Philippine National Bank v. Manila Oil Refining & By-Products Company
REITERATIONFacts
The Antecedents: On May 8, 1920, the manager and treasurer of Manila Oil Refining & By-Products Company, Inc. executed a promissory note for P61,000.00 payable to the Philippine National Bank on demand. The note contained a provision authorizing any attorney in the Philippine Islands to appear and confess judgment for the principal amount, with interest, costs, and attorney's fees, and to waive all errors, rights to inquisition, appeal, and property exemptions. Procedural History: The company failed to pay the note on demand. The Philippine National Bank filed an action in the Court of First Instance of Manila. An attorney associated with the bank entered his appearance for the defendant and filed a motion confessing judgment. The defendant objected to this representation. Subsequently, another attorney appeared for the defendant and filed a demurrer, which was overruled, followed by an answer. The trial judge rendered judgment based on the motion confessing judgment. The Petition: The defendant company appealed the judgment, raising the issue of the validity of the confession of judgment clause in the promissory note.
Issue(s)
Whether a provision in a promissory note authorizing an attorney to appear and confess judgment is valid in the Philippine jurisdiction. Whether the Negotiable Instruments Law expressly recognizes and enforces judgment notes. Whether such provisions are void as against public policy.
Ruling
The Supreme Court set aside the judgment appealed from and remanded the case to the lower court for further proceedings. The Court held that provisions in promissory notes authorizing attorneys to confess judgment are not recognized in the Philippines without express legislative sanction.
Ratio Decidendi
On the validity of the confession of judgment clause: The Court held that neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a confession of judgment commonly called a judgment note. The provisions of the Code of Civil Procedure, in relation to constitutional safeguards relating to the right to take a man's property only after a day in court and after due process of law, contemplate that all defendants shall have an opportunity to be heard. Further, the provisions of the Code of Civil Procedure pertaining to counterclaims argue against judgment notes. At least one provision of the substantive law, namely, that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (Civil Code, art. 1356), constitutes another indication of fundamental legal purposes. The Court noted that while the practice of entering judgments on warrants of attorney is of ancient origin at common law, in the absence of statute, the weight of opinion is that such warrants are void as against public policy unless authorized by statute. On the Negotiable Instruments Law: The Court disagreed with the contention that the Negotiable Instruments Law (Act No. 2031) expressly recognizes judgment notes. While Section 5(b) provides that the negotiable character of an instrument is not affected by a provision authorizing confession of judgment, the Court interpreted this as merely stating that such clauses do not affect negotiability in jurisdictions where judgment notes are recognized. The Court emphasized the concluding words of the same section: "But nothing in this section shall validate any provision or stipulation otherwise illegal." Therefore, this provision does not sanction judgments by confession in the Philippines. On public policy: The Court found that warrants of attorney to confess judgment are void as against public policy. They enlarge the field for fraud, as under these instruments the promissor bargains away his right to a day in court, and the effect of the instrument is to strike down the right of appeal accorded by statute. The recognition of such a form of obligation would bring about a complete reorganization of commercial customs and practices, with reference to short-term obligations. Judgment notes, instead of resulting to the advantage of commercial life in the Philippines, might be the source of abuse and oppression, and make the courts involuntary parties thereto. The Court concluded that warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law and should only be considered valid when given express legislative sanction.
Main Doctrine
Provisions in promissory notes authorizing attorneys to appear and confess judgment against the maker are not authorized nor contemplated by Philippine law and should not be recognized in this jurisdiction without express legislative sanction, as they are considered void against public policy.