Can a branch manager release properties from bank’s mortgage contract?
(Colibri Real Estate)
Under a mortgage contract, the mortgagor obliges himself to fulfill a principal obligation, such as the payment of a loan, by securing it with his property. Fulfilling this obligation usually extinguishes this mortgage.
The Supreme Court has discussed on whether a branch manager may deem extinguished a mortgage contract executed by his bank by releasing the mortgaged properties in Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc.
Releasing property from real estate mortgage
In this case, petitioner spouses Rosendo and Patrocinia Maglasang (“Spouses Maglasang”) obtained from respondent bank Philippine Countryside Rural Bank, Inc. (PCRBI) a loan secured by a real estate mortgage (REM) over a house and lot owned by petitioner spouses Bonifacio and Mary Cortel (“Spouses Cortel”). They subsequently obtained from PCRBI more loans secured by their own properties.
Before the subject loan became due, Spouses Cortel and Maglasang requested PCRBI to, among others, release the subject house and lot from the REM since Spouses Maglasang’s properties adequately secured their other loans. Supposedly through one of its branch managers, PCRBI verbally agreed to this request, but only upon the full payment of the subject loan.
Spouses Cortel sold their house and lot to co-petitioner Violeta Banate, the proceeds of which Spouses Maglasang used to settle the subject loan.
PCRBI then gave to Banate the owner’s duplicate certificate of title of the subject properties, which, however, still reflected the REM. It refused to comply with the spouses and Banate’s request to release these properties from the mortgage, constraining them to file an action for specific performance with damages before the Regional Trial Court (RTC).
The RTC ruled in favor of Banate, and Spouses Cortel and Maglasang. It found that, among others, with the full payment of the subject loan, they were rightfully entitled to the release of the subject properties from mortgage, in accordance with their verbal agreement with PCRBI’s branch manager.
Reversed decision
On appeal, the Court of Appeals reversed the RTC’s decision. It declared that: (a) the branch manager could not orally amend the mortgage contract between PCRBI and Spouses Cortel and Maglasang; and (b) the spouses should comply with the contractual provision requiring the full settlement of all loans before the release of any of the mortgages. Banate and Spouses Cortel and Maglasang thus filed the instant appeal before the Supreme Court.
The Supreme Court denied this appeal and affirmed the Court of Appeals’ findings. In so doing, it held that the said provision was a valid blanket mortgage or dragnet clause. While a mortgage contract generally limits the amount secured by the subject properties, this clause may be agreed upon when it clearly reflects the intent to secure future and other indebtedness, as in this case. Thus, the subject properties may only be released from the REM upon Spouses Maglasang’s full payment of all loans obtained from PCRBI.
The Supreme Court disregarded Banate and Spouses Cortel and Maglasang’s argument that their verbal agreement with the branch manager had effectively extinguished the mortgage contract with PCRBI. In this regard, parties to an existing contract must have consented for it to be extinguished by being replaced by a new contractual obligation.
Element of consent
The element of consent is not present in this case.
In the proceedings before the RTC, PCRBI, through its board of directors, was neither shown to have authorized the branch manager to release the subject properties from the mortgage nor ratified his act. PCRBI’s course of business, usages, and practices regarding bank branch affairs was also not presented to prove the branch manager’s apparent authority to verbally alter the terms of mortgage contracts.
In itself, the branch manager’s position is insufficient to support the conclusion that he has been authorized to verbally alter the terms of the mortgage contract with Spouses Cortel and Maglasang.
In this regard, the Supreme Court held that within his field and as to third persons, a branch manager is a bank’s general agent, with apparent authority as necessary in the usual course and conduct of the business entrusted to him. Nevertheless, the power to modify or nullify corporate contracts, such as that in this case, remains generally within the board.
