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 : p

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(1) and Resolution dated 24 July 2007 2(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(3) and covered by
Transfer Certificate of Title (TCT) Nos. 112488, 4(4) 112489, 5(5) and T-68516. 6(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(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(8) To secure this obligation, PAGLAUM
executed three Real Estate Mortgages on behalf of HealthTech and in favor of Union Bank. 9(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(10) (Emphasis supplied.) IAETDc

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 . . . any
other venue. 11(11) (Emphasis supplied.)

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

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 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(12)

HealthTech and Union Bank agreed to subsequent renewals and increases in the credit line,
13(13) with the total amount of debt reaching P36,500,000. 14(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(15) Thus, on 11 December 1998, both parties entered
into a Restructuring Agreement, 16(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(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(18)

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

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(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(25) It likewise denied the subsequent Motion for Reconsideration
filed by PAGLAUM and HealthTech. 26(26)

PAGLAUM and HealthTech elevated the case to the CA, which affirmed the Order dated 11
March 2003 27(27) and denied the Motion for Reconsideration. 28(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(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(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(31)

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 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(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). HSATIC

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(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.) aCTHEA

In Sps. Lantin v. Lantion, 34(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.

xxx xxx xxx

Clearly, the words "exclusively" and "waiving for this purpose any other venue"
are restrictive and used advisedly to meet the requirements. 35(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
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 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: CHIEDS

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(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; IaAEHD

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;

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 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(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(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. SDAcaT

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, Brion, Perez and Reyes, JJ., concur.

Footnotes
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.
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 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, pp. 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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 Endnotes

1 (Popup - Popup)
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 (Popup - Popup)
2. Rollo, p. 55.

3 (Popup - Popup)
3. Petition, p. 5; rollo, p. 19.

4 (Popup - Popup)
4. Rollo, pp. 75-76.

5 (Popup - Popup)
5. Rollo, pp. 73-74.

6 (Popup - Popup)
6. Rollo, pp. 77-78.

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

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

9 (Popup - Popup)
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 (Popup - Popup)
10. Rollo, pp. 176, 180 and 184.

11 (Popup - Popup)
11. Rollo, pp. 176 and 180.

12 (Popup - Popup)

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 12. Rollo, p. 184.

13 (Popup - Popup)
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 (Popup - Popup)
14. Restructuring Agreement dated 11 December 1998, rollo, pp. 99-108.

15 (Popup - Popup)
15. Petition, p. 6; rollo, p. 20.

16 (Popup - Popup)
16. Rollo, pp. 99-108.

17 (Popup - Popup)
17. Id. at 106.

18 (Popup - Popup)
18. Letter dated 9 October 2000, rollo, p. 122.

19 (Popup - Popup)
19. Petition, p. 8; rollo, p. 22.

20 (Popup - Popup)
20. Petition, p. 8; rollo, p. 22; CA Decision, p. 2, rollo, p. 46.

21 (Popup - Popup)
21. Petition, p. 8; rollo, p. 22.

22 (Popup - Popup)
22. Rollo, pp. 59-72.

23 (Popup - Popup)
23. Resolution dated 13 December 2001, rollo, pp. 125-129.

24 (Popup - Popup)

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 24. Rollo, pp. 130-135.

25 (Popup - Popup)
25. Order dated 11 March 2003, rollo, pp. 166-170.

26 (Popup - Popup)
26. Order dated 19 September 2003, rollo, pp. 171-172.

27 (Popup - Popup)
27. CA Decision, rollo, pp. 44-53.

28 (Popup - Popup)
28. Resolution dated 24 July 2007, rollo, pp. 54-55.

29 (Popup - Popup)
29. Petition, p. 12; rollo, p. 26.

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

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

32 (Popup - Popup)
32. 258-A Phil. 336 (1989).

33 (Popup - Popup)
33. Id. at 340-341.

34 (Popup - Popup)
34. 531 Phil. 318 (2006).

35 (Popup - Popup)
35. Id. at 322-323.

36 (Popup - Popup)
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.
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 37 (Popup - Popup)
37. Restructuring Agreement, pp. 3-4; rollo, pp. 101-102.

38 (Popup - Popup)
38. Restructuring Agreement, p. 8; rollo, p. 106.

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