Paglaum Management & Development Corp. vs. Union Bank of the Philippines

A venue stipulation in a subsequent restructuring agreement that explicitly waives any other venue for actions arising from the agreement and its collateral controls over earlier, non-exclusive venue stipulations in real estate mortgage contracts, thereby overriding the general rule that real actions must be commenced where the property is situated.

PAGLAUM owned three parcels of land in Cebu, which it mortgaged to Union Bank to secure a credit line extended to HealthTech. The original draft of the mortgage contracts contained a venue clause allowing Makati or the property's location at the mortgagee's option, waiving any other venue, but the executed versions struck out or omitted the waiver phrase. HealthTech later defaulted on its loan, prompting Union Bank to extrajudicially foreclose the mortgaged properties.

• The Loan and Mortgages: HealthTech obtained a ₱10,000,000 credit line from Union Bank, later increased to ₱36,500,000. PAGLAUM executed three Real Estate Mortgages (REMs) over its Cebu properties to secure the obligation. All REMs contained a dragnet clause securing renewals, extensions, amendments, or novations of the obligation.
• The Venue Stipulations: The original template of the REMs contained a venue provision stipulating Makati or the location of the mortgaged properties at the mortgagee's option, "the parties hereto waiving any other venue." In the two REMs dated 11 February 1994, the phrase "parties hereto waiving" was stricken from the final executed contract. In the REM dated 22 April 1998, the blank for the alternative venue was left unfilled, though the waiver phrase remained.
• The Restructuring Agreement: Due to the 1997 Asian financial crisis, HealthTech and Union Bank entered into a Restructuring Agreement on 11 December 1998. The Agreement defined the REMs as "Collaterals" securing the restructured debt. Section 20 thereof provided that the venue of any action or proceeding arising out of or connected with the Agreement, the Note, and the Collateral shall be in Makati City, with both parties "waiving any other venue."
• Foreclosure and Action: HealthTech defaulted on the restructured loan. Union Bank extrajudicially foreclosed the mortgaged properties, emerged as the sole bidder, and filed a Petition for Consolidation of Title. PAGLAUM and HealthTech filed a Complaint for Annulment of Sale and Titles with Damages in the RTC of Makati City.

• Governing Contract: Petitioners argued that the Restructuring Agreement governs the choice of venue between the parties.
• Interpretation Against Drafter: Petitioners maintained that the venue agreement must be interpreted with the convenience of the parties in mind, and any obscurity therein was caused by Union Bank, thus should be interpreted contra proferentem.

• Scope of Restructuring Agreement: Respondent Union Bank contended that the Restructuring Agreement applies only to the contract of loan and not to the REMs.
• Exclusivity in REMs: Respondent argued that the mortgage contracts explicitly state that the choice of venue exclusively belongs to the mortgagee.
• Proper Venue: Intervenor J. King & Sons Co., Inc. adopted Union Bank's position, reiterating that Cebu City is the proper venue.

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

• Proper Venue: Makati City was correctly determined as the proper venue. An action to annul a foreclosure of a real estate mortgage is a real action, which under Rule 4, Section 1 of the Rules of Court must be commenced where the property is situated. However, Rule 4, Section 3(b) provides an exception when parties validly agree in writing on an exclusive venue. The Restructuring Agreement's venue stipulation, which explicitly covered actions arising from the agreement and the "Collateral" (defined to include the REMs) and contained the restrictive phrase "waiving any other venue," established an exclusive venue in Makati City. This superseded the earlier REMs' venue clauses, which lacked exclusivity because the waiver phrase was stricken or omitted; absent qualifying or restrictive words, a venue stipulation is merely an agreement on an additional forum.

• Exclusive Venue Stipulation — Under the Rules of Court, the general rules on venue do not apply where parties have validly agreed in writing on an exclusive venue before the filing of the action. A mere stipulation on venue is insufficient to preclude parties from bringing a case in other venues; the stipulation must contain words showing exclusivity or restrictiveness (e.g., "exclusively," "waiving any other venue"). Absent such qualifying words, the stipulation is deemed merely an agreement on an additional forum, not as limiting venue to the specified place.
• Real Action in Foreclosure Annulment — An action to annul a real estate mortgage foreclosure sale is a real action. While the primary prayer may be for annulment and damages, the action is closely intertwined with the issue of ownership and the recovery of real property, which is the fundamental and prime objective of the suit.

• "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."

• Fortune Motors v. Court of Appeals, 258-A Phil. 336 (1989) — Followed. Established that an action to annul a real estate mortgage foreclosure sale is a real action, as the claim for annulment and damages is intertwined with the recovery of the immovable property.
• Sps. Lantin v. Lantion, 531 Phil. 318 (2006) — Followed. Established the requirement that venue stipulations must contain words of exclusivity or restrictiveness to preclude other venues; otherwise, they are deemed merely an agreement on an additional forum.

• Rule 4, Section 1, Rules of Court — Governs the venue of real actions, providing that they shall be commenced and tried in the proper court having jurisdiction over the area wherein the real property involved is situated.
• Rule 4, Section 3(b), Rules of Court — Provides the exception to the general venue rules, stating that the rules on venue shall not apply where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof.

Antonio T. Carpio, Arturo D. Brion, Jose Portugal Perez, Bienvenido L. Reyes