G.R. No.

L-27365 January 30, 1970

Parties:
Plaintiffs/Apellees FELIX L. LAZO, MERCEDES CASTRO DE LAZO,
and JOSE ROBLES,

Defendants/Appellants REPUBLIC SURETY & INSURANCE CO., INC.

represented by ANTONIO M. KOH, General
Manager and as Atty-in-Fact of plaintiffs, FELIX
and MERCEDES LAZO

Ponente: MAKALINTAL, J.:

FACTS:

Plaintiff Jose Robles obtained a loan from Philippine Bank of Commerce (PBC)
on while spouses Felix and Mercedes Lazo were his guarantors.

Defendant Republic Surety & Insurance Co., Inc. acted as principal co-debtor, for
the said loan, by virtue of a Real Estate Mortgage executed by spouses Lazo in favor of
defendant company.

The loan was renewed several times until the bank refused further renewal.

To accommodate the plaintiffs, the loan was transferred to Republic Investment

Co. as new-creditor through a promissory note executed by the plaintiffs. After 3
renewals, the plaintiffs defaulted payment and defendant insurance company paid the
new creditor.

Thereafter, the mortgage was extra-judicially foreclosed in favor of defendant

Insurance Company.

The certificate of sale was formalized. For purposes of registration, a deed of

absolute sale of foreclosed property was executed and registered. Thus, a new titled was
issued in favor of defendant company.

Plaintiffs alleged that the foreclosure of mortgaged was invalid considering that
Robles had paid the loan.

Thus, plaintiffs filed a case of accounting of payments before the CFI (now RTC)
of Manila so that if it should appear that the loan had been paid in full, the mortgage be
cancelled, otherwise, plaintiffs be allowed to pay the balance by way of legal
redemption.

The defendants filed a motion to dismiss because the complaint did not state a
cause of action and that the claim already prescribed.

Defendants pointed out that accounting is not demandable in extra-judicial

foreclosure but in real property sold on execution sale. And if accounting is applicable in
extra-judicial foreclosure, it is available only to mortgage debtor who exercise right of
redemption which according to defendants had already prescribed when the action was
commenced.

The trial court did not resolve the motion to dismiss but set the case for trial with
the advertence that evidence on whether or not the action has prescribed shall first be
presented and then the court will consider the same as part of the evidence on the
merits.
 The trial court ruled that the transfer of the loan to the Republic Investment Co.,
Inc. constituted a novation of the obligation, and that the defendant company was
released from its liability as co-debtor because it does not appear to have signed the new
promissory note executed by the plaintiffs. Consequently, the court concluded, the real
estate mortgage in favor of said defendant was extinguished, and the foreclosure thereof
was a nullity.

ISSUE:

WHETHER OR NOT THE JUDGMENT OF THE TRIAL COURT IS LEGALLY

PERMISSIBLE. or WHETHER OR NOT THE TRIAL COURT MAY RENDER
JUDGMENT BASED ON THE ISSUE NOT RAISED IN THE PLEADINGS.

RULING:

The actuation of the trial court was not legally permissible especially because the
theory on which it proceeded involved factual considerations neither touched upon the
pleadings nor made the subject of evidence at the trial. Rule 6, Section 1, is quite explicit
in providing that "pleadings are the written allegations of the parties of their respective
claims and defenses submitted to the court for trial and judgment." This rule has been
consistently applied and adhered to by the courts.

1.) Belandres vs. Lopez Sugar Central Mill Co., Inc., 97 Phil. 100, 103.

The subject matter of any given case is determined by the nature and
character of the pleadings submitted by the parties to the court for trial
and judgment.

2.) Ramon v. Ortuzar, 89 Phil. 730, 742

It is a fundamental principle that judgments must conform to both the

pleadings and the proof, and must be in accordance with the theory of the
action upon which the pleadings were framed and the case was tried; that
a party can no more succeed upon a case proved. but not alleged, than
upon one alleged but not proved.

3.) Lim Toco vs. Go Pay, 80 Phil. 166

It is a well-known principle in procedure that courts of justice have no

jurisdiction or power to decide a question not in issue.

4.) Salvante v. Cruz, 88 Phil. 236, 244.

A judgment going outside the issues and purporting to adjudicate

something upon which the parties were not heard, is not merely
irregular, but extrajudicial and invalid.

The parties here went to court and presented their respective sides on the
premise, admitted by both, that the mortgage was valid and subsisting. Evidence,
therefore, to establish such premise was unnecessary and uncalled for.