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

Union Bank
of the Philippines, et al.,
GR. No. 179018, June 18, 2012
SERENO, J.

Doctine:

Rule 4, Section 1 states that: 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.

Facts:

On 3 February 1994, respondent Union Bank extended HealthTech a credit line in the amount of
₱10,000,000. To secure this obligation, PAGLAUM executed three Real Estate Mortgages on behalf of
HealthTech and in favor of Union Bank. 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.

However, under the two Real Estate Mortgages dated February 11, 1994, it stated that the venue
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. Meanwhile, the same provision in Real Estate Mortgage date
April 22, 1998 contains a blank space for the venue 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 ₱36,500,000. Unfortunately, according to HealthTech, the 1997 Asian
financial crisis adversely affected its business and caused it difficulty in meeting its obligations with
Union Bank. Thus, on December 11, 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. 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. Since HealthTech defaulted on its payment, Union Bank extra-
judicially foreclosed the mortgaged properties. The bank as the sole bidder, was then issued a Certificate
of Sale. Consequently, HealthTech filed a Complaint for Annulment of Sale and Titles with Damages and
Application for Temporary Restraining Order and Writ of Injunction, which the RTC ruled in favor of
them and issued the said writ. Thereafter, Union Bank filed a Motion to Dismiss, which the RTC granted
and resulted to the dismissal of the case, as well as the dissolution of the Writ of Preliminary Injunction.
It likewise denied the subsequent Motion for Reconsideration filed by PAGLAUM and HealthTech.
PAGLAUM and HealthTech elevated the case to the CA, which affirmed the decision of the trial court
and denied the Motion for Reconsideration.

Issue: Whether Makati City is the proper venue to assail the foreclosure of the subject real estate
mortgage.

Ruling:

The Supreme Court rules in the affirmative. 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 said 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.

Dispositive Portion:

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.