates preferred credits including contractor's liens, applies only in cases of concurrence of credits where the debtor is insolvent or the property is insufficient to pay all creditors, and such lien should be enforced in proceedings like insolvency proceedings where all preferred creditors' claims can be adjudicated. Furthermore, the Court emphasized that an action affecting title to or possession of real property must be filed in the court that has jurisdiction over the area where the property is situated, and the filing of a collection suit in Makati for property in Tagaytay City indicated it was a personal action. The Court cited Peña on Land Titles and Registration, stating that the doctrine of lis pendens has no application to a proceeding where the only object sought is the recovery of a money judgment, even if the title or right of possession is incidentally affected, as the property must be directly affected. On the second issue: The Court clarified the effect of an appeal on the jurisdiction of the trial court. Citing Section 9 of Rule 41 of the 1997 Rules on Civil Procedure, the Court stated that a trial court loses jurisdiction over a case upon the perfection of the appeal filed in due time. In this case, the petitioner filed its notice of appeal on September 4, 1998. Therefore, the RTC still had jurisdiction to issue the July 30, 1998 Order canceling the notice of lis pendens, as this was issued prior to the perfection of the appeal. However, the November 4, 1998 Order, which reinstated the notice of lis pendens, was issued after the RTC lost jurisdiction and was thus considered without force and effect. Regardless of the validity of these orders, the Court reiterated that the annotation of the notice of lis pendens was improper from the beginning due to the nature of the action. The Court also noted the petitioner's inconsistent stance in invoking the trial court's jurisdiction to seek affirmative relief and then questioning it when an unfavorable order was issued.
Main Doctrine
A notice of lis pendens is not proper in a simple collection suit for sum of money and damages, as it does not directly affect the title to, use, or occupation of real property, nor does it involve the enforcement of a contractor's lien under Article 2242 of the Civil Code in the absence of insolvency proceedings or a concurrence of credits.