SECOND DIVISION

PAGLAUM MANAGEMENT & G.R. No. 179018

DEVELOPMENT CORP. and HEALTH
MARKETING TECHNOLOGIES, INC., Present:
Petitioners,
CARPIO, J., Chairperson,
BRION,
PEREZ,
- versus - SERENO, and
REYES, JJ.

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. Promulgated:

June 18, 2012

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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 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 ₱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 partieswaiving 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
PAGLAUMs 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. (Muoz 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 petitioners 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.
 xxxxxxxxx

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.