G.R. No. 163825 ; July 13, 2010
Violeta Tudtud Banate, et al., Petitioners, vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and Teofilo Soon, Jr., Respondents.

FACTS

Petitioners Rosendo Maglasang and Patrocinia Monilar obtained a loan from respondent Philippine Countryside Rural Bank (PCRB), secured by a real estate mortgage over a property owned by petitioners Mary Melgrid and Bonifacio Cortel. The mortgage deed contained a cross-collateral stipulation, stating the property secured not only this specific loan but also other existing and future loans of the mortgagors. Before the loan’s maturity, the mortgagors and owners sought PCRB’s permission to sell the property, allegedly securing a verbal agreement from the branch manager that the mortgage would be released upon full payment of this specific loan. The property was then sold to petitioner Violeta Banate, and the proceeds were used to fully pay the subject loan. PCRB released the owner’s duplicate title to Banate but refused to execute a deed of release of mortgage, citing the cross-collateral clause and claiming the property still secured two other unpaid loans.

ISSUE

Whether the respondent bank is obligated to execute a deed of release of mortgage over the subject property despite the existence of a cross-collateral stipulation in the contract, based on a claimed subsequent verbal agreement with its branch manager.

RULING

The Supreme Court ruled in favor of the respondent bank, affirming the Court of Appeals’ decision. The legal logic rests on the principles of contract interpretation and agency. The cross-collateral clause in the written mortgage contract is clear and unambiguous; it expressly states that the mortgaged property secures not only the specific loan but also other loans obtained by the mortgagors. The subsequent alleged verbal agreement with the branch manager, which would novate this clear written stipulation, cannot bind the bank. Novation, which extinguishes an obligation by substituting or changing its principal conditions, must be express and unequivocal. A branch manager generally lacks the authority to orally alter a fundamental term of a written contract like a mortgage, especially one involving a security interest for multiple obligations. The release of the title to the buyer for purposes of annotation did not constitute a waiver of the mortgage lien. Therefore, absent full payment of all secured obligations as stipulated, the bank correctly refused to release the mortgage. The petitioners’ remedy was to pay all outstanding loans secured by the mortgage to obtain its release.