Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&amp;view=article&amp;id=45839:138085&amp;catid=1459&amp;Itemid=566
Timestamp: 2019-04-20 00:14:05+00:00

Document:
G.R. No. 138085 - AZOLLA FARMS, ET AL. v. COURT OF APPEALS, ET AL.
AZOLLA FARMS and FRANCISCO R. YUSECO, Petitioners, v. COURT OF APPEALS and SAVINGS BANK OF MANILA, Respondents.
This is an appeal by certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision dated February 19, 1999 rendered by the Court of Appeals1 in CA-G.R. CV No. 53076, which reversed and set aside the decision of the trial court in Civil Case No. 83-20514, and the Resolution dated March 31, 1999, denying petitioners' motion for reconsideration.
The loan having been approved, Yuseco executed a promissory note on September 13, 1982, promising to pay Savings Bank the sum of P1,400,000.00 on or before September 13, 1983.4 The net proceeds of P1,225,443.31 was released to FNCB Finance, the mortgagee of a 548 - square meter lot with residential house owned by Yuseco. With the release of the proceeds, FNCB Finance released the mortgage,5 and in turn, the property was mortgaged to Savings Bank as collateral for the loan.6 Yuseco and Francisco Bargas also executed an assignment of their shares of stock in Azolla Farms as additional security.7 Yuseco then executed two other promissory notes on September 27, 19828 and January 4, 1983,9 both for the amount of P300,000.00.
Respondent Savings Bank filed its Answer denying the allegations in the complaint. It contends that there was evidence that Yuseco was using the loan proceeds for expenses totally unrelated to the project and they decided to withhold the remaining amount until Yuseco gave the assurance that the diversion of the funds will be stopped. Respondent bank believed that the 90-day interval between the two tranches could not have impaired the operation of the project, and petitioners' subsequent receipt of the proceeds confirmed their agreement to the terms of the loan.
(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.
Aggrieved, respondent elevated the case to the Court of Appeals.
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.
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.
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 v. 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.
Verily, the trial court cannot be faulted for admitting the amended complaint as it had the discretion to do so.
However, whether the evidence introduced by respondent, indeed, supported the finding that the promissory notes, the real estate mortgage and the foreclosure sale, are invalid, is a different matter altogether.
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.
We agree with the appellate court.
4. 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.
WHEREFORE, the petition is DENIED for lack of merit. The Court of Appeals' Decision dated February 19, 1999, together with its Resolution dated March 31, 1999, in CA-G.R. CV No. 53076, is AFFIRMED.
1 Penned by Justice Martin S. Villarama, Jr. with Justices Angelina Sandoval Gutierrez (now a Member of this Court) and Romeo A. Brawner, concurring.
3 Records, p. 261, Exhibit "K" for petitioners, Exhibit "5" for respondent.
4 Id., p. 270, Exhibits "Q" and "11."
5 Id., p. 271, Exhibits "R" and "12."
6 Id., p. 265, Exhibits "N" and "8."
7 Id., p. 28, Annex "B."
8 Id., p. 263, Exhibits "L" and "6."
9 Id., p. 264, Exhibits "M" and "7."
17 CA Rollo, p. 160.
20 Citing Gulang v. Nadayag, G.R. No. 82630, September 30, 1992, 214 SCRA 355.
21 G.R. No. 130699, May 12, 2000, 332 SCRA 82, 97.
22 G.R. No. 133876, December 29, 1999, 321 SCRA 659, 680.
24 Citing Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultures de Talisay-Silay, Inc., G.R. No. 91852, August 15, 1995, 247 SCRA 361.
25 Records, pp. 284 and 293.
27 Article 1293, Civil Code; California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, December 11, 2003, 418 SCRA 297, 308.
28 Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292, 301.
29 CA Rollo, pp. 156-157.
30 Records, p. 261; Emphasis ours.

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