VOL.

8, JUNE 29, 1963 425

Commercial Bank & Trust Co. of the Philippines vs.
Republic Armored Car Service Corp.

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.

Agency; Liability of principal to third persons; Not affected by

mismanagement of principal's business by his agents.—In an
action upon a promissory note against the maker, the
mismanagement of the business of the maker by his agents does
not relieve said maker from the responsibility that he had
contracted to third persons, especially in the case at bar where
the written agreement contains no limitations to defendant-
appellant's liability.
Pleading and practice; Third-party complaint; Not available
where defendant has no right to demand relief from thirdparty
defendant.—The maker of the note can not claim that a third-
party complaint filed by him is a defense; 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 the defendant
corporation with the plaintiff-appellee. Consequently, they cannot
be made parties defendants in a third-party complaint.

APPEALS from the judgment of the Court of First Instance

of Manila. Victoriano and Vasquez, JJ.
The facts are stated in the opinion of the Court.
     Pompeyo Diaz for plaintiff-appellee.
     Halili, B olinao, Bolinao & Associates and Crispin D.
Baizas for defendants-appellants.

LABRADOR, J.:

The above-entitled cases are appeals from judgments

/
 426

426 SUPREME COURT REPORTS ANNOTATED

Commercial Bank & Trust Co. of the Philippines vs,
Republic Armored Car Service. Corp.

rendered by the Court of First lnstance of Manila through

Judges Gustavo Victoriano and Conrado M. Vasquez,
respectively, of said Court.
In G.R. No. L-8223 plaintiff-appellee filed a 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 P79,943.80 (par. 3, id.) ; that repeated
demands were made upon defendants to pay for the
drawings but said demands were ignored (par. 4, it.). 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 had 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 corporation, 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) failed 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
427

VOL. 8, JUNE 29, 1968 427

/
 Commercial Bank & Trust Co. of the Philippines vs,
Republic Armored Car Service Corp.

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 in breach of trust in order to deprive Damaso
Perez of his control and majority inter est 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 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

428

428 SUPREME COURT REPORTS ANNOTATED

Commercial Bank & Trust Co. of the Philippines vs.
Republic Armored Car Service Corp.
/
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 or 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.
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
defendantsappellants that the defendants contemplated a
third-

429

VOL. 8, JUNE 29, 1963 429

Commercial Bank & Trust Co. of the Philippines vs.
Republic Armored Car Service Corp.

/
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.

     Padilla, Bautista, Angelo, Concepcion, Reyes, J.B.L.,

Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,
concur.
     Bengzon, C.J., took no part.

Judgments affirmed.
430

430 SUPREME COURT REPORTS ANNOTATED

Harrison Foundry & Machinery vs. Harrison Foundry
Workers' Association

Note.—As to when a third-party complaint is proper or

not, see Talisay-Silay Milling Co., Inc. vs. Court of
Industrial Relations, L-21582, Nov. 29, 1966, 18 SCRA 894
and the notes thereunder. See also Republic vs. Ramos, L-
/
 18911, April 27, 1967, 19 SCRA 825 and the notes
thereunder; Del Rosario vs. Jimenez, L-17468, July 31,
1963, post.

______________

© Copyright 2020 Central Book Supply, Inc. All rights reserved.