174433 February 24, November 3, 1993 in favor of PNB over sheriff issued to PNB the Certificate of
2014 their property covered by Transfer Sale dated November 13, 2000.4
Certificate of Title No. S- 23191 as
PHILIPPINE NATIONAL security for the loan.1 The credit facility After more than a year after the
BANK, Petitioner, was renewed and increased several Certificate of Sale had been issued to
vs. times over the years. On September 20, PNB, the Spouses Manalo instituted this
SPOUSES ENRIQUE MANALO & 1996, the credit facility was again action for the nullification of the
ROSALINDA JACINTO, ARNOLD J. renewed for ₱7,000,000.00. As a foreclosure proceedings and damages.
MANALO, ARNEL J. MANALO, and consequence, the parties executed a They alleged that they had obtained a
ARMA J. MANALO, Respondents. Supplement to and Amendment of loan for ₱1,000,000.00 from a certain
Existing Real Estate Mortgage whereby Benito Tan upon arrangements made by
DECISION the property covered by TCT No. 171859 Antoninus Yuvienco, then the General
was added as security for the loan. Manager of PNB’s Bangkal Branch
BERSAMIN, J.: where they had transacted; that they had
The additional security was registered in been made to understand and had been
the names of respondents Arnold, Arnel, assured that the ₱1,000,000.00 would be
Although banks are free to determine the
Anthony, and Arma, all surnamed used to update their account, and that
rate of interest they could impose on
Manalo, who were their children.2 their loan would be restructured and
their borrowers, they can do so only
converted into a long-term loan;5 that
reasonably, not arbitrarily. They may not
It was agreed upon that the Spouses they had been surprised to learn,
take advantage of the ordinary
Manalo would make monthly payments therefore, that had been declared in
borrowers' lack of familiarity with banking
on the interest. However, PNB claimed default of their obligations, and that the
procedures and jargon. Hence, any
that their last recorded payment was mortgage on their property had been
stipulation on interest unilaterally
made on December, 1997. Thus, PNB foreclosed and their property had been
imposed and increased by them shall be
sent a demand letter to them on their sold; and that PNB did not comply with
struck down as violative of the principle
overdue account and required them to Section 3 of Act No. 3135, as amended.6
of mutuality of contracts.
settle the account. PNB sent another
demand letter because they failed to PNB and Antoninus Yuvienco countered
Antecedents
heed the first demand.3 that the ₱1,000,000.00 loan obtained by
the Spouses Manalo from Benito Tan
Respondent Spouses Enrique Manalo had been credited to their account; that
After the Spouses Manalo still failed to
and Rosalinda Jacinto (Spouses Manalo) they did not make any assurances on the
settle their unpaid account despite the
applied for an All-Purpose Credit Facility restructuring and conversion of the
two demand letters, PNB foreclose the
in the amount of ₱1,000,000.00 with Spouses Manalo’s loan into a long-term
mortgage. During the foreclosure sale,
Philippine National Bank (PNB) to one;7 that PNB’s right to foreclose the
PNB was the highest bidder for
finance the construction of their house.
₱15,127,000.00 of the mortgaged mortgage had been clear especially
After PNB granted their application, they because the Spouses Manalo had not
properties of the Spouses Manalo. The
executed a Real Estate Mortgage on assailed the validity of the loans and of
the mortgage; and that the Spouses the subject property (See Order, pp. 193- BEING (sic) LACK OF MERIT
Manalo did not allege having fully paid 195). NOTWITHSTANDING THE FACT THAT
their indebtedness.8 IT WAS CLEARLY SHOWN THAT THE
However, considering that the defendant FORECLOSURE PROCEEDINGS WAS
Ruling ofthe RTC bank did not interpose any objection to INVALID AND ILLEGAL.13
these matters being made part of
After trial, the RTC rendered its decision plaintiff’s evidence so much so that their The Spouses Manalo reiterated their
in favor of PNB, holding thusly: memorandum contained discussions arguments, insisting that: (1) the credit
rebutting plaintiff spouses arguments on agreements they entered into with PNB
In resolving this present case, one of the these issues, the court must necessarily were contracts of adhesion;14 (2) no
most significant matters the court has include these matters in the resolution of interest was due from them because
noted is that while during the pre-trial the present case.9 their credit agreements with PNB did not
held on 8 September 2003, plaintiff- specify the interest rate, and PNB could
spouses Manalo with the assistance The RTC held, however, that the not unilaterally increase the interest rate
counsel had agreed to stipulate that Spouses Manalo’s "contract of adhesion" without first informing them;15 and (3)
defendants had the right to foreclose argument was unfounded because they PNB did not comply with the notice and
upon the subject properties and that the had still accepted the terms and publication requirements under Section 3
plaintiffs[‘] main thrust was to prove that conditions of their credit agreement with of Act 3135.16 On the other hand, PNB
the foreclosure proceedings were invalid, PNB and had exerted efforts to pay their and Yuvienco did not file their briefs
in the course of the presentation of their obligation;10 that the Spouses Manalo despite notice.17
evidence, they modified their position were now estopped from questioning the
and claimed [that] the loan document interest rates unilaterally imposed by Ruling ofthe CA
executed were contracts of adhesion PNB because they had paid at those
which were null and void because they rates for three years without In its decision promulgated on March 28,
were prepared entirely under the protest;11 and that their allegation about 2006,18 the CA affirmed the decision of
defendant bank’s supervision. They also PNB violating the notice and publication the RTC insofar as it upheld the validity
questioned the interest rates and penalty requirements during the foreclosure of the foreclosure proceedings initiated
charges imposed arguing that these proceedings was untenable because by PNB, but modified the Spouses
were iniquitous, unconscionable and personal notice to the mortgagee was Manalo’s liability for interest. It directed
therefore likewise void. not required under Act No. 3135.12 the RTC to see to the recomputation of
their indebtedness, and ordered that
Not having raised the foregoing matters The Spouses Manalo appealed to the should the recomputed amount be less
as issues during the pre-trial, plaintiff- CA by assigning a singular error, as than the winning bid in the foreclosure
spouses are presumably estopped from follows: sale, the difference should be
allowing these matters to serve as part of immediately returned to the Spouses
their evidence, more so because at the THE COURT A QUO SERIOUSLY Manalo.
pre-trial they expressly recognized the ERRED IN DISMISSING PLAINTIFF-
defendant bank’s right to foreclose upon APPELLANTS’ COMPLAINT FOR
The CA found it necessary to pass upon money rendered them to be not on an I
the issues of PNB’s failure to specify the equal footing with PNB. Consequently,
applicable interest and the lack of the CA, relying on Eastern Shipping WHETHER OR NOT THE COURT OF
mutuality in the execution of the credit Lines, v. Court of Appeals,19 fixed the APPEALS WAS CORRECT IN
agreements considering the earlier cited interest rate to be paid by the Spouses NULLIFYING THE INTEREST RATES
observation made by the trial court in its Manalo at 12% per annum, computed IMPOSED ON RESPONDENT
decision. Applying Article 1956 of the from their default. SPOUSES’ LOAN AND IN FIXING THE
Civil Code, the CA held that PNB’s SAME AT TWELVE PERCENT (12%)
failure to indicate the rate of interest in The CA deemed to be untenable the FROM DEFAULT, DESPITE THE FACT
the credit agreements would not excuse Spouses Manalo’s allegation that PNB THAT (i) THE SAME WAS RAISED BY
the Spouses Manalo from their had failed to comply with the THE RESPONDENTS ONLY FOR THE
contractual obligation to pay interest to requirements for notice and posting FIRST TIME ON APPEAL (ii) IT WAS
PNB because of the express agreement under Section 3 of Act 3135. The CA NEVER PART OF THEIR COMPLAINT
to pay interest in the credit agreements. stated that Sheriff Norberto Magsajo’s (iii) WAS EXLUDED AS AN ISSUE
Nevertheless, the CA ruled that PNB’s testimony was sufficient proof of his DURING PRE-TRIAL, AND WORSE, (iv)
inadvertence to specify the interest rate posting of the required Notice of Sheriff’s THERE WAS NO FORMALLY
should be construed against it because Sale in three public places; that the OFFERED PERTAINING TO THE SAME
the credit agreements were clearly notarized Affidavit of Publication DURING TRIAL.
contracts of adhesion due to their having presented by Sheriff Magsajo was prima
been prepared solely by PNB. facie proof of the publication of the II
notice; and that the Affidavit of
The CA further held that PNB could not Publication enjoyed the presumption of WHETHER OR NOT THE COURT OF
unilaterally increase the rate of interest regularity, such that the Spouses APPEALS CORRECTLY RULED THAT
considering that the credit agreements Manalo’s bare allegation of non- THERE WAS NO MUTUALITY OF
specifically provided that prior notice was publication without other proof did not CONSENT IN THE IMPOSITION OF
required before an increase in interest overcome the presumption. INTEREST RATES ON THE
rate could be effected. It found that PNB RESPONDENT SPOUSES’ LOAN
did not adduce proof showing that the On August 29, 2006, the CA denied the DESPITE THE EXISTENCE OF FACTS
Spouses Manalo had been notified Spouses Manalo’s Motion for AND CIRCUMSTANCES CLEARLY
before the increased interest rates were Reconsideration and PNB’s Partial SHOWING RESPONDENTS’ ASSENT
imposed; and that PNB’s unilateral Motion for Reconsideration.20 TO THE RATES OF INTEREST SO
imposition of the increased interest rate IMPOSED BY PNB ON THE LOAN.
was null and void for being violative of Issues
the principle of mutuality of contracts
Anent the first issue, PNB argues that by
enshrined in Article 1308 of the Civil
In its Memorandum,21 PNB raises the passing upon the issue of the validity of
Code. Reinforcing its "contract of
following issues: the interest rates, and in nullifying the
adhesion" conclusion, it added that the
rates imposed on the Spouses Manalo,
Spouses Manalo’s being in dire need of
the CA decided the case in a manner not
in accord with Section 15, Rule 44 of the Contrary to PNB’s argument, the validity defendant bank were never the
Rules of Court, which states that only of the interest rates and of the increases, subject of any stipulation
questions of law or fact raised in the trial and on the lack of mutuality between the between us mortgagors and the
court could be assigned as errors on parties were not raised by the Spouses defendant PNB as mortgagee;
appeal; that to allow the Spouses Manalo’s for the first time on appeal.
Manalo to raise an issue for the first time Rather, the issues were impliedly raised 22. The truth of the matter is that
on appeal would "offend the basic rules during the trial itself, and PNB’s lack of defendant bank imposed rate of
of fair play, justice and due vigilance in voicing out a timely objection interest which ranges from 19%
process;"22 that the resolution of the CA made that possible. to as high as 28% and which
was limited to the issues agreed upon by changes from time to time;
the parties during pre-trial;23 that the CA It appears that Enrique Manalo’s Judicial
erred in passing upon the validity of the Affidavit introduced the issues of the 23. The irregularity, much less
interest rates inasmuch as the Spouses validity of the interest rates and the the invalidity of the imposition of
Manalo did not present evidence increases, and the lack of mutuality iniquitous rates of interest was
thereon; and that the Judicial Affidavit of between the parties in the following aggravated by the fact that we
Enrique Manalo, on which the CA relied manner, to wit: were not informed, notified, nor
for its finding, was not offered to prove the same had our prior consent
the invalidity of the interest rates and 5. True to his words, defendant and acquiescence therefor. x x
was, therefore, inadmissible for that Yuvienco, after several days, x25
purpose.24 sent us a document through a
personnel of defendant PNB, PNB cross-examined Enrique Manalo
As to the substantive issues, PNB claims Bangkal, Makati City Branch, upon his Judicial Affidavit. There is no
that the Spouses Manalo’s continuous who required me and my wife to showing that PNB raised any objection in
payment of interest without protest affix our signature on the said the course of the cross
indicated their assent to the interest document; examination.26 Consequently, the RTC
rates imposed, as well as to the rightly passed upon such issues in
subsequent increases of the rates; and 6. When the document was deciding the case, and its having done
that the CA erred in declaring that the handed over me, I was able to so was in total accord with Section 5,
interest rates and subsequent increases know that it was a Promissory Rule 10 of the Rules of Court, which
were invalid for lack of mutuality between Note which was in ready made states:
the contracting parties. form and prepared solely by the
defendant PNB; Section 5. Amendment to conform to or
Ruling authorize presentation of evidence. –
xxxx When issues not raised by the pleadings
The appeal lacks merit. are tried with the express or implied
21. As above-noted, the rates of consent of the parties, they shall be
1. interest imposed by the treated in all respects as if they had been
Procedural Issue raised in the pleadings. Such
amendment of the pleadings as may be The RTC did not need to direct the the pleadings. There is implied, consent
necessary to cause them to conform to amendment of the complaint by the to the evidence thus presented when the
the evidence and to raise these issues Spouses Manalo. Section 5, Rule 10 of adverse party fails to object thereto."
may be made upon motion of any party the Rules of Court specifically declares (Emphasis supplied)
at any time, even after judgment; but that the "failure to amend does not affect
failure to amend does not affect the the result of the trial of these issues." Clearly, a court may rule and render
result of the trial of these issues. If According to Talisay-Silay Milling Co., judgment on the basis of the evidence
evidence is objected to at the trial on the Inc. v. Asociacion de Agricultores de before it even though the relevant
ground that it is not within the issues Talisay-Silay, Inc.:28 pleading had not been previously
made by the pleadings, the court may amended, so long as no surprise or
allow the pleadings to be amended and The failure of a party to amend a prejudice is thereby caused to the
shall do so with liberality if the pleading to conform to the evidence adverse party. Put a little differently, so
presentation of the merits of the action adduced during trial does not preclude long as the basic requirements of fair
and the ends of substantial justice will be an adjudication by the court on the basis play had been met, as where litigants
subserved thereby. The court may grant of such evidence which may embody were given full opportunity to support
a continuance to enable the amendment new issues not raised in the pleadings, their respective contentions and to object
to be made. or serve as a basis for a higher award of to or refute each other's evidence, the
damages. Although the pleading may not court may validly treat the pleadings as if
In Bernardo Sr. v. Court of Appeals,27 we have been amended to conform to the they had been amended to conform to
held that: evidence submitted during trial, judgment the evidence and proceed to adjudicate
may nonetheless be rendered, not on the basis of all the evidence before it.
It is settled that even if the complaint be simply on the basis of the issues alleged
defective, but the parties go to trial but also on the basis of issues discussed There is also no merit in PNB’s
thereon, and the plaintiff, without and the assertions of fact proved in the contention that the CA should not have
objection, introduces sufficient evidence course of trial. The court may treat the
1âwphi 1
SO ORDERED.