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PNB v Manila Oil Refining & By-Products Co

GR No. 18103. June 8, 1922

Topic: Provisions that do not affect Negotiability

Petitioner: PHILIPPINE NATIONAL BANK


Respondents: MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC
Ponente: Malcolm

Facts:
This case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case
the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon
for the principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition,
and appeal, and all property exemptions.

In May1920, the manager and the treasurer of Respondent Manila Oil Refining & By-Products
Company, Inc. (MORB), executed and delivered to Petitioner Philippine National Bank (PNB), a promissory
note whereby MORB promises to pay to the order of PNB the amount of P 61,000. The note contains the
following stipulations: Without defalcation, value received; and do hereby authorize any attorney in the
Philippines, in case this note be not paid at maturity, to appear in the name and confess judgment for the
above sum with interest, cost of suit and attorneys fees of 10% for collection, a release of all errors and
waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or
personal, from levy or sale.

Problem Arise:
The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand.
The Philippine National Bank brought action in the CFI- Manila, to recover the amount of P61,000 in the note,
together with interest and costs. Elias Recto, an attorney associated with PNB, entered his appearance in
representation of the defendant, and filed a motion confessing judgment. MORB however, objected against
the representation of Recto. Later, another lawyer represented MORB and filed a demurrer. The trial judge
rendered judgment on the motion of Atty. Recto.

MORB claims that the instrument is not negotiable because the above stipulation is not valid.

Issue: Whether the invalidity of a stipulation would affect the negotiability of an instrument.

Held: No. The negotiability of the instrument is not affected by the stipulation.

Ruling:

The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an
instrument otherwise negotiable is not affected by a provision which "* * *
(b) Authorizes a confession of judgment if the instrument be not paid at maturity."

Moreover, the same section of the Negotiable Instruments Law concludes with these words:
"But nothing in this section shall validate any provision or stipulation otherwise illegal."

In the present case, MORB is correct in stating that the stipulations are void. Warrants of attorney to
confess judgment are void as against public policy, because they enlarge the field for
fraud, because under these instruments the promissor bargains away his right to a day in court, and because
the effect of the instrument is to strike down the right of appeal accorded by statute.

However, the note is still negotiable if all the requisites in Section 1 of the NIL are present. These
stipulations are in the nature of stipulations authorizing confessions of judgment which is considered void for
being against public policy in this jurisdiction. But due to Sec 5 of the NIL, the instruments negotiable
character is not affected by a provision which authorizes confession judgment if the instrument is not paid at
maturity. In other words, only the stipulation is avoided.

Doctrines:

Section 5 (b) of the Negotiable Instruments Law providing that the negotiable character of an
instrument otherwise negotiable is not affected by a provision which authorizes a confession of udgment if
the instrument be not paid at maturity, cannot be taken to sanction judgments by confession.

In the absence of express legislative sanction, provisions in notes authorizing attorneys to appear and
confess judgments against makers should not be recognized in this jurisdiction by implication.

A provision in a promissory note whereby in case the same is not paid at maturity, the maker
authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest,
costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions,
is not valid in this jurisdiction.

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