Extrajudicial Foreclosure Venue: Why Judges Must Follow Act 3135, Not the Rules of Court

When a bank moves to foreclose a mortgage extrajudicially, the rules are clear — but not every judge follows them. In a 1997 administrative case, the Supreme Court disciplined a judge for holding an auction sale in abeyance based on a mistaken reading of the law. The decision serves as a useful reminder of how extrajudicial foreclosure works in the Philippines and why venue stipulations in contracts do not always control.

The Case: Supena v. Judge de la Rosa (A.M. No. RTJ-93-1031)

The case began when BPI Agricultural Development Bank (BAID) sought to extrajudicially foreclose a real estate mortgage over a property in Manila. The sheriff scheduled a public auction on May 26, 1993, with proper notice and publication. But one day before the sale, the respondent judge issued an order holding the auction in abeyance — based solely on an ex-parte motion filed by the mortgagor, without notice to the bank or any hearing.

The judge's justification? He wanted to determine whether the venue was improperly laid, citing a stipulation in the loan agreement that any action "shall be instituted in the proper Courts of Makati." He also wanted to verify the mortgagor's claim that a P500,000 payment was not credited.

The Issue: Which Law Governs Venue?

The central question was whether the venue of an extrajudicial foreclosure sale should follow the general venue rules under the Rules of Court, or the specific provisions of Act No. 3135, as amended.

The Supreme Court answered emphatically: Act No. 3135 governs. This special law regulates sales under special powers inserted in or annexed to real estate mortgages. Its Section 2 provides that the sale cannot be made legally outside the province where the property is situated. If the parties stipulate a place within that province, the sale shall be held there; otherwise, it shall be held at the municipal building of the municipality where the property lies.

Since the property was in Manila, the auction sale in Manila was proper. The Court noted that the Deed of Real Estate Mortgage itself even stipulated that foreclosure sales under Act 3135 shall be held at the capital of the province — further confirming Manila as the correct venue.

Venue Stipulations Are Generally Permissive, Not Mandatory

The Court also clarified an important point about venue stipulations. While parties may agree on a venue, such stipulations are generally permissive rather than mandatory unless they contain qualifying or restrictive words indicating exclusivity.

Citing the Polytrade Corporation v. Blanco doctrine, the Court explained that a phrase like "the parties agree to sue and be sued in the Courts of Manila" merely adds Manila as an additional forum — it does not prevent filing in other places allowed by the rules. The principle renuntiatio non praesumitur (waiver is not presumed) applies. Only when the agreement clearly states that suits may be filed exclusively in a specified place will the stipulation be considered mandatory.

An Extrajudicial Foreclosure Is Not an "Action"

The Court further emphasized that an extrajudicial foreclosure is not an "action" or "suit" under Rule 2 of the Rules of Court. It is initiated by filing a petition with the sheriff's office, not with a court of justice. Therefore, the general venue rules for court actions simply do not apply.

The Proper Remedy: File a Case, Not an Ex-Parte Motion

The Court rejected the judge's second justification as well. If the mortgagor believed the bank failed to credit a payment, the proper remedy was to file a court action seeking a temporary restraining order or injunction — not a mere ex-parte motion to hold the auction in abeyance. The judge's order effectively acted as an indefinite restraining order without any of the required safeguards.

For this, the Court found the judge administratively liable for gross ignorance of the law and imposed a fine of P2,000.

Practical Takeaways

• Extrajudicial foreclosure venue is fixed by Act 3135. The sale must occur within the province where the property is located, regardless of general venue rules.
• Venue stipulations in contracts are usually permissive. Unless the agreement explicitly says a place is exclusive, parties may still file or proceed in other proper venues.
• Know the difference between sale types. Ordinary execution sales (Rule 39), judicial foreclosure (Rule 68), and extrajudicial foreclosure (Act 3135) each have their own rules.
• An ex-parte motion cannot substitute for a proper injunction. Parties seeking to stop a foreclosure sale must file an actual case and comply with requirements for injunctive relief.
• Judges are expected to know elementary law. Failure to apply the correct special law over general rules can result in administrative liability.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.