Republic of the Philippines

SUPREME COURT
Manila

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.

DECISION

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 20071 and Resolution dated 24 July
20072 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
Cebu3 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.7 siblings

On 3 February 1994, respondent Union Bank of the Philippines (Union Bank)

extended HealthTech a credit line in the amount of ₱ 10,000,000.8 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 ₱
36,500,000.14 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 200327 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.