G.R. No.

88539 October 26, 1993 KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER SUPPLY," petitioner, vs. THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents. BIDIN, J.: This petition for review assails the decision of the respondent Court of Appeals ordering petitioner to pay private respondent, among others, the sum of P297,482.30 with interest. Said decision reversed the appealed decision of the trial court rendered in favor of petitioner. The case involves an action for a sum of money filed by respondent against petitioner anchored on the following antecedent facts: Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on the other hand, is a partnership duly organized and existing under the laws of the Philippines with business address at Kalookan City. From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private respondent as payment for the paper products. Unfortunately, sad checks were later dishonored by the drawee bank. Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner denied any involvement in the transaction entered into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to the selling price of the subject merchandise. Left with no recourse, private respondent filed an action against petitioner for the collection of P297,487.30 representing the price of the merchandise. After due hearing, the trial court dismissed the complaint against petitioner for lack of merit. On appeal, however, the decision of the trial court was modified, but was in effect reversed by the Court of Appeals, the dispositive portion of which reads: WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant Kue Cuison is hereby ordered to pay plaintiff-appellant Valiant Investment Associates the sum of P297,487.30 with 12% interest from the filing of the complaint until the amount is fully paid, plus the sum of 7% of the total amount due as attorney's fees, and to pay the costs. In all other respects, the decision appealed from is affirmed. (Rollo, p. 55) In this petition, petitioner contends that: THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES. THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC. THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE TRIAL COURT, (Rollo, p, 19) The issue here is really quite simple whether or not Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction. This petition ought to have been denied outright, forin the final analysis, it raises a factual issue. It is elementary that in petitions for review under Rule 45, this Court only passes upon questions of law. An exception thereto occurs where the findings of fact of the Court of Appeals are at variance with the trial court, in which case the Court reviews the evidence in order to arrive at the correct findings based on the records.

As to the merits of the case, it is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must therefore fail. It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business with petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner admitted his close relationship with Tiu Huy Tiac when he said that they are "like brothers" (Rollo, p. 54). There was thus no reason for anybody especially those transacting business with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch. In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is clearly self-serving inasmuch as Villanueva worked for private respondent as its manager. We disagree, The argument that Villanueva's testimony is self-serving and therefore inadmissible on the lame excuse of his employment with private respondent utterly misconstrues the nature of "'self-serving evidence" and the specific ground for its exclusion. As pointed out by this Court in Co v. Court of Appeals et, al., (99 SCRA 321 [1980]): Self-serving evidence is evidence made by a party out of court at one time; it does not include a party's testimony as a witness in court. It is excluded on the same ground as any hearsay evidence, that is the lack of opportunity for cross-examination by the adverse party, and on the consideration that its admission would open the door to fraud and to fabrication of testimony. On theother hand, a party's testimony in court is sworn and affords the other party the opportunity for cross-examination (emphasis supplied) Petitioner cites Villanueva's failure, despite his commitment to do so on cross-examination, to produce the very first invoice of the transaction between petitioner and private respondent as another ground to discredit Villanueva's testimony. Such failure, proves that Villanueva was not only bluffing when he pretended that he can produce the invoice, but that Villanueva was likewise prevaricating when he insisted that such prior transactions actually took place. Petitioner is mistaken. In fact, it was petitioner's counsel himself who withdrew the reservation to have Villanueva produce the document in court. As aptly observed by the Court of Appeals in its decision: . . . However, during the hearing on March 3, 1981, Villanueva failed to present the document adverted to because defendant-appellant's counsel withdrew his reservation to have the former (Villanueva) produce the document or invoice, thus prompting plaintiff-appellant to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3, 1981). Now, defendant-appellant assails the credibility of Villanueva for having allegedly failed to produce even one single document to show that plaintiff-appellant have had transactions before, when in fact said failure of Villanueva to produce said document is a direct off-shoot of the action of defendant-appellant's counsel who withdrew his reservation for the production of the document or invoice and which led plaintiffappellant to rest its case that very day. (Rollo, p.52) In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan was part of an intricate plot to defraud him. However, petitioner failed to substantiate or prove that the subject transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's daughter and assistant manager Imelda Kue Cuison which confirmed the credibility of Tan as a witness. On the witness stand, Imelda testified that she knew for a fact that prior to the transaction in question, Tan regularly transacted business with her father (petitioner herein), thereby corroborating Tan's testimony to the same effect. As correctly found by the respondent court, there was no logical explanation for Tan to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison only served to add credence to Tan's testimony as regards the transaction, the liability for which petitioner wishes to be absolved. But of even greater weight than any of these testimonies, is petitioner's categorical admission on the witness stand that Tiu Huy Tiac was the manager of his store in Sto. Cristo, Binondo, to wit: Court: xxx xxx xxx

Q And who was managing the store in Sto. Cristo? A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember the exact year. Q So, Mr. Tiu Huy Tiac took over the management,. A Not that was because every afternoon, I was there, sir. Q But in the morning, who takes charge? A Tiu Huy Tiac takes charge of management and if there (sic) orders for newsprint or bond papers they are always referred to the compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p. 50, emphasis supplied). Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the denials made by petitioner regarding the capacity of Tiu Huy Tiac to enter into the transaction in question. Furthermore, consistent with and as an obvious indication of the fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch, three (3) months after Tiu Huy Tiac left petitioner's employ, petitioner even sent, communications to its customers notifying them that Tiu Huy Tiac is no longer connected with petitioner's business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's manager than any uttered disclaimer. More than anything else, this act taken together with the declaration of petitioner in open court amount to admissions under Rule 130 Section 22 of the Rules of Court, to wit : "The act, declaration or omission of a party as to a relevant fact may be given in evidence against him." For well-settled is the rule that "a man's acts, conduct, and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not. If a man's extrajudicial admissions are admissible against him, there seems to be no reason why his admissions made in open court, under oath, should not be accepted against him." (U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];). Moreover, petitioner's unexplained delay in disowning the transactions entered into by Tiu Huy Tiac despite several attempts made by respondent to collect the amount from him, proved all the more that petitioner was aware of the questioned commission was tantamount to an admission by silence under Rule 130 Section 23 of the Rules of Court, thus: "Any act or declaration made in the presence of and within the observation of a party who does or says nothing when the act or declaration is such as naturally to call for action or comment if not true, may be given in evidence against him." All of these point to the fact that at the time of the transaction Tiu Huy Tiac was admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently, the transaction in question as well as the concomitant obligation is valid and binding upon petitioner. By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the representations are intentional or merely negligent so long as innocent, third persons relied upon such representations in good faith and for value As held in the case of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]): More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal issolidarily liable with the agent if the former allowed the latter to act as though he had full powers." (Emphasis supplied). The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as joint tortfeasors whose liability is joint and solidary. Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the principal might not have had actual knowledge of theagent's misdeed is of no moment. Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations, became an agent of petitioner by estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon (Article 1431, Civil Code of the Philippines). A party cannot be allowed to go back on his own acts and representations to the prejudice of the other party who, in good faith, relied upon them (Philippine National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac on his behalf. Thus, even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar. Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in not turning over the proceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate petitioner of his liability to private respondent. For it is an equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss (Francisco vs. Government Service Insurance System, 7 SCRA 577 [1963]). Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary to resolve the other peripheral issues raised by petitioner. WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED. G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents. FRANCISCO, J.: Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows: WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED. 4 Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors: IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT. Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree. A contract is perfected by mere consent. 7 More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10 Articles 1602 and 1604 of the Civil Code respectively provide: The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 11 Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16 , the latter categorically denied the allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified: Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan. Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan.

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir. xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan. 18 Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20 So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides: Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22 The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the property upon which it is imposed. 25 The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED. G.R. No. 95641 September 22, 1994 SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees. ROMERO, J.: On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his premiums. On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager. These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company. There are two issues for resolution in this case: (1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages? (2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed: This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account. If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you within 7 days please notify us. If payment is made to our office, demand for an OFFICIAL RECEIPT. On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitionerinsured for the amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters: Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us. 4

On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitionerinsured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured. Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential. Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages. On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7 In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant VicePresident Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 8 On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9 The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court. In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation. The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following: a) P1,703.65 as actual damages; b) P200,000.00 as moral damages; and c) P50,000.00 as exemplary damages; 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and 3. To pay the costs. In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the

date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for. This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy. After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign. Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments: I Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers. II Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith. III Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation. IV Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when it refused to award damages in favor of herein PetitionerAppellants. It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondentinsurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance

company from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same. Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable. We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Article 1910 thus reads: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 15 Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts.

The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18 WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof. SO ORDERED. G.R. No. 94050 November 21, 1991 SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS, INC., petitioners, vs. EMILY A. WHITE and HOLMAN T. WHITE, respondents. CRUZ, J.:p The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as an agent. The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows: THE STATE FAIR OF TEXAS '80 PARTICIPATION CONTRACT PARTICIPANT (COMPANY NAME) EMILY WHITE ENTERPRISES I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to October 19,1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars. I/We further understand that this participation contract shall be deemed non-cancellable after payment of the said down payment, and that any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS, INC. FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and materials but does not include interior designs which will be per our specifications and expenses. PARTICIPANT'S PARTICIPATION AUTHORIZED SIGNATURE: ACCEPTED BY: (SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIA DATE: 8/13/80 DATE: Aug. 1, 1980 On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her name, nor were they authorized by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2

In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and explained that no display space was registered in her name as she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3 In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4 In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees and the costs. The court said: In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code) Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990: The evidence, on the whole, shows that she definitely acted on her own. She represented herself as authorized by the State of Texas to solicit and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted. We do not share these views. It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began: I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per square meter for display booth of said fair. I have paid an advance of US$500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6 As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia. Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation. If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal. The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros. Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her authority when she entered into the Participation Contract on behalf of Hontiveros, it is the latter that should be held answerable for any obligation arising from that agreement. By moving to dismiss the complaint against Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims they might have proved against the latter under the contract signed for it by Bedia. It should be obvious that having waived these claims against the principal, they cannot now assert them against the agent.

WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay City. SO ORDERED. G.R. Nos. L-18223-24 June 29, 1963

COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, plaintiff-appellee, vs. REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO PEREZ, ET AL., 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 defendants-appellants 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 defendants-appellants 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 defendantsappellants, 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, plaintiffappellee 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 defendantsappellants, 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.