G.R. No. 254787 - Odilao vs. Union Bank of the Philippines

Case Summary (G.R. No. 254787)

Petitioner’s Claims and Reliefs Sought

Petitioner sought: reformation of the loan and mortgage instruments as contracts of adhesion; declaration of nullity of foreclosure; damages and attorney’s fees; temporary restraining order and preliminary injunction. She prayed that the instruments be reformed to reflect the true and mutual intention of the parties, including (inter alia): (1) obliging the bank to exercise fairness, honesty and transparency and to deliver notices personally or to authorized agents; (2) limiting automatic escalation of the remaining balance to specified conditions; (3) reducing regular interest to current market or legal rate (6% p.a.); (4) reducing or eliminating penalties, past due interest and hidden charges; (5) cancelling contractual venue provisions in favor of Revised Rules of Court; and (6) recomputing an amortization schedule consistent with the foregoing.

Procedural Posture

Respondent bank moved to dismiss for improper venue, invoking venue stipulations in the promissory note and real estate mortgage specifying Pasig City (or Metro Manila) as the forum at the bank’s option. The RTC (Order dated August 30, 2016) granted the motion and dismissed the complaint; the trial court denied petitioner’s motion for reconsideration (Order dated December 28, 2016). Petitioner appealed to the Court of Appeals (CA), which affirmed the dismissal (Decision dated July 17, 2019) and denied reconsideration (Resolution dated October 9, 2020). Petitioner sought review by the Supreme Court.

Respondent’s Venue Argument

Respondent Bank contended the complaint was improperly filed because the parties’ loan documents contained stipulations designating Pasig City as the venue and granting the bank the option to select Pasig City or the place where the mortgaged property is located; under Section 1(c), Rule 16 of the Rules of Court, the action should be dismissed for improper venue.

Trial Court’s Reasoning

The RTC characterized the promissory note and mortgage venue clauses as restrictive and interpreted the mortgage provision phrase “at the absolute option of the Mortgagee” to require an express manifestation by the mortgagee (the bank) selecting Davao City before the case could be heard there. Consequently, the trial court dismissed the complaint for improper venue.

Court of Appeals Ruling

The CA affirmed the trial court’s dismissal. Notably, in its opinion the CA itself stated that the venue stipulation in the Real Estate Mortgage should be controlling, yet it affirmed dismissal based on the trial court’s interpretation requiring the mortgagee’s express election.

Petitioner’s Argument to the Supreme Court

Petitioner argued that venue stipulations contained in the contract should not control where the contract itself is being assailed. She relied on Briones v. Court of Appeals, where the Court held that a party directly challenging the validity of a written instrument should not be bound by exclusive venue stipulations in that instrument. Petitioner also asserted that venue stipulations that operate as an exclusive option to choose venue are void as contrary to the Rules of Court.

Governing Law and Jurisprudential Principles

Applicable constitutional framework: 1987 Constitution. Rule 4 of the Rules of Court governs venue: real actions must be filed where the real property is situated; personal actions may be filed where plaintiff or defendant resides or may be found. Section 4 allows parties to validly agree in writing on an exclusive venue before filing. Jurisprudence (Legaspi v. Republic, Radiowealth Finance Co., Inc. v. Pineda, Jr., and related decisions) instructs that (a) venue stipulations may be restrictive (exclusive) or permissive (additional forum); (b) for a stipulation to be restrictive it must clearly manifest exclusivity by qualifying or restrictive words (e.g., “exclusively,” “shall only,” “to the exclusion of other courts”); and (c) an exclusive venue stipulation is valid only if it is exclusive in intent, in writing, and entered prior to the filing of the action.

Analysis of the Mortgage’s Venue Clause

Section 8 of the Real Estate Mortgage provided: “The venue of all suits and actions arising out of or in connection with this Mortgage shall be Pasig City or in the place where any of the Mortgaged properties are located, at the absolute option of the Mortgagee, the parties hereto waiving any other venue.” The Supreme Court found this clause to be restrictive in nature because it limited venue to Pasig City or the place where the property is located.

Application o

Case Syllabus (G.R. No. 254787)

Nature of the Case

Petition for Review on Certiorari to the Supreme Court under G.R. No. 254787, decided April 26, 2023, authored by Justice Dimaampao of the Third Division.
Direct challenge to the Decision (July 17, 2019) and Resolution (October 9, 2020) of the Court of Appeals (Cagayan de Oro City Station) in CA-G.R. CV No. 04749-MIN, which affirmed the trial court’s dismissal of petitioner’s complaint for improperly laid venue.
Underlying civil action: Complaint for reformation of mortgage, nullity of foreclosure, damages, and attorney’s fees with temporary restraining order and preliminary injunction filed in the Regional Trial Court of Davao City (docketed as Civil Case No. R-DVO-16-01024-CV).

Parties and Representation

Petitioner: Lucille B. Odilao, represented by Ariel B. Odilao (her son).
Respondent: Union Bank of the Philippines.
Other respondent in the trial court action: Atty. Natasha M. Go-De Mesa, Register of Deeds of Davao City.
Trial court judge who penned the Order dismissing the complaint: Presiding Judge Evalyn M. Arellano-Morales (Order dated August 30, 2016, in Civil Case No. R-DVO-16-01024-CV).
Court of Appeals Decision authored by Associate Justice Edgardo A. Camello (concurrence by Justices Walter S. Ong and Florencio M. Mamauag); CA Resolution also penned by Associate Justice Edgardo A. Camello (concurrence by Justices Loida S. Posadas-Kahulugan and Angelene Mary W. Quimpo-Sale).
Supreme Court decision authored by Justice Dimaampao; concurrence by Caguioa (Chairperson), Inting, Gaerlan, and Singh, JJ.

Factual Background

Petitioner and her husband, Tyrone Victor G. Odilao, executed a loan and a real estate mortgage in favor of Union Bank of the Philippines.
Petitioner filed a complaint in the RTC of Davao City seeking:
- Declaration that the subject loan and mortgage are contracts of adhesion;
- Reformation of the loan and mortgage to reflect the parties’ true and mutual intention;
- Nullity of foreclosure, damages, attorney’s fees; and issuance of TRO and preliminary injunction.
Specific reforms and reliefs sought (as pleaded by petitioner) included:
1. An obligation on the bank to exercise fairness, honesty and transparency in executing the mortgage instrument and performing its provisions, including that demands and notices of default must be personally received by the mortgagors or their duly-authorized agents.
2. An automatic escalation of the whole remaining balance (loan principal and regular interest) only after a defined number of consecutive months of zero amortizations, insofar as the loan account is still active.
3. Reduction of regular interest to current local market rates or to the present legal rate of 6% per annum.
4. Reduction or elimination of alleged usurious penalties, past-due interest and/or other hidden charges.
5. Cancellation of particular contractual venue provisions and adoption of the venue provisions of the Revised Rules of Court.
6. Re-computation of a fair, transparent and balanced amortization schedule consistent with the reformed terms acceptable to both parties.
Respondent bank’s main procedural defense: venue stipulations in the loan documents required actions to be brought in Pasig City (or as otherwise provided), making the complaint in Davao City dismissible under Section 1(c), Rule 16 of the Rules of Court (improperly laid venue).

Trial Court Ruling and Rationale

Order dated August 30, 2016: Trial court granted the bank’s motion to dismiss on the ground of improperly laid venue and dismissed the complaint.
Trial court’s interpretation: The venue stipulation in the Real Estate Mortgage, which provided venue “Pasig City or in the place where any of the Mortgaged properties are located, at the absolute option of the Mortgagee,” was read to mean that the action could not be heard in Davao City absent an express manifestation by the mortgagee (the bank) selecting Davao City as its option.
Petitioner’s motion for reconsideration before the trial court was denied (Order dated December 28, 2016).

Court of Appeals Disposition

The petitioner appealed to the Court of Appeals. The CA, in its July 17, 2019 Decision, affirmed the trial court’s dismissal for improper venue.
The CA’s Resolution of October 9, 2020 denied petitioner’s motion for reconsideration.
The CA nevertheless at one point pronounced that “the venue stipulation in the Real Estate Mortgage should be controlling,” a pronouncement that the Supreme Court noted but found internally inconsistent with the CA’s affirmance of dismissal.

Issue(s) Presented to the Supreme Court

Whether the dismissal of petitioner’s complaint for improperly laid venue was correct when (a) the Real Estate Mortgage contained a venue clause permitting actions in Pasig City or in the place where the mortgaged property is located, “at the absolute option of the Mortgagee,” and (b) petitioner did not