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688 Phil. 157

SECOND DIVISION

[ G.R. No. 179018, June 18, 2012 ]

PAGLAUM MANAGEMENT & DEVELOPMENT CORP. AND HEALTH MARKETING TECHNOLOGIES, INC., PETITIONERS, VS. UNION BANK OF THE PHILIPPINES, NOTARY PUBLIC JOHN DOE, AND REGISTER OF DEEDS OF CEBU CITY AND CEBU PROVINCE RESPONDENTS.

J. KING & SONS CO., INC. INTERVENOR.

D E C I S I O N

SERENO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision dated 31 May 2007[1] and Resolution dated 24 July 2007[2] issued by the Court of Appeals (CA).

Petitioner Paglaum Management and Development Corporation (PAGLAUM) is the registered owner of three parcels of land located in the Province of Cebu[3] and covered by Transfer Certificate of Title (TCT) Nos. 112488,[4] 112489,[5] and T-68516.[6] These lots are co-owned by Benjamin B. Dy, the president of petitioner Health Marketing Technologies, Inc. (HealthTech), and his mother and siblings.[7]

On 3 February 1994, respondent Union Bank of the Philippines (Union Bank) extended HealthTech a credit line in the amount of P10,000,000.[8] To secure this obligation, PAGLAUM executed three Real Estate Mortgages on behalf of HealthTech and in favor of Union Bank.[9] It must be noted that the Real Estate Mortgage, on the provision regarding the venue of all suits and actions arising out of or in connection therewith, originally stipulates:

Section 9. Venue. – The venue of all suits and actions arising out of or in connection with this Mortgage shall be in Makati, Metro Manila or in the place where any of the Mortgaged Properties is located, at the absolute option of the Mortgagee, the parties hereto waiving any other venue.[10] (Emphasis supplied.)

However, under the two Real Estate Mortgages dated 11 February 1994, the following version appears:

Section 9. Venue. – The venue of all suits and actions arising out of or in connection with this Mortgage shall be in Cebu City Metro Manila or in the place where any of the Mortgaged Properties is located, at the absolute option of the Mortgagee, the xxxxxxxxxxxxx any other venue.[11] (Emphasis supplied.)

Meanwhile, the same provision in the Real Estate Mortgage dated 22 April 1998 contains the following:

Section 9. Venue. – The venue of all suits and actions arising out of or in connection with this Mortgage shall be in _________ or in the place where any of the Mortgaged Properties is located, at the absolute option of the Mortgagee, the parties hereto waiving any other venue.[12]

HealthTech and Union Bank agreed to subsequent renewals and increases in the credit line,[13] with the total amount of debt reaching P36,500,000.[14] Unfortunately, according to HealthTech, the 1997 Asian financial crisis adversely affected its business and caused it difficulty in meeting its obligations with Union Bank.[15] Thus, on 11 December 1998, both parties entered into a Restructuring Agreement,[16] which states that any action or proceeding arising out of or in connection therewith shall be commenced in Makati City, with both parties waiving any other venue.[17]

Despite the Restructuring Agreement, HealthTech failed to pay its obligation, prompting Union Bank to send a demand letter dated 9 October 2000, stating that the latter would be constrained to institute foreclosure proceedings, unless HealthTech settled its account in full.[18]

Since HealthTech defaulted on its payment, Union Bank extra-judicially foreclosed the mortgaged properties.[19] The bank, as the sole bidder in the auction sale, was then issued a Certificate of Sale dated 24 May 2001.[20] Thereafter, it filed a Petition for Consolidation of Title.[21]

Consequently, HealthTech filed a Complaint for Annulment of Sale and Titles with Damages and Application for Temporary Restraining Order and Writ of Injunction dated 23 October 2001, praying for: (a) the issuance of a temporary restraining order, and later a writ of preliminary injunction, directing Union Bank to refrain from exercising acts of ownership over the foreclosed properties; (b) the annulment of the extra-judicial foreclosure of real properties; (c) the cancellation of the registration of the Certificates of Sale and the resulting titles issued; (d) the reinstatement of PAGLAUM’s ownership over the subject properties; and (e) the payment of damages.[22] The case was docketed as Civil Case No. 01-1567 and raffled to the Regional Trial Court, National Capital Judicial Region, Makati City, Branch 134 (RTC Br. 134), which issued in favor of PAGLAUM and HealthTech a Writ of Preliminary Injunction restraining Union Bank from proceeding with the auction sale of the three mortgaged properties.[23]

On 23 November 2001, Union Bank filed a Motion to Dismiss on the following grounds: (a) lack of jurisdiction over the issuance of the injunctive relief; (b) improper venue; and (c) lack of authority of the person who signed the Complaint.[24] RTC Br. 134 granted this Motion in its Order dated 11 March 2003, resulting in the dismissal of the case, as well as the dissolution of the Writ of Preliminary Injunction.[25] It likewise denied the subsequent Motion for Reconsideration filed by PAGLAUM and HealthTech.[26]

PAGLAUM and HealthTech elevated the case to the CA, which affirmed the Order dated 11 March 2003[27] and denied the Motion for Reconsideration.[28]

In the instant Petition, PAGLAUM and HealthTech argue that: (a) the Restructuring Agreement governs the choice of venue between the parties, and (b) the agreement on the choice of venue must be interpreted with the convenience of the parties in mind and the view that any obscurity therein was caused by Union Bank.[29]

On the other hand, Union Bank contends that: (a) the Restructuring Agreement is applicable only to the contract of loan, and not to the Real Estate Mortgage, and (b) the mortgage contracts explicitly state that the choice of venue exclusively belongs to it.[30]

Meanwhile, intervenor J. King & Sons Company, Inc. adopts the position of Union Bank and reiterates the position that Cebu City is the proper venue.[31]

The sole issue to be resolved is whether Makati City is the proper venue to assail the foreclosure of the subject real estate mortgage. This Court rules in the affirmative.

Civil Case No. 01-1567, being an action for Annulment of Sale and Titles resulting from the extrajudicial foreclosure by Union Bank of the mortgaged real properties, is classified as a real action. In Fortune Motors v. Court of Appeals,[32] this Court held that a case seeking to annul a foreclosure of a real estate mortgage is a real action, viz:

An action to annul a real estate mortgage foreclosure sale is no different from an action to annul a private sale of real property. (Muñoz v. Llamas, 87 Phil. 737, 1950).

While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner’s primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action.[33]

Being a real action, the filing and trial of the Civil Case No. 01-1567 should be governed by the following relevant provisions of the Rules of Court (the Rules):

Rule 4
VENUE OF ACTIONS

Section 1. Venue of real actions. – Actions affecting title to or possession of real property, or interest therein, shall be commenced and tried in the proper court which has jurisdiction over the area wherein the real property involved, or a portion thereof, is situated.

Forcible entry and detainer actions shall be commenced and tried in the municipal trial court of the municipality or city wherein the real property involved, or a portion thereof, is situated.

Sec. 3. When Rule not applicable. – This Rule shall not apply –

(a) In those cases where a specific rule or law provides otherwise; or

(b) Where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof. (Emphasis supplied.)

In Sps. Lantin v. Lantion,[34] this Court explained that a venue stipulation must contain words that show exclusivity or restrictiveness, as follows:

At the outset, we must make clear that under Section 4 (b) of Rule 4 of the 1997 Rules of Civil Procedure, the general rules on venue of actions shall not apply where the parties, before the filing of the action, have validly agreed in writing on an exclusive venue. The mere stipulation on the venue of an action, however, is not enough to preclude parties from bringing a case in other venues. The parties must be able to show that such stipulation is exclusive. In the absence of qualifying or restrictive words, the stipulation should be deemed as merely an agreement on an additional forum, not as limiting venue to the specified place.

x x x           x x x           x x x

Clearly, the words “exclusively” and “waiving for this purpose any other venue” are restrictive and used advisedly to meet the requirements.[35] (Emphasis supplied.)

According to the Rules, real actions shall be commenced and tried in the court that has jurisdiction over the area where the property is situated. In this case, all the mortgaged properties are located in the Province of Cebu. Thus, following the general rule, PAGLAUM and HealthTech should have filed their case in Cebu, and not in Makati.

However, the Rules provide an exception, in that real actions can be commenced and tried in a court other than where the property is situated in instances where the parties have previously and validly agreed in writing on the exclusive venue thereof. In the case at bar, the parties claim that such an agreement exists. The only dispute is whether the venue that should be followed is that contained in the Real Estate Mortgages, as contended by Union Bank, or that in the Restructuring Agreement, as posited by PAGLAUM and HealthTech. This Court rules that the venue stipulation in the Restructuring Agreement should be controlling.

The Real Estate Mortgages were executed by PAGLAUM in favor of Union Bank to secure the credit line extended by the latter to HealthTech. All three mortgage contracts contain a dragnet clause, which secures succeeding obligations, including renewals, extensions, amendments or novations thereof, incurred by HealthTech from Union Bank, to wit:

Section 1. Secured Obligations. – The obligations secured by this Mortgage (the “Secured Obligations”) are the following:

a) All the obligations of the Borrower and/or the Mortgagor under: (i) the Notes, the Agreement, and this Mortgage; (ii) any and all instruments or documents issued upon the renewal, extension, amendment or novation of the Notes, the Agreement and this Mortgage, irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or additional obligations; and (iii) any and all instruments or documents issued pursuant to the Notes, the Agreement and this Mortgage;

b) All other obligations of the Borrower and/or the Mortgagor in favor of the Mortgagee, whether presently owing or hereinafter incurred and whether or not arising from or connected with the Agreement, the Notes and/or this Mortgage; and

c) Any and all expenses which may be incurred in collecting any and all of the above and in enforcing any and all rights, powers and remedies of the Mortgagee under this Mortgage.[36]

On the other hand, the Restructuring Agreement was entered into by HealthTech and Union Bank to modify the entire loan obligation. Section 7 thereof provides:

Security. – The principal, interests, penalties and other charges for which the BORROWER may be bound to the BANK under the terms of this Restructuring Agreement, including the renewal, extension, amendment or novation of this Restructuring Agreement, irrespective of whether the obligations arising out of or in connection with this Restructuring Agreement, as renewed, extended, amended or novated, are in the nature of new, separate or additional obligations, and all other instruments or documents covering the Indebtedness or otherwise made pursuant to this Restructuring Agreement (the “Secured Obligations”), shall continue to be secured by the following security arrangements (the “Collaterals”):

a.  Real Estate Mortgage dated February 11, 1994 executed by Paglaum Management and Development Corporation over a 474 square meter property covered by TCT No. 112489;

b. Real Estate Mortgage dated February 11, 1994 executed by Paglaum Management and Development Corporation over a 2,796 square meter property covered by TCT No. T-68516;

c.  Real Estate Mortgage dated April 22, 1998 executed by Paglaum Management and Development Corporation over a 3,711 square meter property covered by TCT No. 112488;

d. Continuing Surety Agreement of Benjamin B. Dy;

Without need of any further act and deed, the existing Collaterals, shall remain in full force and effect and continue to secure the payment and performance of the obligations of the BORROWER arising from the Notes and this Restructuring Agreement.[37] (Emphasis supplied.)

Meanwhile, Section 20 of the Restructuring Agreement as regards the venue of actions state:

20. Venue – Venue of any action or proceeding arising out of or connected with this Restructuring Agreement, the Note, the Collateral and any and all related documents shall be in Makati City, [HealthTech] and [Union Bank] hereby waiving any other venue.[38] (Emphasis supplied.)

These quoted provisions of the Real Estate Mortgages and the later Restructuring Agreement clearly reveal the intention of the parties to implement a restrictive venue stipulation, which applies not only to the principal obligation, but also to the mortgages. The phrase “waiving any other venue” plainly shows that the choice of Makati City as the venue for actions arising out of or in connection with the Restructuring Agreement and the Collateral, with the Real Estate Mortgages being explicitly defined as such, is exclusive.

Even if this Court were to consider the venue stipulations under the Real Estate Mortgages, it must be underscored that those provisions did not contain words showing exclusivity or restrictiveness. In fact, in the Real Estate Mortgages dated 11 February 1994, the phrase “parties hereto waiving” – from the entire phrase “the parties hereto waiving any other venue” – was stricken from the final executed contract. Following the ruling in Sps. Lantin as earlier quoted, in the absence of qualifying or restrictive words, the venue stipulation should only be deemed as an agreement on an additional forum, and not as a restriction on a specified place.

Considering that Makati City was agreed upon by the parties to be the venue for all actions arising out of or in connection with the loan obligation incurred by HealthTech, as well as the Real Estate Mortgages executed by PAGLAUM, the CA committed reversible error in affirming the dismissal of Civil Case No. 01-1567 by RTC Br. 134 on the ground of improper venue.

WHEREFORE, the Petition for Review is GRANTED. The Decision dated 31 May 2007 and Resolution dated 24 July 2007 in CA-G.R. CV No. 82053 of the Court of Appeals, as well as the Orders dated 11 March 2003 and 19 September 2003 issued by the Regional Trial Court, Makati City, Branch 134, are REVERSED and SET ASIDE. The Complaint in Civil Case No. 01-1567 is hereby REINSTATED.

SO ORDERED.

Carpio, (Chairperson), Brion, Perez, and Reyes, JJ., concur.



[1] Rollo, pp. 45-53. Penned by CA Associate Justice Fernanda Lampas Peralta and concurred in by Associate Justices Edgardo P. Cruz and Normandie B. Pizarro.

[2] Rollo, p. 55.

[3] Petition, p. 5; rollo, p. 19.

[4] Rollo, pp. 75-76.

[5] Rollo, pp. 73-74.

[6] Rollo, pp. 77-78.

[7] Petition, p. 6; rollo, p. 20. See also Stockholders Resolution of PAGLAUM dated 11 December 1998, rollo, pp. 116-117.

[8] Credit Line Agreement dated 3 February 1994, rollo, pp. 80-81; CA Decision, p. 2, rollo, p. 46.

[9] Real Estate Mortgage dated 11 February 1994, rollo, pp. 173-176; Real Estate Mortgage dated 11 February 1994, rollo, pp. 177-180; Real Estate Mortgage dated 22 April 1998, rollo, pp. 181-184.

[10] Rollo, pp. 176, 180 and 184.

[11] Rollo, pp. 176 and 180.

[12] Rollo, p. 184.

[13] Letter dated 14 March 1995 of Union Bank to HealthTech, rollo, pp. 82-83; letter dated 11 February 1997 of Union Bank to HealthTech, rollo, pp. 84-85; Petition, p. 5, rollo, p. 19; CA Decision, p. 2, rollo, p. 46; Restructuring Agreement dated 11 December 1998, rollo, pp. 99-108.

[14] Restructuring Agreement dated 11 December 1998, rollo, pp. 99-108.

[15] Petition, p. 6; rollo, p. 20.

[16] Rollo, pp. 99-108.

[17] Id. at 106.

[18] Letter dated 9 October 2000, rollo, p. 122.

[19] Petition, p. 8; rollo, p. 22.

[20] Petition, p. 8; rollo, p. 22; CA Decision, p. 2, rollo, p. 46.

[21] Petition, p. 8; rollo, p. 22.

[22] Rollo, pp. 59-72.

[23] Resolution dated 13 December 2001, rollo, pp. 125-129.

[24] Rollo, pp. 130-135.

[25] Order dated 11 March 2003, rollo, pp. 166-170.

[26] Order dated 19 September 2003, rollo, p. 171-172.

[27] CA Decision, rollo, pp. 44-53.

[28] Resolution dated 24 July 2007, rollo, pp. 54-55.

[29] Petition, p. 12; rollo, p. 26.

[30] Comment [on] Petition for Review on Certiorari; rollo, pp. 260-268.

[31] Comment (On the Petition for Review on Certiorari) dated 26 December 2007; rollo, pp. 270-277.

[32] 258-A Phil. 336 (1989).

[33] Id. at 340-341.

[34] 531 Phil. 318 (2006).

[35] Id. at 322-323.

[36] Real Estate Mortgage dated 11 February 1994, rollo, p. 173; Real Estate Mortgage dated 11 February 1994, rollo, p. 177; Real Estate Mortgage dated 22 April 1998, rollo, p. 181.

[37] Restructuring Agreement, pp. 3-4; rollo, pp. 101-102.

[38] Restructuring Agreement, p. 8; rollo, p. 106.

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