PHILIPPINE NATIONAL BANK vs. MANALO, G.R. No. 174433, February 24, 2014


Private Respondent Spouses Manalo applied for an All-Purpose Credit Facility, after PNB granted their application, they executed a Real Estate Mortgage in favor of PNB over their property as security for the loan. The credit facility was renewed and increased several times over the years. It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However, PNB claimed that their last recorded payment was made on December, 1997. Thus, PNB sent twice a demand letter to them on their overdue account and required them to settle the account. After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB foreclose the mortgage which PNB was the highest bidder. After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted this action for the nullification of the foreclosure proceedings and damages. The RTC rendered its decision in favor of PNB, upholding the validity of the mortgage. The Spouses appealed to the CA.

The CA affirmed the decision of the RTC insofar as it upheld the validity of the foreclosure proceedings initiated by PNB, but modified the Spouses Manalo’s liability for interest. It directed the RTC to see to the recomputation of their indebtedness, and ordered that should the recomputed amount be less than the winning bid in the foreclosure sale, the difference should be immediately returned to the Spouses Manalo.

The CA found it necessary to pass upon the issues of PNB’s failure to specify the applicable interest and the lack of mutuality in the execution of the credit agreements considering the earlier cited observation made by the trial court in its decision. The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements specifically provided that prior notice was required before an increase in interest rate could be effected. It found that PNB did not adduce proof showing that the Spouses Manalo had been notified before the increased interest rates were imposed; and that PNB’s 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. Consequently, the CA, relying on Eastern Shipping Lines, v. Court of Appeals, fixed the interest rate to be paid by the Spouses Manalo at 12% per annum, computed from their default. The CA denied the Spouses Manalo’s Motion for Reconsideration and PNB’s Partial Motion for Reconsideration.


Whether the RTC erred in accepting the evidence raised by the Private Respondent for the first time during trial.


No, 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.

 It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

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.”


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