Hernando vs. Golden Sun Finance Corporation

A venue stipulation in a loan agreement applies only to actions arising under or by virtue of that agreement and does not extend to a separate action for nullification of an execution sale conducted to satisfy the judgment on the loan, where the complaint questions the sheriff's conduct in execution proceedings rather than the contractual terms of the instrument. The action for nullification of an execution sale and certificates of sale, where the plaintiff does not pray for recovery of possession or title to real property, is a personal action governed by the general rules on venue under Rule 4, Section 2 of the Rules of Court.

Elizabeth A. Hernando obtained a loan from Golden Sun Finance Corporation in the principal amount of PHP 749,760.00, evidenced by a Promissory Note containing an exclusive venue stipulation designating the courts of Bacolod City for any legal or court action arising under or by virtue of the Note. The loan was secured by a Chattel Mortgage over a Ford Everest, which likewise contained a venue stipulation identical in substance. The parties' relationship was thus that of borrower and lender, with the loan agreement and its stipulations forming the contractual framework within which the subsequent disputes arose.

On July 17, 2008, Elizabeth A. Hernando obtained a loan from Golden Sun Finance Corporation in the principal amount of PHP 749,760.00, with interest at 76% for a period of 36 months, to be repaid through monthly installments of PHP 20,826.67. The loan was evidenced by a Promissory Note containing an exclusive venue stipulation designating the courts of Bacolod City for any legal or court action arising under or by virtue of the agreement. To secure payment, Elizabeth executed a Chattel Mortgage over a Ford Everest, which contained a similar venue stipulation. In accordance with the Promissory Note, Elizabeth issued 36 post-dated checks to Golden Sun, each in the amount of PHP 20,826.67.

Twenty-eight of the 36 post-dated checks were dishonored when presented for payment, prompting Golden Sun to file criminal cases for violation of Batas Pambansa Blg. 22 before the MTCC, Bacolod City. The 28 bounced checks represented an aggregate amount of PHP 583,146.76, which became the subject of a Compromise Agreement dated February 16, 2017, wherein Golden Sun recognized that Elizabeth had paid PHP 200,000.00, leaving a balance of PHP 383,146.76 payable at PHP 20,000.00 per month until fully paid. Separately, on July 20, 2012, Golden Sun filed a Complaint for Sum of Money with Damages with Prayer for Preliminary Attachment before the RTC Bacolod City, docketed as Civil Case No. 12-13986, to collect PHP 384,634.96 representing the unpaid obligation under the Promissory Note, including liquidated damages, interest, and other charges.

During the proceedings in the Collection Case, the RTC Bacolod City issued a Writ of Preliminary Attachment on October 5, 2012, which was annotated on the Torrens certificates of title for nine properties located in Laoag City where Elizabeth was identified as sole registered owner or part-owner. Elizabeth failed to file an answer, was declared in default, and on December 4, 2014, the RTC Bacolod City rendered judgment ordering her to pay PHP 384,634.96 with 12% interest per annum, attorney's fees equivalent to 25% of the amount recovered, and costs of suit. Upon Golden Sun's motion, a Writ of Execution issued on May 21, 2015, and on June 8, 2016, Sheriff Ildefonso M. Villanueva, Jr. issued a Notice of Sale on Execution of Real Properties, scheduling a public auction for July 27, 2016.

On July 27, 2016, Sheriff Villanueva proceeded with the auction sale of the nine Laoag City properties, with Golden Sun declared the highest bidder at PHP 1,800,000.00. A Certificate of Sale on Execution was issued on September 23, 2016, and a Final Certificate of Sale on Execution was issued on December 6, 2017, stating that the properties were not redeemed despite the lapse of the redemption period. Elizabeth alleged that she was not notified of the public auction sale, that the properties were sold for an amount greatly exceeding the judgment debt of PHP 384,634.96, and that the sheriff failed to first attempt to levy on the mortgaged Ford Everest or other personal properties before resorting to the real properties.

On May 23, 2018, Elizabeth filed a Complaint before the RTC Laoag City praying for the declaration of nullity of the Certificate of Sale and Final Certificate of Sale, and for damages. The RTC Laoag City dismissed the Complaint on April 17, 2019 on the ground of improper venue, ruling that Elizabeth's cause of action was rooted in the Promissory Note and that the exclusive venue stipulation required filing in Bacolod City. Elizabeth appealed to the CA via ordinary appeal, but the CA dismissed the appeal on July 7, 2021 for being a wrong mode of appeal, holding that the issues were pure questions of law requiring a petition for review on certiorari under Rule 45. While the petition was pending before the Supreme Court, the parties entered into a Compromise Agreement, prompting Elizabeth to file a Motion to Withdraw Petition.

• Proper Mode of Appeal: Elizabeth argued that an ordinary appeal was the proper remedy from the RTC Laoag City's dismissal of her Complaint because it raised mixed questions of law and fact, specifically the interpretation of the Promissory Note vis-à-vis the proceedings in the execution sale in the Collection Case.
• Liberal Construction of Procedural Rules: Elizabeth averred that the rules of procedure may be relaxed in the interest of substantial justice, imploring the Court for liberality because the execution sale was manifestly illegal and would unjustly deprive her of her interest in nine Laoag City properties sold for PHP 1,800,000.00 when the judgment debt was only PHP 384,634.96.
• Unjust Enrichment: Elizabeth contended that Golden Sun was unjustly enriching itself by collecting payment twice under the same Promissory Note—first through the Collection Case and second through the Compromise Agreement in the Criminal Cases—and that she had already fully paid her obligation under the Compromise Agreement.
• Inapplicability of Venue Stipulation: Elizabeth asserted that the venue stipulation in the Promissory Note does not apply because (1) Golden Sun itself breached the contract when it filed the Collection Case instead of foreclosing the Chattel Mortgage; (2) the real properties subject of the Final Certificate of Sale are located in Laoag City, and jurisdiction over the Nullity Case is lodged in the RTC Laoag City; and (3) Sheriff Villanueva exceeded his authority in causing the execution sale of the nine properties at PHP 1,800,000.00 when the judgment debt was only PHP 384,634.96.

• Applicability of Venue Stipulation: Golden Sun insisted that the venue stipulation in the Promissory Note is controlling because Elizabeth's Complaint was only an offshoot of the parties' contractual relations, considering that the execution sale in the Collection Case was held precisely to satisfy Elizabeth's loan obligation under the Promissory Note.
• Alternative Remedies of a Secured Creditor: Golden Sun argued that as a secured creditor, it may seek satisfaction of Elizabeth's loan obligation either by foreclosing the Chattel Mortgage or by filing a civil action for collection of a sum of money, and that it acted within its rights when it chose to file the Collection Case instead of foreclosing the Chattel Mortgage.

• Motion to Withdraw Petition: Whether the Motion to Withdraw Petition should be granted in view of the Compromise Agreement between the parties.
• Mode of Appeal: Whether the CA correctly ruled that Elizabeth availed herself of the wrong mode of appeal when she contested the RTC Laoag City's dismissal of her Complaint on the ground of wrong venue.
• Applicability of Venue Stipulation: Whether the venue stipulation in the Promissory Note applies to the Complaint filed by Elizabeth for the declaration of nullity of the execution sale and Certificates of Sale in the Collection Case.

• Motion to Withdraw Petition: Yes. The withdrawal was granted and the Petition dismissed pursuant to the Compromise Agreement, the terms of which are not contrary to law, morals, good customs, public order, or public policy, and which rendered the pending petition moot.
• Mode of Appeal: Yes. The CA correctly dismissed the ordinary appeal, the issues raised being pure questions of law on the interpretation of the venue stipulation and its application to the facts of the Nullity Case, which required a petition for review on certiorari under Rule 45 rather than an ordinary appeal under Rule 41.
• Applicability of Venue Stipulation: No. The exclusive venue stipulation in the Promissory Note does not apply to the Complaint in the Nullity Case, which assailed the sheriff's conduct during execution proceedings rather than the terms or conditions of the Promissory Note. The general rule on venue under Rule 4, Sections 1 and 2 of the Rules of Court governs, and the Complaint was properly filed as a personal action in Laoag City where Elizabeth resides.

• Motion to Withdraw Petition: The withdrawal of an appeal is a matter of right before a responsive pleading has been filed, but thereafter is a matter of discretion for the Court. Because the Motion to Withdraw Petition was filed after Golden Sun had already filed its Comment, the withdrawal was discretionary. A compromise is a contract whereby parties make reciprocal concessions to avoid or end litigation, and the parties may establish stipulations not contrary to law, morals, good customs, public order, or public policy. The parties expressly agreed that Elizabeth would withdraw the present Petition, and this stipulation is valid. When parties enter into a compromise and agree to terminate their dispute, the compromise may render a pending petition moot, warranting dismissal. The Court found the dismissal proper in accordance with the policy encouraging amicable settlement.

• Mode of Appeal: The RTC Laoag City's dismissal of the Complaint on the ground of improper venue is a final order because it disposed of the whole case; hence, appeal was the appropriate remedy therefrom. However, the issues of whether the RTC Laoag City correctly interpreted the exclusive venue stipulation under the Promissory Note, and whether it correctly applied the contractual provision under the given set of facts, were pure questions of law. Under Administrative Circular No. 2-90, an appeal taken to the CA by the wrong or inappropriate mode shall be dismissed. Because the issues were purely legal, Elizabeth should have directly filed her appeal with the Supreme Court by way of a petition for review on certiorari under Rule 45, not through an ordinary appeal to the CA. The CA's dismissal was therefore proper.

• Applicability of Venue Stipulation: The venue stipulation in the Promissory Note applies only to "any legal or court action arising under or by virtue of" the Note. Elizabeth's Complaint was filed not because of the terms or conditions in the Promissory Note, but because of the alleged impropriety of the execution sale of the nine Laoag City properties—specifically, lack of notice, sale of properties greatly exceeding the judgment debt, and failure to first levy on the mortgaged Ford Everest. The sheriff's actions were not based on the Promissory Note but were in pursuit of his duty to enforce the judgment in the Collection Case, and the execution sale was conducted as part of the proceedings in that case, governed by Rule 39 of the Rules of Court, not by the contractual stipulation. A contractual venue stipulation applies only if the complaint assails the terms, conditions, and/or coverage of a written instrument and not its validity; Elizabeth's Complaint did not seek enforcement of or assail the terms of the Promissory Note but sought nullification of the execution sale and Certificates of Sale due to incidents occurring independently of the agreement. Furthermore, because restrictive venue stipulations are in derogation of the general policy on venue, the language must be clear and categorical as to leave no doubt on the parties' intention to limit venue. Waiver is the intentional relinquishment of a known right which must already exist at the time of waiver; the conduct of the sheriff complained of had not yet occurred and would not have been known to Elizabeth when she signed the Promissory Note. The stipulation purporting to waive "rights conferred under Rule 39" did not include a waiver of legal venue, because the rule on venue is found in Rule 4, not Rule 39. Any doubt regarding the applicability of the venue stipulation must be resolved against its application. The Complaint was a personal action, as it sought nullification of the execution sale and Certificates of Sale without alleging transfer of title or possession to Golden Sun or praying for recovery of possession or ownership. Under Rule 4, Section 2, it may be commenced where Elizabeth resides, at her election. Because Elizabeth is a resident of Laoag City, filing with the RTC Laoag City was proper, and the RTC Laoag City erred in dismissing the Complaint for improper venue. However, while a separate action was available because a Final Certificate of Sale had already been issued and the judgment satisfied—divesting the RTC Bacolod City of jurisdiction over execution incidents—Elizabeth's recourse from the RTC Laoag City's dismissal should have been a special civil action for certiorari, not an ordinary appeal.

• Scope of Venue Stipulations in Contracts — A contractual stipulation on exclusive venue applies only to actions arising under or by virtue of the contract. It does not extend to separate actions questioning the conduct of execution proceedings undertaken to satisfy a judgment on the contract, where the sheriff's actions are governed by Rule 39 of the Rules of Court rather than the contractual stipulation. The Court applied this principle by holding that Elizabeth's Complaint for nullification of the execution sale did not "arise under" or "by virtue of" the Promissory Note, because it assailed the sheriff's conduct—not the contractual terms—and the execution sale was conducted as part of the proceedings in the Collection Case.

• Restrictive Venue Stipulations Construed Strictly — Because restrictive venue stipulations are in derogation of the general policy on venue for the convenience of the parties, the language of the agreement must be clear and categorical as to leave no doubt on the parties' intention to limit venue. Any doubt regarding the applicability of a venue stipulation should be resolved against its application, and the general rule on venue under Rule 4, Sections 1 and 2 of the Rules of Court must instead be applied. The Court found the subject venue stipulation unclear and equivocal as to its applicability to the Nullity Case, particularly because the conduct complained of had not yet occurred when Elizabeth signed the Promissory Note, and the purported waiver of "rights conferred under Rule 39" did not encompass venue rules found in Rule 4.

• Waiver of a Known Right — Waiver is the intentional relinquishment of a known right which must already be in existence at the time of waiver. For a venue stipulation to bind the parties, it must have been intelligently and deliberately intended by them to exclude their case from the reglementary rules on venue. The Court held that Elizabeth's consent to the venue stipulation could not have included her right of action for nullification of the execution sale based on the sheriff's conduct, as those matters had not yet occurred and would not have been known to her at the time she signed the Promissory Note.

• Classification of Actions as Real or Personal — An action for nullification of agreements relating to real property is a real action if it includes a prayer for recovery of possession or title to the property; it is a personal action if title to or possession remains with the plaintiff, who only seeks a declaration of nullity. The Court classified Elizabeth's Complaint as a personal action because it did not allege transfer of title or possession to Golden Sun and merely prayed for nullification of the Certificates of Sale and damages.

• Remedy After Judgment Fully Satisfied — While the general rule is that controversies in execution proceedings should be referred to the court that issued the writ of execution, this applies only when the judgment has not yet been fully satisfied. After a judgment has been fully satisfied and a Final Certificate of Sale issued, the trial court loses jurisdiction, and the judgment debtor's only recourse is to file a separate action for annulment of the auction sale with the appropriate court. The Court found that because a Final Certificate of Sale had already been issued to Golden Sun and the judgment satisfied, Elizabeth's proper remedy was indeed a separate action.

• Dismissal for Wrong Mode of Appeal — Under Administrative Circular No. 2-90, an appeal taken to the CA by the wrong or inappropriate mode shall be dismissed. Where the issues raised are pure questions of law, the proper remedy from an RTC order is a petition for review on certiorari under Rule 45, not an ordinary appeal under Rule 41. The Court affirmed the CA's dismissal of Elizabeth's ordinary appeal.

• "From the foregoing, it is clear that the Complaint was filed due to incidents that are distinct, independent, and separate from the terms and conditions of the Promissory Note. Surely, it cannot be said that the actions of the Sheriff 'arose under' or were 'by virtue' of the Promissory Note." — This passage articulates the ratio decidendi on why the venue stipulation does not extend to actions assailing execution proceedings, distinguishing the sheriff's statutory duties from the contractual obligations of the parties.

• "However, because restrictive stipulations are in derogation of the general policy on venue for the convenience of the parties, the language of the agreement must be so clear and categorical as to leave no doubt on the parties' intention to limit the venue of their actions." — This is the canonical formulation of the strict construction rule for exclusive venue stipulations, frequently cited in subsequent jurisprudence on venue.

• "Plainly, the subject venue stipulation is unclear, equivocal, and cannot be taken as a categorical waiver by the parties of the rules on venue insofar as the Complaint in the Nullity Case is concerned." — This statement applies the strict construction doctrine to the specific facts, resolving doubt against applicability of the venue stipulation.

• "If a complaint for the annulment or nullification of a deed of sale includes a prayer for the plaintiff to be judicially declared as the owner, or for the recovery or transfer of title to or possession of real property, then the complaint is a real action. On the other hand, if title to or possession of the real property remains with the plaintiff, who only seeks a declaration of nullity of the pertinent agreement or transaction, then the action may be properly classified as a personal action." — This passage sets out the controlling test for distinguishing real from personal actions in the context of nullification of agreements involving real property, directly determining the applicable venue rule.

• Unimasters Conglomeration, Inc. vs. Court of Appeals, 335 Phil. 415 (1997) — Followed for the doctrine that restrictive venue stipulations must be clear and categorical, and that any doubt as to their applicability should be resolved against application.
• Moles vs. Intermediate Appellate Court, 251 Phil. 711 (1989) — Followed for the principle that a venue stipulation must have been intelligently and deliberately intended by the parties to exclude their case from the reglementary rules on venue.
• Racpan vs. Barroga-Haigh, 832 Phil. 1044 (2018) — Followed for the classification of actions for nullification of agreements relating to real property as personal actions where no prayer for recovery of possession or title is made.
• Spouses Malolos vs. Dy, 382 Phil. 709 (2000) — Followed for the rule that after a judgment has been fully satisfied and certificates of sale issued, the judgment debtor's remedy is to file a separate action for annulment of the auction sale.
• Vda. de Salanga vs. Alagar, 390 Phil. 1078 (2000) — Followed alongside Spouses Malolos for the same proposition on the availability of a separate action after judgment satisfaction.
• Briones vs. Court of Appeals, 750 Phil. 891 (2015) — Followed for the rule that a contractual venue stipulation applies if the complaint assails only the terms, conditions, and/or coverage of a written instrument and not its validity.
• Linden Suites, Inc. vs. Meridien Far East Properties, Inc., 911 Phil. 655 (2021) — Cited for the principle that execution proceedings are part of the proceedings in the case pending before the issuing court, which exercises supervisory control over execution of its judgment.
• Oclarino vs. Navarro, 863 Phil. 949 (2019) — Cited for the exceptions to the rule against ruling on the merits of a mooted case, including when the case presents an opportunity to guide the bench, the bar, and the public.

• Rule 4, Sections 1, 2, and 4(b), Rules of Court — Section 1 provides that real actions shall be commenced where the real property is situated; Section 2 provides that personal actions may be commenced where the plaintiff or defendant resides, at the plaintiff's election; Section 4(b) allows parties to validly agree in writing on exclusive venue before filing. The Court applied Sections 1 and 2 to hold that Elizabeth's Complaint was a personal action properly filed in Laoag City where she resides, and Section 4(b) to analyze whether the venue stipulation constituted a valid waiver of the general venue rules.
• Rule 39, Sections 9 and 15, Rules of Court — Section 9 prescribes the order of execution for money judgments, requiring the sheriff to first levy on personal properties before real properties and to sell only so much property as is sufficient to satisfy the judgment; Section 15 prescribes the notice requirements for sale of real property on execution. The Court cited these provisions to establish that the sheriff's conduct in the execution sale was governed by Rule 39, not by the Promissory Note, and that failure to observe these procedures may render the levy and execution sale invalid.
• Rule 50, Section 3, Rules of Court — Provides that withdrawal of an appeal is a matter of right before the filing of the appellee's brief, and thereafter a matter of discretion. Applied to hold that Elizabeth's Motion to Withdraw Petition, filed after Golden Sun's Comment, was discretionary but properly granted.
• Article 2028, Civil Code — Defines a compromise as a contract whereby parties make reciprocal concessions to avoid or end litigation. Applied to validate the parties' Compromise Agreement and justify dismissal of the Petition.
• Article 1306, Civil Code — Allows parties to establish stipulations not contrary to law, morals, good customs, public order, or public policy. Applied to uphold the validity of the compromise terms.
• Administrative Circular No. 2-90 — Provides that an appeal taken to the CA by the wrong or inappropriate mode shall be dismissed. Applied to affirm the CA's dismissal of Elizabeth's ordinary appeal where only questions of law were raised.

Caguioa (Chairperson), Gaerlan, and Dimaampao, JJ., concurred. Singh, J., was on leave.