Lazo vs. Republic Surety & Insurance Co., Inc.

A court has no jurisdiction or power to decide a question not in issue, and 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. Where parties convert statutory legal redemption into conventional redemption through mutual agreements extending the redemption period, the agreed period governs, and the registration of the certificate of sale becomes irrelevant to determining when the redemption period expired.

The plaintiffs were the spouses Felix L. Lazo and Mercedes Castro de Lazo, who acted as guarantors for co-plaintiff Jose Robles in connection with a loan obtained from the Philippine Bank of Commerce. The defendant Republic Surety & Insurance Co., Inc. consented to act as principal co-debtor for the loan, and the spouses Lazo executed a real estate mortgage in its favor on August 18, 1953. The mortgage was later foreclosed extrajudicially, and the defendant company purchased the property at the foreclosure sale. The dispute concerned whether the plaintiffs retained a right of redemption and whether they were entitled to an accounting of payments made after the foreclosure.

The spouses Felix L. Lazo and Mercedes Castro de Lazo, acting as guarantors for Jose Robles, executed a real estate mortgage on August 18, 1953 in favor of Republic Surety & Insurance Co., Inc. in consideration of the company's consent to act as principal co-debtor for a loan of P12,000.00 obtained by Robles from the Philippine Bank of Commerce. The loan was on a sixty-day note, renewed several times until the bank refused further renewal. On August 14, 1954, the loan was transferred to Republic Investment Co., Inc. as the new creditor, on a note payable December 12, 1954. When the plaintiffs defaulted after three renewals, the defendant company paid the account and foreclosed the mortgage on July 1, 1958, purchasing the property at the foreclosure sale for P18,627.00. The sheriff's certificate of sale was formalized on August 2, 1958, and stated that the redemption period would expire on July 2, 1959.

Beginning July 1958, immediately after the foreclosure sale, the plaintiffs started paying rents on the property to the defendant company, indicating that they remained in occupancy as tenants. The receipts for such payments, until May 1961, invariably referred to "rents" on the "foreclosed property of Felix Lazo, et al." A receipt dated June 30, 1959 acknowledged receipt of P500.00 as rental for July and August 1959, with the condition that the redemption period was extended to August 31, 1959, and that the full redemption price of P18,627.00 together with unpaid insurance premium must be fully paid by that date. This was the first extension granted at the plaintiffs' request.

The defendant company sent a letter to the Lazo spouses on March 30, 1960, stating that the redemption period had expired on July 2, 1959, but that consolidation of title had been deferred, giving a "last call" to redeem on or before April 30, 1960. Felix Lazo replied on April 8, 1960, expressing gratitude for being given time to redeem and urging Robles to settle the matter. On May 30, 1960, Jose Robles wrote another letter requesting a last extension of one month, tendering P250.00 as rental for June 1960. Felix Lazo confirmed this request by letter dated May 31, 1960. The extension was granted up to June 30, 1960, with the handwritten notation "Ok for last extension one month" on Robles' letter. On August 31, 1962, Felix Lazo wrote still another letter requesting that the property be held until September 10, 1962, but there was no evidence that this request was acted upon or approved by the defendant company.

The defendant company finally consolidated its title to the property on March 28, 1963, almost five years after the foreclosure sale, and obtained a new transfer certificate of title. The plaintiffs filed their original complaint on December 12, 1963, seeking an accounting of payments made and allowing them to redeem whatever balance remained. The trial court, however, went entirely out of the issues submitted and decided the case on the theory that the transfer of the loan to Republic Investment Co., Inc. constituted novation, releasing the defendant company from liability as co-debtor, and that the mortgage was consequently extinguished and the foreclosure was a nullity.

• Right to Accounting: The plaintiffs relied on Rule 39, Section 34 of the Rules of Court and Section 9 of Act No. 3135, as amended, arguing that they were entitled to an accounting of rents and profits received by the purchaser pending redemption.
• Subsisting Right of Redemption: The plaintiffs argued that since the sheriff's certificate of sale was recorded in the office of the Register of Deeds for Manila on March 28, 1963, the one-year period of legal redemption had not yet expired when the action was commenced on December 12, 1963.
• Invalidity of Foreclosure: The plaintiffs alleged that the foreclosure was invalid because Jose Robles had paid on the mortgage loan the sum of P13,466.36 from August 20, 1953 to May 24, 1958, and continued to make other payments aggregating P17,250.00 thereafter.

• Prescription: The defendants raised in their motion to dismiss that the claim had already prescribed, pointing out that under Rule 39, Section 34, an accounting could be demanded only where real property is sold on execution by virtue of a final judgment, not on extrajudicial foreclosure of mortgage, and that the redemption period had already expired when the action was commenced.
• Payments as Rents: The defendants alleged in their answer that all payments made by the plaintiffs after the foreclosure sale on July 1, 1958 were made in the concept of rents, for which the defendant company was under no obligation to render an accounting.
• Counterclaim for Attorney's Fees: The defendants counterclaimed for attorney's fees in the amount of P6,000.00, citing the stipulation in the mortgage contract for "15% of the total indebtedness then unpaid."

• Authority of the Trial Court: Whether the trial court acted properly in deciding the case on the theory of novation when that issue was not raised in the pleadings or tried by the parties.
• Right to Accounting: Whether the plaintiffs could demand an accounting and liquidation of accounts from the defendant company in their capacity as redemptioners.
• Subsisting Right of Redemption: Whether the legal right of redemption of the plaintiffs was still subsisting at the time the action was commenced.

• Authority of the Trial Court: No. The trial court had no jurisdiction or power to decide a question not in issue, and its judgment going outside the issues was not merely irregular but extrajudicial and invalid. The subject matter of a case is determined by the nature and character of the pleadings submitted by the parties.
• Right to Accounting: No. The plaintiffs were not entitled to an accounting because the right of redemption had been lost, and there was no redemption price to which the rents received by the purchaser could be applied or credited.
• Subsisting Right of Redemption: No. The parties had abandoned entirely the concept of legal redemption and converted it into conventional redemption, in which the only governing factor was the agreement between them. The period to redeem expired on June 30, 1960.

• Authority of the Trial Court: The Court held that Rule 6, Section 1 of the Rules of Court is 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." The Court cited the 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. The parties went to court on the premise, admitted by both, that the mortgage was valid and subsisting. The trial court's theory of novation involved factual considerations neither touched upon in the pleadings nor made the subject of evidence at the trial. The Court further noted that the plaintiffs' own Exhibit N, the indemnity agreement dated August 14, 1954, belied the trial court's conclusion that the defendant company never became obligated under the new note, since the plaintiffs executed the indemnity agreement precisely to indemnify the company for acting as solidary co-debtor.

• Right to Accounting: The Court held that implicit in the application of Rule 39, Section 34 and Section 9 of Act No. 3135 is the premise that the period for redemption of the property sold has not yet expired. If the right to redeem has been lost, there is no redemption price to speak of, to which the rents received by the purchaser are to be applied or credited.

• Subsisting Right of Redemption: The Court found that the parties had abandoned entirely the concept of legal redemption and converted it into conventional redemption. The categorical statement in the certificate of sale that the redemption period would expire on July 2, 1959, the absence of third-party interests requiring protection through registration, and the repeated extensions granted at the plaintiffs' request all demonstrated this conversion. The receipt dated June 30, 1959 expressly extended the redemption period to August 31, 1959. Subsequent letters extended the period to April 30, 1960, and then to June 30, 1960, with the notation "Ok for last extension one month." The registration of the certificate of sale on March 28, 1963 was entirely unnecessary and irrelevant to the question of when the redemption period agreed upon expired. The plaintiffs' repeated requests for time within which to redeem, each with a definite date of expiration, generated binding contracts when approved by the defendant company. The principle of estoppel also prevented the plaintiffs from going back upon their own acts and representations to the prejudice of the other party who relied upon them.

• Doctrine of Conformity of Judgment to Pleadings and Proof — A court has no jurisdiction or power to decide a question not in issue, and 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 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. In this case, the trial court erred in deciding on the theory of novation when the parties had proceeded on the admitted premise that the mortgage was valid and subsisting.

• Legal Redemption vs. Conventional Redemption — Legal redemption is governed by statute and its period is computed from registration of the certificate of sale, while conventional redemption is governed by the agreement between the parties. Where the parties abandon the concept of legal redemption and convert it into conventional redemption through mutual extensions of the redemption period, the agreed period governs, and registration of the certificate of sale becomes irrelevant. In this case, the repeated extensions granted at the plaintiffs' request converted the redemption into a conventional one, with the last extension expiring on June 30, 1960.

• Estoppel — A party who, by his own declaration, act, or omission, intentionally and deliberately leads another to believe a particular thing true and to act upon such belief, cannot in any litigation arising out of such declaration, act, or omission be permitted to falsify it. The plaintiffs' repeated requests for extensions and their promises to redeem, relied upon by the defendant company, estopped them from later claiming that the redemption period had not expired.

• "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." — This passage articulates the core procedural doctrine that the trial court violated by deciding on the unlitigated theory of novation.

• "It is a well-known principle in procedure that courts of justice have no jurisdiction or power to decide a question not in issue." — This states the fundamental limitation on judicial authority that formed the basis for reversing the trial court's decision.

• "It is clear, in the light of the facts and circumstances above set forth, that the parties had abandoned entirely the concept of legal redemption in this case and converted it into one of conventional redemption, in which the only governing factor was the agreement between them." — This is the ratio decidendi on the redemption issue, establishing that the parties' conduct converted statutory redemption into conventional redemption.

• "The plaintiffs' repeated requests for time within which to redeem, each with a definite date of expiration, generated binding contracts when approved by the defendant company. A contract, needless to say, has the force of law between the parties." — This passage establishes the contractual nature of the extensions and why the agreed redemption period governed.

• Belandres vs. Lopez Sugar Central Mill Co., Inc., 97 Phil. 100, 103 — Cited as controlling authority for the principle that the subject matter of a case is determined by the nature and character of the pleadings submitted by the parties.
• Ramon vs. Ortuzar, 89 Phil. 730, 742 — Cited for the fundamental principle that judgments must conform to both the pleadings and the proof.
• Lim Toco vs. Go Pay, 80 Phil. 166 — Cited for the principle that courts have no jurisdiction or power to decide a question not in issue.
• Salvante vs. Cruz, 88 Phil. 236, 244 — Cited for the principle that a judgment going outside the issues is not merely irregular but extrajudicial and invalid.
• Valera vs. Velasco, 51 Phil. 659, 700-701 — Cited in connection with the application of Section 9 of Act No. 3135 regarding deductions from the redemption price.
• Reyes vs. Noblejas, G.R. No. L-23691, November 25, 1967 — Cited for the proposition that registration of the certificate of sale serves as constructive notice to possible redemptioners, but distinguished in this case because no third parties with interests in the property required protection.

• Rule 6, Section 1, Rules of Court — Provides that "pleadings are the written allegations of the parties of their respective claims and defenses submitted to the court for trial and judgment." Applied to hold that the trial court exceeded its authority by deciding on the theory of novation not raised in the pleadings.
• Rule 39, Section 34, Rules of Court — Governs rents and profits pending redemption, providing that the purchaser is entitled to receive rents but that such amounts shall be a credit upon the redemption money. Applied to hold that the plaintiffs could not demand an accounting because the right of redemption had been lost.
• Section 9, Act No. 3135, as amended — Provides that when property is redeemed after the purchaser has been given possession, the redeemer shall be entitled to deduct from the redemption price any rentals collected by the purchaser. Applied in conjunction with Rule 39, Section 34 to the issue of accounting.
• Articles 1431 et seq., Civil Code — The provisions on estoppel, applied to prevent the plaintiffs from going back upon their own acts and representations to the prejudice of the defendant company who relied upon them.
• Rule 31, Section 3(a), Rules of Court — The conclusive presumption that a party who intentionally and deliberately leads another to believe a particular thing true cannot be permitted to falsify it in litigation. Applied to estop the plaintiffs from denying the expiration of the redemption period.

Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando, and Barredo, JJ., concurred. Castro, J., took no part.

N/A — The case text does not include the dissenting opinion of Teehankee, J., which is referenced in the case header but not reproduced in the provided text.