Banate v. Philippine Countryside Rural Bank: G.R. No. 163825 July 13, 2010

G.R. No.
163825 July 13, 2010
Banate v. Philippine Countryside Rural Bank
MAIN TOPIC – Modes of Extinguishment of Obligations (Special Forms of payment – Novation)
I. FACTS:
1. On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a
loan (subject loan) from PCRB paybale on Januatru 1998. They executed a real estate mortgage in favor of PCRB to
secure the payment of loan including the properties of Spouses Cortel.. 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.
2. 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.
3. 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.
4. Both spouses sold the said property to Banate and paid used the proceeds to pay the subject loan to PCRB..
5. After settling the subject loan, PCRB gave the owner’s duplicate certificate of title 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.
6. 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.
II. ISSUE/s
Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject
properties and is thus binding upon PCRB.
III. HELD
No. The Court held that the purported agreement between the petitioners and Mondigo did not novate the mortgage
contract. 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
IV. APPLICABLE LAWS:
NOVATION, [ARTS. 1291-1304]

Extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first either by changing the object or principal conditions, or by substituting the person
of the debtor, or by subrogating a third person in the rights of the creditor. A juridical act of dual function—it
extinguishes an obligation, and at the same time, it creates a new one in lieu of the old.
Requisites :
(1) A previous valid obligation
(2) Agreement of all the parties to the new obligation
(3) Extinguishment of the old obligation
(4) Validity of the new obligation
G.R. No. 163825 July 13, 2010
Banate v. Philippine Countryside Rural Bank
Section 23 of the Corporation Code - 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.
I. DISCUSSION AND APPLICATION
The topic of this case is about the modes extinguishment of obligations under novation. The verbal agreement between
the petitioners and Mondigo regarding the said mortgage contract is not valid because Mondigo has no authority to
modify the contracts as provided in Section 23 of the Corporation Code. Also, the purported agreement between the
petioner and Mondigo did not novate the mortgage contract since it lacks the second requisite of the novation, an
agreement of concerned parties for the new obligation. In the case at bar, PCRB did not agree with the petitioners but it
was Mondigo who apparently has no authotity to do so..

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G.R. No.

163825 July 13, 2010

Banate v. Philippine Countryside Rural Bank

MAIN TOPIC – Modes of Extinguishment of Obligations (Special Forms of payment – Novation)

IV. APPLICABLE LAWS:

NOVATION, [ARTS. 1291-1304]

Banate v. Philippine Countryside Rural Bank

I. DISCUSSION AND APPLICATION

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