G.R. No. 136423 - Sps. Rigor vs. Consolidated Orix Leasing and Fice Corporation

Case Summary (G.R. No. 136423)

Factual Background

Petitioners obtained a loan from private respondent in the amount of P1,630,320.00. To evidence the obligation, petitioners executed a promissory note on July 31, 1996, agreeing to pay twenty-four equal monthly installments of P67,930.00 each, payable every fifth day of the month beginning September 5, 1996. The promissory note further provided that default in paying any installment would render the entire unpaid amount due and payable.

As security, petitioners executed a deed of chattel mortgage in favor of private respondent covering two dump trucks. Despite demand, petitioners failed to pay several installments.

Initiation of the Case and the Venue Controversy

On January 5, 1998, private respondent filed in the Dagupan trial court a complaint for Replevin with Damages, with an alternative prayer for petitioners to pay the outstanding amount if manual delivery of the mortgaged vehicles could not be effected. After summons was served, petitioners moved to dismiss on the ground of improper venue.

Petitioners relied on a venue clause in the promissory note stating that all legal actions arising out of the note or in connection with the chattels subject to it “shall only be brought in or submitted to the proper court in Makati City, Philippines.” Private respondent opposed the motion. It invoked a venue clause in the deed of chattel mortgage stating that in case of litigation arising out of the transaction giving rise to the contract, “complete jurisdiction is given the proper court of the city of Makati or any proper court within the province of Rizal, or any court in the city, or province where the holder/mortgagee has a branch office, waiving for this purpose any proper venue.”

Trial Court Rulings

After exchanges of pleadings, the Dagupan trial court denied the motion to dismiss in an Order dated June 3, 1998. It later denied petitioners’ motion for reconsideration in an Order dated July 15, 1998.

Court of Appeals Proceedings

Petitioners then sought relief by filing a petition for certiorari before the Court of Appeals, alleging grave abuse of discretion in the denial of their motion to dismiss. The Court of Appeals denied due course and dismissed the petition in a decision dated October 19, 1998, and it denied reconsideration in a resolution dated November 27, 1998.

Issues Framed for Review

The Supreme Court treated the case as raising a single decisive issue: whether venue was properly laid under the provisions of the chattel mortgage contract in the light of Article 1374 of the Civil Code, given alleged conflict between the promissory note’s venue restriction to Makati City and the deed of chattel mortgage’s alternative venues.

Petitioners’ Position

Petitioners asserted that the promissory note was the principal instrument and that the deed of chattel mortgage served only as an accessory. They argued that the promissory note’s words “shall only” made the Makati venue clause mandatory and exclusive. They maintained that the deed of chattel mortgage did not contain qualifying language indicating that its venue clause modified the promissory note.

Petitioners further contended that Article 1374 governs only conflicting provisions within the same contract, not between two separate instruments. Lastly, they invoked the contract of adhesion doctrine, arguing that any ambiguity should be resolved against private respondent.

Private Respondent’s Position

Private respondent countered that the deed of chattel mortgage’s alternative venues could not be disregarded as meaningless. It argued that although the promissory note confined venue to Makati City, the deed of chattel mortgage modified venue by giving jurisdiction to the proper court where the mortgagee has a branch office.

Private respondent explained that petitioners’ loan under the promissory note was negotiated and concluded in Dagupan City, where private respondent had a branch office, and that the seizure of the mortgaged vehicles in Dagupan City formed part of its cause of action. Private respondent also asserted that considerations of convenience favored Dagupan City because it had a branch office there while petitioners resided in nearby Tarlac. It further alleged that petitioners’ motion to dismiss was dilatory and that petitioners attempted to prolong payment of an obligation.

The Supreme Court’s Ruling on Venue

The Supreme Court denied the petition, finding no reversible error in the Court of Appeals’ conclusion that venue was properly laid in the Dagupan trial court.

The Court reiterated that, as a general rule, personal actions may be commenced where the plaintiff or any principal plaintiff resides, or where the defendant or any principal defendant resides, at the election of the plaintiff. It recognized, however, that the venue may be changed or transferred by written agreement of the parties.

The Court then addressed the relationship between the promissory note and the deed of chattel mortgage. It acknowledged that the promissory note’s venue language beginning with “shall only” was, standing alone, mandatory and restrictive. It emphasized, nonetheless, that the deed of chattel mortgage contained alternative venues and that such stipulations should not be treated as surplusage.

Construction of the Promissory Note and Accessory Contract Doctrine

The Court held that the deed of chattel mortgage was an accessory contract to the principal loan obligation. It reasoned that the chattel mortgage could not exist independently because its consideration was the same as that of the principal contract. The Court explained that a principal obligation is indispensable for the existence of an accessory contract, and thus the instruments must be construed together.

To support this approach, the Court relied on the principle stated in National Power Corporation vs. Court of Appeals, and reiterated in Velasquez vs. Court of Appeals, that accessory contracts—such as surety bonds—must be read in their entirety and together with the principal agreement. The Court found that this complementary contracts doctrine closely adheres to the spirit of Article 1374, which requires that the various stipulations of a contract be interpreted together to give effect to all provisions.

Application to the Parties’ Venue Clauses

Applying these doctrines, the Court rejected petitioners’ attempt to treat the promissory note’s Makati restriction as controlling while disregarding the deed of chattel mortgage’s alternative venue clauses. It noted private respondent’s explanation that its older standard promissory notes had confined venue to Makati City, but after it opened a branch office in Dagupan City, private respondent made corrections in the deed of chattel mortgage without making corresponding corrections in the promissory notes, due to oversight. Petitioners had signed both instruments.

The Court applied the presumption that a person takes ordinary care of his concerns and must have informed himself of the contents he signed. It further stated that petitioners did not contest the deed of chattel mortgage under Section 8, Rule 8 of the Revised Rules of Civil Procedure, and it held that omission effectively eliminated defenses relating to authenticity and due execution of the deed, such as claims of spuriousness, forgery, or unauthorized signatures.

Given these considerations, the Supreme Court concluded that the Court of Appeals correctly ruled that venue was properly laid in Dagupan City as provided in the deed of chattel mortgage. The Court held that private respondent was not barred from filing its action in Dagupan City where priva

Case Syllabus (G.R. No. 136423)

Parties and Procedural Posture

Spouses Efren N. Rigor and Zosima D. Rigor, for themselves and as owners of Chiara Construction, filed a petition for review assailing the Court of Appeals decision in CA-G.R. SP No. 48415.
The Court of Appeals decision affirmed the Regional Trial Court of Dagupan City, Branch 41 orders dated June 3, 1998 and July 15, 1998.
The RTC orders denied for lack of merit the motion to dismiss filed by Chiara Construction in Civil Case No. 98-02067.
The petition for certiorari before the Court of Appeals alleged grave abuse of discretion in the denial of the motion to dismiss for improper venue.
The Court of Appeals denied due course and dismissed the certiorari petition in the decision dated October 19, 1998, and later denied reconsideration in the resolution dated November 27, 1998.
The Supreme Court denied the petition, affirming both the Court of Appeals decision and resolution.

Key Factual Allegations

The petitioners obtained a loan from Consolidated Orix Leasing and Finance Corporation in the amount of P1,630,320.00.
The petitioners executed a promissory note on July 31, 1996 obligating payment in twenty-four equal monthly installments of P67,930.00 every fifth day of the month starting September 5, 1996.
The promissory note provided that default in paying any installment rendered the entire unpaid amount immediately due and payable.
To secure the loan, the petitioners executed a deed of chattel mortgage over two dump trucks in favor of private respondent.
Despite demand, petitioners failed to pay several installments.
On January 5, 1998, private respondent filed a case for Replevin with Damages with an alternative prayer for payment, based on foreclosure of the chattel mortgage.
After service of summons, petitioners moved to dismiss on the ground of improper venue, citing a venue clause in the promissory note designating Makati City.
Private respondent opposed the motion, asserting venue was properly laid in Dagupan City based on a venue clause in the deed of chattel mortgage allowing suit in courts where the holder/mortgagee has a branch office.
The RTC denied both the initial motion to dismiss and the subsequent motion for reconsideration.
Petitioners later invoked the certiorari remedy before the Court of Appeals, and the Court of Appeals rejected the venue challenge.

Contract Documents and Venue Clauses

The promissory note contained a stipulation stating that all legal actions arising out of this note or in connection with the chattels subject hereof shall only be brought in or submitted to the proper court in Makati City, Philippines.
The deed of chattel mortgage contained a venue stipulation stating that litigation arising out of the transaction would allow “complete jurisdiction” in the proper court of Makati, or a proper court within the province of Rizal, or in the city or province where the holder/mortgagee has a branch office, waiving any proper venue.
The parties presented these venue clauses as conflicting: petitioners treated the Makati clause as exclusive, while private respondent treated the chattel mortgage clause as permitting litigation in Dagupan.
The Court emphasized that both instruments were executed as part of one credit transaction, with the deed of chattel mortgage serving as the security for the same loan obligation.

Issues Presented

The central issue was whether venue was properly laid under the deed of chattel mortgage’s provisions in light of Article 1374 of the Civil Code.
The controversy arose from the alleged conflict between the venue clause in the promissory note and the venue clause in the deed of chattel mortgage.
Petitioners argued the promissory note controlled as the “principal contract,” while the chattel mortgage merely accompanied it.
Petitioners contended Article 1374 applies only to conflicting provisions within a single contract, not to stipulations located in two distinct contracts.
Petitioners invoked the doctrine that ambiguities in a contract of adhesion must be resolved against private respondent.
Private respondent maintained that the deed of chattel mortgage’s alternative venues should not be disregarded and that convenience and branch-office factors supported venue in Dagupan City.
Private respondent also argued that the venue challenge functioned as a dilatory tactic to delay collection.

Parties’ Arguments on Venue

Petitioners maintained that the promissory note’s phrase beginning with “shall only” made Makati City a mandatory and restrictive venue.
Petitioners asserted that the promissory note contained no qualifying language expressing the parties’ intent to modify the Makati venue through the deed of chattel mortgage.
Petitioners argued that the Court of Appeals misapplied Article 1374 by construing provisions from two separate contracts rather than a single ins