484 Phil. 745
AUSTRIA-MARTINEZ, J.:
That defendant bank acts in unilaterally reducing the agreed amount of FOUR MILLION PESOS (P4,000,000.00) to TWO MILLION PESOS (P2,000,000.00) and in unreasonably delay (sic) the release of THREE HUNDRED THOUSAND PESOS (P300,000.00) novated the promissory notes nos. 2491, 2510 and 2669 and also novated the real estate mortgage dated 6 September 1982 executed by plaintiff Francis R. Yuseco, Jr.;[12]and in their prayer, petitioners seek that the promissory notes and real estate mortgage be declared novated, invalid and unenforceable. Petitioners also amended the actual damages sought, increasing it to P5,000,000.00.[13]
WHEREFORE, judgment is hereby rendered:Aggrieved, respondent elevated the case to the Court of Appeals.
DECLARING --
(a) the promissory notes and real estate mortgage executed by plaintiff Yuseco novated, if not unenforceable; (b) any subsequent foreclosure or sale of the real estate property, without any binding effect;
ORDERING --
(1) the defendants to return full, uninterrupted and complete possession and ownership of the subject real estate property to plaintiff Francis R. Yuseco, Jr.; (2) the defendant to pay plaintiffs: (a) P1,000,000.00 as actual damages; (b) P200,000.00, as moral damages for the personal sufferings, mental anguish, serious anxiety, social humiliation of plaintiff Yuseco; (c) P50,000.00, as reasonable attorney’s fees; and (d) legal interest on the actual damages herein awarded from date of filing the Complaint until fully paid.
The Counterclaim interposed by the defendant in its Answer is hereby dismissed, for lack of merit.
Costs against the defendant. [16]
WHEREFORE, premises considered, the decision of the trial court in Civil Case No. 83-20514 is hereby REVERSED and SET ASIDE and judgment is hereby entered declaring the promissory notes and real estate mortgage executed in favor of defendant-appellant, as well as the extrajudicial foreclosure and sale of the mortgaged property, as valid and binding. Defendant-appellant is hereby ordered to pay plaintiff Azolla Farms International Philippines, Inc. the amount of fifty thousand pesos (P50,000.00) as nominal damages. No costs.Hence, the herein petition filed before the Court, alleging that:
SO ORDERED.[17]
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT REVERSED AND SET ASIDE THE DECISION OF THE COURT A QUO.[18]Two issues are involved in this case: first, whether the trial court erred in admitting petitioners’ amended complaint; and second, whether the trial court erred in nullifying the promissory notes, the real estate mortgage, and its extrajudicial foreclosure.
The trial court granted the motion and admitted the Amended Complaint. The Court of Appeals, however, ruled that the trial court should not have admitted the Amended Complaint because it altered petitioners’ cause of action. Apparently, the Court of Appeals treated petitioners’ amendment of the complaint as one involving amendments after the case is set for hearing under Section 3, Rule 10 of the Rules of Court,[20] which is not however applicable to the present case.
- During the direct examination of defendant bank’s witness Jesus Venturina, he testified and identified various documents relating to the invalid and illegal foreclosure on plaintiff Francis R. Yuseco, Jr.’s real property subject of the real estate mortgage dated September 7, 1982 and marked and adopted as Exhibit N for the plaintiffs. Moreover, he testified and identified the promissory notes, marked and adopted as Exhibits L, M and Q for the plaintiffs evidencing the incomplete and invalid consideration of the said mortgage. As a result of the testimony thus given and the documents adduced during said hearing, the issue of the foreclosure on said property has been raised which, therefore, necessitates that the pleadings in this case, the complaint, be amended to conform to the issues raised and the evidence presented;[19]
SEC. 5. Amendment to conform to or authorize presentation of evidence .—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. 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 so 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 freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.In Mercader vs. Development Bank of the Phils. (Cebu Branch),[21] the Court explained that the foregoing provision envisions two scenarios -- first, when evidence is introduced on an issue not alleged in the pleadings and no objection was interjected and second, when evidence is offered on an issue not alleged in the pleadings but this time an objection was interpolated. In cases where an objection is made, the court may nevertheless admit the evidence where the adverse party fails to satisfy the court that the admission of the evidence would prejudice him in maintaining his defense upon the merits, and the court may grant him a continuance to enable him to meet the new situation created by the evidence.
There have been instances where the Court has held that even without the necessary amendment, the amount proved at the trial may be validly awarded, as in Tuazon v. Bolanos (95 Phil. 106), where we said that if the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint was necessary, especially where defendant had himself raised the point on which recovery was based.[23] The appellate court could treat the pleading as amended to conform to the evidence although the pleadings were actually not amended. Amendment is also unnecessary when only clerical error or non substantial matters are involved, as we held in Bank of the Philippine Islands vs. Laguna (48 Phil. 5). In Co Tiamco vs. Diaz (75 Phil. 672), we stressed that the rule on amendment need not be applied rigidly, particularly where no surprise or prejudice is caused the objecting party. And in the recent case of National Power Corporation vs. Court of Appeals (113 SCRA 556), we held that where there is a variance in the defendant’s pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended to conform with the evidence.[24]Verily, the trial court cannot be faulted for admitting the amended complaint as it had the discretion to do so.
The promissory notes and real estate mortgage executed by plaintiff Yuseco appears to have been novated and, therefore, rendered to be unenforceable since there was a change in the parties (from Credit Manila, Inc. to Savings Bank of Manila) and, of course, in the amount of the loan applied for (from P5 Million to P2 Million) which, upon instruction of Mr. de Guzman -- was applied as follows:The Court of Appeals disagreed with the trial court and held that there was no novation, hence, the promissory notes and the real estate mortgage are valid and binding.…
It would, therefore, be imporper (sic) to consider and treat the promissory notes and the real estate mortgage as relating to the separate loan of plaintiff Yuseco so made and pursued for the same purpose and nature, all inuring to a specific project -- the Azolla Project![26]
All these requisites are patently lacking in this case. In the first place, there is no new obligation that supposedly novated the promissory notes or the real estate mortgage, or a pre-existing obligation that was novated by the promissory notes and the real estate mortgage. In fact, there is only one agreement between the parties in this case, i.e., petitioners’ P2,000,000.00 loan with respondent, as evidenced by the 3 promissory notes dated September 13 and 27, 1982, and January 4, 1983, and the real estate mortgage. As the Court of Appeals held:
- there must be a previous valid obligation,
- there must be an agreement of the parties concerned to a new contract,
- there must be the extinguishment of the old contract, and
- there must be the validity of the new contract.
… There was only one single loan agreement in the amount of P2 million between the parties as evidenced by the promissory notes and real estate mortgage - how can it be possibly claimed by plaintiffs that these notes and mortgage were “novated” when no previous notes or mortgage or loan agreement had been executed? What transpired was an application for loan was filed by plaintiffs with Credit Manila in an amount greater than the P2 million eventually granted. This loan application was endorsed to defendant Savings Bank of Manila, processed by the latter and eventually approved by it in the amount of P2 million.Moreover, records show that petitioners were well aware of the conditions of the loan application. In its August 31, 1982 Board Resolution, the Board of Directors of Azolla Farms authorized Yuseco to “borrow from the SAVINGS BANK OF MANILA, Head Office, sums of money in an amount not exceeding P2,200,000.00.”[30] The promissory notes signed by Yuseco were respondent Savings Bank’s promissory notes, and the real estate mortgage was likewise respondent Savings Bank’s standard real estate mortgage form. Obviously, this case is an attempt by petitioners to extricate themselves from their obligations; but they cannot be allowed to have their cake and eat it, too.
It cannot be said that the loan application of plaintiffs or their initial representations with Credit Manila’s Michael de Guzman was already in itself a binding original contract that was later “novated” by defendant. Plaintiff Yuseco being himself a banker, cannot pretend to have been unaware of banking procedures that normally recognize a “loan application” as just that, a mere application. Only upon the bank’s approval of the loan application in the amount and under such terms it deems viable and acceptable, that a binding and effective loan agreement comes into existence. Without any such first or original “loan agreement” as approved in the amount and under specified terms by the bank, there can be nothing whatsoever that can be subsequently novated.[29]