In BPI Family Savings Bank v. Spouses Yujuico, the Supreme Court clarified that an action to recover a deficiency after the extrajudicial foreclosure of a real property mortgage is a personal action, not a real action. This means the case should be filed where either the plaintiff or defendant resides, not necessarily where the property is located. This ruling impacts banks and lenders, enabling them to pursue deficiency claims in a venue that is most convenient for their operations, streamlining the recovery process after foreclosure. This distinction is crucial in determining where such cases should be filed, affecting the convenience and cost of litigation for both lenders and borrowers.

Beyond the Foreclosure: Where Does the Deficiency Lawsuit Belong?

The case originated from the extrajudicial foreclosure by BPI Family Savings Bank (BPI) of properties owned by Spouses Yujuico. These properties, located in Manila, were foreclosed after the spouses defaulted on their loan obligations. After the foreclosure sale, BPI claimed a deficiency of P18,522,155.42 and filed a lawsuit in the Regional Trial Court (RTC) of Makati City to recover this amount. The Spouses Yujuico sought to dismiss the case, initially on grounds of res judicata, lack of cause of action, and waiver. However, they later argued that Makati City was the improper venue, asserting that the case should have been filed in Manila where the foreclosed properties were located.

The Makati RTC initially denied the motion to dismiss, but the Court of Appeals (CA) reversed this decision, agreeing with the Spouses Yujuico that Manila was the proper venue. The CA reasoned that an action to recover a deficiency after foreclosure is an extension of the mortgage action itself and should therefore be filed where the property is located. BPI then appealed to the Supreme Court, questioning the CA’s decision and arguing that the deficiency claim was a personal action properly filed in Makati, where BPI’s principal office is located. The central legal question was whether an action to recover a deficiency judgment is a real or personal action, which determines the proper venue for the lawsuit.

The Supreme Court addressed the issue by distinguishing between real and personal actions, relying on Rule 4, Sections 1 and 2 of the Rules of Court. According to the Court, a real action affects title to or possession of real property, or an interest therein. An example of this is an action for foreclosure of mortgage on real property. On the other hand, all other actions are considered personal actions. The Court emphasized that the venue for real actions is where the property is located, while the venue for personal actions is where the plaintiff or defendant resides. The Supreme Court definitively stated:

Based on the distinctions between real and personal actions, an action to recover the deficiency after the extrajudicial foreclosure of the real property mortgage is a personal action, for it does not affect title to or possession of real property, or any interest therein.

The Court clarified that such a deficiency claim does not involve any rights or interests in real property. The Supreme Court disagreed with the CA’s interpretation of Caltex Philippines, Inc. v. Intermediate Appellate Court, which the CA cited to support its decision. The Court clarified that Caltex only addressed the prescriptive period for filing a deficiency claim and not the venue or nature of the action.

Building on this clarification, the Supreme Court highlighted a crucial procedural point: the Spouses Yujuico raised the issue of improper venue belatedly. They initially filed a motion to dismiss based on other grounds, only raising the venue issue in their reply to BPI’s comment on their motion for reconsideration. The Court referenced Section 1, Rule 9 of the Rules of Court, stating that defenses and objections not raised in a motion to dismiss or answer are deemed waived. This principle underscores the importance of timely raising procedural objections to ensure fair and efficient judicial proceedings. The Supreme Court emphasized that venue is a procedural matter that can be waived if not properly raised.

Section 1, Rule 9 of the Rules of Court thus expressly stipulates that defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. As it relates to the place of trial, indeed, venue is meant to provide convenience to the parties, rather than to restrict their access to the courts.

The Court noted that the primary purpose of venue rules is to provide convenience to the parties, not to restrict access to the courts. The Supreme Court also noted that BPI correctly filed the case in Makati RTC as that is where the main office of BPI is located. Because the deficiency claim is a personal action, the appropriate venue is the residence of either the plaintiff or the defendant. This ruling benefits creditors like BPI by allowing them to pursue deficiency claims in a location that is most convenient for them, potentially reducing litigation costs and administrative burdens.

The decision reinforces the distinction between real and personal actions, providing clarity on the appropriate venue for deficiency claims after foreclosure. This distinction ensures that the venue rules serve their intended purpose of providing convenience to the parties involved. By adhering to these procedural guidelines, the courts maintain fairness and efficiency in resolving disputes related to mortgage foreclosures and deficiency claims.

FAQs

What is a deficiency claim in foreclosure?	A deficiency claim is a lawsuit filed by a lender to recover the remaining debt owed after foreclosing on a property if the sale price does not cover the full amount of the loan.
What is the difference between a real action and a personal action?	A real action affects title to or possession of real property, while a personal action involves rights and obligations of individuals and typically seeks monetary compensation or enforcement of contracts.
Why is the distinction between real and personal actions important?	The distinction is important because it determines the proper venue for filing a lawsuit. Real actions must be filed where the property is located, while personal actions can be filed where the plaintiff or defendant resides.
In this case, why did the Supreme Court rule that the deficiency claim was a personal action?	The Court ruled that a deficiency claim does not affect title to or possession of real property; it only seeks to recover a monetary debt.
Where should BPI have filed the deficiency claim?	BPI correctly filed the deficiency claim in Makati City, where its principal office is located. This is because the deficiency claim is considered a personal action.
What was the significance of the Spouses Yujuico raising the issue of improper venue late in the proceedings?	The Supreme Court deemed that the Spouses Yujuico waived their right to object to the venue because they did not raise it in their initial motion to dismiss or answer.
What does the waiver of improper venue mean?	If a defendant does not timely object to the improper venue, they are considered to have agreed to have the case heard in that location, even if it is not the legally correct one.
How does this ruling affect banks and lenders in the Philippines?	The ruling allows banks and lenders to file deficiency claims in the venue that is most convenient for their operations, streamlining the recovery process after foreclosure.
What was the main reason for BPI to appeal this case to the Supreme Court?	BPI appealed because the Court of Appeals incorrectly classified the deficiency claim as a real action and ruled that the case should have been filed in Manila, not Makati.

In conclusion, the Supreme Court’s decision in BPI Family Savings Bank v. Spouses Yujuico provides important clarification on the nature of deficiency claims after foreclosure, categorizing them as personal actions. This determination has significant implications for lenders and borrowers, particularly concerning the proper venue for filing lawsuits. The ruling reinforces the procedural rules and ensures that venue is a matter of convenience rather than a jurisdictional obstacle.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BPI Family Savings Bank, Inc. vs. Spouses Benedicto & Teresita Yujuico, G.R. No. 175796, July 22, 2015