Banate vs. Philippine Countryside Rural Bank

A bank branch manager does not possess apparent authority to verbally modify, novate, or waive the terms of a written mortgage contract, particularly a cross-collateral (dragnet) clause; apparent authority must be established by acts of the principal (the bank) demonstrating that the agent is clothed with such power, and not merely by the agent's acts or assertions.

• On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar obtained a loan of P1,070,000.00 from respondent Philippine Countryside Rural Bank, Inc. (PCRB), evidenced by a promissory note due on January 18, 1998.
• To secure the subject loan, the spouses Maglasang and petitioner spouses Mary Melgrid and Bonifacio Cortel executed a real estate mortgage over Lot 12868-H-3-C (owned by the spouses Cortel) in favor of PCRB.
• The mortgage contract contained a cross-collateral stipulation (dragnet clause) stating that the property secured not only the subject loan but also "such other loans or advances already obtained, or still to be obtained" by the mortgagors.
• Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB secured by separate mortgages on other properties.
• In November 1997, before the subject loan matured, the spouses Maglasang and spouses Cortel requested PCRB's permission to sell the subject properties and asked for their release from the mortgage, claiming the other loans were adequately secured by other mortgages.
• They alleged that PCRB's Branch Manager, Pancrasio Mondigo, verbally agreed to release the mortgage upon full payment of only the subject loan.
• The spouses sold the subject properties to petitioner Violeta Banate for P1,750,000.00, using the proceeds to pay the subject loan.
• PCRB released the owner's duplicate certificate of title to Banate, who was able to secure a new title in her name, but the title retained the mortgage lien in favor of PCRB.
• When PCRB refused to execute a Deed of Release of Mortgage, petitioners filed an action for specific performance and damages.
• PCRB defended by invoking the cross-collateral stipulation, arguing that full payment of all three loans was required before any mortgage could be released, and denied that Mondigo had authority to agree otherwise.

• The verbal agreement with Branch Manager Mondigo novated the original mortgage contract, specifically the cross-collateral stipulation, by substituting the condition that payment of only the subject loan would suffice for the release of the mortgage.
• Having fully paid the subject loan as agreed, they were entitled to the release of the mortgage over the subject properties.
• Alternatively, if Mondigo lacked authority to bind PCRB, the agreement should be deemed rescinded, and PCRB should return the amount paid for the subject loan.
• The RTC correctly characterized the mortgage as a contract of adhesion, and any ambiguity should be construed against PCRB.

• The cross-collateral stipulation in the mortgage contract is clear, valid, and binding; the subject properties secure not only the subject loan but also two other outstanding loans obtained by the spouses Maglasang.
• Full payment of all three loans is necessary before the mortgage on the subject properties can be released; payment of only the subject loan constitutes merely partial payment of the total secured obligation.
• Branch Manager Mondigo had no actual or apparent authority to verbally modify or novate the written mortgage contract; the power to modify corporate contracts resides with the board of directors.
• The release of the owner's duplicate certificate of title to Banate was merely to enable annotation of the sale and did not signify release of the mortgage lien.
• Banate was a buyer in bad faith as she was aware of the existing mortgage.
• There is no basis for restitution under Article 2154 of the Civil Code because there was no payment by mistake to PCRB; the check was issued to Cortel, not PCRB, and the mistake, if any, was in the perception of Mondigo's authority, not as to the existence of the debt.

• Procedural: N/A
• Substantive Issues:
  • Whether the purported verbal agreement between petitioners and PCRB's Branch Manager Mondigo novated the mortgage contract, particularly the cross-collateral stipulation, and is binding upon PCRB.
  • Whether petitioner Banate can demand restitution of the amount paid for the subject properties on the theory that the agreement with Mondigo is deemed rescinded.

• Procedural: N/A
• Substantive:
  • The purported agreement did not novate the mortgage contract. The cross-collateral stipulation, being a valid "dragnet clause," remained binding. Novation requires an agreement of all parties to a new contract, which was lacking because Mondigo had neither actual nor apparent authority to bind PCRB to such a modification. Apparent authority must be established by acts of the principal (PCRB) demonstrating that the agent is clothed with such power, not by the acts of the agent alone. A branch manager, as a general agent, does not have apparent authority to verbally alter terms of written contracts, especially when such alteration would undo solemn agreements.
  • Rescission and restitution have no legal basis. Under Article 2154 of the Civil Code, there was no undue payment through mistake to PCRB because the check was issued to Cortel (the seller), not PCRB. The mistake related to Mondigo's authority, not the existence or validity of the debt. The borrowers-mortgagors merely paid what was actually owed. The claim for moral damages also fails for lack of proof of malicious injury.

• Dragnet Clause (Blanket Mortgage Clause) — A stipulation in a mortgage contract that the mortgaged property serves as security not only for the specific loan mentioned but also for other existing or future obligations of the mortgagor. The Court affirmed its validity and binding effect when clearly stipulated.
• Novation — The extinguishment of an existing obligation and its replacement with a new one, requiring: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) extinguishment of the old obligation; and (4) birth of a valid new obligation. The Court found the second requisite lacking due to absence of authority.
• Apparent Authority — The authority of an agent as it appears to others based on the acts or conduct of the principal. The Court emphasized that apparent authority is determined only by the acts of the principal, not by the acts of the agent, and requires that the principal's conduct have led third parties to reasonably believe that such authority exists. A branch manager does not have apparent authority to verbally modify or novate written mortgage contracts.
• Solutio Indebiti (Article 2154, Civil Code) — The obligation to return something received when there is no right to demand it and it was unduly delivered through mistake. The Court held this inapplicable because there was no payment by mistake to the bank; the payment was validly made to extinguish the subject loan.

• "Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal."
• "The principal's liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent."
• "There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third party's detriment."
• "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..."
• "It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agent's authority, and in case either is controverted, the burden of proof is upon them to establish it."

• Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005 — Cited for the definition and validity of the "blanket mortgage clause" or "dragnet clause."
• Fabrigas v. San Francisco Del Monte, Inc., G.R. No. 152346, November 25, 2005 — Cited for the requisites of novation.
• Associated Bank v. Spouses Rafael and Monaliza Pronstroller, G.R. No. 148444, July 14, 2008 — Cited regarding the doctrine of apparent authority in banking.
• Yun Kwan Byung v. Philippine Amusement and Gaming Corporation, G.R. No. 163553, December 11, 2009 — Cited for the elements of apparent authority (acts of principal, reliance by third party).
• Board of Liquidators v. Kalaw, No. L-18805, August 14, 1967 — Cited regarding the need to prove course of business to establish apparent authority.
• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, G.R. No. 129459, September 29, 1998 — Cited regarding the burden of proof on persons dealing with agents to ascertain the nature and extent of authority.
• Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319, November 22, 2004 — Cited regarding the burden of proof on persons dealing with agents.

• Article 1292 of the Civil Code — Provides that novation must be declared in unequivocal terms or that the old and new obligations be incompatible.
• Article 2154 of the Civil Code — Governs solutio indebiti (undue payment through mistake).
• Section 23 of the Corporation Code — Provides that corporate powers are exercised by the board of directors.
• Rule 45 of the Rules of Court — Governs petitions for review on certiorari.