ComRev Case Digests 6th Set

Negotiable Instruments 1 Atty. Busmente

PSE VS CA (281 SCRA 232)

Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]

Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer
its shares to the public in order to raise funds allegedly to develop its properties and pay its loans
with several banking institutions. In January, 1995, PALI was issued a permit to sell its shares to
the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares
among investors, PALI sought to course the trading of its shares through the Philippine Stock
Exchange Inc. (PSEi), for which purpose it filed with the said stock exchange an application to list
its shares, with supporting documents attached pending the approval of the PALI’s listing
application, a letter was received by PSE from the heirs of Ferdinand Marcos to which the latter
claims to be the legal and beneficial owner of some of the properties forming part of PALI’s assets.
As a result, PSE denied PALI’s application which caused the latter to file a complaint before the
SEC. The SEC issued an order to PSE to grant listing application of PALI on the ground that PALI
have certificate of title over its assets and properties and that PALI have complied with all the
requirements to enlist with PSE.

Issue: Whether or not the denial of PALI’s application is proper.

Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts
are barred from intruding into business judgements of corporations, when the same are made in
good faith. The same rule precludes the reversal of the decision of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept of reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE
retains the discretion to accept or reject the issuer’s listing application if the PSE determines that
the listing shall not serve the interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions as the primary channel through which the
vessels of capital trade ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational
stock exchange in the country today, the PSE enjoys monopoly of securities transactions, and as
such it yields a monopoly of securities transactions, and as such, it yields an immerse influence
upon the country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the supervision and
control over corporations, partnerships and associations with the end in view that investment in
these entities may be encouraged and protected and their activities for the promotion of
economic development.

A corporation is but an association of individuals, allowed to transact under an assumed

corporate name, and with a distinct legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and requisites appropriate to such a body as to its corporate
and management decisions, therefore, the state will generally not interfere with the same.
Questions of policy and management are left to the honest decision of the officers and directors
of a corporation, and the courts are without authority to substitute their judgements for the
judgement of the board of directors. The board is the business manager of the corporation and so
long as it acts in good faith, its orders are not reviewable by the courts.
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

In matters of application for listing in the market the SEC may exercise such power only if the
PSE’s judgement is attended by bad faith.

The petitioner was in the right when it refused application of PALI, for a contrary ruling was not
to the best interest of the general public.

Caltex Inc. v. Court of Appeals [G.R. No. 97753. August 10, 1992]

FACTS: On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch
issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who later lost them.

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine Currency,
repayable to said depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible)

Caltex (Phils.) Inc. went to the SBTC Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff “as
security for purchases made with Caltex Philippines, Inc.” by said depositor. SBTC rejected
Caltex’s demand and claim. Caltex sued SBTC but case was dismissed rationalizing that CTD’s are
non-negotiable instruments.
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

defendant... a commercial banking institution... issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
P1,120,000.00

Angel dela Cruz delivered the said certificates of time deposit (CTDs) to herein plaintiff in
connection with his purchase of fuel products from the latter

Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manager, that he lost all the
certificates of time deposit

Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,... Angel
dela Cruz executed and delivered to defendant bank the required Affidavit of Loss

280 replacement CTDs were issued in favor of said depositor

Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of... executed
a notarized Deed of Assign-ment of Time Deposit... which stated

(dela Cruz) surrenders to defendant bank 'full control of the indicated time deposits from and
after date' of the assignment and further authorizes said bank to pre-terminate, set-off and 'apply
the said time deposits to the payment of... whatever amount or amounts may be due' on the loan
upon its maturity

Credit Manager of plaintiff Caltex... went to the defendant bank... and presented for verification
the CTDs... declared lost by Angel dela Cruz alleging that the same were delivered to herein
plaintiff

'as security for purchases made with Caltex Philippines, Inc.' by said depositor... defendant
received a letter... from herein plaintiff formally informing it of its possession of the CTDs in
question and of its decision to pre-terminate the same.

Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value
of the CTDs... the loan of Angel dela Cruz with the defendant bank matured and fell due... the latter
set-off and applied the time deposits in question to the payment of the matured loan... plaintiff
filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value
of the certificates of time deposit of P1,120,000.00

After trial,... court... dismiss... instant complaint.

On appeal... respondent court affirmed the lower court's dismissal of the complaint, hence this
petition

Issues:

subject certificates of deposit are non-negotiable despite being clearly negotiable... instruments...
whether petitioner can rightfully recover on the CTDs.

Ruling:

instant petition is bereft of merit.

CTDs in question are negotiable instruments

ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

Section 1 of Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable,... viz:

"(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty."

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that

Security Bank's Branch Manager... testified in open... court that the depositor referred to in the
CTDs is no other than Mr. Angel de la Cruz.

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself.

CTDs are negotiable instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the depositor? It is the
"bearer." The documents do not... say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer
of the documents or, for that matter, whosoever may be the bearer at the time of presentment.

the answer is in the negative.

Angel de la Cruz... delivered the CTDs amounting to

P1,120,000.00 to petitioner without informing respondent bank thereof at any time.

a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained,... requires both delivery and indorsement.

the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products.
Any doubt as to whether the CTDs were delivered as payment for the fuel products or... as a
security has been dissipated and resolved in favor of the latter by petitioner's own authorized
and responsible representative himself.

petitioner... neither proved the amount of its credit or the extent of its lien nor the execution of
any public instrument which could affect or... bind private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the latter has definitely the better right over the CTDs
in question.

the petition is DENIED and the appealed decision is hereby AFFIRMED.

ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

Philippine Education Co. Inc. v. Soriano [G.R. No. L-22405. June 30, 1971]

FACTS: Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders
each payable to E.P. Montinola. After the postal teller had made out money orders, Montinola
offered to pay for them with a private checks were not generally accepted in payment of money
orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing
so, Montinola managed to leave building with his own check and the ten(10) money orders
without the knowledge of the teller. On the same date,... upon discovery of the disappearance of
the unpaid money ord... ers, an urgent message was sent to all... postmasters,... and the following
day notice was likewise served upon all banks,... instructing them not to pay anyone of the money
orders... if presented for payment.

The Bank of America received a copy of said notice three days later. One of the... money orders...
was received by appellant as part of its sales receipts. It deposited the same with the Bank of
America,... and one day thereafter the latter cleared it with the Bureau... of Posts and received
from the latter its face value of P200.00.

Soriano, Chief of the Money Order Division of the Manila Post Office... notified the Bank of
America... that... money order... attached to his letter had been found to have been irregularly
issued and that, in view thereof, the amount it represented had been deducted from the bank's
clearing account.

For its part the Bank of America debited ap-pellant's account with the same amount and gave it
advice thereof by means of a debit memo. Appellant requested the Postmaster General to
reconsider the action taken by his office deducting the sum of P200.00 from the clearing account
of the Bank of America, but his request was denied.

Appellant filed an action against appellees in the Municipal Court of Manila praying for judgment...
rendered to indemnify the plaintiff in the said sum of P200.00 with interest. The case was
appealed

ISSUE: Whether or not postal money orders are negotiable instruments.

RULING: NO. Postal money orders are not negotiable instruments. Our postal statutes were
patterned after statutes in force in the United States. For this reason, ours are generally construed
in accordance with the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice. The weight of
authority in the United States is that postal money orders are not negotiable instruments, the
reason behind this rule being that, in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a governmental
power for the public benefit. It is to be noted in this connection that some of the restrictions
imposed upon money orders by postal laws and regulations are inconsistent with the character
of negotiable instruments. For instance, such laws and regulations usually provide for not more
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

than one endorsement; payment of money orders may be withheld under a variety of
circumstances. Of particular application to the postal money order in question are the conditions
laid down in the letter of the Director of Posts... to the Bank of America for the redemption of
postal money orders received by it from its... depositors. Among others, the condition is imposed
that "in cases of adverse claim, the money order or money orders involved will be returned to you
(the bank) and the corresponding amount will have to be refunded to the Postmaster, Manila,
who reserves the... right to deduct the value thereof from any amount due you if such step is
deemed necessary." The conditions thus imposed in order to enable the bank to continue enjoying
the facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The
latter is therefore bound by them. That it is so is clearly inferred from the fact that, upon receiving
advice that the amount represented by the money order in question had been deducted from its
clearing account with the

Manila Post Office, it did not file any protest against such action.

Consolidated Plywood, et. al. vs. IFC Leasing , G.R. No. 72593, April 30, 1987
Full Text

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging
business. It had for its program of logging activities for the year 1978 the opening of additional
roads, and simultaneous logging operations along the route of said roads, in its logging concession
area at Baganga, Manay, and Caraga, Davao Oriental.

For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s need and purpose,
Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
Industrial Products Marketing (IPM), a corporation dealing in tractors and other heavy
equipment business, offered to sell to CPII 2 “Used” Allis Crawler Tractors, 1 an HD-21-B and the
other an HD-16-B. After conducting said inspection, IPM assured CPII that the “Used” Allis
Crawler Tractors which were being offered were fit for the job, and gave the corresponding
warranty of 90 days performance of the machines and availability of parts. With said assurance
and warranty, and relying on the IPM’s skill and judgment, CPII through Henry Wee and Rodolfo
T. Vergara, president and vice-president, respectively, agreed to purchase on installment said 2
units of “Used” Allis Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April
1978, IPM issued the sales invoice for the 2 units of tractors. At the same time, the deed of sale
with chattel mortgage with promissory note was executed.

Barely 14 days had elapsed after their delivery when one of the tractors broke down and after
another 9 days, the other tractor likewise broke down. IPM sent to the jobsite its mechanics to
conduct the necessary repairs, but the tractors did not come out to be what they should be after
the repairs were undertaken because the units were no longer serviceable. Because of the
breaking down of the tractors, the road building and simultaneous logging operations of CPII
were delayed and Vergara advised IPM that the payments of the installments as listed in the
promissory note would likewise be delayed until IPM completely fulfills its obligation under its
warranty.

Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units
and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given
to IFC Leasing and the excess, if any, to be divided between IPM and CPII which offered to bear
1/2 of the reconditioning cost. No response to this letter was received by CPII and despite several
follow-up calls, IPM did nothing with regard to the request, until the complaint in the case was
filed by IFC Leasing against CPII, Wee, and Vergara. The complaint was filed by IFC Leasing against
CPII, et al. for the recovery of the principal sum of P1,093,789.71, accrued interest of P151,618.86
as of 15 August 1979, accruing interest there after at the rate of 12% per annum, attorney’s fees
of P249,081.71 and costs of suit.
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

CPII, et al. filed their amended answer praying for the dismissal of the complaint. In a decision
dated 20 April 1981, the trial court rendered judgment, ordering CPII, et al. to pay jointly and
severally in their official and personal capacities

On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the
decision of the trial court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held: No. The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
P1,093,789.71, Philippine Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the month thereafter until fully paid.”
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note “must be payable to order or bearer,” it cannot be denied that the promissory
note in question is not a negotiable instrument.

The instrument in order to be considered negotiable must contain the so called “words of
negotiability” — i.e., must be payable to “order” or “bearer.” These words serve as an expression
of consent that the instrument may be transferred. This consent is indispensable since a maker
assumes greater risk under a negotiable instrument than under a non- negotiable one. Without
the words “or order” or “to the order of,” the instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely “step into the shoes” of
the person designated in the instrument and will thus be open to all defenses available against
the latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows
that IFC Leasing can never be a holder in due course but remains a mere assignee of the note in
question. Thus, CPII may raise against IFC Leasing all defenses available to it as against IPM. This
being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing because
CPII’s defenses apply to both or either of them.

---------------------------------------------------------------------------------------------------------------------------

HELD: CA reversed and set aside

 Consolidated is a victim of warranrty

 The Civil Code provides that:

ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they diminish
its fitness for such use to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor shall not be answerable
for patent defects or those which may be visible, or for those which are not visible if the vendee
is an expert who, by reason of his trade or profession, should have known
them.chanroblesvirtualawlibrary chanrobles virtual law library
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness
of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the particular purpose
for which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge
judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose;
xxx xxx xxx chanrobles virtual law library
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose
may be annexed by the usage of trade.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold
even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware
of the hidden faults or defects in the thing sold. (Emphasis supplied).
 GR: extends to the corporation to whom it assigned its rights and interests

 EX: assignee is a holder in due course of the promissory note

 assuming the note is negotiable

 Consolidated's defenses may not prevail against

it.chanroblesvirtualawlibrary chanrobles virtual law library

 Articles 1191 and 1567 of the Civil Code provide that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.chanroblesvirtualawlibrary chanrobles virtual
law library
xxx xxx xxx chanrobles virtual law library
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with
damages in either case. (Emphasis supplied)

 Consolidated, having unilaterally and extrajudicially rescinded its contract with the
seller-assignor, can no longer sue IPM except by way of counterclaim if IPM sues it
because of the rescission

 Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that
a promissory note "must be payable to order or bearer" - in this case it is non-negotiable

 = expression of consent that the instrument may be transferred

 consent is indispensable since a maker assumes greater risk under a

negotiable instrument than under a non-negotiable one

 When instrument is payable to order

SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. . . .

 Without the words "or order" or"to the order of, "the instrument is payable only to the
person designated therein and is therefore non-negotiable.

 Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

 Even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the IFC cannot be a holder in due course due to absence of GF for
knowing that the tractors were defective

SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in due course is a holder
who has taken the instrument under the following conditions: chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of
deffect in the title of the person negotiating it

SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts
that his action in taking the instrument amounts to bad faith. (Emphasis supplied)
 We believe the finance company is better able to bear the risk of the dealer's insolvency
than the buyer and in a far better position to protect his interests against unscrupulous
and insolvent dealers. . .

Ang Tek Lian vs. Court of Appeals

G.R. No. L-2516 September 25, 1950

FACTS: Knowing he had no funds therefor, petitioner Ang Tek Lian drew a check upon the China
Banking Corporation for the sum of P4,000, payable to the order of “cash”. He delivered it to Lee
Hua Hong in exchange for money which the latter handed in the act. The next business day, the
check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.

Petitioner was sued for estafa. In his defense, however, he argues that as the check had been made
payable to “cash” and had not been endorsed by Ang Tek Lian, the defendant is not guilty of the
offense charged.

ISSUE: Whether or not indorsement is necessary to negotiate a check payable to the order of “cash

HELD: NO. Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order
of “cash” is a check payable to bearer, and the bank may pay it to the person presenting it for
payment without the drawer’s indorsement. Where a check is made payable to the order of ‘cash’,
the word cash ‘does not purport to be the name of any person’, and hence the instrument is
payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay
it to the person presenting it without any indorsement

A check drawn to the order of “cash” is payable to bearer, and the bank may pay it to the
person presenting it for payment without the drawer’s indorsement. Of course, if the bank is
not sure of the bearer’s identity or financial solvency, it has the right to demand for identification
and/or assurance against possible complications— for instance, forgery of the drawer’s
signature, loss of the check by the rightful owner, raising the amount payable, etc. The bank
therefore, requires for its protection that the indorsement of the drawer—or some other persons
known to it—be obtained. A check payable to bearer is authority for payment to the holder.
Where a check is in the ordinary form and is payable to bearer so that no indorsement is required,
ComRev Case Digests 6th Set
Negotiable Instruments 1 Atty. Busmente

a bank to which it is presented for payment need not have the holder identified, and is not
negligent in failing to do so.

Philippine National Bank vs. Manila Oil Refining & By-Products Company, Inc. [GR L-18103,
8 June 1922] First Division, Malcolm (J): 6 concur

Facts: On 8 May 1920, the manager and the treasurer of the Manila Oil Refining & By-Products
Company, Inc,. executed and delivered to the Philippine National Bank (PNB), a written
instrument reading as follows:

"RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand after date we promise to pay to
the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National
Bank, Manila, P.I. Without defalcation, value received; and do hereby authorize any attorney in
the Philippine Islands, in case this note be not paid at maturity, to appear in my name and confess
judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent 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. Value received. No. —
— Due —— MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO, Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL LOPEZ. Treasurer."

The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on
demand. PNB brought action in the Court of First Instance of Manila, to recover P61,000, the
amount of the note, together with interest and costs. Mr. Elias N. Recto, an attorney associated
with PNB, entered his appearance in representation of Manila Oil, and filed a motion confessing
judgment. Manila Oil, however, in a sworn declaration, objected strongly to the unsolicited
representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for Manila Oil and
filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered
judgment on the motion of attorney Recto in the terms of the complaint. In the Supreme Court,
the question of first impression raised in the 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.

Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly recognized
judgment notes, enforcible under the regular procedure.

Held [1]: 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
confession of judgment if the instrument be not paid at maturity"; but this provision of law cannot
be taken to sanction judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdictions where judgments notes are recognized, such clauses shall
not affect the negotiable character of the instrument. 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."

Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess judgments
against makers should not be recognized in Philippine jurisdiction by implication.

Held [2]: Judgments by confession as appeared at common law were considered an amicable,
easy, and cheap way to settle and secure debts. They are quick remedy serve to save the court's
time. Time also save time and money of the litigants and the government the expenses that a long
litigation entails. In one sense, instruments of this character may be considered as special
agreements, with power to enter up judgments on them, binding the parties to the result as they
themselves viewed it. On the other hand, are disadvantages to the commercial world which
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Negotiable Instruments 1 Atty. Busmente

outweigh the considerations just mentioned. Such warrants of attorney 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. The recognition of such form of obligation would bring
about a complete reorganization of commercial customs and practices, with reference to short-
term obligations. It can readily be seen that judgment notes, instead of resulting to the advantage
of commercial life the Philippines might be the source of abuse and oppression, and make the
courts involuntary parties thereto. If the bank has a meritorious case, the judgment is ultimately
certain in the courts. The Court is of the opinion thus that warrants of attorney to confess
judgment are not authorized nor contemplated by Philippine law; and that provisions in notes
authorizing attorneys to appear and confess judgments against makers should not be recognized
in this jurisdiction by implication and should only be considered as valid when given express
legislative sanction