The Supreme Court ruled that a venue stipulation in a promissory note also applies to the surety agreement that supports it. This means that if a promissory note specifies a particular location for legal actions, the surety, who guarantees the loan, is also bound by that location. This prevents a creditor from suing the surety in a different venue, ensuring consistency and predictability in legal proceedings related to the loan and its guarantee. The decision underscores that accessory contracts, like surety agreements, are interpreted alongside the principal agreement to achieve a harmonious understanding of the parties’ obligations.

When Location Matters: Aligning Loan Guarantees with Venue Agreements

Philippine Bank of Communications (PBCom) filed a collection suit in Manila against Elena Lim, Ramon Calderon, and Tri-Oro International Trading & Manufacturing Corporation to recover a deficiency after foreclosing a real estate mortgage. PBCom argued that the respondents had obtained a loan, evidenced by a Promissory Note (PN), and secured by a Continuing Surety Agreement (SA). The PN stipulated that any legal action arising from it would be exclusively filed in Makati City. The respondents sought to dismiss the case based on improper venue, citing the PN’s venue stipulation. The trial court initially denied the motion, asserting that PBCom had separate causes of action under the PN and the SA. The Court of Appeals (CA), however, reversed this decision, holding that the SA, as an accessory contract, should be interpreted in conjunction with the PN, thus making the Makati venue stipulation binding.

The central legal question before the Supreme Court was whether the restrictive venue stipulation in the promissory note applied to the surety agreement. PBCom contended that the SA was a separate cause of action, not bound by the PN’s venue stipulation, and therefore, the case was properly filed in Manila, where PBCom resided. The Court addressed the issue of venue, emphasizing that while personal actions are generally filed where the plaintiff or defendant resides, this rule yields to specific legal provisions or written agreements specifying an exclusive venue. A venue stipulation is binding unless it contains qualifying or restrictive words, which the PN clearly did, stating the venue was Makati City “to the exclusion of all other courts.”

The Court noted PBCom’s attempt to portray Tri-Oro as the sole issuer of the PN, with the other respondents merely acting as sureties. This strategy aimed to disconnect the SA from the PN, suggesting the venue stipulation didn’t apply to the SA. However, the Court emphasized that the SA was inseparable from the PN, as the cause of action to recover based on the SA directly depended on the debt documented in the PN. The Supreme Court cited the **“complementary-contracts-construed-together” doctrine**, stating that an accessory contract must be read in its entirety and together with the principal agreement. This principle, rooted in Article 1374 of the Civil Code, ensures that contractual stipulations are interpreted harmoniously:

“Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.”

Applying this doctrine, the Court found that the SA was unenforceable without the PN, which documented the debt. The SA was entered into to facilitate existing and future loan agreements, with PBCom approving the loan covered by the PN partly because of the SA ensuring payment. The circumstances surrounding the issuance of the PN and the SA were so intertwined that they could not be separated. The Court reasoned that it made no sense to argue that the parties to the SA were not bound by the stipulations in the PN.

The Court also pointed out that the PN was a **contract of adhesion**, prepared by PBCom and required as a condition for loan approval. By including the Makati City venue stipulation, PBCom also restricted the venue of actions against the sureties, as the legal action against them arose not only from the SA but also from the PN. While PBCom correctly argued that its Complaint contained two causes of action—one against Tri-Oro for violating the PN and another against Lim and Calderon for violating the SA—the Court clarified that the cause of action did not override the venue stipulation.

The Court acknowledged that because of the variance between the causes of action, petitioner could have filed separate actions against respondents to recover the debt, on condition that it could not recover twice from the same cause. It could have proceeded against only one or all of them, as full payment by any one of them would have extinguished the obligation. By the same token, respondents could have been joined as defendants in one suit, because petitioner’s alleged right of relief arose from the same transaction or series of transactions that had common questions of fact.

Ultimately, the Supreme Court rejected PBCom’s plea for a liberal application of venue rules. As the PN was a contract of adhesion, any ambiguities were construed against PBCom, the drafter of the contract. The Court concluded that PBCom could not disavow the venue stipulation, especially since it had also drafted the SA. The Court also emphasized that the alleged technicality caused no miscarriage of justice, as PBCom could refile the case in the correct venue. The Supreme Court therefore denied the petition and affirmed the Court of Appeals’ decision.

FAQs

What was the key issue in this case?	The key issue was whether a venue stipulation in a promissory note extends to the surety agreement that supports it, thereby restricting the venue for actions against the surety. The Supreme Court ruled that it does, ensuring consistency in legal proceedings related to the loan.
What is a surety agreement?	A surety agreement is a contract where one party (the surety) guarantees the debt or obligation of another party (the principal debtor) to a third party (the creditor). The surety is solidarily liable with the principal debtor for the obligation.
What is a promissory note?	A promissory note is a written promise to pay a specific amount of money to a payee at a specified date or on demand. It is a negotiable instrument commonly used in loan transactions.
What does ‘complementary-contracts-construed-together’ mean?	This legal doctrine means that an accessory contract, like a surety agreement, should be read and interpreted together with the principal contract, such as a promissory note. This ensures a comprehensive understanding of the parties’ obligations and intentions.
What is a contract of adhesion?	A contract of adhesion is a standardized contract drafted by one party (usually a business with stronger bargaining power) and presented to the other party on a take-it-or-leave-it basis, without a real opportunity to negotiate the terms. Ambiguities in such contracts are construed against the drafting party.
Can venue stipulations be waived?	Yes, venue stipulations can be waived by the parties. However, the waiver must be clear and must not prejudice the other party. If a party actively participates in a case filed in an improper venue without objecting, they may be deemed to have waived their right to object.
What happens if a case is filed in the wrong venue?	If a case is filed in the wrong venue and the defendant objects, the court may dismiss the case without prejudice. This means the plaintiff can refile the case in the correct venue, provided the statute of limitations has not expired.
What is the significance of the venue stipulation in the promissory note?	The venue stipulation specifies where legal actions related to the promissory note must be filed. In this case, the stipulation in the promissory note was crucial because it also bound the surety agreement, ensuring that any legal action against the surety would also be filed in the stipulated venue.

In conclusion, the Philippine Bank of Communications v. Elena Lim case clarifies the interplay between promissory notes and surety agreements, particularly regarding venue stipulations. The ruling emphasizes that stipulations in a principal contract, such as a promissory note, extend to accessory contracts like surety agreements, ensuring consistency in legal proceedings. Parties involved in loan transactions should carefully review and understand all contractual terms, including venue stipulations, to avoid potential legal complications.

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: PHILIPPINE BANK OF COMMUNICATIONS v. ELENA LIM, G.R. No. 158138, April 12, 2005