Note.

—The PCGG is the agency empowered to bring

proceedings for forfeiture of property allegedly acquired
unlawfully before February 25, 1986, while the power to
investigate cases of ill-gotten or unexplained wealth
acquired after that date is vested in the Ombudsman.
(Republic vs. Sandiganbayan, 237 SCRA 242 [1994])

——o0o——

G.R. No. 163825. July 13, 2010.*

VIOLETA TUDTUD BANATE, MARY MELGRID M.

CORTEL, BONIFACIO CORTEL, ROSENDO
MAGLASANG, and PATROCINIA MONILAR, petitioners,
vs. PHILIPPINE COUNTRYSIDE RURAL BANK
(LILOAN, CEBU), INC. and TEOFILO SOON, JR.,
respondents.

Real Estate Mortgage; Blanket Mortgage Clause (Dragnet

Clause); Cross-Collateral Stipulations; While generally a mortgage
liability is usually limited to the amount mentioned in the
contract, the amounts named as consideration in a contract of
mortgage do not limit the amount for which the mortgage may
stand as security if, from the four corners of the instrument, the
intent to secure future and other indebtedness can be gathered; A
cross-collateral stipulation in a mortgage contract is simply a
variety of a dragnet clause.—Before we resolve the issues directly
posed, we first dwell on the determination of the nature of the
cross-collateral stipulation in the mortgage contract. As a general
rule, a mortgage liability is usually limited to the amount
mentioned in the contract. However, the amounts named as
consideration in a contract of mortgage do not limit the amount
for which the mortgage may stand as security if, from the four
corners of the instrument, the intent to secure future and other
indebtedness can be gathered. This stipulation is valid and
binding between the parties and is known as the “blanket
mortgage clause” (also known as the “dragnet clause).” In the
present case, the
_______________

* THIRD DIVISION.

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22 SUPREME COURT REPORTS ANNOTATED

Banate vs. Philippines Countryside Rural Bank (Liloan, Cebu),

Inc.

mortgage contract indisputably provides that the subject

properties serve as security, not only for the payment of the
subject loan, but also for “such other loans or advances already
obtained, or still to be obtained.” The cross-collateral stipulation
in the mortgage contract between the parties is thus simply a
variety of a dragnet clause. After agreeing to such stipulation, the
petitioners cannot insist that the subject properties be released
from mortgage since the security covers not only the subject loan
but the two other loans as well.
Novation; Extinctive Novation; Requisites; Novation is
extinctive when an old obligation is terminated by the creation of a
new obligation that takes the place of the former, and it is merely
modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement.—Novation,
in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of
a new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement. 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.
Same; Same; Corporation Law; As a general rule, no form of
words or writing is necessary to give effect to a novation, but 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.—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

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Inc.

executed by persons with the proper authority to bind their

respective principals is necessary.
Same; Same; Same; Just as a natural person may authorize
another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to
its officers, committees or agents.—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, by-
laws, 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. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and
powers to its officers, committees or agents. The authority of these
individuals to bind the corporation is generally derived from law,
corporate by-laws or authorization from the board, either
expressly or impliedly by habit, custom or acquiescence in the
general course of business.
Corporation Law; Doctrine of Apparent Authority; Words and
Phrases; The doctrine of “apparent authority,” with special
reference to banks, had long been recognized in this jurisdiction;
The authority to act for and to bind a corporation may be
presumed from acts of recognition in other instances when the
power was exercised without any objection from its board or
shareholders.—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. The existence
of apparent authority may be ascertained through: 1. the general
manner in which the corporation holds out an officer or agent as
having the power to act, or in other words, the apparent authority
to act in general, with which it clothes him; or 2. the acquiescence
in his acts of a particular nature, with actual or construc-

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24 SUPREME COURT REPORTS ANNOTATED

Banate vs. Philippines Countryside Rural Bank (Liloan, Cebu),

Inc.

tive knowledge thereof, within or beyond the scope of his ordinary

powers. Accordingly, the authority to act for and to bind a
corporation may be presumed from acts of recognition in other
instances when the power was exercised without any objection
from its board or shareholders.
Same; Same; Apparent authority is determined only by the
acts of the principal and not by the acts of the agent.—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.
Same; Same; We would be unduly stretching the doctrine of
apparent authority were we to consider the power to undo or
nullify solemn agreements validly entered into as within the
doctrine’s ambit; 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.—We would be unduly
stretching the doctrine of apparent authority were we to consider
the power to undo or nullify solemn agreements validly entered
into as within the doctrine’s ambit. 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

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been clothed with “apparent authority” to verbally alter terms of

written contracts, especially when viewed against the telling
circumstances of this case: the unequivocal provision in the
mortgage contract; PCRB’s vigorous denial that any agreement to
release the mortgage was ever entered into by it; and, the fact
that the purported agreement was not even reduced into writing
considering its legal effects on the parties’ interests. To put it
simply, the burden of proving the authority of Mondigo to alter or
novate the mortgage contract has not been established.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.
  Ma. Antonnette Brillantes-Bolivar and Gilroy V.
Billones for respondent PCRB.

BRION,** J.:
Before the Court is a petition for review on certiorari1
assailing the December 19, 2003 decision2 and the May 5,
2004 resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 74332. The CA decision reversed the Regional Trial
Court (RTC) decision4 of June 27, 2001 granting the
petitioners’ complaint for specific performance and
damages against the respondent Philippine Countryside
Rural Bank, Inc. (PCRB).5

_______________

**  Designated Acting Chairperson of the Third Division, in view of the

leave of absence of Associate Justice Conchita Carpio-Morales, per Special
Order No. 849 dated June 29, 2010.
 1 Under Rule 45 of the Rules of Court.
2  Penned by Associate Justice Remedios A. Salazar-Fernando, with
Associate Justice Eubulo G. Verzola and Associate Justice Edgardo F.
Sundiam, concurring; Rollo, pp. 23-36.
3 Id., at pp. 37-38.
4 Penned by Judge Ulric R. Cañete; id., at pp. 69-75.
5 On December 12, 2008, the Monetary Board of the Bangko Sentral ng
Pilipinas ordered the closure of PCRB, and placed it under the
receivership of the Philippine Deposit Insurance Corporation.

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Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

The Factual Antecedents

On July 22, 1997, petitioner spouses Rosendo Maglasang
and Patrocinia Monilar (spouses Maglasang) obtained a
loan (subject loan) from PCRB for P1,070,000.00. 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, Lot
12868-H-3-C,6 including the house constructed thereon
(collectively referred to as subject properties), owned by
petitioners Mary Melgrid and Bonifacio Cortel (spouses
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 notes7 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 P1,750,000.00. The spouses Magsalang 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

_______________

6 Registered under Transfer Certificate of Title No. 82746, with an area

of 275 square meters and situated in Barangay Pitogo, Consolacion, Cebu
City.
7 Promissory notes dated December 19, 1997 and July 22, 1997.

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Banate vs. Philippines Countryside Rural Bank (Liloan,
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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.
The petitioners additionally sought payment of damages
from PCRB, which, they claimed, caused the publication of
a news report stating that they “surreptitiously” caused the
transfer of ownership of Lot 12868-H-3-C. The petitioners
considered the news report false and malicious, as PCRB
knew of the sale of the subject properties and, in fact,
consented thereto.
PCRB countered the petitioners’ allegations by invoking
the cross-collateral stipulation in the mortgage deed which
states:

“1. That as security for the payment of the loan or

advance in principal sum of one million seventy thousand pesos
only (P1,070,000.00) and such other loans or advances
already obtained, or still to be obtained by the
MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or
GUARANTOR(s) from the MORTGAGEE plus interest at the rate
of _____ per annum and penalty and litigation charges payable on
the dates mentioned in the corresponding promissory notes, the
MORTGAGOR(s) hereby transfer(s) and convey(s) to
MORTGAGEE by way of first mortgage the parcel(s) of land
described hereunder, together with the improvements now
existing for which may hereafter be made thereon, of which
MORTGAGOR(s) represent(s) and warrant(s) that
MORTGAGOR(s) is/are the absolute owner(s) and that the same
is/are free from all liens and encumbrances;”
 TRANSFER CERTIFICATE OF TITLE NO. 827468
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

_______________

8 Rollo, p. 62.

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28 SUPREME COURT REPORTS ANNOTATED

Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

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.
PCRB considered Banate as a buyer in bad faith as she
was fully aware of the existing mortgage in its favor when
she purchased the subject properties from the spouses
Maglasang and the spouses Cortel. It explained that it
allowed the release of the owner’s duplicate certificate of
title to Banate only to enable her to annotate the sale.
PCRB claimed that the release of the title should not
indicate the corresponding release of the subject properties
from the mortgage constituted thereon.
After trial, the RTC ruled in favor of the petitioners. It
noted that the petitioners, as “necessitous men,” could not
have bargained on equal footing with PCRB in executing
the mortgage, and concluded that it was a contract of
adhesion. Therefore, any obscurity in the mortgage
contract should not benefit PCRB.9
The RTC observed that the official receipt issued by
PCRB stated that the amount owed by the spouses
Maglasang under the subject loan was only about P1.2
million; that Mary Melgrid Cortel paid the subject loan
using the check which Banate issued as payment of the
purchase price; and that PCRB authorized the release of
the title further indicated that the subject loan had already
been settled. Since the subject loan had been fully paid, the
RTC considered the petitioners as rightfully entitled to a
deed of release of mortgage, pursuant to the verbal
agreement that the petitioners made with PCRB’s branch
manager, Mondigo. Thus, the RTC ordered PCRB to
execute a deed of release of mortgage over the subject
properties, and to pay the petitioners moral damages and
attorney’s fees.10

_______________

9  Id., at p. 73.
10 Id., at p. 75.

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On appeal, the CA reversed the RTC’s decision. The CA did

not consider as valid the petitioners’ new agreement with
Mondigo, which would novate the original mortgage
contract containing the cross-collateral stipulation. It ruled
that Mondigo cannot orally amend the mortgage contract
between PCRB, and the spouses Maglasang and the
spouses Cortel; therefore, the claimed commitment
allowing the release of the mortgage on the subject
properties cannot bind PCRB. Since the cross-collateral
stipulation in the mortgage contract (requiring full
settlement of all three loans before the release of any of the
mortgages) is clear, the parties must faithfully comply with
its terms. The CA did not consider as material the release
of the owner’s duplicate copy of the title, as it was done
merely to allow the annotation of the sale of the subject
properties to Banate.11
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.

The Petition

The petitioners argue that their claims are consistent

with their agreement with PCRB; they complied with the
required full payment of the subject loan to allow the
release of the subject properties from the mortgage. Having
carried out their part of the bargain, the petitioners
maintain that PCRB must honor its commitment to release
the mortgage over the subject properties.
The petitioners disregard the cross-collateral stipulation
in the mortgage contract, claiming that it had been novated
by the subsequent agreement with Mondigo. Even
assuming that the cross-collateral stipulation subsists for
lack of authority on the part of Mondigo to novate the
mortgage contract, the

_______________

11 Supra note 2, at p. 35.

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petitioners contend that PCRB should nevertheless return

the amount paid to settle the subject loan since the new
agreement should be deemed rescinded.
The basic issues for the Court to resolve are as follows:
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 Court’s Ruling
We resolve to deny the petition.
The purported agreement did not novate
the mortgage contract, particularly the
cross-collateral stipulation thereon
Before we resolve the issues directly posed, we first
dwell on the determination of the nature of the cross-
collateral stipulation in the mortgage contract. As a
general rule, a mortgage liability is usually limited to the
amount mentioned in the contract. However, the amounts
named as consideration in a contract of mortgage do not
limit the amount for which the mortgage may stand as
security if, from the four corners of the instrument, the
intent to secure future and other indebtedness can be
gathered. This stipulation is valid and binding between the
parties and is known as the “blanket mortgage clause” (also
known as the “dragnet clause).”12
In the present case, the mortgage contract indisputably
provides that the subject properties serve as security, not
only

_______________
 12  Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005, 464
SCRA 353.

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for the payment of the subject loan, but also for “such other
loans or advances already obtained, or still to be obtained.”
The cross-collateral stipulation in the mortgage contract
between the parties is thus simply a variety of a dragnet
clause. After agreeing to such stipulation, the petitioners
cannot insist that the subject properties be released from
mortgage since the security covers not only the subject loan
but the two other loans as well.
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. Consequently, consistent with their theory of a
novated agreement, the petitioners maintain that it
devolves upon PCRB to execute the corresponding Deed of
Release of Mortgage.
We find the petitioners’ argument unpersuasive.
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes
the place of the former; it is merely modificatory when the
old obligation subsists to the extent that it remains
compatible with the amendatory agreement. 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.13

_______________
 13  Fabrigas v. San Franciso Del Monte, Inc., G.R. No. 152346,
November 25, 2005, 476 SCRA 253.

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Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

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.14 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.15
Section 23 of the Corporation Code16 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,
by-laws, 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.
However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board
of directors

_______________

14 Art. 1292 of the Civil Code states:

In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point
incompatible with each other.
15 De Leon and De Leon, Jr., Comments and Cases on Obligations and
Contracts (2003 ed.), p. 431, citing Garcia, Jr. v. Court of Appeals, G.R.
No. 80201, November 20, 1990, 191 SCRA 493.
16 Section 23. The Board of directors or trustees.—Unless otherwise
provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all property
of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there are
no stocks, from among the members of the corporation, who shall hold
office for one (1) year and until their successors are elected and qualified.

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may validly delegate some of its functions and powers to its

officers, committees or agents. The authority of these
individuals to bind the corporation is generally derived
from law, corporate by-laws or authorization from the
board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business.17
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.18 The doctrine of “apparent authority,” on the
other hand, with special reference to banks, had long been
recognized in this jurisdiction. The existence of apparent
authority may be ascertained through:

1. the general manner in which the corporation holds out an

officer or agent as having the power to act, or in other words, the
apparent authority to act in general, with which it clothes him; or
2. the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, within or beyond the
scope of his ordinary powers.

Accordingly, the authority to act for and to bind a

corporation may be presumed from acts of recognition in
other instances when the power was exercised without any
objection from its board or shareholders.19
Notably, the petitioners’ action for specific performance
is premised on the supposed actual or apparent authority of
the branch manager, Mondigo, to release the subject
properties

_______________

17  People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals,

G.R. No. 117847, October 7, 1998, 297 SCRA 170.
18 19 C.J.S. § 994.
 19 Associated Bank v. Spouses Rafael and Monaliza Pronstroller, G.R.
No. 148444, July 14, 2008, 558 SCRA 113.

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Cebu), Inc.

from the mortgage, although the other obligations remain

unpaid. In light of our discussion above, proof of the branch
manager’s authority becomes indispensable to support the
petitioners’ contention. The petitioners make no claim that
Mondigo had actual authority from PCRB, whether express
or implied. Rather, adopting the trial court’s observation,
the petitioners posited that PCRB should be held liable for
Mondigo’s commitment, on the basis of the latter’s
apparent authority.
We disagree with this position.
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.20 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.21 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.22
In the present case, the decision of the trial court was
utterly silent on the manner by which PCRB, as supposed
principal, has “clothed” or “held out” its branch manager as
having the power to enter into an agreement, as claimed by
peti-

_______________

20 2 Am. Jur. §102.

21 3 Am. Jur. 2d §79.
22  Yun Kwan Byung v. Philippine Amusement and Gaming
Corporation, G.R. No. 163553, December 11, 2009, 608 SCRA 107, 132.
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tioners. No proof of the course of business, usages and

practices of the bank about, or knowledge that the board
had or is presumed to have of, its responsible officers’ acts
regarding bank branch affairs, was ever adduced to
establish the branch manager’s apparent   authority to
verbally alter the terms of mortgage contracts.23 Neither
was there any allegation, much less proof, that PCRB
ratified Mondigo’s act or is estopped to make a contrary
claim.24
Further, we would be unduly stretching the doctrine of
apparent authority were we to consider the power to undo
or nullify solemn agreements validly entered into as within
the doctrine’s ambit. 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,25
yet the power to modify or nullify corporate contracts
remains generally in the board of directors.26 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,
especially when viewed against the telling circumstances of
this case: the unequivocal provision in the mortgage
contract; PCRB’s vigorous denial that any agreement to
release the mortgage was ever entered into by it; and, the
fact that the purported agreement was not even reduced
into writing considering its legal effects on the parties’
interests. To put it simply, the burden of proving the
authority of Mondigo

_______________

23  Board of Liquidators v. Kalaw, August 14, 1967, No. L-18805, 20

SCRA 987.
24 Rural Bank of Milaor (Camarines Sur) v. Ocfemia, G.R. No. 137686,
February 8, 2000, 325 SCRA 99.
25 19 C.J.S. § 1002.
26 No other officer or agent can make such modification even though he
has the power to make the contract, unless authority in this respect has
been specially conferred on him (19 C.J.S. 1044).
 36

36 SUPREME COURT REPORTS ANNOTATED

Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

to alter or novate the mortgage contract has not been

established.27
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.28 As parties to the mortgage contract, the
petitioners are expected to abide by its terms. The
subsequent purported agreement is of no moment, and
cannot prejudice PCRB, as it is beyond Mondigo’s actual or
apparent authority, as above discussed.
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.
PCRB, on the other hand, counters that the petitioners’
alternative prayer has no legal and factual basis, and
insists that the clear agreement of the parties was for the
full payment of the subject loan, and in return, PCRB
would deliver the title to the subject properties to the
buyer, only to enable the latter to obtain a transfer of title
in her own name.
We agree with PCRB. Even if we were to assume that
the purported agreement has been sufficiently established,
since it is not binding on the bank for lack of authority of
PCRB’s branch manager, then the prayer for restitution of
the amount paid would have no legal basis. Of course, it
will be

_______________

27 San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,

G.R. No. 129459, September 29, 1998, 296 SCRA 631.
28  Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377.

37
 VOL. 625, JULY 13, 2010 37
Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

asked: what then is the legal significance of the payment

made by Banate? Article 2154 of the Civil Code reads:

“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.29
The mistake, if any, was in the perception of the
authority of Mondigo, as branch manager, to verbally alter
the mortgage contract, and not as to whether the Cortels,
as sellers, were entitled to payment. This mistake (on
Mondigo’s lack of authority to alter the mortgage) did not
affect the validity of the payment made to the bank as the
existence of the loan was never disputed. The dispute was
merely on the effect of the payment on the security given.30
Consequently, no right to recover accrues in Banate’s
favor as PCRB never dealt with her.   The borrowers-
mortgagors, on the other hand, merely paid what was
really owed. Parenthetically, the subject loan was due on
January 18, 1998, but was paid sometime in November
1997. It appears, however, that at the time the complaint
was filed, the subject loan had already matured.
Consequently, recovery of the amount paid, even under a
claim of premature payment, will not prosper.

_______________

29 Rollo, p. 71.
30  It is necessary that payment be in accordance with the obligation;
the person paying as well as the one receiving payment should have the
requisite capacity; it should be made by the debtor to the creditor; and at
the right time and place. (Tolentino, Civil Code of the Philippines, Vol. IV
(1991 ed.), p. 274.)

8
8 SUPREME COURT REPORTS ANNOTATED
Banate vs. Philippines Countryside Rural Bank (Liloan,
Cebu), Inc.

In light of these conclusions, the claim for moral

damages must necessarily fail. On the alleged injurious
publication, we quote with approval the CA’s ruling on the
matter, viz.:

“Consequently, there is no rea nson to hold [respondent] PCRB

liable to [petitioners] for damages. x  x  x [Petitioner] Maglasang
cannot hold [respondent] PCRB liable for the publication of the
extrajudicial sale. There was no evidence submitted to prove that
[respondent] PCRB authored the words “Mortgagors
surreptitiously caused the transfer of ownership of Lot 12868-H-3-
C x  x  x” contained in the publication since at the bottom was
x x x Sheriff Teofilo C. Soon, Jr.’s name. Moreover, there was not
even an iota of proof which shows damage on the part of
[petitioner] Mary Melgrid M. Cortel.”31

WHEREFORE, we DENY the petitioners’ petition for

review on certiorari for lack of merit, and AFFIRM the
decision of the Court of Appeals dated December 19, 2003
and its resolution dated May 5, 2004 in CA-G.R. CV No.
74332. No pronouncement as to costs.
SO ORDERED.

Carpio,*** Abad,**** Villarama, Jr. and Mendoza,*****

JJ., concur.

Petition denied, judgment affirmed.

_______________

31 Rollo, p. 35.
***  Designated additional Member of the Third Division, in view of the
leave of absence of Associate Justice Lucas P. Bersamin, per Special Order
No. 859 dated July 1, 2010.
****  Designated additional Member of the Third Division, in view of
the retirement of Chief Justice Reynato S. Puno, per Special Order No.
843 dated May 17, 2010.
*****  Designated additional Member of the Third Division, in view of
the leave of absence of Associate Justice Conchita Carpio-Morales, per
Special Order No. 850 dated June 29, 2010.
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