G.R. No.

L-18377

December 29, 1962

ANASTACIO G. DUGO, petitioner, vs. ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the Court of First Instance of Rizal, respondents. Gatchalian, Padilla & Sison for petitioner. Santiago F. Alidio for respondents. REGALA, J.: On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S. Gonzales purchased 3 parcel of land from the respondents Adriano Lopena and Rosa Ramos for the total price of P269,804.00. Of this amount P28.000.00 was given as down payment with the agreement that the balance of P241,804.00 would be paid in 6 monthly installments. To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales, the vendees, on September 11, 1958, executed over the same 3 parcels of land Deed of Real Estate Mortgage in favor of the respondent Adriano Lopena and Rosa Ramos. This deed was duly registered with the Office of the Register of Deeds Rizal, with the condition that failure of the vendees to pay any of the installments on their maturity dates shall automatically cause the entire unpaid balance to become due and demandable. The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the foreclosure of the aforementioned real estate mortgage with the Court of First Instance of Rizal the Hon. Judge Andres Reyes, presiding. This complaint was answered by the herein petitioner and the other vendee, Rodrigo S. Gonzales, on December 7, 1959. Meanwhile, there were 2 other civil cases filed in the same lower court against the same defendants Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in one was a certain Dionisio Lopena, and in the other case, the complainants were Bernardo Lopena and Maria de la Cruz. Both complaints involved the same cause of action as that of herein respondents Adriano Lopena and Rosa Ramos. As a matter of fact all three cases arose out of one transaction. In view of the identical nature of the above three cases, they were consolidated by the lower court into just one proceeding. It must be made clear, however, that this present decision refers solely to the interests and claim of Adriano Lopena against Anastacio Dugo alone. Before the cases could be tried, a compromise agreement dated January 15, 1960 was submitted to the lower court for approval. It was signed by herein respondents Adriano Lopena and Rosa Ramos on one hand, and Rodrigo S. Gonzales, on the

other. It was not signed by the herein petitioner. However, Rodrigo S. Gonzales represented that his signature was for both himself and the herein petitioner. Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O. Chan, the same lawyer who signed and submitted for him the answer to the complaint, was present at the preparation of the compromise agreement and this counsel affixed his signature thereto. The text of this agreement is hereunder quoted: COMPROMISE AGREEMENT COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set forth: That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the mortgage indebtedness in each of the said cases; That, should the defendants fail to pay the said mortgage indebtedness, judgments of foreclosure shall thereafter be entered against the said defendants; That, the defendants hereby waive the period of redemption provided by law after entry of judgments; That, in the event of sale of the properties involved in these three cases, the defendants agree that the said properties shall be sold at one time at public auction, that is, one piece of property cannot be sold without the others. This compromise agreement was approved by the lower court on the same day it was submitted, January 15, 1960. Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to it were Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena and Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as pay or. The stipulations of the Tri-Party Agreement were as follows: . A TRI-PARTY AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This contract entered into by and between (1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,

(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age, married to Magdalena Balatbat, with residence and postal address at 73 Maryland, Quezon City, hereinafter referred to as the DEBTOR, and (3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal ages, with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to as the CREDITOR, W I T N E S S E T H: WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate amount of P503,000.00 for the collection of which, the latter as party plaintiffs have institute foreclosure proceedings against the former as party defendant in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of First Instance, Pasig, Rizal; WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI, which order is hereby made an integral part of this agreement as ANNEX "A"; WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in behalf of the DEBTOR under the following terms and condition petitions: (a) To pay the said P503,000.00 in installments in the following schedule of amounts and time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30, 1960 70,000.00 on or before July 31, 1960 313,000.00 on or before Aug. 31, 1960. (b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige themselves not to oppose the motion that the CREDITOR may file during the first week of July 1960, or subsequently thereafter, informing the Court of the exact money obligation of the DEBTOR which shall be P503,000.00 minus whatever payments, if any, made before June 30, 1960 by the PAYOR and praying for the issuance of an order to sell the property covered by the mortgage. (c) That the CREDITOR, once he has the order referred to, should not execute the same by giving it to the sheriff if the PAYOR is regular and punctual in the payment of all of the installments stated above. PROVIDED, however, if the PAYOR defaults or fails to pay anyone of the installments in the manner stated above, the PAYOR

and the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to above, and they (PAYOR and DEBTOR) hereby waive any and all objection's or oppositions to the propriety of the public auction sale and to the confirmation of the sale to be made by the court. (d) That the CREDITOR, at his option, may execute the August installment stated in letter (a) of this paragraph if the PAYOR has paid regularly the May, June, and July installments, and provided further that one half (!) of the August installment in the amount of P156,500.00 is paid on the said date of August 31, 1960. NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned propositions of the PAYOR and all the parties herein bind and oblige themselves to comply to the covenants and stipulations aforestated; That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT may be submitted to Court to form integral parts of the records of the Civil Cases mentioned above; IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of May, 1960 in the City of Manila, Philippines. When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of their indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5, 1960, a Motion for the Sale of Mortgaged Property. Although this last motion was filed ex parte, Anastacio Dugo and Rodrigo S. Gonzales were notified of it by the lower court. Neither of them, however, despite the notice, filed any opposition thereto. As a result, the lower court granted the above motion on July 19, 1960, and ordered the sale of the mortgaged property. On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public auction where at herein petitioners, together with the plaintiffs of the other two cases won as the highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30, 1960. In this connection, it should also made of record that before confirming the sale, the lower court gave due notice of the motion for the confirmation to the herein petitioner who filed no opposition therefore. On August 31, 1960, Anastacio Dugo filed a motion to set aside all the proceedings on the ground that the compromise agreement dated January 15, 1960 was void ab initio with respect to him because he did not sign the same. Consequently, he argued, all subsequent proceedings under and by virtue of the compromise agreement, including the foreclosure sale of August 25, 1960, were void and null as regards him. This motion to set aside, however, was denied by the lower court in its order of December 14, 1960. Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of Appeal from the order of August 31, 1960 approving the foreclosure sale of August

25, 1960, as well as the order of December 14, 1960, denying his motion to set aside. The approval of the record on appeal however, was opposed by the herein respondent spouses who claimed that the judgment was not appealable having been rendered by virtue of the compromise agreement. The opposition was contained in a motion to dismiss the appeal. Anastacio Dugo filed a reply to the above motion. Soon thereafter, the lower court dismissed the appeal. Two issues were raised to this Court for review, to wit: (1) Was the compromise agreement of January 15, 1960, the Order of the same date approving the same, and, all the proceedings subsequent thereto, valid or void insofar as the petitioner herein is concerned? (2) Did the lower court abuse its discretion when it dismissed the appeal of the herein petitioner? Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab initio and could have no effect whatsoever against him because he did not sign the same. Furthermore, as it was void, all the proceedings subsequent to its execution, including the Order approving it, were similarly void and could not result to anything adverse to his interest. The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as such that the Civil Code speaks of it. ART. 2028. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a compromise agreement unless he, the third person, has obtained a special power of attorney for that purpose from the party intended to be bound. ART. 1878. Special powers of attorney are necessary in the following cases:

a contract. It must be governed by the rules and the law on contracts. ART. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio Dugo had or had not ratified the compromise agreement. If he had, then the compromise agreement was legally enforced against him; otherwise, he should be sustained in his contention that it never bound him, nor ever could it be made to bind him. The ratification of the compromise agreement was conclusively established by the Tri-Party Agreement of May 1960. It is to be noted that the compromise agreement was submitted to and approved by the lower court January 15, 1960. Now, the TriParty Agreement referred itself to that order when it stipulated thus: WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of the order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch which order is hereby made an integral part of this agreement as Annex "A".lawphil.net Having so consented to making that court order approving the compromise agreement an integral part of the Tri-Party Agreement, how can the petitioner herein now repudiate the compromise agreement and claim he has not authorized it? When it appears that the client, on becoming aware the compromise and the judgment thereon, fails to repudiate promptly the action of his attorney, he will not afterwards be heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15). Besides, this Court has not overlooked the fact that which indeed Anastacio Dugo was not a signatory to the compromise agreement, the principal provision of the said instrument was for his benefit. Originally, Anastacio Dugo's obligation matured and became demandable on October 10, 1959. However, the compromise agreement extended the date of maturity to June 30, 1960. More than anything, therefore, the compromise agreement operated to benefit the herein petitioner because it afforded him more time and opportunity to fulfill his monetary obligations under the contract. If only for this reason, this Court believes that the herein petitioner should not be heard to repudiate the said agreement. Lastly, the compromise agreement stated "that, should the defendants fail to pay the said mortgage indebtedness, judgment of foreclosure shall thereafter be entered against the said defendants:" Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted that If the MAYOR defaults or fails to pay anyone of the installments in the manner

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; However, although the Civil Code expressly requires a special power of attorney in order that one may compromise an interest of another, it is neither accurate nor correct to conclude that its absence renders the compromise agreement void. In such a case, the compromise is merely unenforceable. This results from its nature is

stated above, the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to above (the Judgment of Foreclosure), and they (PAYOR and DEBTOR) hereby waive any and all objections or oppositions to the propriety of the public auction sale and to the confirmation of the sale to be made by the Court. Petitioner Dugo finally argued that even assuming that the compromise agreement was valid, it nevertheless could not be enforced against him because it has been novated by the Tri-Party Agreement which brought in a third party, namely, Emma R. Santos, who assumed the mortgaged obligation of the herein petitioner. This Court cannot accept the argument. Novation by presumption has never been favored. To be sustained, it need be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957). An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is merely supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371). Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in place of the original one. In this kind of novation, however, it is not enough that the juridical relation of the parties to the original contract is extended to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the new relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or surety. If there is no agreement as to solidarity, the first and the new debtors are considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa. There was no such release of the original debtor in the Tri-Party Agreement. It is a very common thing in the business affairs for a stranger to a contract to assume its obligations; an while this may have the effect of adding to the number of persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, do not constitute a novation, and the creditor can still enforce the obligation against the original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446). In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument

intended to render effective the compromise agreement. It merely complemented an ratified the same. That a third person was involved in it is inconsequential. Nowhere in the new agreement may the release of the herein petitioner be even inferred. Having held that the compromise agreement was validity and enforceable against the herein petitioner, it follows that the lower court committed no abuse of discretion when it dismissed the appeal of the herein petitioner. WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby dismissed. The order of the lower court dismissing the appeal is her by affirmed, with costs.

G.R. No. L-19265

May 29, 1964

MOISES SAN DIEGO, SR., petitioner, vs. ADELO NOMBRE and PEDRO ESCANLAR, respondents. A. R. Castaeda and M. S. Roxas for petitioner. Amado B. Parreo Law Office for respondents. PAREDES, J.:

Appeals. A Writ of preliminary injunction was likewise prayed for to restrain the new administrator Campillanos from possessing the fishpond and from executing a new lease contract covering it; requiring him to return the possession thereof to Escanlar, plus damages and attorney's fees in the amount of P10,000.00 and costs. The Court of Appeals issued the injunctive writ and required respondents therein to Answer. Campillanos insisted on the invalidity of the contract in favor of Escanlar; the lower court alleged that it did not exactly annul or invalidate the lease in his questioned orders but suggested merely that Escanlar "may file a separate ordinary action in the Court of general jurisdiction." The Court of Appeals, in dismissing the petition for certiorari, among others said

The case at bar had its origin in Special Proceedings No. 7279 of the CFI of Negros Occidental wherein respondent Adelo Nombre was the duly constituted judicial administrator. On May 1, 1960, Nombre, in his capacity was judicial administrator of the intestate estate subject of the Sp. Proc. stated above, leased one of the properties of the estate (a fishpond identified as Lot No. 1617 of the cadastral survey of Kabankaban, Negros Occidental), to Pedro Escanlar, the other respondent. The terms of the lease was for three (3) years, with a yearly rental of P3,000.00 to expire on May 1, 1963, the transaction having been done, admittedly, without previous authority or approval of the Court where the proceedings was pending. On January 17, 1961, Nombre was removed as administrator by Order of the court and one Sofronio Campillanos was appointed in his stead. The appeal on the Order of Nombre's removal is supposedly pending with the Court of Appeals. Respondent Escanlar was cited for contempt, allegedly for his refusal to surrender the fishpond to the newly appointed administrator. On March 20, 1961, Campillanos filed a motion asking for authority to execute a lease contract of the same fishpond, in favor of petitioner herein, Moises San Diego, Sr., for 5 years from 1961, at a yearly rental of P5,000.00. Escanlar was not notified of such motion. Nombre, the deposed administrator, presented a written opposition to the motion of Campillanos on April 11, 1964, pointing out that the fishpond had been leased by him to Escanlar for 3 years, the period of which was going to expire on May 1, 1963. In a supplemental opposition, he also invited the attention of the Court that to grant the motion of the new administrator would in effect nullify the contract in favor of Escanlar, a person on whom the Court had no jurisdiction. He also intimated that the validity of the lease contract entered into by a judicial administrator, must be recognized unless so declared void in a separate action. The opposition notwithstanding, the Court on April 8, 1961, in effect declared that the contract in favor of Escanlar was null and void, for want of judicial authority and that unless he would offer the same as or better conditions than the prospective lessee, San Diego, there was no good reason why the motion for authority to lease the property to San Diego should not be granted. Nombre moved to reconsider the Order of April 8, stating that Escanlar was willing to increase the rental of P5,000.00, but only after the termination of his original contract. The motion for reconsideration was denied on April 24, 1961, the trial judge stating that the contract in favor of Escanlar was executed in bad faith and was fraudulent because of the imminence of Nombre's removal as administrator, one of the causes of which was his indiscriminate pleasant, of the property with inadequate rentals. From this Order, a petition for Certiorari asking for the annulment of the Orders of April 8 and 24, 1961 was presented by Nombre and Escanlar with the Court of

The controlling issue in this case is the legality of the contract of lease entered into by the former administrator Nombre, and Pedro Escanlar on May 1, 1960. Respondents contend that this contract, not having been authorized or approved by the Court, is null and void and cannot be an obstacle to the execution of another of lease by the new administrator, Campillanos. This contention is without merit. ... . It has been held that even in the absence of such special powers, a contract or lease for more than 6 years is not entirely invalid; it is invalid only in so far as it exceeds the six-year limit (Enrique v. Watson Company, et al., 6 Phil. 84). 1 No such limitation on the power of a judicial administrator to grant a lease of property placed under his custody is provided for in the present law. Under Article 1647 of the present Civil Code, it is only when the lease is to be recorded in the Registry of Property that it cannot be instituted without special authority. Thus, regardless of the period of lease, there is no need of special authority unless the contract is to be recorded in the Registry of Property. As to whether the contract in favor of Escanlar is to be so recorded is not material to our inquiry. 1wph1.t On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a judicial administrator, among other things, to administer the estate of the deceased not disposed of by will. Commenting on this Section in the light of several Supreme Court decisions (Jocson de Hilado v. Nava, 69 Phil. 1; Gamboa v. Gamboa, 68 Phil. 304; Ferraris v. Rodas, 65 Phil. 732; Rodriguez v. Borromeo, 43 Phil. 479), Moran says: "Under this provision, the executor or administrator has the power of administering the estate of the deceased for purposes of liquidation and distribution. He may, therefore, exercise all acts of administration without special authority of the Court. For instance, he may lease the property without securing previously any permission from the court. And where the lease has formally been entered into, the court cannot, in the same proceeding, annul the same, to the prejudice of the lessee, over whose person it had no jurisdiction. The proper remedy would be a separate action by the administrator or the heirs to annul the lease. ... . On September 13, 1961, petitioner herein Moises San Diego, Sr., who was not a party in the case, intervened and moved for a reconsideration of the above judgment. The original parties (the new administrator and respondent judge) also filed Motions for reconsideration, but we do not find them in the record. On

November 18, 1961, the Court of Appeals denied the motions for reconsideration. With the denial of the said motions, only San Diego, appealed therefrom, raising legal questions, which center on "Whether a judicial administrator can validly lease property of the estate without prior judicial authority and approval", and "whether the provisions of the New Civil Code on Agency should apply to judicial administrators." The Rules of Court provide that An executor or administrator shall have the right to the possession of the real as well as the personal estate of the deceased so long as it is necessary for the payment of the debts and the expenses of administration, and shall administer the estate of the deceased not disposed of by his will. (Sec. 3, Rule 85, old Rules). Lease has been considered an act of administration (Jocson v. Nava; Gamboa v. Gamboa; Rodriguez v. Borromeo; Ferraris v. Rodas, supra). The Civil Code, on lease, provides: If a lease is to be recorded in the Registry of Property, the following persons cannot constitute the same without proper authority, the husband with respect to the wife's paraphernal real estate, the father or guardian as to the property of the minor or ward, and the manager without special power. (Art. 1647). The same Code, on Agency, states: Special powers of attorneys are necessary in the following cases: (8) To lease any real property to another person for more than one year. (Art. 1878) Petitioner contends, that No. 8, Art. 1878 is the limitation to the right of a judicial administrator to lease real property without prior court authority and approval, if it exceeds one year. The lease contract in favor of Escanlar being for 3 years and without such court approval and authority is, therefore, null and void. Upon the other hand, respondents maintain that there is no limitation of such right; and that Article 1878 does not apply in the instant case. We believe that the Court of Appeals was correct in sustaining the validity of the contract of lease in favor of Escanlar, notwithstanding the lack of prior authority and approval. The law and prevailing jurisprudence on the matter militates in favor of this view. While it may be admitted that the duties of a judicial administrator and an agent (petitioner alleges that both act in representative capacity), are in some respects, identical, the provisions on agency (Art. 1878, C.C.), should not apply to a judicial administrator. A judicial administrator is appointed by the Court. He is not only the representative of said Court, but also the heirs and creditors of the estate (Chua Tan v. Del Rosario, 57 Phil. 411). A judicial administrator before entering into his duties, is required to file a bond. These circumstances are not true in case of agency. The agent is only answerable to his principal. The protection which the law

gives the principal, in limiting the powers and rights of an agent, stems from the fact that control by the principal can only be thru agreements, whereas the acts of a judicial administrator are subject to specific provisions of law and orders of the appointing court. The observation of former Chief Justice Moran, as quoted in the decision of the Court of Appeals, is indeed sound, and We are not prone to alter the same, at the moment. We, likewise, seriously doubt petitioner's legal standing to pursue this appeal. And, if We consider the fact that after the expiration of the original period of the lease contract executed by respondent Nombre in favor of Escanlar, a new contract in favor of said Escanlar, was executed on May 1, 1963, by the new administrator Campillanos. who, incidentally, did not take any active participation in the present appeal, the right of petitioner to the fishpond becomes a moot and academic issue, which We need not pass upon. WHEREFORE, the decision appealed from should be, as it is hereby affirmed, in all respects, with costs against petitioner Moises San Diego, Sr.

G.R. Nos. L-18223-24

June 29, 1963

COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, plaintiffappellee, vs. REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO PEREZ, ET AL., defendants-appellants. Pompeyo Diaz for plaintiff-appellee. Halili, Bolinao, Bolinao & Associates and Crispin D. Baizas for defendants-appellants. LABRADOR, J.: The above-entitled cases are appeals from judgments rendered by the Court of First Instance of through Judges Gustavo Victoriano and Conrado M. Vasquez, respectively, of said Court. In G.R. No. L-8223 plaintiff-appellee filed it complaint alleging that the defendantsappellants were granted by it credit accommodations in the form of an overdraft line for an amount not exceeding P80,000, with interest (paragraph 2, Complaint); that defendants or either of them drew regularly upon the above credit line and as of February 10, 1960, the total of their drawings and interest due amounted to P79,940.80 (par. 3, id.); that repeated demands were made upon defendants to pay for the drawings but said demands were ignored (par. 4, id.). In their answer to the complaint the defendants admit having drawn upon the credit line extended to them as alleged in the complaint; claim they have not ignored the demands for the payment of the sums demanded and have instituted actions against the former officers of defendant corporation who held defrauded the latter; etc. (par. 4, Answer). By way of special affirmative defenses, they allege that the former officers and directors of the defendant corporation had deliberately defrauded and mismanaged the corporations, as a part of their scheme to wrest control of various corporations owned by Damaso Perez, from the latter, and as a result of said frauds or mismanagements the defendants have instituted actions for damages for breach of trust; and that the amounts drawn on the credit line subject of the complaint were received and used by the former directors and officers of the defendant corporations and constitute part of the funds misapplied by them. Upon motion, Judge Victoriano entered for the plaintiff a judgment on the pleadings, holding that the "special affirmative defenses (of the answer) filled to show that any allegation respecting the extent of defendants' drawing although they have admitted having drawn against the credit line, subject of the action, so that said denial, not being specific denial in the true sense, does not controvert the allegation at which it is aimed," etc. The court also further held that the alleged mismanagement and fraud of the former directors and officials of defendant corporation and the action now pending in court regarding the same are merely internal affairs of the corporation which cannot affect or diminish the liability of the defendant corporation to the plaintiff. The defendants appealed from the decision to the Court of Appeals, but this Court certified the case to Us. In G.R. No. L-18224 the complaint also alleges that the defendants were given credit accommodation in the form of an overdraft line in an amount not exceeding

P150,000 and drew regularly upon said credit line amounts which with their interest reach the sum of P133,453.17; that demands were made for the payment of the drawings but defendants have failed to pay the amounts demanded. Defendants in their answer admit the opening of the credit line in their favor and that demands for the indebtedness were made upon them, but allege as special defenses that the directors and officers of the defendant corporation deliberately defrauded and mismanaged the said corporation breach of trust in order to deprive Damaso Perez of his control and majority interest in the defendant corporation, as a result of which fraud, mismanagement and breach of trust the defendants suffered tremendous losses; that the amounts drawn by defendant corporation upon the credit line were received and used by the former directors and officers and same constitute part of the funds of the defendant corporation misapplied and mismanaged by said former officers and directors of said corporation. Upon the presentation of the answer the plaintiff presented motion sustained, for judgment on the pleadings which the court sustained, holding: The defendants having admitted the indebtedness in question, its liability to pay the plaintiff the amount of the said indebtedness is beyond question. The alleged fact that the money borrowed from the plaintiff was misappropriated or misapplied by some officers of the defendant corporation is no defense against the liability of the defendants to the plaintiff. It is an internal matter of the defendant corporation in which the plaintiff has no concern or participation whatsoever. This is specially so with respect to the defendant Damaso Perez who appears to have executed the agreement, Annex A, in his own personal capacity and not as an officer of the defendant Republic Credit Corporation. The allegation that the defendants have a right to claim indemnity or contribution from the erring directors and officers of the defendant corporation is a matter which may be the subject of a separate action, and in which the plaintiff is not concerned. (p. 37, Record on Appeal) Against the above judgment the defendants also have prosecuted this appeal. The Court of Appeals certified the same to Us in accordance with law. In G.R. No. L-18223, the defendants-appellants argue that the admission made by the defendants in their answer that the amount demanded was due, is qualified "in the sense that whatever amounts were drawn from the overdraft line in question were part of those corporate funds of Philippine Armored Car, Inc., misused and misapplied by Ramon Racelis, et al., former directors and executive officers of said corporation." (p. 13, Appellee's Brief) In answer to this argument we call attention to the fact that in the agreement attached to the complaint Exhibit "A", the obligation of the defendants-appellants to pay for the amount due under the overdraft line is not in any way qualified; there is no statement that the responsibility of the defendantsappellants for the amount taken on overdraft would cease or be defeated or reduced upon misappropriations on mismanagement of the funds of the corporation by the directors and employees thereof. The special defense is, therefore, a sham defense. Furthermore, under general rules and principles of law the mismanagement of the business of a party by his agents does not relieve said party from the responsibility that he had contracted to third persons, especially in the case at bar where the written agreement contains no limitation to defendants-appellants'

liability.1wph1.t The so-called special defense contained in the answer is, therefore, no special defense to the liability of the defendants-appellants, nor to the action, and the court's action or judgment on the pleadings was properly taken. The argument contained in the brief of the defendants-appellants that the defendants contemplated a third-party complaint is of no weight, because a third-party complaint was not available to the defendants under the facts of the case. A third-party complaint is, under the Rules, available only if the defendant has a right to demand contribution, indemnity, subrogation or any other relief from the supposed third-party defendants in respect to the plaintiff's claim. (Sec. 1, Rule 12, Rules of Court). The supposed parties defendants or alleged officers of the defendant corporation had nothing to do with the overdraft account of defendant corporation with the plaintiff-appellee. Consequently, they cannot be made parties defendants in a third party complaint. Anyway the filing of a third party complaint is no hindrance to the issuance of the order of the court declaring that the defendants' answer presented no issue or defense and that, therefore, plaintiff-appellee was entitled to judgment. In G. R. No. L-18224, our ruling in the first case is also applicable. In this second case, it is also alleged that at the time of the agreement for credit in current account the defendant corporation was under the management of Ramon Racelis and others who defrauded and mismanaged the corporation, in breach of trust, etc., etc. Again we declare that the written agreement for credit in current account, Annex "A", contains no limitation about the liability of the defendants-appellants, nor an express agreement that the responsibility of the defendants-appellants should be conditioned upon the lawful management of the business of the defendant corporation. The same rulings in the first case are applicable in this second case. WHEREFORE, the judgments appealed from are hereby affirmed, with costs against the defendants-appellants.

him, to secure the loans for the Republic Armored Car Service Corporation and the Republic Credit Corporation. In the motion it is claimed that a photostatic copy of the power of attorney used by Ramon Racelis was presented at the trial. This photostatic copy or a copy thereof has not been submitted to us, for this reason We cannot rule upon his claim and contention that Ramon Racelis had no authority to bind the movant as surety for the loans obtained from the appellee Commercial Bank & Trust Company. Not having before Us the supposed photostatic copy of the power of attorney used to secure the loans, there is no reason for Us to rule, in accordance with his contention, that Racelis exceeded his authority in securing the loans subject of the present actions. The motion for reconsideration, however, presents a copy of a power of attorney purportedly executed by movant on October 22, 1952. It is not expressly mentioned that this is the precise power of attorney that Ramon Racelis Utilized to secure the loans the collection of which is sought in these cases. But assuming, for the sake of argument, that the said power of attorney incorporated in the motion for reconsideration was the one used to obtain the loans. We find that the movant's contention has no merit. In accordance with the document, Racelis was authorized to negotiate for a loan or various loans .. with other being institution, financing corporation, insurance companies or investment corporations, in such sum or sums, aforesaid Attorney-in-fact Mr. Ramon Racelis, may deem proper and convenient to my interests, ... and to execute any and all documents he deems requisite and necessary in order to obtain such loans, always having in mind best interest; ... We hold that this general power attorney to secure loans from any banking institute was sufficient authority for Ramon Racelis to obtain the credits subject of the present suits. It will be noted furthermore that Racelis, as agent Damaso Perez, executed the documents evidencing the loans signing the same "Damaso Perez by Ramon Racelis," and in the said contracts Damaso Perez agreed jointly and severally to be responsible for the loans. As the document as signed makes Perez jointly and severally responsible, there is no merit in the contention that Perez was only being held liable as a guarantor.1awphl.nt Furthermore, the promissory notes evidencing the loan are attached to the complaint in G.R. Nos. L-182 and L-18224. If the movant Perez claims that Raceli had no authority to execute the said promissory notes, the authenticity of said documents should have been specifically denied under oath in defendant's answers in the lower court. This was done; consequently Perez could not and may not now claim that his agent did not have authority to execute the loan agreements. Motion for new trial is denied.

G.R. Nos. L-18223 and L-18224

September 30, 1963

COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, plaintiffappellee, vs. REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO PEREZ, ET AL., defendants-appellants. RESOLUTION LABRADOR, J.: Defendant-appellant Damaso Perez has presented a motion for new trial on the ground of newly discovered evidence. It is claimed that movant was not aware of the nature of the power of attorney that Ramon Racelis used, purportedly signed by