Banate v. Philippine Countryside Rural Bank

G.R. No. 163825, 13 July 2010


On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar obtained a loan from PCRB for ₱1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their property, including the house constructed thereon, owned by petitioners Mary Melgrid and Bonifacio Cortel, the spouses Maglasang’s daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate promissory notes and secured by mortgages on their other properties.

Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRB’s permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for ₱1,750,000.00.

The spouses Maglasang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owner’s duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners’ request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed.

PCRB countered the petitioners’ allegations by invoking the cross-collateral stipulation in the mortgage deed. Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties from the mortgage lien.

After trial, the RTC ruled in favor of the petitioners. On appeal, the CA reversed the RTC’s decision. Dismayed with the reversal by the CA of the RTC’s ruling, the petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence.


1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon PCRB.
2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the subject properties on the theory that the new agreement with Mondigo is deemed rescinded.


The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon. The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage contract, including the stipulated cross-collateral provision.

We find the petitioners’ argument unpersuasive. Novation, in its broad concept, may either be extinctive or modificatory. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions – one to extinguish an existing obligation, the other to substitute a new one in its place – requiring a conflux of four essential requisites:
(1) a previous valid obligation;
(2) an agreement of all parties concerned to a new contract;
(3) the extinguishment of the old obligation; and
(4) the birth of a valid new obligation.

The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing obligation but, more importantly, the creation of a valid new obligation. For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation.

Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by persons with the proper authority to bind their respective principals is necessary.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.

The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agent’s express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits accepted by his principal. The doctrine of “apparent authority,” on the other hand, with special reference to banks, had long been recognized in this jurisdiction.

Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate contracts remains generally in the board of directors. Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with “apparent authority” to verbally alter terms of written contracts. To put it simply, the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established.

Rescission has no legal basis; there can be no restitution of the amount paid.

The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the rationale that if PCRB’s branch manager was not authorized to accept payment in consideration of separately releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned.

Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article 2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject loan that the Maglasangs owed PCRB.

Petition for review on certiorari is denied for lack of merit, and AFFIRM the decision of the Court of Appeals.

*Case Digest by Paul C. Gandola, Refresher, Andres Bonifacio Law School, SY 2019-2020

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