Civil Procedure; Amendment of Pleadings; The failure of a party to FACTS

amend a pleading to conform to the evidence adduced during trial

does not preclude an adjudication by the court Philippine National 1. The Spouses Manalo applied for an All-Purpose Credit Facility in the
on the basis of such evidence which may embody new issues not amount of P1,000,000.00 with the PNB to finance the construction of
their house and covered Real Estate Mortgage over their property in
raised in the pleadings, or serve as a basis for a higher award of favor of PNB (TCT No. S-23191) as security for the loan.
damages. 2. The credit facility was renewed and increased several times over the
years.
Contract of Adhesion; A contract where there is no mutuality 3. September 20, 1996: the credit facility was renewed for P7,000,000.00
between the parties partakes of the nature of a contract of adhesion, with corresponding amendment to the existing Real Estate Mortgage
whereby the property of the Manalo children were added as security for
and any obscurity will be construed against the party who prepared the loan.
the contract, the latter being presumed the stronger party to the 4. It was agreed upon that the Spouses Manalo would make monthly
agreement, and who caused the obscurity. payments on the interest.
5. After the Spouses Manalo still failed to settle their unpaid account
despite the two demand letters, PNB foreclose the mortgage.
6. After more than a year after foreclosure sale, the Spouses Manalo
instituted an action for the nullification of the foreclosure proceedings
PNB vs. MANALO and damages.
7. The Spouses Manalo alleged: that they had obtained a loan
PHILIPPINE NATIONAL BANK, Petitioner, for P1,000,000.00 from a certain Benito Tan upon arrangements made
by Antoninus Yuvienco, then the General Manager of PNBs Bangkal
vs.
Branch where they had transacted; that they had been made to
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, understand and had been assured that the P1,000,000.00 would be used
ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J. to update their account, and that their loan would be restructured and
MANALO, Respondents. converted into a long-term loan; that they had been surprised to learn,
therefore, that had been declared in default of their obligations, and that
the mortgage on their property had been foreclosed and their property
G.R. No. 174433
had been sold; and that PNB did not comply with Section 3 of Act No.
February 24, 2014 3135, as amended.
Ponente: BERSAMIN, J.: 8. PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan
obtained by the Spouses Manalo from Benito Tan had been credited to
their account; that they did not make any assurances on the restructuring
and conversion of the Spouses Manalos loan into a long-term one; that
PNBs right to foreclose the mortgage had been clear especially because
NATURE OF CASE: PETITION for review on certiorari of the the Spouses Manalo had not assailed the validity of the loans and of the
decision and resolution of the Court of Appeals. mortgage; and that the Spouses Manalo did not allege having fully paid
their indebtedness.
9. RTC: because their credit agreements with PNB did not specify the
The RTC decided in favor of PNB that the foreclosure interest rate, and PNB could not unilaterally increase the interest
proceedings were valid. rate without first informing them; and
It was noted that during the pre-trial, the Spouses Manalo had (3) PNB did not comply with the notice and publication
agreed to stipulate that PNB had the right to foreclose upon requirements under Section 3 of Act 3135.
the subject properties and that the spouses main thrust was to 11. CA upheld the validity of the foreclosure proceedings initiated by
prove that the foreclosure proceedings were invalid. PNB, but modified the Spouses Manalos liability for interest. The
CA found it necessary to pass upon the issues of PNBs failure to specify
In the course of the presentation of their evidence, the Spouses
the applicable interest and the lack of mutuality in the execution of the
Manalo modified their position and claimed that the loan credit agreements considering the earlier cited observation made by the
document executed were contracts of adhesion which were trial court in its decision.
null and void because they were prepared entirely under the Applying Article 1956 of the Civil Code, the CA held that PNBs
defendant PNBs supervision. They also questioned the failure to indicate the rate of interest in the credit agreements would
interest rates and penalty charges imposed arguing that these not excuse the Spouses Manalo from their contractual obligation to
were iniquitous, unconscionable and therefore likewise void. pay interest to PNB because of the express agreement to pay interest
Not having raised the foregoing matters as issues during the pre-trial, in the credit agreements. Nevertheless, the CA ruled that PNBs
the Spouses Manalo are presumably estopped from allowing these inadvertence to specify the interest rate should be construed against
matters to serve as part of their evidence, more so because at the pre- it because the credit agreements were clearly contracts of adhesion
trial they expressly recognized the defendant PNBs right to due to their having been prepared solely by PNB.
foreclose upon the subject property. The RTC held, however, that The CA further held that PNB could not unilaterally increase
the Spouses Manalos "contract of adhesion" argument was the rate of interest considering that the credit agreements
unfounded because they had still accepted the terms and conditions specifically provided that prior notice was required before an
of their credit agreement with PNB and had exerted efforts to pay increase in interest rate could be effected. It found that PNB did
their obligation; that the Spouses Manalo were now estopped from not adduce proof showing that the Spouses Manalo had been notified
questioning the interest rates unilaterally imposed by PNB because before the increased interest rates were imposed; and that PNBs
they had paid at those rates for three years without protest; and that unilateral imposition of the increased interest rate was null and
their allegation about PNB violating the notice and publication void for being violative of the principle of mutuality of contracts
requirements during the foreclosure proceedings was untenable enshrined in Article 1308 of the Civil Code. Reinforcing its
because personal notice to the mortgagee was not required under Act "contract of adhesion" conclusion, it added that the Spouses
No. 3135. Manalos being in dire need of money rendered them to be not on an
equal footing with PNB. Consequently, the CA, relying on Eastern
10. CA: Shipping Lines, v. CA, fixed the interest rate to be paid by the
CA affirmed the decision of the RTC insofar as it upheld the Spouses Manalo at 12% per annum, computed from their default.
validity of the foreclosure proceedings initiated by PNB, but
modified the Spouses Manalos liability for interest.
The Spouses Manalo appealed to the CA, insisting that:
(1) the credit agreements they entered into with PNB were
contracts of adhesion; (2) no interest was due from them
ISSUE/s of the CASE failure of a party to amend a pleading to conform to the evidence
adduced during trial does not preclude an adjudication by the court
WHETHER OR NOT THE COURT OF APPEALS WAS on the basis of such evidence which may embody new issues not
CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED raised in the pleadings, or serve as a basis for a higher award of
ON RESPONDENT SPOUSES LOAN AND IN FIXING THE damages.
SAME AT TWELVE PERCENT (12%) FROM DEFAULT,
DESPITE THE FACT THAT Although the pleading may not have been amended to conform to
the evidence submitted during trial, judgment may nonetheless be
(i) THE SAME WAS RAISED BY THE RESPONDENTS rendered, not simply on the basis of the issues alleged but also on
ONLY FOR THE FIRST TIME ON APPEAL the basis of issues discussed and the assertions of fact proved in the
(ii) IT WAS NEVER PART OF THEIR COMPLAINT course of trial. The court may treat the pleading as if it had been
(iii) WAS EXLUDED AS AN ISSUE DURING PRE- amended to conform to the evidence, although it had not been
TRIAL, AND WORSE, actually so amended.
(iv) THERE WAS NO FORMALLY OFFERED
PERTAINING TO THE SAME DURING TRIAL. Former Chief Justice Moran put the matter in this way: When
evidence is presented by one party, with the expressed or implied
consent of the adverse party, as to issues not alleged in the
ACTION OF THE COURT pleadings, judgment may be rendered validly as regards those issues,
which shall be considered as if they have been raised in the
SC: AFFIRM CA DECISION WITH MODIFICATION pleadings. There is implied, consent to the evidence thus presented
when the adverse party fails to object thereto. (Emphasis supplied)

COURT RATIONALE ON THE ABOVE CASE Clearly, a court may rule and render judgment on the basis of the
evidence before it even though the relevant pleading had not been
previously amended, so long as no surprise or prejudice is thereby
The RTC did not need to direct the amendment of the complaint by caused to the adverse party. Put a little differently, so long as the
the Spouses Manalo. Section 5, Rule 10 of the Rules of Court basic requirements of fair play had been met, as where litigants were
specifically declares that the failure to amend does not affect the given full opportunity to support their respective contentions and to
result of the trial of these issues. object to or refute each others evidence, the court may validly treat
the pleadings as if they had been amended to conform to the
According to Talisay-Silay Milling Co., Inc. v. Asociacion de evidence and proceed to adjudicate on the basis of all the evidence
Agricultores de Talisay-Silay, Inc., 247 SCRA 361 (1995): The
before it. Philippine National Bank vs. Manalo, 717 SCRA 254,
G.R. No. 174433 February 24, 2014

SUPREME COURT RULING

WHEREFORE, the Court AFFIRMS the decision promulgated by

the Court of Appeals on March 28, 2006 in CA-G.R. CV No. 84396,
subject to the MODIFICATION that any amount to be refunded to
the respondents shall bear interest of 12% per annum computed
from March 28, 2006 until June 30, 2013, and 6% per annum
computed from July 1, 2013 until finality hereof; that the amount to
be refunded and its accrued interest shall earn interest at 6o/o per
annum until full refund; and DIRECTS the petitioner to pay the
costs of suit.
SO ORDERED.