Dear Atty. Gab,

Musta Atty! I’m writing to you because I’m in a bit of a legal bind and could really use your expertise. I own a small construction business here in Cebu, and recently, a former client, Mr. Vargas, filed a lawsuit against my company claiming damages due to alleged faulty workmanship. While I strongly believe his claims are unfounded, I’m worried about protecting my personal assets, especially my condo unit, during this legal battle.

I’ve heard about something called a “notice of lis pendens” that can be annotated on property titles to warn potential buyers about pending litigation. My understanding is that this prevents me from selling the property or obtaining a loan on it, but that’s something I would be willing to do to protect the asset. However, I’m not sure if this only applies to real estate disputes. I’m also worried about the implications on my business if people think there are legal problems with it.

Could you please explain if a notice of lis pendens can be used in my situation, where the lawsuit is related to my business but I want to protect my personal property? What are my options for ensuring that my assets aren’t unfairly seized if Mr. Vargas wins the case? I would be grateful for any guidance you can provide.

Thank you for your time and consideration.

Sincerely,
Rafael Aquino

Dear Rafael,

Musta! I understand your concerns about protecting your personal assets during the lawsuit filed against your construction business. A notice of lis pendens is indeed a legal tool, but its application is primarily for real property disputes. It serves as a public warning that the property is subject to a pending legal action, potentially affecting its ownership or use.

While the lawsuit against your business doesn’t directly involve your condo unit, your worry about its seizure is valid. To protect your assets, we need to look into strategies that may protect your assets and discuss other legal avenues.

Safeguarding Your Assets: Understanding the Lis Pendens Rule

The concept of lis pendens, which translates to “pending suit” in Latin, grants a court control over property involved in a lawsuit while the action is ongoing. This prevents the property’s transfer or alienation in a way that could undermine the final judgment. Essentially, it informs the world that the property is subject to litigation, cautioning potential buyers.

However, it is vital to note that in the Philippines, the remedy of lis pendens is primarily applicable to disputes involving real property. The Rules of Civil Procedure explicitly states that a notice of lis pendens is for “an action affecting the title or the right of possession of real property”.

SEC. 14. Notice of lis pendens. – In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names.

This means that if a case does not directly put into question the ownership or right to possess land, a notice of lis pendens is not the right tool. Therefore, a notice of lis pendens does not apply to actions involving title to or any right or interest in, personal property.

It is understandable to look for an equitable solution to protect your assets. You may have heard of the argument that other circumstances wherein equity and general convenience would make lis pendens appropriate. The Supreme Court has touched on this argument, citing the 1958 case of Diaz v. Hon. Perez, et al., but this argument does not mean we should ignore the current rules. The Supreme court has clarified that:

The denial by the RTC and CA of petitioner’s motion to annotate lis pendens on the subject club membership certificates was rather based on the absence of law and rules to govern the application of the remedy over personal properties.  No grave abuse of discretion can therefore arise from such adverse ruling predicated on the lack of statutory basis for grant of relief to a party.

Given that your concern is about your condo unit potentially being subject to claims arising from the business lawsuit, exploring other legal mechanisms is necessary. Since the lis pendens is not applicable to you, other protections must be considered.

The failure to file  a notice of the pendency of the action, where a statute provides therefor as a condition precedent to the action being lis pendens, ordinarily precludes the right to claim that the person acquiring interests pendente lite takes the property subject to the judgment.  But this rule has no application where the purchaser has actual notice of the pendency of the suit, or where regardless of the lis pendens notice, other facts exist establishing constructive notice, or where the purchaser is chargeable with notice by reason of the filing of a lien or payment of the amount of the lien into court, or where the property is seized by court proceedings.

Practical Advice for Your Situation

• Consult with a Litigation Lawyer: Get professional legal advice for the business lawsuit. A strong defense can minimize potential liability.
• Review your Business Insurance: Check if your insurance policy covers the type of claim filed by Mr. Vargas. It might cover legal fees and damages.
• Assess your Asset Exposure: Understand which assets are most vulnerable in case of an adverse judgment. Focus protection strategies on these.
• Explore Asset Protection Strategies: Your lawyer can help you with legal ways to protect your condo unit. Strategies will depend on how your business is structured.
• Separate Business and Personal Finances: Ensure your business and personal funds are separate. This can protect your personal assets from business debts.
• Consider a Pre-Nuptial Agreement: If married, a pre-nuptial agreement might offer some protection for assets acquired before the marriage.
• Document Everything: Keep detailed records of all business transactions and communications related to the lawsuit.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.