G.R. No. 179018 ; June 18, 2012
PAGLAUM MANAGEMENT & DEVELOPMENT CORP. and HEALTH MARKETING TECHNOLOGIES, INC., Petitioners, vs. UNION BANK OF THE PHILIPPINES, NOTARY PUBLIC JOHN DOE, and REGISTER OF DEEDS of Cebu City and Cebu Province, Respondents. J. KING & SONS CO., INC., Intervenor.

FACTS

Petitioner Health Marketing Technologies, Inc. (HealthTech) obtained a credit line from respondent Union Bank of the Philippines, secured by three Real Estate Mortgages (REMs) over properties owned by co-petitioner Paglaum Management & Development Corp. The REMs contained conflicting venue stipulations: one specified Makati or the property location, another had an unclear “Cebu City Metro Manila” clause, and a third was left blank. Following HealthTech’s default and a subsequent Restructuring Agreement—which contained a venue stipulation for Makati City—Union Bank extrajudicially foreclosed the properties. The petitioners then filed a Complaint for Annulment of Sale and Titles with Damages in the Regional Trial Court (RTC) of Makati, which issued a preliminary injunction. Union Bank moved to dismiss on grounds of improper venue, arguing the action, being a real action, should be filed in Cebu where the properties are located. The RTC granted the motion to dismiss, a decision affirmed by the Court of Appeals.

ISSUE

Whether Makati City is the proper venue for the action to annul the extrajudicial foreclosure sale.

RULING

Yes, Makati City is the proper venue. The Supreme Court ruled that an action for annulment of a foreclosure sale is a real action, which, under Section 2, Rule 4 of the Rules of Court, should generally be commenced in the court where the property or part thereof lies. However, this rule yields to a written agreement between the parties on venue. The Court found that the Restructuring Agreement, which contained a clear and exclusive stipulation that actions shall be commenced in Makati City, constituted a novation of the original loan agreements. By virtue of this novation, the stipulations in the new agreement, including the venue clause, governed the parties’ relations. Consequently, the subsequent foreclosure, being based on the restructured obligation, was subject to the venue provision in the Restructuring Agreement. The Court emphasized that parties are bound by their contractual stipulations on venue, which are valid and enforceable unless shown to be contrary to law, morals, good customs, public order, or public policy. The petitioners’ filing in Makati City was therefore proper. The decisions of the lower courts were reversed and the complaint was reinstated.