Chua vs. TOPROS, Inc.

An action for the annulment of a real estate mortgage is a personal action when ownership of the mortgaged property has not been transferred to the mortgagee and the mortgagor remains in possession, such that venue is properly laid where the parties reside. A corporate officer who merely signed a contract in a representative capacity without authority does not incur personal rights or liabilities thereunder and is not an indispensable party to the suit for its annulment.

Respondent Total Office Products and Services, Inc. (TOPROS) is a corporation that purportedly obtained a loan from petitioner Antonio T. Chua, secured by a real estate mortgage over two parcels of land in Quezon City. The contracts were executed by TOPROS's president, John Charles Chang, Jr., who allegedly lacked authority to enter into the transaction. TOPROS sought to annul the contracts as fictitious for lack of consideration, prompting a dispute over the proper venue for the suit and the necessary parties to the action.

On December 28, 1999, respondent Total Office Products and Services, Inc. (TOPROS) lodged a complaint for annulment of contracts of loan and real estate mortgage against petitioner Antonio T. Chua before the Regional Trial Court of Pasig City, docketed as Civil Case No. 67736 and raffled to Judge Lorifel Lacap Pahimna. The suit sought to annul a loan contract allegedly extended by petitioner to TOPROS in the amount of ₱10,400,000, along with the accessory real estate mortgage covering two parcels of land situated in Quezon City. It appeared on the face of the contracts that TOPROS was represented by its president, John Charles Chang, Jr. TOPROS alleged, however, that the purported loan and real estate mortgage contracts were fictitious, as it never authorized anybody, not even its president, to enter into the transaction.

On February 28, 2000, petitioner filed a motion to dismiss on the ground of improper venue, contending that the action affects title to or possession of the parcels of land subject of the mortgage. He argued that it should have been filed in the RTC of Quezon City where the encumbered properties are located, rather than in Pasig City where the parties reside. Judge Pahimna denied the motion on August 9, 2000, reasoning that the action to annul the loan and mortgage contracts is a personal action, making venue proper in Pasig City. Petitioner's motion for reconsideration was denied on October 6, 2000.

Petitioner then elevated the matter to the Court of Appeals via a special civil action for certiorari, alleging grave abuse of discretion. The appellate court dismissed the petition on November 28, 2001, holding that the authorities relied upon by petitioner, namely Pascual vs. Pascual and Banco Español-Filipino vs. Palanca, were inapplicable. The Court of Appeals instead applied Hernandez vs. Rural Bank of Lucena, Inc., which ruled that an action for the cancellation of a real estate mortgage is a personal action if the mortgagee has not foreclosed the mortgage and the mortgagor is in possession. Petitioner's motion for reconsideration was denied on April 1, 2002, prompting the present petition for review.

• Classification of the Action: Petitioner contended that the action is a real action because it affects title to or possession of the real property subject of the mortgage, relying on Pascual vs. Pascual where a fictitious contract of sale with no consideration was deemed non-existent, making the action one for the recovery of real property.
• Applicability of Precedents: Petitioner argued that Hernandez should not apply because venue was improperly laid there at the outset, the complaint recognized the validity of the principal contract, and the plaintiff sought to compel acceptance of payment. He further invoked Banco Español-Filipino to argue that jurisdiction is determined by the location of the real property.
• Indispensable Party: Petitioner alleged that John Charles Chang, Jr., the president of TOPROS who allegedly entered into the questioned contracts without authority, is an indispensable party who has not been properly impleaded.

• Classification of the Action: Respondent maintained that the appellate court correctly sustained the lower court's finding that the complaint for annulment is a personal action, pointing out that a complaint for the declaration of nullity of a loan contract for lack of consent and consideration remains a personal action even if it necessarily affects the accessory real estate mortgage.
• Inapplicability of Petitioner's Precedents: Respondent argued that Pascual is inapplicable because the subject contract therein was a sale where title and possession had already transferred to the defendant. Respondent further contended that Banco Español-Filipino is also inapplicable since the action therein affected the personal status of a nonresident defendant, a circumstance absent in the present case.

• Nature of the Action: Whether an action to annul a loan and mortgage contract alleged as fictitious for having absolutely no consideration is a personal action or a real action.
• Indispensable Party: Whether the person alleged to have lacked authority to enter into said contracts is an indispensable party.

• Nature of the Action: Yes, it is a personal action. An action to annul a contract of loan and its accessory real estate mortgage is a personal action when the mortgagor retains ownership and possession of the property, making the residence of the parties the proper venue.
• Indispensable Party: No. The corporate president who signed the contracts in a representative capacity without authority is not an indispensable party, as he acquires no personal rights or liabilities under the contract.

• Nature of the Action: The rule on real actions under Section 2(a), Rule 4 of the then Rules of Court specifically mentions actions for the foreclosure of a mortgage on real property, but does not include an action for the annulment or cancellation of a real estate mortgage. By the principle of exclusio unius est inclusio alterius, the latter falls under the catch-all provision on personal actions. While Pascual held that an action involving a fictitious contract of sale was a real action for the recovery of property, that case involved a situation where title to and possession of the fishpond had already passed to the vendee. In the present case, ownership of the parcels of land subject of the real estate mortgage was never transferred to petitioner but remained with TOPROS. Because no recovery of real property is involved, the action for annulment remains a personal action, properly filed in Pasig City where the parties reside.
• Indispensable Party: Under Section 7, Rule 3 of the Revised Rules of Court, indispensable parties are those in interest without whom no final determination can be had of an action. However, a person is not an indispensable party if his interest is separable from the other parties, such that a decree would not directly or injuriously affect him. Although Chang's signature appears on the real estate mortgage contract, his participation was limited to being a representative of TOPROS. The contract clearly points to petitioner and TOPROS as the sole parties-in-interest as mortgagee and mortgagor, respectively. Any rights or liabilities arising from the contract bind only the principal parties. Chang, acting as a mere representative, acquires no rights and incurs no liabilities, making him not an indispensable party.

• Exclusio unius est inclusio alterius — The express mention of one thing excludes others. The Court applied this principle to Section 2(a), Rule 4 of the Rules of Court, noting that because the rule on real actions expressly includes foreclosure of a real estate mortgage but omits annulment or cancellation, the latter is excluded from real actions and falls under personal actions.
• Distinction between Real and Personal Actions — A real action is one affecting title to real property, or for the recovery of possession, partition, condemnation, or foreclosure of a mortgage. A personal action seeks the recovery of personal property, the enforcement of a contract, or the recovery of damages. An action for the annulment of a real estate mortgage is a personal action if the mortgagor retains ownership and possession, as no recovery of real property is sought.
• Indispensable Parties — Parties in interest without whom no final determination can be had of an action. A representative who signs a contract on behalf of a corporation without acquiring personal rights or liabilities is not an indispensable party to a suit for the annulment of that contract.

• "Well-settled is the rule that an action to annul a contract of loan and its accessory real estate mortgage is a personal action." — This passage states the ratio decidendi regarding the classification of the action, directly resolving the venue issue.
• "The Court pointed out in the Hernandez case that with respect to mortgage, the rule on real actions only mentions an action for foreclosure of a real estate mortgage. It does not include an action for the cancellation of a real estate mortgage. Exclusio unios est inclusio alterius." — This explains the doctrinal basis for classifying an annulment action as a personal action through statutory construction.
• "Chang, acting as mere representative of TOPROS, acquires no rights whatsoever, nor does he incur any liabilities, arising from the said contract between petitioner and TOPROS." — This defines the rationale for excluding a corporate representative from being impleaded as an indispensable party.

• Pascual vs. Pascual, 73 Phil. 561 (1942) — Distinguished. The Court held that in Pascual, title and possession of the property had already passed to the vendee, necessitating a real action for recovery, unlike the present case where ownership remained with the mortgagor.
• Banco Español-Filipino vs. Palanca, 37 Phil. 921 (1918) — Distinguished. The Court found this case inapplicable because it involved a foreclosure against a nonresident defendant, whereas the present case is not a foreclosure and involves no nonresident parties.
• Hernandez vs. Rural Bank of Lucena, Inc., 81 SCRA 75 (1978) — Followed. The Court applied the ruling that an action for the cancellation of a real estate mortgage is a personal action if the mortgagee has not foreclosed and the mortgagor is in possession.
• Metropolitan Bank & Trust Company vs. Alejo, 364 SCRA 812 (2001) — Cited for the definition of indispensable parties and the rule that their absence renders court actuations null and void.
• De Castro vs. Court of Appeals, 384 SCRA 607 (2002) — Cited for the procedural duty of the court to order the inclusion of an indispensable party if it appears one has not been joined.

• Section 2(a), Rule 4, Rules of Court — Defines real actions as those affecting title to or for recovery of possession, partition, condemnation, or foreclosure of mortgage on real property, which must be commenced where the property lies. The Court used this to show that annulment is not listed.
• Section 2(b), Rule 4, Rules of Court — Defines personal actions as all other actions, which may be commenced where the plaintiff or defendant resides. The Court applied this to establish Pasig City as the proper venue.
• Section 7, Rule 3, Revised Rules of Court — Mandates the compulsory joinder of indispensable parties without whom no final determination can be had. The Court applied this to determine whether Chang was an indispensable party, ultimately concluding he was not.

Hilario G. Davide, Jr. (Chief Justice, Chairman), Consuelo Ynares-Santiago, Antonio T. Carpio, and Adolfo S. Azcuna.