Ochoa vs. China Banking Corporation

A stipulated exclusive venue under Section 4, Rule 4 of the Rules of Court does not apply to extrajudicial foreclosure proceedings under Act No. 3135, because such proceedings are not "actions" within the meaning of the Rules of Court and are instead governed by the special law's own venue provision requiring the sale to be conducted in the province where the mortgaged property is situated.

Spouses Hermes P. Ochoa and Araceli D. Ochoa mortgaged real property located in Parañaque City to China Banking Corporation. The mortgage contract contained a special power authorizing the bank to foreclose extrajudicially, as well as a venue stipulation designating RTC Makati as the exclusive venue for foreclosure actions and any other actions arising from or related to the mortgage. Act No. 3135, as amended by Act No. 4118, governs extrajudicial foreclosure sales of real estate mortgages and prescribes its own venue rules distinct from the general venue provisions of the Rules of Court.

Spouses Hermes P. Ochoa and Araceli D. Ochoa mortgaged real property situated in Parañaque City to China Banking Corporation. The mortgage instrument granted the bank a special power to foreclose extrajudicially and contained a venue stipulation—paragraph 16—whereby the mortgagors and mortgagee agreed that any necessary action for foreclosure could be instituted by the mortgagee at its option in the Regional Trial Court in Makati, with the mortgagors waiving their right to require that such action be filed in the RTC of the province where the mortgaged property was located. The same exclusive venue of RTC Makati was stipulated to apply to any and all other actions arising from, related to, or connected with the mortgage.

When default occurred, respondent bank filed a Petition for Extrajudicial Foreclosure of Mortgage with the Regional Trial Court of Parañaque City—the city where the mortgaged property was located. Petitioners, in turn, filed a complaint for Annulment of Foreclosure, Sale, and Damages before the same RTC of Parañaque City. Petitioners contended that the stipulated exclusive venue of Makati City should apply equally to the bank's extrajudicial foreclosure petition, not only to their own annulment complaint.

The Court of Appeals ruled that the stipulated venue of Makati City was binding only on petitioners' complaint for annulment and not on the bank's extrajudicial foreclosure petition, prompting petitioners to elevate the matter to the Supreme Court via a petition for review on certiorari. The Supreme Court denied the petition on January 17, 2011 for failure to show reversible error, and petitioners subsequently filed the motion for reconsideration that is the subject of the present resolution.

• Applicability of Stipulated Venue to Extrajudicial Foreclosure: Petitioners insisted that it was error for the CA to rule that the stipulated exclusive venue of Makati City is binding only on their complaint for annulment of foreclosure, sale, and damages, but not on respondent bank's Petition for Extrajudicial Foreclosure of Mortgage, which was filed with the same RTC of Parañaque City.

• Venue of Extrajudicial Foreclosure: Whether the parties' stipulated exclusive venue of Makati City under Section 4, Rule 4 of the Rules of Court applies to a petition for extrajudicial foreclosure of mortgage, or whether the venue provisions of Act No. 3135 control.

• Venue of Extrajudicial Foreclosure: No. The stipulated exclusive venue of Makati City does not apply to the extrajudicial foreclosure petition. Act No. 3135, a special law governing extrajudicial foreclosure sales, expressly requires under Section 2 that the sale cannot be made outside the province where the property is situated, and the Rules of Court on venue of actions do not apply because an extrajudicial foreclosure is not an "action" within the meaning of the Rules.

• Venue of Extrajudicial Foreclosure: The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No. 3135, as amended by Act No. 4118. Sections 1 and 2 of that law provide that when a sale is made under a special power inserted in or attached to a real estate mortgage, the sale cannot be made legally outside the province in which the property is situated; and if the place within the province is stipulated, the sale shall be made there or in the municipal building of the municipality where the property is situated. Because petitioners' mortgaged property is located in Parañaque City and the bank was granted a special power to foreclose extrajudicially, the sale can only be made in Parañaque City by express statutory mandate. The stipulated exclusive venue of Makati City, sanctioned by Section 4, Rule 4 of the Rules of Court, cannot be made to apply to the extrajudicial foreclosure petition because the provisions of Rule 4 pertain to venue of actions, and an extrajudicial foreclosure is not an action. Section 1, Rule 2 of the Rules of Court defines an action as "an ordinary suit in a court of justice, by which one party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a wrong." The determinative fact converting a claim into an action is the filing of the same with a court of justice. An extrajudicial foreclosure, by contrast, is initiated by filing a petition not with any court of justice but with the office of the sheriff of the province where the sale is to be made. The office of the sheriff is not a court of justice; the executive judge's involvement is limited to administrative supervision over the sheriff, which does not transform the proceeding into a judicial action. This was confirmed by A.M. No. 99-10-05-0, which prescribes that all applications for extrajudicial foreclosure shall be filed with the Executive Judge through the Clerk of Court who is also the Ex-Officio Sheriff. As a special law dealing particularly with extrajudicial foreclosure sales, Act No. 3135 prevails over the general venue provisions of the Rules of Court. The stipulated venue of Makati City is therefore relevant only to judicial actions arising from or related to the mortgage, such as petitioners' complaint for annulment of foreclosure, sale, and damages.

• Special Law Prevails Over General Rules on Venue — Where a special law prescribes the venue for a particular proceeding, that special law controls over the general venue provisions of the Rules of Court. Act No. 3135, as amended, specifically governs the venue of extrajudicial foreclosure sales of real estate mortgages, requiring under Section 2 that the sale cannot be made outside the province where the property is situated. The general provisions of Rule 4 on venue of actions, including stipulated venue under Section 4, do not apply.

• Extrajudicial Foreclosure Is Not an "Action" Under the Rules of Court — An "action" under Section 1, Rule 2 of the Rules of Court is an ordinary suit in a court of justice. The determinative fact that converts a claim into an action is the filing thereof with a court of justice. An extrajudicial foreclosure is initiated by filing a petition with the office of the sheriff, not a court of justice; the executive judge's role is limited to administrative supervision over the sheriff. Consequently, extrajudicial foreclosure proceedings are not judicial proceedings, actions, or suits, and the Rules of Court on venue of actions do not govern them.

• "Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No. 3135, as amended, applies, it being a special law dealing particularly with extrajudicial foreclosure sales of real estate mortgages, and not the general provisions of the Rules of Court on Venue of Actions." — This passage states the ratio decidendi: the special law on extrajudicial foreclosure, not the general Rules of Court, controls the venue of foreclosure sales.

• "By no stretch of the imagination can the office of the sheriff come under the category of a court of justice. And as aptly observed by the complainant, if ever the executive judge comes into the picture, it is only because he exercises administrative supervision over the sheriff. But this administrative supervision, however, does not change the fact that extrajudicial foreclosures are not judicial proceedings, actions or suits." — This passage, quoted from Supena vs. De la Rosa, defines the fundamental distinction between judicial actions and extrajudicial foreclosure proceedings, explaining why the Rules of Court on venue do not apply to the latter.

• Supena vs. De la Rosa, 334 Phil. 671 (1997) — Controlling precedent followed. The Court relied on its disquisition that an extrajudicial foreclosure is not an "action" within the meaning of the Rules of Court because it is filed with the office of the sheriff, not a court of justice, and that the executive judge's administrative supervision over the sheriff does not convert the proceeding into a judicial action.

• Section 2, Act No. 3135 (as amended by Act No. 4118) — Provides that an extrajudicial foreclosure sale cannot be made legally outside the province in which the property is situated, and if the place within the province is stipulated, the sale shall be made in that place or in the municipal building of the municipality where the property is situated. Applied to mandate that the foreclosure sale of petitioners' property in Parañaque City could only be conducted in Parañaque City.

• Section 1, Act No. 3135 (as amended by Act No. 4118) — Provides that when a sale is made under a special power inserted in or attached to a real estate mortgage, the provisions of the Act shall govern the manner of sale and redemption, whether or not provision is made in the power. Applied to establish that Act No. 3135's venue rules govern over any contrary stipulation in the mortgage.

• Section 4, Rule 4, Rules of Court — Provides that the Rules on venue shall not apply where a specific rule or law provides otherwise, or where parties have validly agreed in writing before filing on the exclusive venue. The Court held this provision inapplicable to extrajudicial foreclosures because Rule 4 pertains to venue of actions, which an extrajudicial foreclosure is not.

• Section 1, Rule 2, Rules of Court — Defines an "action" as an ordinary suit in a court of justice by which one party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a wrong. Used to demonstrate that an extrajudicial foreclosure, filed with the sheriff rather than a court, does not qualify as an action.

• A.M. No. 99-10-05-0 — Administrative matter prescribing the procedure in extrajudicial foreclosure of mortgages, requiring that all applications be filed with the Executive Judge through the Clerk of Court who is also the Ex-Officio Sheriff. Cited to confirm that extrajudicial foreclosures are administrative, not judicial, proceedings.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Diosdado M. Peralta, and Roberto A. Abad concurred.