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MR HOLDINGS v. SHERIFF CARLOS P. BAJAR

FACTS:

Petitioner MR Holdings, Ltd. is a foreign corporation organized under the laws of Cayman Island. It is a subsidiary of Placer Dome, Inc., which owns 40% of respondent Marcopper Mining Corporation (Marcopper). Petitioner is not considered to be "doing business" in the Philippines.

On November 4, 1992, Marcopper and Asian Development Bank (ADB) executed a loan agreement for the financing of Marcopper's mining project. As security for the loan, Marcopper executed a real estate and chattel mortgage covering its properties, including Manila Golf Club membership certificates.

In March 1996, Marcopper had to cease its mining operations due to a leakage of mine waste into local rivers, causing environmental damage and health problems in the area. As a result, Marcopper defaulted on its loan obligations to ADB. Pursuant to an agreement, petitioner assumed Marcopper's obligations to ADB.

Marcopper was also sued by Solidbank Corporation (Solidbank) for its inability to meet production targets. A writ of preliminary attachment was issued by the Regional Trial Court (RTC) of Manila, and respondent Sheriff Carlos Bajar levied upon Marcopper's properties, including the Manila Golf Club membership shares.

The RTC later issued a partial judgment ordering Marcopper to pay Solidbank a certain amount. The RTC also granted Solidbank's motion for execution pending appeal, directing Sheriff Bajar to require Marcopper to satisfy the judgment. Sheriff Bajar issued a notice of sale on execution pending appeal for the club membership shares.

In response, Marcopper filed a petition for certiorari and prohibition in the Court of Appeals (CA) to nullify the order of execution pending appeal. The CA granted a temporary restraining order (TRO) to prevent the implementation of the writ of execution.

Meanwhile, petitioner informed the Corporate Secretary of Manila Golf Club about the assignment of mortgage and requested the recording of the mortgage in relation to the levied properties.

The petitioner, Solidbank Corporation, filed a Manifestation and Notice of Prior Lien asserting its rights as assignee of the club shares of Marcopper Mining Corporation, which had been mortgaged and conveyed to petitioner. Petitioner requested that the Deed of Assignment, Deed of Real Estate and Chattel Mortgage, and Addendum to Mortgage be entered into the records of the case to inform future bidders or buyers of the existence of petitioner's prior lien or encumbrance. Petitioner also filed an application for extrajudicial foreclosure of the Chattel Mortgage executed by Marcopper. The subject club shares of Marcopper's Manila Golf Club Membership Certificate were sold to petitioner in an auction sale. Petitioner notified the Corporate Secretary of Manila Golf Club not to honor or effect any transfers or transactions involving the said shares other than the transfer to petitioner. Marcopper then executed a Deed of Assignment, assigning all its properties to petitioner in payment of its obligations. Despite petitioner's claims, Sheriff Bajar issued a notice of sale on execution pending appeal for the levied membership shares of Marcopper. Petitioner filed a manifestation and warning to inform all parties that the subject club shares had already been acquired by petitioner through foreclosure proceedings. However, the Manila RTC denied petitioner's third-party claim, prompting petitioner to file an independent reivindicatory action. Respondents Citadel Holdings, Inc. and Vercingetorix Corporation became the highest bidders for the Manila Golf Club Membership Certificate. Manila RTC subsequently issued an order directing the registration and transfer of the membership certificates to the highest bidders. Manila Golf Club's Corporate Secretary informed petitioner that they could not comply with petitioner's request due to the court order. Petitioner then filed a complaint for Reivindication of Possession/Right with Damages and a prayer for preliminary injunction and temporary restraining order against the respondents.

The case involves a dispute over the ownership of membership certificates of the Manila Golf Club. Petitioner, as the assignee of the creditor-mortgagee, argued that it had the right to foreclose the chattel mortgage on the subject certificates after the debtor-mortgagor, Marcopper, defaulted on the loan agreements. Petitioner claimed that it became the absolute owner of the subject certificates through an extrajudicial foreclosure sale. In its complaint, petitioner sought various reliefs, including a writ of preliminary injunction to prevent the transfer of the certificates to the defendants. Respondents Citadel, Vercingetorix, and Sheriff Bajar filed separate answers and moved for the dismissal of the complaint on various grounds, such as forum shopping and lack of legal capacity to sue. Manila Golf Club filed a manifestation and motion to be dropped from the case, while Marcopper filed a motion to dismiss for failure to state a cause of action. The court denied petitioner's application for a temporary restraining order and preliminary injunction and scheduled the case for pre-trial. Manila Golf Club later complied with a court order to transfer the membership certificates to Citadel and Vercingetorix but stated its intention to abide by the judgment of the Makati City RTC in the case. Petitioner then filed a motion for the court to annotate the pendency of the case on the membership certificates.

ISSUES:

  1. Whether the lis pendens rule can apply in actions affecting title or possession of personal properties.

  2. Whether the petition presents circumstances sufficient for the court to grant the motion to annotate.

  3. Whether a notice of lis pendens may be annotated in an action involving personal property.

  4. Whether the case of Diaz v. Hon. Perez, et al. allows the annotation of lis pendens in circumstances not explicitly mentioned in the law.

  5. Whether the motion to annotate notice of lis pendens on club membership certificates is applicable to personal property.

  6. Whether the denial of the motion to annotate lis pendens on club membership certificates was an abuse of discretion.

  7. Whether or not third parties may be charged with constructive notice of petitioner's lien/title over the subject shares and the pending litigation involving the same.

  8. Whether or not the Court of Appeals erred in affirming the decision of the trial court.

RULING:

  1. The court held that the lis pendens rule does not apply to actions affecting title or possession of personal properties. The court explained that lis pendens is intended to keep properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat of the judgment or decree by subsequent alienation. It is founded upon public policy and necessity, and it serves as a warning to the public that a particular property is in litigation. However, the court clarified that lis pendens only applies to real properties and not to personal properties, such as shares of stock, which are considered chattels.

  2. The court held that the petition did not present circumstances sufficient for the court to grant the motion to annotate. The court reasoned that even if the trial court erroneously denied the motion to annotate, it was a mere error in judgment that can be corrected by ordinary appeal at the proper time. The court emphasized that certiorari is an extraordinary remedy and can only be granted if there is a grave abuse of discretion amounting to lack or excess of jurisdiction.

  3. No. A notice of lis pendens may only be availed of in actions affecting the title or right of possession of real property, and does not apply to actions involving personal property.

  4. No. The case of Diaz v. Hon. Perez, et al. only ruled on the propriety of annotating lis pendens in a guardianship proceeding involving a specific real property. It did not contemplate the application of lis pendens to personal property.

  5. The motion to annotate notice of lis pendens on club membership certificates is not applicable to personal property.

  6. The denial of the motion to annotate lis pendens on club membership certificates was not an abuse of discretion.

  7. Yes. Manila Golf Club had actual notice of petitioner's lien/title as assignee of the recorded chattel mortgage and as purchaser in the foreclosure sale, as well as the pendency of Civil Case No. 96-80083. Such actual knowledge is deemed equivalent to registration of an encumbrance or assignment in its corporate books, thus charging third parties with constructive notice.

  8. No. The Court of Appeals did not err in affirming the decision of the trial court.

PRINCIPLES:

  • Lis pendens is intended to keep properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat of the judgment or decree by subsequent alienation.

  • Lis pendens serves as a warning to the public that a particular property is in litigation and that acquiring an interest over said property is done at one's own risk.

  • Lis pendens applies only to real properties and not to personal properties, such as shares of stock, which are considered chattels.

  • Certiorari is an extraordinary remedy and can only be granted if there is a grave abuse of discretion amounting to lack or excess of jurisdiction.

  • A notice of lis pendens is governed by Rule 13, Section 14 of the 1997 Rules of Civil Procedure, as amended. It applies to actions affecting the title or right of possession of real property.

  • The annotation of lis pendens also applies to suits seeking to establish a right to, or an equitable estate or interest in, a specific real property, or to enforce a lien, a charge, or an encumbrance against it.

  • A notice of lis pendens does not apply to actions involving title to or any right or interest in, personal property.

  • The case of Diaz v. Hon. Perez, et al. only ruled on the propriety of annotating lis pendens in a guardianship proceeding involving a specific real property. It did not contemplate the application of lis pendens to personal property.

  • The doctrine of lis pendens does not apply to commercial securities.

  • The doctrine of lis pendens may apply to personal properties such as corporate stock, non-negotiable bond, and non-negotiable notes depending on the circumstances and statutory provisions.

  • Statutes may expressly provide for the filing of a formal notice of lis pendens even in actions involving only personal property.

  • The failure to file a notice of lis pendens does not preclude the right to claim that a person acquiring interests pendente lite takes the property subject to the judgment if the purchaser has actual notice of the pending lawsuit or other facts establishing constructive notice.

-Note: The partial digest section only includes the issues and ruling extracted from the text. It does not provide an elaboration on the facts of the case.)

  • Constructive Notice - Third parties may be charged with constructive notice of encumbrances or assignments if they have actual knowledge or notice of such encumbrance or assignment.

  • Lis Pendens - The rule of lis pendens may be considered even in cases involving personal property if there is actual or constructive notice from the records.