PNB vs.

Spouses Manalo
G.R. No. 174433
February 24, 2014

DOCTRINES:
 When evidence is presented by one party, with the expressed or implied consent of the adverse
party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those
issues, which shall be considered as if they have been raised in the pleadings. There is implied,
consent to the evidence thus presented when the adverse party fails to object thereto
 A court may rule and render judgment on the basis of the evidence even if the pleading had not
previously amended as long as no surprise or prejudice is caused to the adverse party. The court
may validly treat a pleading as if they had been amended to conform to the evidence and proceed
to decide on the case on the basis of such evidence.
 Rule 10, Section 5 is applicable in 2 situations: (1) when evidence is introduced on an issue not
alleged in the pleadings and no objection is interposed by the adverse party; and (2) when evidence
is offered on an issue not alleged in the pleadings but an objection is raised against the offer.

SUMMARY: Spouses Manalo applied for an All-Purpose Credit Facility in the amount of Php 1M with the
PNB for the construction of their house. A Real Estate Mortgage was executed over a lot in favor of PNB
as security for the loan. The loan was continually renewed until it reached Php 7M and required an
additional security. The Manalos eventually failed to comply with their obligations, allowing PNB to
foreclose the said land. PNB likewise emerged as the highest bidder.

More than a year after the issuance of the Certificate, the Manalos instituted an action for nullification of
foreclosure proceedings and damages. The posit that they had only loaned Php 1M from defendant bank.
The RTC ruled in favor of PNB. However, it noted that the Spouses raised for the first time before pre-trial
the following allegations: validity of the interest rates and of the increases, and the lack of mutuality
between the parties. It, however, admitted the said allegations since PNB did not interpose any objection
thereto. The CA affirmed the decision of the RTC but nullified the interest rates imposed by PNB. Instead,
it imposed a 12% interest rate p.a.

The issue is whether the CA was correct in nullifying the interest rates imposed despite the fact that the
allegations were not part of their complaint and was only raised for the first time on appeal. The SC ruled
in the affirmative, citing Rule 10, Section 5. It quoted Former Chief Justice Moran, “when evidence is
presented by one party, with the expressed or implied consent of the adverse party, as to issues not alleged
in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if
they have been raised in the pleadings. There is implied, consent to the evidence thus presented when the
adverse party fails to object thereto.” Hence, a court may rule and render judgment on the basis of the
evidence even if the pleading had not previously amended as long as no surprise or prejudice is caused to
the adverse party.

FACTS: The case at bar deals with the PNB’s appeal before the SC when the CA denied its Partial Motion
for Reconsideration. (Sorry no nature nakalagay sa case ☹)

Spouses Manlo applied for an All-Purpose Credit Facility in the amount of Php 1M with the PNB for the
construction of their house. A Real Estate Mortgage was executed over Lot 1 in favor of PNB as security
for the loan. The credit facility was renewed for a number of times until 1996 when it was renewed again
for Php 7M. As a consequence, a Supplement to and Amendment of Existing Real Estate Mortgage was
executed and Lot 2 was added as security for the loan. The additional security, however, were registered in
the names of the children of the Manalos.
The agreement was that Spouses Manalo would make monthly payments on the interest, but PNB claimed
that their last payment was made on December 1997. PNB then sent a demand letter to them regarding their
overdue account, but the Manalos failed to pay even after the second demand letter was sent. PNB then
foreclosed on the mortgages wherein it won as the highest bidder. A Certificate of Sale was then issued to
PNB by the Sheriff.

More than a year after the issuance of the Certificate, the Manalos instituted an action for nullification of
foreclosure proceedings and damages. They alleged that they had obtained a loan for ₱1M from a certain
Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of PNB’s Bangkal
Branch where they had transacted; that they had been made to understand and had been assured that the
₱1,000,000.00 would be used to update their account, and that their loan would be restructured and
converted into a long-term loan; and finally, the Manalos contended that their property had already been
foreclosed and that they had already been in default of their obligations.

RTC rendered its decision in favor of PNB

The RTC also mentioned that during pre-trial, the Manalos agreed to stipulate that PNB had the right to
foreclose upon the subject properties and that the Manalos contend that the foreclosure proceedings were
invalid. Eventually, however, their position was modified in that they claimed that the loan document
executed were contracts of adhesion which were null and void because they were prepared entirely under
the defendant bank’s supervision. They also questioned the interest rates and penalty charges imposed
arguing that these were iniquitous, unconscionable and therefore likewise void.

Not having raised the foregoing matters as issues during the pre-trial, the Manalos are presumably estopped
from including the aforementioned facts as part of their evidence, more so because at the pre-trial they
expressly recognized the PNB’s right to foreclose upon the subject property. However, the bank did not
object to the introduction of the said evidence. Hence, the RTC included the allegation in its resolution.

The RTC held that the Spouses Manalo’s "contract of adhesion" argument was unfounded because they had
still accepted the terms and conditions of their credit agreement with PNB and had exerted efforts to pay
their obligation; that the Spouses Manalo were now estopped from questioning the interest rates unilaterally
imposed by PNB because they had paid at those rates for three years without protest; and that their allegation
about PNB violating the notice and publication requirements during the foreclosure proceedings was
untenable because personal notice to the mortgagee was not required under Act No. 3135.

CA: valid foreclosure proceedings but modified the interest rates

The CA upheld the RTC’s decision that the foreclosure proceedings were valid. It, however, modified the
Manalos liability for interest. Also it found that there was a failure to specify the applicable interest and a
lack of mutuality in the execution of the credit agreements. The Court stated that PNB could not unilaterally
increase the interest rate without the consent of the Manalos.

Also, the unilateral imposition of the increased interest rate was null and void for being violative of the
principle of mutuality of contracts enshrined in Article 1308 of the Civil Code. Reinforcing its "contract of
adhesion" conclusion, it added that the Spouses Manalo’s being in dire need of money rendered them to be
not on an equal footing with PNB. The CA therefore, nullified the interest imposed by PNB and fixed it at
12% p.a.

ISSUE: W/N the CA was correct in nullifying the interest rates imposed despite the fact that the allegations
were not part of their complaint and was only raised for the first time on appeal?
HELD: Yes.

The SC held that the validity of the interest rates and of the increases, and on the lack of mutuality between
the parties were not raised by the Spouses Manalo’s for the first time on appeal. The issues were impliedly
raised during the trial itself, and PNB was not vigilant enough to have made a timely objection.

Enrique Manalo’s Judicial Affidavit introduced the issues of the validity of the interest rates and the
increases, and the lack of mutuality between the parties. When PNB cross-examined Enrique Manalo, it did
not raise any objection in the course of the cross-examination. The RTC, therefore, correctly passed upon
such issues. The SC cited Rule 10, Section 5, which states:

“Section 5. Amendment to conform to or authorize presentation of evidence. – When issues

not raised by the pleadings are tried with the express or implied consent of the parties, they shall
be treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but failure to amend does
not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action and the ends
of substantial justice will be subserved thereby. The court may grant a continuance to enable the
amendment to be made.”

The aforementioned provision states that "failure to amend does not affect the result of the trial of these
issues." According to Former Chief Justice Moran,

“When evidence is presented by one party, with the expressed or implied consent of the adverse
party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those
issues, which shall be considered as if they have been raised in the pleadings. There is implied,
consent to the evidence thus presented when the adverse party fails to object thereto”

A court may rule and render judgment on the basis of the evidence even if the pleading had not previously
amended as long as no surprise or prejudice is caused to the adverse party. The court may validly treat a
pleading as if they had been amended to conform to the evidence and proceed to decide on the case on the
basis of such evidence.

Furthermore, the SC held that Rule 10, Section 5 is applicable in 2 situations: (1) when evidence is
introduced on an issue not alleged in the pleadings and no objection is interposed by the adverse party; and
(2) when evidence is offered on an issue not alleged in the pleadings but an objection is raised against the
offer.

The case at bar deals with the first situation. Enrique Manalo’s Affidavit introduced the very issues that
PNB is assailing. The question of whether the evidence on such issues was admissible to prove the nullity
of the interest rates is an entirely different matter. The RTC accorded credence to PNB’s evidence showing
that the Spouses Manalo had been paying the interest imposed upon them without protest. On the other
hand, the CA’s nullification of the interest rates was based on the credit agreements that the Spouses Manalo
and PNB had themselves submitted.

Finally, the SC held that the validity of the interest rates and their increases, and the lack of mutuality
between the parties were issues validly raised in the RTC, giving the Spouses Manalo every right to raise
them in their appeal to the CA.