The Supreme Court ruled that a venue stipulation in a real estate mortgage, specifying that suits could be filed in Pasig City or where the mortgaged property is located, is restrictive, not permissive. This means that a case filed in the location of the property (Davao City in this instance) should not be dismissed based on improper venue. The decision reinforces that venue rules are designed for the convenience of parties and should not restrict access to courts, ensuring that borrowers are not unduly disadvantaged by venue clauses in mortgage agreements. This ruling clarifies how venue stipulations in contracts should be interpreted to uphold fairness and accessibility to justice.

Mortgage Maze: Does a Bank’s ‘Absolute Option’ Trump a Borrower’s Venue Choice?

Lucille Odilao, represented by her son Ariel, sought to reform mortgage agreements with Union Bank, arguing they were contracts of adhesion. The bank moved to dismiss the case, citing a venue stipulation requiring suits to be filed in Pasig City. The trial court sided with the bank, but the Supreme Court reversed this decision. The central legal question was whether the venue stipulation in the mortgage agreement restricted the borrower’s right to file a case where the mortgaged property was located.

The Supreme Court emphasized the importance of properly interpreting venue stipulations. In doing so, the Court revisited the general rules on venue, as provided in the Rules of Court. Rule 4 governs the venue of actions, distinguishing between real and personal actions. Real actions, affecting title to or possession of real property, must be commenced in the court with jurisdiction over the property’s location. Personal actions can be filed where the plaintiff or defendant resides, at the plaintiff’s choice. However, Section 4 provides an exception: parties can agree in writing on an exclusive venue.

Building on this legal framework, the Court reiterated the principles established in Legaspi v. Rep. of the Phils., highlighting that venue stipulations can be restrictive or merely permissive. A restrictive stipulation limits suits to a specific location, while a permissive one allows filing not only in the agreed-upon place but also in locations fixed by law. The crucial factor is determining the parties’ intention, which must be clearly expressed.

Written stipulations as to venue may be restrictive in the sense that the suit may be filed only in the place agreed upon, or merely permissive in that the parties may file their suit not only in the place agreed upon but also in the places fixed by law. As in any other agreement, what is essential is the ascertainment of the intention of the parties respecting the matter.

The Court then scrutinized the venue stipulation in the Real Estate Mortgage between Odilao and Union Bank:

Section 8. Venue. – 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.

This stipulation, the Court clarified, is restrictive. It limits the venue to Pasig City or the location of the mortgaged properties. Since Odilao filed her complaint in Davao City, where the property is located, the dismissal based on improper venue was erroneous. The Court pointed out the Court of Appeals’ contradictory stance, which affirmed the trial court while also stating that the venue stipulation should be controlling. Further compounding this error, the trial court misinterpreted the phrase “at the absolute option of the Mortgagee.”

The Supreme Court articulated that rules on venue are intended for convenience and should not restrict access to courts. An exclusive venue stipulation is valid only if it is exclusive in nature, expressed in writing, and agreed upon before the suit is filed. The phrase “at the absolute option of the Mortgagee” cannot be interpreted to mean that Odilao had to seek the bank’s preference before filing her case. Such an interpretation would place her at the bank’s mercy, delaying her right to litigate. The Court clarified that this phrase is only significant when the bank initiates the legal action.

The Supreme Court explicitly stated that restrictive venue stipulations refer only to geographical location and should not impede a party’s right to file a case. The lower courts’ interpretation would effectively allow the bank to dictate when and where a borrower can seek legal recourse, undermining the principles of fairness and equity. This decision underscores the judiciary’s role in protecting borrowers from potentially oppressive contractual terms, ensuring that venue stipulations are not used to unfairly limit access to justice.

FAQs

What was the key issue in this case?	The key issue was whether a venue stipulation in a real estate mortgage, which allowed actions to be filed in Pasig City or where the mortgaged property was located “at the absolute option of the Mortgagee,” was properly interpreted by the lower courts. The Supreme Court clarified that the stipulation was restrictive and that filing in the location of the property was permissible.
What is a restrictive venue stipulation?	A restrictive venue stipulation limits the venue of lawsuits to a specific location or locations agreed upon by the parties in a contract. This means that any legal action related to the contract must be filed in one of the designated venues, waiving the general venue rules provided by law.
What did the Court say about the phrase “at the absolute option of the Mortgagee”?	The Court clarified that this phrase should not be interpreted to mean that the borrower had to ask the bank for its preferred venue before filing a case. Instead, it means that the bank has the option to choose the venue if it is the one initiating the legal action.
Why did the Supreme Court reverse the lower courts’ decisions?	The Supreme Court reversed the lower courts because they misinterpreted the venue stipulation, unduly restricting the borrower’s right to file a case in the location of the mortgaged property, which was a valid venue under the agreement. The dismissal based on improper venue was therefore incorrect.
What is the purpose of venue rules?	Venue rules are designed to ensure convenience for the parties involved in a legal action by arranging for the effective transaction of business in the courts. They aim to make it easier for parties to access the courts without undue hardship.
What factors make an exclusive venue stipulation valid?	An exclusive venue stipulation is valid if it is exclusive in nature or intent, expressed in writing by the parties, and entered into before the filing of the lawsuit. All three elements must be present for the stipulation to be enforced.
How does this decision protect borrowers?	This decision protects borrowers by ensuring that venue stipulations in mortgage agreements are not used to unfairly limit their access to courts. It prevents banks from using their “absolute option” to force borrowers to litigate only in locations convenient for the bank.
What was the Briones case mentioned in the decision?	The Briones case involved a challenge to the validity of loan documents based on forgery. While the facts differed, the Supreme Court referenced Briones to reinforce the principle that venue stipulations should not be strictly enforced when the validity of the underlying contract is in question.

The Supreme Court’s decision in Odilao v. Union Bank clarifies the interpretation of venue stipulations in real estate mortgages, ensuring that borrowers retain reasonable access to legal recourse. This case serves as a reminder that courts will scrutinize contractual terms to prevent undue restrictions on the right to litigate, upholding the principles of fairness and equity in lending agreements.

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: LUCILLE B. ODILAO vs. UNION BANK OF THE PHILIPPINES, G.R. No. 254787, April 26, 2023