MERCADER v DBP

Note: Maam mentioned na mej weird daw yung ruling.

FACTS
The Mercaders, as lessees of a parcels of land owned by the Manreals, introduced improvements
thereon. They later discovered that the Manreals offered the lot and the improvements for a deep
sea fishing loan with DBP.
Manreals defaulted in the payment of their obligation, so DBP took steps to foreclose the
property.
Mercaders filed for specific performance before RTC to compel DBP to respect their interests by
excluding the improvements in the foreclosure or to reimburse them, and to cause annotation of
their interests in the TCT.
During the pretrial, court acknowledged the possibility of a compromise agreement. DBP, thru its
manager, offered 3 options to Mercaders.
Mercaders chose the lease-purchase option whereby they would pay 1000/month for 10 years.
They paid 3000 pursuant to the Managers proposal that a 3-month advance payment be
deposited while they await the final decision of the bank on the proposed settlement.
RTC directed parties to submit their compromise agreement but parties could not because DBP is
now contending that the options were merely proposals while Mercaders argue that they already
entered into an agreement.
RTC ordered the termination of the pre-trial and set the case for hearing.
Mercaders filed a Supplemental Pleading insisting the consummation of the lease-purchase
option with the payment of the earnest money. The DBP filed its Opposition to the Supplemental
Pleading.
RTC considered the lease-purchase option, and ruled in favor of the Mercaders. It held that DBP
had made the Mercaders believe that the lease-purchase option would be more or less approved.

ISSUE: W/N RTC correctly took cognizance of the lease-purchase option not raised in the pleadings?

RULING: YES

The lease-purchase option was an integral component of the pretrial proceedings. It was also included in
the supplemental pleading.

Assuming arguendo that the MERCADERs failed to file the supplemental pleading, evidence relative to the
lease-purchase option may be legitimately admitted by the trial court in conformity with Section 5, Rule
10 which provides 2 scenarios:
1. When evidence is introduced on an issue not alleged in the pleadings and no objection was
interjected
2. When evidence is offered again, on an issue not alleged in the pleadings but this time an objection
was interpolated.

We are concerned with the second scenario.

Co Tiamco v. Diaz: the Court may admit evidence even against the objection of the adverse party where
the latter fails to prove that the admission would prejudice him.
Bank of America v. American Realty Corporation [reinforces Co Tiamco ruling]: Failure to amend a pleading
does not preclude adjudication. The court may treat the pleading as if it had been amended to conform
to the evidence so long as no surprise/prejudice is thereby caused to the adverse party.

In the present case, DBP was not prejudiced and had been afforded ample opportunity to refute and
object to the evidence.