Paglaum Management & Development Corp. and Health Marketing Technologies, Inc. v.

Union Bank
of the Philippines, et al., G.R. No. 179018, June 18, 2012

Facts:

Paglaum Management and Development Corporation (PAGLAUM) is the registered owner of three
parcels of land located in the Province of Cebu. These lots are co-owned by Benjamin Dy, the
president of HealthTech, and his mother and siblings.

Union Bank extended HealthTech a credit line in the amount of ₱ 10M. To secure this obligation,
PAGLAUM executed three Real Estate Mortgages on behalf of HealthTech and in favor of Union
Bank.

Under the Real Estate Mortgage, 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. However, under the two Real Estate Mortgages dated 11 February 1994 and 22 April 1998,
the venue shall be in Cebu City, Metro Manila or in the place where any of the Mortgaged Properties
is located.

HealthTech and Union Bank agreed to subsequent renewals and increases in the credit line,  with the
total amount of debt reaching ₱ 36.5M. The 1997 Asian financial crisis adversely affected
HealthTech’s business and caused it difficulty in meeting its obligations with Union Bank. Thus, on 11
December 1998, both parties entered into a Restructuring Agreement,  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.

Since HealthTech defaulted on its payment, Union Bank extra-judicially foreclosed the mortgaged
properties with the Union Bank as the sole bidder. Thereafter, it filed a Petition for Consolidation of
Title.

HealthTech filed a Complaint for Annulment of Sale and Titles with Damages and Application for
Temporary Restraining Order and Writ of Injunction before the RTC of Makati City. Union Bank filed a
Motion to Dismiss on the ground of improper venue. RTC granted the Motion and dismissed the case.
CA affirmed the decision. Hence, this petition.

Issue:

WON Makati City is the proper venue to assail the foreclosure of the subject real estate mortgage

Ruling:

Yes. 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.

Fortune Motors v. Court of Appeals – a case seeking to annul a foreclosure of a real estate mortgage
is a real action

Muñoz v. Llamas – An action to annul a real estate mortgage foreclosure sale is no different from an
action to annul a private sale of real property. 

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.

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.

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 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 Restructuring Agreement was entered into by HealthTech and Union Bank to modify the entire
loan obligation. Section 20 of the Restructuring Agreement as regards the venue of actions state that
“Venue…shall be in Makati City, HealthTech and Union Bank hereby waiving any other venue.”