SEC 2

BACHRACH V. GOLINGCO
39 PHIL 139
Category: Mercantile Law Jurisprudence

BACHRACH V. GOLINGCO
39 PHIL 139
FACTS:

Bachrach sold a truck to Golingco, which was secured by a promissory note

and a chattel mortgage on the truck. The promissory note provided that there
would be payment of 25% attorney’s fees.

HELD:

It may lawfully be stipulated in favor of the creditor that in the event that it
becomes necessary, by reason of the delinquency of the debtor, to employ
counsel to enforce payment of the obligation, a reasonable attorney’s fee
shall be paid by the debtor, in addition to amount due of principal
and
interest. The legality of this stipulation, when annexed to the negoti
able instrument, is recognized by the NIL.

The courts have the power to limit the amount recoverable under a special
provision in a promissory note, whereby the debtor obligates himself to pay
a specified amount, or a certain per centum of the principal debt, i
n satisfaction of attorney’s fees for which the creditor would become liable in
suing upon the note.

*Normally, if there is absence of any agreement as to attorney’s fees, then the

court would only grant nominal amounts.


Bachrach vs. Golingco 39 Phil. 138
FACTS:

Plaintiff Bachrach sold to defendant Golingco an Automobile Truck, a promissory note was
executed at the time of the sale which represent the purchase price of the truck. Bachrach took a
chattel mortgage on the truck. It is provided in the note that in the event that it become
necessary to employ counsel to enforce the collection the maker of the note is to pay for the
additional 25% attorney’s fee. The note matured and the chattel mortgage was foreclosed, at the
foreclosure, Bachrach himself became the purchaser for the sum of P 539 which was credited to
Golingco’s indebtedness. Bachrach filed a suit for the recovery of a sum of money which is the
balance due as evidence by the promissory note.

ISSUE:

Whether or not the agreement for the 25% as an attorney’s fee for collection is valid.

HELD:

Yes. The legality of such stipulation is expressly recognized by the Negotiable Instruments
Law Act 2031.

Such a stipulation is not void as usurious, even when added to a contract for the payment of the
highest rate of interest permissible. The purpose of such a stipulation is not to increase in any
respect the benefits ultimately to accrue to the creditor but to permit the creditor to receive the
amount due without the deduction of the expenses caused by the delinquency of the debtor.
There no special agreement is made by the parties with reference to attorney’s fees the courts
are authorized to determine the amount to be paid to an attorney as reasonable compensation
for his professional services, and even where the parties have made a written agreement as to
the fee, the courts have the power to ignore the contract, if the amount fixed is unconscionable
or unreasonable, and to limit the fee to a reasonable amount.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-13660 November 13, 1918

E. M. BACHRACH, plaintiff-appellee,
vs.
VICENTE GOLINGCO, defendant-appellant.
Ramon Diokno for appellant.
No appearance for appellee.

STREET, J.:

This is a suit for the recovery of a sum of money claimed as a balance due to the
plaintiff on a promissory note. From a judgment in favor of the plaintiff for the
sum of P8461, as principal, with interest thereon at the rate of 8 per cent per
annum from the 10th day of July, 1916, until paid, and for the further sum of
P2,115.25, as a stipulated attorney's fee, the defendant has appealed.

The note in question represents the purchase price of an automobile truck which
the plaintiff sold to the defendant at the time the note was executed. As security
for the payment of said indebtedness, the plaintiff took a chattel mortgage on
the truck; and after the note had matured this chattel mortgage was foreclosed.
At the foreclosure sale the plaintiff himself became the purchaser for the sum of
P539, which amount was credited upon the indebtedness.

Of the questions raised by the defense only two in our opinion require serious
consideration. The first has reference to irregularities in the foreclosure
of the chattel mortgage; the second to the validity of the agreement for
25 per cent as an attorney's fee for collection.

We find that the requirements of section 14 of Act No. 1508 (the Chattel
Mortgage of Law) were not observed in the sale of the truck. The irregularity
consists in the fact the truck was brought by Bachrach from Albay (which was
the place of residence of the mortgagor) to the city of Manila and here sold by
the sheriff of the city at the instance of the plaintiff. There is no evidence that
the mortgagor consented to the removal of the truck to Manila or to the
sale that was effected in the city; and it must therefore be held that the sale
was improperly accomplished. The statute requires that the mortgage chattel
shall be sold in the municipality where the mortgagor resides, or where the
property is situated; and the latter expression has reference to the place where
the thing is being kept for use by the mortgagor, not any place where the
mortgagee may choose to carry it when he takes it out of the custody of the
mortgagor. It is admitted that notice of the same was not posted anywhere in
the municipality of Albay, as required in the section cited; and of course
publication there would have of little or no value when the sale was to be made
in Manila.

The effect of this irregularity was, in our opinion, to make the plaintiff liable to
the defendant for the full value of the truck at the time the plaintiff thus carried
it off to be sold; and of course the burden is on the defendant to prove the
amount of the damage to which he was thus subjected. With reference to the
condition of the truck when it was sold, we find the following statement in the
testimony of Bachrach:
Q. What was the condition of the truck at the time it was sold? — At the time of
the sale, everything that wasn't actually built on the truck was removed; tires
removed, generator, lamps, dynamo, everything that could be taken off with a
monkeywrench was removed. It was in a criminal condition.

Q. Was the body of the truck, or the chassis, and the motor on at the time you
purchased it at the sheriff's sale? — A. No.lawp h il.n et

Q. Had it been removed? — A. Yes. We had a telegram from the sheriff of Tabaco,
saying that the day he was to load the truck for Manila, he had a protest from
Golingco demanding the body, and I telegraphed the sheriff to deliver the body
to Golingco, and send the truck.

There is no evidence to contradict Bachrach's testimony on this point; and we

are bound to credit him when he states his conclusion that the value of the truck
at the time it was sold was the amount he paid for it. In the absence of proof to
the contrary this must also be taken to be its value at the time it was brought
away from Albay. It results that the defendant has failed to prove that he
suffered any damage whatever by the irregular manner in which the sale was
conducted.

This brings us to the question of the amount of the attorney's fee allowed
by the trial court. It is provided in the note given by the defendant for the
purchase price of the truck that, in the event it becoming necessary to employ
counsel to enforce its collection, the maker is to pay an additional twenty-five
per cent "as fees for the attorney collecting the same."

The trial court gave judgment for the full amount due on the note and for an
additional sum of P2,115.25, for attorney's fees. The appellant assigns this as
error and argues that the agreement to pay an attorney's fee, in addition to the
principal and stipulated interest, is void as usurious and as being grossly
excessive.

We are of the opinion that it may lawfully be stipulated in favor of the creditor,
whether the obligation be evidenced by promissory note or otherwise, that in
the event that it becomes necessary, by reason of the delinquency of the debtor,
to employ counsel to enforce payment of the obligation, a reasonable attorney's
fee shall be paid by the debtor, in addition to the amount due for principal and
interest. The legality of such a stipulation, when annexed to a negotiate
instrument is expressly recognized by the Negotiable Instruments Law ((Act No.
2031, sec. 2, par. E). Inasmuch as the statutory allowance for attorney's fees,
as costs, is notoriously less than the amount which attorneys are entitled to
receive from their clients, unless such a stipulation is made and enforced, it
follows that a creditor may be compelled to pay, out of the money due him, a
considerable sum as the necessary cost of enforcing payment by the delinquent
debtor.

Such a stipulation is not void as usurious, even when added to a contract for the
payment of the highest rate of interest permissible. The purpose of such a
stipulation is not to increase in any respect the benefits ultimately to accrue to
the creditor. It is true that such a stipulation may be made for the purpose of
concealing usury; but that is a matter of proof to be determined in each case
upon the evidence.

We cite, with approval, the ruling of the supreme court of Georgia upon this
question, as follows:

A contract to pay attorney's fees for collecting, in addition to principal and

interest, is not, on its face, usurious; nor does it become usurious by reducing
the debt to judgment, and including in the judgment ten per cent for attorney's
fees.

The law . . . recognizes the validity of such a stipulation, and it meets the justice
of the case very frequently for the debtor to pay for the collection rather than
the creditor, . . . We do not mean to intimate that usury might not be covered up
by such a stipulation, that it might not be a disguise, or contrivance for the
concealment of usury; but there is no such indication in this case. There is no
evidence that it was not a bona fide stipulation to cover the contingency of
having to incur expense in collecting this debt. (National bank of
Athens vs. Danforth, 80 Ga., 55.)

But the principle that it may be lawfully stipulated that the legal expense
involved in the collection of a debt shall be defrayed by the debtor does not
imply that such stipulations must be enforced in accordance with their terms, no
matter how injurious or oppressive they may be. The lawful purpose to be
accomplished by such a stipulation is to permit the creditor to receive the whole
amount due him under his contract without the deduction of the expenses
caused by the delinquency of the debtor. It should not be permitted for him to
convert such a stipulation into a source of speculative profit at the expense of
the debtor.

Contracts for attorney's services in this jurisdiction stand upon an entirely

different footing from contracts for the payment of compensation for any other
services. By the express provision of section 29 of the Code of Civil Procedure,
an attorney is not entitled in the absence of express contract to recover more
than a reasonable compensation for his services; and even where an express
contract is made the court can ignore it and limit the recovery to
reasonable compensation if the amount of the stipulated fee is found by
the court to be unreasonable. This is a very different rule from that
announced in section 1091 of the Civil Code with reference to the obligation of
contract in general, where it is said that such obligation has the force of law
between the contracting parties. Had the plaintiff herein made an express
contract to pay his attorney an uncontingent fee of P2,115.25, for the services
to be rendered in reducing the note here in suit to judgment, it would not have
been enforceable against him had he seen fit to oppose it, as such a fee is
obviously far greater than is necessary to remunerate the attorney for the work
involved and is therefore unreasonable. In order to enable the court to ignore an
express contract for an attorney's fees, it is not necessary to show, as in other
contracts, that it is contrary to morality or public policy (art. 1255, Civil Code).
It is enough that it is unreasonable or unconscionable.
We are not unmindful of the fact that the question as to the propriety of the
stipulation for attorney's fee does not here arise directly between the creditor in
this note and the attorney into whose hands he might place the note for
collection. The stipulation is contained in the contract between the creditor and
his debtor; and the attorney could not be held bound thereby. Nevertheless we
think the same rule applies as if the question had arisen directly between
attorney and client. As the court has power to fix the fee as between the
attorney and the client, it must necessarily have the right to say whether a
stipulation, like this, inserted in a promissory note is valid. A different ruling, as
may be readily seen, would make it exceedingly easy to evade the usury laws.
As stated at the beginning of this discussion, the lawful purpose to be
accomplished by such stipulation is to permit the creditor to receive the amount
due without the deduction of the expenses caused by the delinquency of the
debtor. It must not be used as a cloak for an exorbitant exaction.

We are therefore of the opinion that we are authorized to reduce the amount in
question to a sum which will enable the plaintiff to pay a reasonable
compensation to his attorney; and we think that P800 is sufficient for this
purpose. It is possible that, as a matter of fact, the plaintiff may have contracted
with his attorney for the performances of the services to be rendered him in this
matter for a sum less than P800, and had it been so made to appear, we would
have reduced the amount recoverable, under this particular clause of the note,
to the corresponding sum. No evidence having been adduced upon this point,
however, we are compelled to exercise our discretion and make use of our
professional knowledge as to the reasonable compensation to which an attorney
would be entitled for the performance of such services as those which the
plaintiff in this case has had occasion to require from his counsel.

Wherefore it is ordered that the plaintiff have and recover of the defendant the
sum of P8,461, with interest thereon at the rate of 8 per centum per annum,
from the tenth day of July, 1916, until paid, and for the further sum of P800 as
attorney's fees, and for the statutory costs of both instances, exclusive of the
statutory allowance for attorney's fees. So ordered.

SEC 3
ABUBAKAR V. AUDITOR GENERAL
81 PHIL. 359

FACTS:
The auditor general refuses to authorize the payment of the treasury
warrant issued in the name of Placido Urbanes, now in the hands of
Benjamin Abubakar. The auditor general refuses to do so because,
 first, the money available for redemption of treasury warrants was appropriated by law and the
subject warrant doesn’t fall within the purview of the law;

second, one of the requirements was not complied with, which is it must be sworn that the holders of
the warrant covering payment or replenishment
of cash advances for official expenditures received them in payment of definite
government obligations.

HELD:
Petitioner holds that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free from
defenses. But this treasury warrant is within the scope of the Negotiable Instruments
Law. For one thing, the document bearing on its face the words “payable from the
appropriation for food administration”, is actually an order for payment out of a particular fund, and is
not unconditional, and doesn’t fulfill one of the essential requirements of a negotiable instrument.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-1405 July 31, 1948

BENJAMIN ABUBAKAR, petitioner,

vs.
THE AUDITOR GENERAL, respondent.

Viray and Viola Viray for petitioner.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel
Tomacruz for respondent.

BENGZON, J.:

We are asked to overrule the decision of the Auditor General refusing to

authorize the payment of Treasury warrant No. A-2867376 for P1,000 which
was issued in favor of Placido S. Urbanes on December 10, 1941, but is now in
the hands of herein petitioner Benjamin Abubakar.

For his refusal the respondent gave two reasons: first, because the money
available for the redemption of treasury warrants issued before January 2, 1942,
is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant does not
come within the purview of said appropriation; and second, because on of the
requirements of his office had not been complied with, namely, that it must be
shown that the holders of warrants covering payment or replenishment of cash
advances for official expenditures (as this warrant is) received them in payment
of definite government obligations.

Finding the first reason to be sufficiently valid we shall not discuss, nor pass
upon the second.

There is no doubt as to the authenticity and date of the treasury warrant. There
is no question that it was regularly indorsed by the payee and is now in the
custody of the herein petitioner who is a private individual. On the other hand,
it is admitted that the warrant was originally made payable to Placido S.
Urbanes in his capacity as disbursing officer of the Food Administration
for "additional cash advance for Food Production Campaign in La Union" (Annex
A). It is thus apparent that this is a treasury warrant issued in favor of a public
officer or employee and held in possession by a private individual. Such being
the case, the Auditor General can hardly be blamed for not authorizing its
redemption out of an appropriation specifically for "treasury warrants
issued ... in favor of and held in possession by private individuals." (Republic
Act No. 80, Item F-IV-8.) This warrant was not issued in favor of a private
individual. It was issued in favor of a government employee.

The distinction is not without a difference. Outstanding treasury warrants issued

prior to January 2, 1942, amount to more than four million pesos. The
appropriation herein mentioned is only for P1,750,000. Obviously
Congress wished to provide for redemption of one class of warrants —
those issued to private individuals — as distinguished from those
issued in favor of government officials. Basis for the discrimination is not
lacking. Probably the Government is not so sure that those warrants to officials
have all been properly used by the latter during the Japanese occupation or
maybe it wants to conduct further inquiries as to the equities of the present
holders thereof.

The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument an dis entitled to the rights and privileges of a holder in
due course, free from defenses. But this treasury warrant is not within the
scope of the negotiable instruments law. For one thing, the document
bearing on its face the words "payable from the appropriation for food
administration," is actually an order for payment out of "a particular
fund," and is not unconditional, and does not fulfill one of the essential
requirements of a negotiable instrument. (Section 3 last sentenced and section
1[b] of the Negotiable Instruments Law.) In the United States, government
warrants for the payment of money are not negotiable instruments nor
commercial proper1

Anyway the question here is not whether the Government should eventually pay this
warrant, or is ultimately responsible for it, but whether the Auditor General erred in
refusing to permit payment out of the particular appropriation in Item F-IV-8 of
Republic Act No. 80. We think that he did not. Petition dismissed, with costs.

Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
 METROPOLITAN BANK V. CA
194 SCRA 169

FACTS:
Gomez opened an account with Golden Savings bank and deposited
38
treasury warrants. All these warrants were indorsed by the cashier
of
Golden Savings, and deposited it to the savings account in a Metro
bank
branch. They were sent later on for clearing by the branch office
to the
principal office of Metrobank, which forwarded them to the Bureau o
f
Treasury for special clearing. On persistent inquiries on whether the
warrants have been cleared, the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants h
ave been
dishonored.

HELD:
The treasury warrants were not negotiable instruments. Clearly, it is
indicated that it was non-negotiable and of equal significance is the
indication that they are payable from a particular fund, Fund 501.
This
indication as the source of payment to be made on the treasury w
arrant
makes the promise to pay conditional and the warrants themselves
non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS

assumed that they were genuine and in all respects what they purport it to be, in
accordance to Section 66 of the NIL. The simple reason is that
the law isn’t applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them w
ith
Metrobank for clearing. It was in fact Metrobank which stamped on
the back of the warrants: “All prior indorsements and/or lack of endorsements
guaranteed…”

Metrobank vs. CA
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings account in Metrobank branch
in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed
to withdraw from his account, later, however, “exasperated” over Floria repeated
inquiries and also as an accommodation for a “valued” client Metrobank decided to
allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden
Savings subsequently allowed Gomez to make withdrawals from his own account.
Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account. The demand was
rejected. Metrobank then sued Golden Savings.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with
regard to the amount withdraws to make up with the deficit as a result of the
dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is negligent in giving Golden Savings the impression that the
treasury warrants had been cleared and that, consequently, it was safe to allow Gomez
to withdraw. Without such assurance, Golden Savings would not have allowed the
withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal
to return the money that all appearances belonged to the depositor, who could
therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of the warrants were withheld from
Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were genuine and in all respects what they purport to be,” in
accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non
negotiable instruments, treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on
their face is the word: non negotiable.” Moreover, and this is equal significance, it is
indicated that they are payable from a particular fund, to wit, Fund 501. An
instrument to be negotiable instrument must contain an unconditional promise or
orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified
order or promise to pay is unconditional though coupled with: 1st, an indication of a
particular fund out of which reimbursement is to be made or a particular account to be
debited with the amount; or 2nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay “not conditional” and the warrants
themselves non-negotiable. There should be no question that the exception on Section
3 of NIL is applicable in the case at bar.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan
Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden

Savings and deposited over a period of two months 38 treasury warrants with a
total value of P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to
its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were
then sent for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing.2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch
several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later,
however, "exasperated" over Gloria's repeated inquiries and also as an accommodation
for a "valued client," the petitioner says it finally decided to allow Golden Savings to
withdraw from the proceeds of the
warrants.3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second
on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the
amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the
refund by Golden Savings of the amount it had previously withdrawn, to make up the
deficit in its account.

RTC: The demand was rejected. Metrobank then sued Golden Savings in the Regional
Trial Court of Mindoro. After trial, judgment was rendered in favor of Golden Savings,
5

which, however, filed a motion for reconsideration even as Metrobank filed its notice of
appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden
Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia
Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the
sum of P1,754,089.00 and to reinstate and credit to such account such amount existing
before the debit was made including the amount of P812,033.37 in favor of defendant
Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before
the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

CA: On appeal to the respondent court, the decision was affirmed, prompting
6

Metrobank to file this

SC: petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge back
any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting
agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank
is made to pay for warrants already dishonored, thereby perpetuating the fraud committed
by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and
Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this
case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the impression that the treasury warrants had been
cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such assurance, Golden Savings would not have
allowed the withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to
return the money that to all appearances belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to withdraw them from its own deposit. It was
7

only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in
checking the personal circumstances of Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was
extending him a loan; and moreover, the treasury warrants were subject to clearing,
pending which the depositor could not withdraw its proceeds. There was no question
of Gomez's identity or of the genuineness of his signature as checked by Golden Savings.
In fact, the treasury warrants were dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances,
it is clear that Golden Savings acted with due care and diligence and cannot be faulted for
the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was

not trifling — more than one and a half million pesos (and this was 1979). There was no
reason why it should not have waited until the treasury warrants had been cleared; it
would not have lost a single centavo by waiting. Yet, despite the lack of such clearance —
and notwithstanding that it had not received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw
— not once, not twice, but thrice — from the uncleared treasury warrants in the total
amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the
warrants had been cleared simply because of "the lapse of one week." For a bank with its
8

long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed
on the dorsal side of the deposit slips through which the treasury warrants were deposited
by Golden Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall have come into possession
of this bank, the right is reserved to charge back to the depositor's account any
amount previously credited, whether or not such item is returned. This also applies
to checks drawn on local banks and bankers and their branches as well as on this
bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft
or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a
collecting agent for Golden Savings and give it the right to "charge back to the depositor's
account any amount previously credited, whether or not such item is returned. This also
applies to checks ". . . which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft of any other reason." It is claimed that the said conditions are in
the nature of contractual stipulations and became binding on Golden Savings when Gloria
Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they
have apparently been imposed by the bank unilaterally, without the consent of the
depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does
so only to identify himself and not to agree to the conditions set forth in the given permit at
the back of the deposit slip. We do not have to rule on this matter at this time. At any rate,
the Court feels that even if the deposit slip were considered a contract, the petitioner could
still not validly disclaim responsibility thereunder in the light of the circumstances of this
case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank
seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not
exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which
shall be judged 'with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it
was the clearance given by it that assured Golden Savings it was already safe to allow
Gomez to withdraw the proceeds of the treasury warrants he had deposited
Metrobank misled Golden Savings. There may have been no express clearance, as
Metrobank insists (although this is refuted by Golden Savings) but in any case that
clearance could be implied from its allowing Golden Savings to withdraw from its account
not only once or even twice but three times. The total withdrawal was in excess of its
original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not
paid for any reason is not acceptable. Any reason does not mean no reason at all.
Otherwise, there would have been no need at all for Golden Savings to deposit the
treasury warrants with it for clearance. There would have been no need for it to wait until
the warrants had been cleared before paying the proceeds thereof to Gomez. Such a
condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary
and unconscionable. And it becomes more so in the case at bar when it is considered that
the supposed dishonor of the warrants was not communicated to Golden Savings before it
made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or
at least implied clearance to the treasury warrants and allowing payments therefrom to
Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to
wit, the forgery of the signatures of the general manager and the auditor of the drawer
corporation, has not been established. This was the finding of the lower courts which we
9

see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present
case.

A no less important consideration is the circumstance that the treasury warrants in

question are not negotiable instruments. Clearly stamped on their face is the word
"non-negotiable." Moreover, and this is of equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored
parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must

conform to the following requirements:

(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.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3
of the Negotiable Instruments Law is applicable in the case at bar. This conclusion
conforms to Abubakar vs. Auditor General where the Court held:
11

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free from
defenses. But this treasury warrant is not within the scope of the negotiable instrument
law. For one thing, the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment out of "a particular
fund," and is not unconditional and does not fulfill one of the essential requirements of a
negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that
this law is not applicable to the non-negotiable treasury warrants. The indorsement was
made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All
prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands, but we feel this case is inapplicable to the present controversy. That case
12
1âw phi1

involved checks whereas this case involves treasury warrants. Golden Savings never
represented that the warrants were negotiable but signed them only for the purpose of
depositing them for clearance. Also, the fact of forgery was proved in that case but not in
the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting
the checks without question from one Antonio Ramirez notwithstanding that the payee
was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to
indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it
insofar as it directs the petitioner to credit Golden Savings with the full amount of the
treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which
Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the
dishonor. The amount he has withdrawn must be charged not to Golden Savings but to
Metrobank, which must bear the consequences of its own negligence. But the balance of
P586,589.00 should be debited to Golden Savings, as obviously Gomez can no
longer be permitted to withdraw this amount from his deposit because of the dishonor
of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden
Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that

Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded
as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.

SO ORDERED.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

SEC 5

NATIONAL BANK V. MANILA OIL

REFINING
43 PHIL 444
FACTS:
Manila Oil has issued a promissory note in favor of National Bank which included a
provision on a confession of judgment in case of failure to pay obligation. Indeed, Manila Oil
has failed to pay on demand. This prompted the bank to file a case in court, wherein an attorney
associated with them entered his appearance for the defendant. To this the defendant objected.

HELD:
Warrants of attorney to confess judgment aren’t authorized nor
contemplated by our law. Provisions in notes authorizing attorneys to appear and
confess judgments against makers should not be recognized in our jurisdiction by implication and
should only be considered as valid when given express legislative sanction.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18103 June 8, 1922

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY,
INC., defendant-appellant.

Antonio Gonzalez for appellant.

Roman J. Lacson for appellee.
Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc
Donough and Johnson; Julian Wolfson; Ross and Lawrence; Francis B. Mahoney,
and Jose A. Espiritu, amici curiae.

MALCOLM, J.:

The question of first impression raised in 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
exceptions.

On May 8, 1920, the manager and the treasurer of the Manila Oil Refining &
By-Products Company, Inc., executed and delivered to the Philippine National
Bank, 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 to 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 and By-Products Company, Inc. failed to pay the
promissory note on demand. The Philippine National Bank 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. Rector, an attorney associated with the Philippine National Bank,
entered his appearance in representation of the defendant, and filed a motion
confessing judgment. The defendant, however, in a sworn declaration,
objected strongly to the unsolicited representation of attorney Recto.

Later, attorney Antonio Gonzalez appeared for the defendant 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.

The foregoing facts, and appellant's three assignments of error, raise squarely
the question which was suggested in the beginning of this opinion. In view of the
importance of the subject to the business community, the advice of prominent
attorneys-at-law with banking connections, was solicited. These members of
the bar responded promptly to the request of the court, and their memoranda
have proved highly useful in the solution of the question. It is to the credit of the
bar that although the sanction of judgement notes in the Philippines might
prove of immediate value to clients, every one of the attorneys has looked upon
the matter in a big way, with the result that out of their independent
investigations has come a practically unanimous protest against the recognition
in this jurisdiction of judgment notes.1

Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly
recognizes a confession of judgment commonly called a judgment note. On the contrary,
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 counter claims
argue against judgment notes, especially as the Code provides that in case the defendant
or his assignee omits to set up a counterclaim, he cannot afterwards maintain an action
against the plaintiff therefor. (Secs. 95, 96, 97.) 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 attorney for the appellee contends that the Negotiable Instruments Law (Act No. 2031)
expressly recognizes judgment notes, and that they are enforcible under the regular
procedure. 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." We do
not believe, however, that this provision of law can be taken to sanction judgments by
confession, because it is a portion of a uniform law which merely provides that, in
jurisdiction where judgment 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."

The court is thus put in the position of having to determine the validity in the absence of
statute of a provision in a note authorizing an attorney to appear and confess judgment
against the maker. This situation, in reality, has its advantages for it permits us to reach
that solution which is best grounded in the solid principles of the law, and which will best
advance the public interest.

The practice of entering judgments in debt on warrants of attorney is of ancient origin. In

the course of time a warrant of attorney to confess judgement became a familiar common
law security. At common law, there were two kinds of judgments by confession; the one a
judgment by cognovit actionem, and the other by confession relicta verificatione. A
number of jurisdictions in the United States have accepted the common law view of
judgments by confession, while still other jurisdictions have refused to sanction them. In
some States, statutes have been passed which have either expressly authorized
confession of judgment on warrant of attorney, without antecedent process, or have
forbidden judgments of this character. In the absence of statute, there is a conflict of
authority as to the validity of a warrant of attorney for the confession of judgement. The
weight of opinion is that, unless authorized by statute, warrants of attorney to confess
judgment are void, as against public policy.

Possibly the leading case on the subject is First National Bank of Kansas City vs. White
([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am. St. Rep., 612). The
record in this case discloses that on October 4, 1990, the defendant executed and
delivered to the plaintiff an obligation in which the defendant authorized any
attorney-at-law to appear for him in an action on the note at any time after the note
became due in any court of record in the State of Missouri, or elsewhere, to waive the
issuing and service of process, and to confess judgement in favor of the First National
Bank of Kansas City for the amount that might then be due thereon, with interest at the
rate therein mentioned and the costs of suit, together with an attorney's fee of 10 per cent
and also to waive and release all errors in said proceedings and judgment, and all
proceedings, appeals, or writs of error thereon. Plaintiff filed a petition in the Circuit Court
to which was attached the above-mentioned instrument. An attorney named Denham
appeared pursuant to the authority given by the note sued on, entered the appearance of
the defendant, and consented that judgement be rendered in favor of the plaintiff as
prayed in the petition. After the Circuit Court had entered a judgement, the defendants,
through counsel, appeared specially and filed a motion to set it aside. The Supreme Court
of Missouri, speaking through Mr. Justice Graves, in part said:

But going beyond the mere technical question in our preceding paragraph discussed, we
come to a question urged which goes to the very root of this case, and whilst new and
novel in this state, we do not feel that the case should be disposed of without discussing
and passing upon that question.

xxx xxx xxx

And if this instrument be considered as security for a debt, as it was by the common law, it
has never so found recognition in this state. The policy of our law has been against such
hidden securities for debt. Our Recorder's Act is such that instruments intended as
security for debt should find a place in the public records, and if not, they have often been
viewed with suspicion, and their bona fides often questioned.

Nor do we thing that the policy of our law is such as to thus place a debtor in the absolute
power of his creditor. The field for fraud is too far enlarged by such an instrument.
Oppression and tyranny would follow the footsteps of such a diversion in the way of
security for debt. Such instruments procured by duress could shortly be placed in
judgment in a foreign court and much distress result therefrom.

Again, under the law the right to appeal to this court or some other appellate court is
granted to all persons against whom an adverse judgment is rendered, and this statutory
right is by the instrument stricken down. True it is that such right is not claimed in this case,
but it is a part of the bond and we hardly know why this pound of flesh has not been
demanded. Courts guard with jealous eye any contract innovations upon their jurisdiction.
The instrument before us, considered in the light of a contract, actually reduces the courts
to mere clerks to enter and record the judgment called for therein. By our statute (Rev. St.
1899, sec. 645) a party to a written instrument of this character has the right to show a
failure of consideration, but this right is brushed to the wind by this instrument and the
jurisdiction of the court to hear that controversy is by the whose object is to oust the
jurisdiction of the courts are contrary to public policy and will not be enforced. Thus it is
held that any stipulation between parties to a contract distinguishing between the different
courts of the country is contrary to public policy. The principle has also been applied to a
stipulation in a contract that a party who breaks it may not be sued, to an agreement
designating a person to be sued for its breach who is nowise liable and prohibiting action
against any but him, to a provision in a lease that the landlord shall have the right to take
immediate judgment against the tenant in case of a default on his part, without giving the
notice and demand for possession and filing the complaint required by statute, to a by-law
of a benefit association that the decisions of its officers on claim shall be final and
conclusive, and to many other agreements of a similar tendency. In some courts, any
agreement as to the time for suing different from time allowed by the statute of limitations
within which suit shall be brought or the right to sue be barred is held void.
 xxx xxx xxx

We shall not pursue this question further. This contract, in so far as it goes beyond the
usual provisions of a note, is void as against the public policy of the state, as such public
policy is found expressed in our laws and decisions. Such agreements are iniquitous to
the uttermost and should be promptly condemned by the courts, until such time as they
may receive express statutory recognition, as they have in some states.

xxx xxx xxx

From what has been said, it follows that the Circuit Court never had jurisdiction of the
defendant, and the judgement is reversed.

The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40 L.R.A. [N. S.], 956;
75 S.E., 65; Ann. Cas. [1914-A], 640), is another well-considered authority. The notes
referred to in the record contained waiver of presentment and protest, homestead and
exemption rights real and personal, and other rights, and also the following material
provision: "And we do hereby empower and authorize the said A. B. Farquhar Co. Limited,
or agent, or any prothonotary or attorney of any Court of Record to appear for us and in
our name to confess judgement against us and in favor of said A. B. Farquhar Co., Limited,
for the above named sum with costs of suit and release of all errors and without stay of
execution after the maturity of this note." The Supreme Court of West Virginia, on
consideration of the validity of the judgment note above described, speaking through Mr.
Justice Miller, in part said:

As both sides agree the question presented is one of first impression in this State. We
have no statutes, as has Pennsylvania and many other states, regulating the subject. In
the decision we are called upon to render, we must have recourse to the rules and
principles of the common law, in force here, and to our statute law, applicable, and to such
judicial decisions and practices in Virginia, in force at the time of the separation, as are
properly binding on us. It is pertinent to remark in this connection, that after nearly fifty
years of judicial history this question, strong evidence, we think, that such notes, if at all,
have never been in very general use in this commonwealth. And in most states where
they are current the use of them has grown up under statutes authorizing them, and
regulating the practice of employing them in commercial transactions.

xxx xxx xxx

It is contended, however, that the old legal maxim, qui facit per alium, facit per se, is as
applicable here as in other cases. We do not think so. Strong reasons exist, as we have
shown, for denying its application, when holders of contracts of this character seek the aid
of the courts and of their execution process to enforce them, defendant having had no day
in court or opportunity to be heard. We need not say in this case that a debtor may not, by
proper power of attorney duly executed, authorize another to appear in court, and by
proper endorsement upon the writ waive service of process, and confess judgement. But
we do not wish to be understood as approving or intending to countenance the practice
employing in this state commercial paper of the character here involved. Such paper has
heretofore had little if any currency here. If the practice is adopted into this state it ought to
be, we think, by act of the Legislature, with all proper safeguards thrown around it, to
prevent fraud and imposition. The policy of our law is, that no man shall suffer judgment at
the hands of our courts without proper process and a day to be heard. To give currency to
such paper by judicial pronouncement would be to open the door to fraud and imposition,
and to subject the people to wrongs and injuries not heretofore contemplated. This we are
unwilling to do.

A case typical of those authorities which lend support to judgment notes is First National
Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The Supreme Court of New Mexico,
in a per curiam decision, in part, said:

In some of the states the judgments upon warrants of attorney are condemned as being
against public policy. (Farquhar and Co. vs. Dahaven, 70 W. Va., 738; 75 S.E., 65; 40
L.R.A. [N. S.], 956; Ann. Cas. [1914 A]. 640, and First National Bank of Kansas City vs.
White, 220 Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are
examples of such holding.) By just what course of reasoning it can be said by the courts
that such judgments are against public policy we are unable to understand. It was a
practice from time immemorial at common law, and the common law comes down to us
sanctioned as justified by the reason and experience of English-speaking peoples. If
conditions have arisen in this country which make the application of the common law
undesirable, it is for the Legislature to so announce, and to prohibit the taking of
judgments can be declared as against the public policy of the state. We are aware that the
argument against them is that they enable the unconscionable creditor to take advantage
of the necessities of the poor debtor and cut him off from his ordinary day in court. On the
other hand, it may be said in their favor that it frequently enables a debtor to obtain money
which he could by no possibility otherwise obtain. It strengthens his credit, and may be
most highly beneficial to him at times. In some of the states there judgments have been
condemned by statute and of course in that case are not allowed.

Our conclusion in this case is that a warrant of attorney given as security to a creditor
accompanying a promissory note confers a valid power, and authorizes a confession of
judgment in any court of competent jurisdiction in an action to be brought upon said note;
that our cognovit statute does not cover the same field as that occupied by the
common-law practice of taking judgments upon warrant of attorney, and does not
impliedly or otherwise abrogate such practice; and that the practice of taking judgments
upon warrants of attorney as it was pursued in this case is not against any public policy of
the state, as declared by its laws.

With reference to the conclusiveness of the decisions here mentioned, it may be said that
they are based on the practice of the English-American common law, and that the
doctrines of the common law are binding upon Philippine courts only in so far as they are
founded on sound principles applicable to local conditions.

Judgments by confession as appeared at common law were considered an amicable,

easy, and cheap way to settle and secure debts. They are a quick remedy and serve to
save the court's time. They also save the 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 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 a 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 judgement
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. If
the bank has a meritorious case, the judgement is ultimately certain in the courts.

We are of the opinion that warrants of attorney to confess judgment are not authorized nor
contemplated by our law. We are further of the opinion 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.

The judgment appealed from is set aside, and the case is remanded to the lower court for
further proceedings in accordance with this decision. Without special finding as to costs in
this instance, it is so ordered.

Araullo, C.J., Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Footnotes

1 MEMORANDA OF "AMICI CURIAE"

Attorney Thos. L. Hartigan, of Hartigan and Welch, states:

"Though we are attorneys for two of the large banks here and keenly
interested in the introduction of any improvements that would make for
simplication of procedure and rapidity of practice, we cannot favor the
introduction of confessions of judgment in the Philippine islands. In our
opinion, it would open the doors to fraud to an extent that would more than
counterbalance any advantages of its use.

"With our lack of system in recording judgments and with the practice of
keeping merchants' books in various foreign languages, there would be
ample opportunity for a debtor to make preferences by confessions of
judgment which could not be discovered by the creditors until too late and
which would be nearly impossible to set aside even when discovered in
time.

"Although, as representatives of the banks, we are representing the

creditor class, we believe the introduction of confessions of judgment
would ultimately cause much more loss than benefit to that class."

Attorney Clyde A. DeWitt, of Fisher and DeWitt, states:

"There is no statutory sanction in this jurisdiction for such provisions in

negotiable instruments. Section 5 (b) of the Negotiable Instruments Law
does not constitute such sanction because (1) it merely provides that such
clauses will not affect the negotiable character of the instrument, and (2) it
concludes with language showing that the Legislature did not intend
thereby to validate any provision otherwise unlawful. The language is: 'But
nothing in this section shall validate any provision or stipulation otherwise
illegal.'
"The question then is whether or not, in the absence of express legislative
sanction, such warrants of attorney are valid. There are not many
American cases in which this precise question has been considered, and
in those cases in which the question has been raised, the reasoning of the
courts has been colored by the fact that the commercial use of these
warrants of attorney as security for debt was sanctioned at common law,
and the procedural statutes are held to be merely cumulative and not in
derogation of the common law remedies. We, of course, have no such
situation here.

"The cases are collected in a note to First National Bank vs. White (220
Mo., 717), found in 16 Ann. Cas., 893, and it is there shown that in
Missouri and Kansas such provisions are held to be void as against the
public policy of the State as expressed in its laws and the decisions of its
courts, while in Colorado and Illinois their validity was upheld as a familiar
common-law security not affected by the procedural statutes. Yet it is
there pointed out that in Kahn vs. Lesser (97 Wis., 217, 72 N.W., 739), the
court, in referring to a judgment by confession under warrant of attorney in
a promissory note, said:

"'The judgment in this case must stand, if at all, by the authority of the
statute. The proceeding by which it was entered was outside and in
derogation of the common-law practice of courts; and the statute, as well
as the proceedings under it, must be strictly construed.'"

"In Iowa, in an early case, McClish vs. Manning (3 Green, 233), the validity
of these warrants of attorney was upheld, referring to a statute authorizing
any person to confess a judgment, by himself or his attorney. In a later
decision, Hamilton vs. Schoenberger (47 Ilowa, 385), it was expressly held
that such a provision, in a note could not be enforced in the courts of that
State, and was not authorized or contemplated by its laws. And in Tolman
vs. Jansen (106 Iowa, 455), it was held that such a provision, being void,
would not affect the negotiability of a note, even though its effect would be
to make uncertain the time of payment.

"The reasoning in First National Bank vs. White, supra, is persuasive. The
court there held that these warrants of attorney are void as against the
public policy of the state on the ground, first, that their effect is to enlarge
the field for fraud; second, that under such an instrument the promissor
bargains away his right to his day in court; third, that the effect of the
instrument is to strike down the right to appeal accorded by statute, and,
fourth, that there was no provision for the public recording of such an
instrument if regarded as a security for a debt.

"It seems to me that on the precise grounds stated in the White case,
these warrants of attorney should be held void as against public policy in
this jurisdiction. If given effect, they bargain away the jurisdiction of the
courts to try and determine the liability of the maker of the note on its
merits. To uphold them would be to facilitate the operations of usurers, the
collection of gambling debts, and would make difficult, if not impossible
under our procedure, the setting aside of judgments entered in virtue
thereof where the execution of the instrument was obtained by fraud,
duress, or where there had been an entire failure of consideration. I can
think of no advantage which would result to the commercial world from
upholding these warrants of attorney which would outweigh the foregoing
considerations."

Attorney e. Arthur Perkins, of Perkins and Kincaid, states:

"Leaving aside entirely the legal considerations involved, I feel that there is
only one answer to your inquiry, and that is, that the best interests of the
commercial life of the Philippines require the non-recognition of such a
form of judgment note. Feeling that you would want to know the reasons
which impell me to adopt such a conclusion, I will say briefly that if the
Supreme Court should, by a decision, recognize such a judgment note
and thereby place the stamp of approval upon transactions of such a
nature, the entire business population of the Philippine Islands would be
justified in their future transactions with debtors in requiring, in all
instances, the execution of notes of a similar tenor, with the consequence
that the debtor would thereby be deprived, to all intents and purposes,
upon ignorant debtors. It will prove a serious drawback to the campaign
being now waged against usury.

"There is the further fear that the banks and money lenders having
accounts now outstanding will immediately require every debtor to
execute that form of note and to refuse further extensions of credit unless
sit is done, which the debtor under the stress of circumstances will be
compelled to accept, amounting in effect to duress.

"The recognition of such a form of obligation would be so revolutionary in

character as to bring about a complete reorganization of commercial
customs and practices with reference to short-term obligations.

"Having in mind that the Philippine National Bank is practically the only
institution which can assist the farmers and agriculturists, the practice of
requiring a judgment note would place the latter wholly at the mercy of the
bank, and this is stated without any reflection on the bank, but merely to
point out one of the consequent evils which will necessarily follow if the
practice should receive the high judicial sanction which a judgment of the
Supreme Court would necessarily give to it.

"Another feature which occurs to me is that where any new enterprise is

being launched, it is universally the custom for such company to arrange
with some banking institution for credit facilities, over and above the
capital with which it brings business. Should it become the custom here to
require the execution of so-called judgment notes, organizers of
corporations, partnerships and the like, who have in mind to secure
additional working capital or credit facilities from banks, will be very
reluctant to put their funds into any enterprises which could be destroyed
without warning by the creditor exercising the rights which that form of
transaction would give him. This is would act therefore as a deterrent to
new enterprises and the development of industry through individual
initiative and with private funds.

"Let us take a very simple illustration of his. Suppose that you and I should
form a partnership, with a capital of P50,000 to buy hemp and , in
connection with our business, we went to some banking institution for the
purpose of securing credit facilities, as is customary, in the conduct of our
business. Let us then suppose that the bank, taking into consideration the
capital which we ourselves had furnished and our standing in the
community, was willing to allow us a credit in the further sum of P50,000
upon our signing a so-called judgment note. Would not you and I consider
a long time before we would so far obligate ourselves as to place it in the
power of the bank to send their attorney over to court, upon the least
provocation or at the first unfavorable rumor, and to confess judgment in
our names, which would permit the sheriff to close us out without even an
opportunity to be heard?

"The sum and substance of the whole proposition is that such a practice is
contrary to good morals."

Attorney David C. Johnson, of Gibbs, McDonough and Johnson, states:

"It seems that under the common law a confession of judgment was only
allowable by the defendant himself, either before or after appearance and
answer. The confession of judgment by warrant of attorney is a statutory
development (15 R.C.L., 656, 657; 17 Am. and Eng. Encyc. of Law [2d
ed.], 765; Pl. and Pr., 973-975; Masson vs. Ward, 80 Vt., 290; 130 A. S. R.,
987,988).

"The procedure contemplated in the note quoted in your letter is contrary

to that contemplated in our code of procedure, which gives to all
defendants an opportunity at least to be heard. An action on the note in
question could be so presented that the defendant would never be
summoned or notified, since an appearance and confession of judgment
might be filed simultaneously. We believe that this procedure should not
be recognized in this jurisdiction by implication, but should have legislative
sanction with the rights of the defendant amply safeguarded. We believe
that section 5 of Act No. 2031 does not of itself sanction any of the acts
mentioned in that section, but is only a statement regarding the negotiable
character of the instrument. Subsection A of section 5 states that the
authority to sell collateral security does not affect negotiability. As we
understand the decision of the Supreme Court in the case of Mahoney vs.
Tuason(39 Phil., 952), the creditor in this jurisdiction is not authorized by
law to sell collateral security except in the manner provided in section 14
of Act No. 1508. This would seem to reinforce our opinion.

"There are some favorable features of a judgment note or warrant for

confession of judgment, but we believe that there are many objections
which outweigh any of the advantages. Forgery and usury are more
prevalent in these Islands than in the United States. The sanctioning of
this procedure would add an additional weapon to the money lender who
desires to overreach his debtor.

"We have delayed answering your letter in order that we might consult our
Mr. Gibbs, who returned from Baguio yesterday.

"The foregoing is the consensus of opinion of the member of this firm."

Attorney Julian Wolfson states:

"It is assumed that the only question propounded is :

"'Admitting that there may be some doubt, as to a correct solution, which

solution, the recognition of a confession of judgment, or a non-recognition
of a confession of judgment, would be for the best interest of the
commercial life of the Philippines? and that no opinion is required upon the
incidental questions previously asked, as same have already been
determined by an examination of such authorities as: 23 Cyc., pp. 699,
701-2-3-5-6-7, 723-5; 6 C. J., pp. 645-6 (Notes 35 & 42); 8 C. J., p. 128
(Notes 43-47); 12 C. J., p. 418 (Note 37); and such leading textbooks as
'Brannan's Negotiable Instruments Law' and 'Selover on Negotiable
Instruments.' "Everyone is entitled to 'his day in court.' This right may be
waved after an opportunity has been given to exercise the right, but
must not and cannot be taken away before an opportunity has been given
to exercise the right.

"The ordinary ship's bill of lading and the ordinary fire and marine
insurance policy are generally printed on forms prepared by the carrier
and the insurer respectively, and generally contain a clause making it a
condition precedent to the institution of an action to first submit the matter
to a board of arbitration. The Supreme Court has never recognized this
clause. The reasons are stated in the opinions. Once submitted to
arbitration, then another question is raised.

"Special defenses to written instruments are common. Need we do more

than cite the following cases: Maulini vs. Serrano (28 Phil., 640); Henry W.
Peabody and Co. vs. Bromfield and Ross (38 Phil., 841); Cuyugan vs.
Santos (34 Phil., 100; 39 Phil., 970).

"If the judgment note (this term is used throughout for brevity and as it is
the recognized term) is to be recognized, what chance has defendant of
defending as did the defendants in the above cited cases? Non!

"Often a promissory note is a mere formality taken by a bank as evidence

of indebtedness, while the real indebtedness may be for a superior or
inferior amount incurred by way of overdraft, letters of credit outstanding,
acceptances to mature, or a thousand other forms of banking credit. Such
"judgment notes" are generally made payable on demand. In the case at
bar, the note is made payable on demand. The real indebtedness may be
partially paid, or the liquidation may be going along too slow to suit the
bank and then use is made of the judgment note. The defendant might
have perfect defense except for the judgment note. Would not article 1269
of the Civil Code here apply?

"The 'judgment notes,' is not once in a thousand times signed at the time
of receiving money from the bank. The indebtedness represented thereby
is incurred in prior transactions, the obligation became past due and the
bank, as a forcible measure, produces one of these 'judgment notes,'
when the debtor is absolutely helpless, and says 'Sign on the dotted line'
and the debtor has no option, he signs. The minds of the parties never met.
The debtor owes the money, knows that the bank must have evidence of
the indebtedness to pass the auditors and the debtor further realizes he
must accept that bank's dictation, because if he declines, he is liable to
immediate ruin, or if not that, he will never get further accommodation from
the bank. He does not realize, even if he knows, what is meant by a
'judgment note.' Again, would not article 1269 of the Civil Code here
apply?

"Just a few months ago there was a suit instituted by a local bank for a
large sum of money, based on a written instrument which, on its face,
seemed absolute. Special defenses were pleaded, setting up that the
instrument did not express the real understanding of the parties and the
real understanding was set up. The special defenses were fully proved
and the lower court dismissed the bank's suit. The bank did not even
attempt to appeal to the Supreme Court (See Cause No. 18239 of the
Docket of the Court of First Instance of Manila). Suppose the instrument
sued on had contained a clause of confession of judgment, what chance
would defendant have had to prove his defense? None!

"Let us go a step further and see where this leads us. A is a dealer in
hardware and sells B a bill of goods. A prints a form, which he has B to
sign, in which B acknowledges receipt of the goods and in consideration
thereof premises to pay A and "a confession of judgment" clause is
inserted. The goods turn out entirely different from those ordered and
invoiced. B refuses to pay. A sues on his "judgment note." What change
has B? None!

"Very often a promissory note is only one of a series of documents given

as security for the debt. What about considering the other documents
which bear on the transaction?

"A bank may have made certain advances and may have undertaken to
make more, but fails to do so, to the damage and prejudice of debtor. Let
us assume that the bank agreed to advance several hundred thousand
pesos in installments of P60,000 each, and had advanced only the first
installments, taking a "judgment note" for said first installment, and had
failed to advance further, to the damage of the debtor. What would
become of section 97 of the Code of Civil Procedure? How would debtor
be able to exercise his right of counterclaim? Was it ever contemplated at
the time of signing the judgment note that the debtor would not only waive
defense, but absolutely shut himself out of court, as he would, according
to section 97 above cited, on his counterclaim? Yet again, would not
article 1269 of the Civil Code here apply?

"We dare not attempt to elaborate on what would happen in the provinces
of the Philippines should a "judgment note" be held valid.

"What about the Usury Law? How could a defense be offered there? The
usurious rate might not appear on the face of the "judgment note," but it
may be there all the same.

"Examples could be multiplied until the very absurdity of the proposition

would be clearly seen, even by a blind man.
"Of what possible benefit would the recognition of a "judgment note" serve
"the best interest of the commercial life of the Philippines? None! An
honest creditor is willing to let his debtor have his day in court and is
willing to prove to the court his case. It might take slightly longer to go
through with a trial, but that cannot be considered a set-back. But, on the
other hand, a dishonest creditor would take unfair advantage of a
"judgment note" and would use it to the utmost to harass and take
advantage of the poor and helpless debtor. The real consequences likely,
in fact sure, to arise from such recognition are horrible beyond words to
contemplate.

"There can be but one answer to the proposition and that is: The
non-recognition of a confession of judgment would be for the best
interests of the commercial life of the Philippines."

Attorney J. G. Lawrence, of Ross and Lawrence, states:

"We are aware of no expression of our Legislature or courts which would

indicate that confessions of judgment under powers given in a promissory
note are contrary to public policy. This action was regularly brought in
accordance with the provisions of the Code of Civil Procedure and the
defendant served with process. The answer, confessing judgment, was
filed in strict accordance with the powers contained in the note — a power
coupled with an interest which defendant would be estopped of denying.
We think that no express legal sanction is necessary to legalize such a
proceeding.

"On the question of what ought to be the public policy of the Philippines,
we hold quite a different opinion. While the use of judgment notes might in
some cases expedite the collection of just debts, we believe that under
conditions as exist here, their use should be discouraged. The lend
themselves easily to fraud in the hands of friends of a dishonest debtor,
and to extortion in the hands of usurers who are already too well equipped
with the pacto de retro.

"While we believe that the position of the bank is sound legally, we should
be very glad to be proven mistaken."

Attorney Francis B. Mahoney, of the Philippine Trust Company, states:

"I have not gone into the law and cases, except to take a glance at the
subject of judgments in Volume 15 of Ruling Case Law. However, the
reasons indicated on page 651 thereof are significant.

"Unquestionably, if our Legislature provided in unmistakable terms for

confession of judgment as herein indicated, the validity and
constitutionality of the enactment might be questioned as failing to provide
those constitutional safeguards of taking a man's property only after a day
in court and after the due process of law.

"This conclusion is stronger — a fortiori — where the enacting provision —

if such section 5 of Act. No. 2031 may be called — is of a lefthanded
nature, apparently relating only to negotiability — incidentally thus
answering here your first inquiry. Whatever legal principles there might be
in favor of recognizing a confession of judgment — for example, the matter
of expediency — stronger and more vital principles oppose such
recognition.

"By refusing to recognize confession of judgment under existing statutes

or under general legal principles, at the worst phase from the point of view
of the plaintiff bank, there would result only possible delay, costs and
attorney's fees, which, after all, are only passed on to the clients of the
bank in the shape of interests, charges. etc. If the bank has a meritorious
case, the judgment is ultimately certain as courts.

"If the defendant debtor has any defense of merit, he is given an

opportunity to present it, as, for example, in the matter of usury so
common, so difficult to uncover an such an unscrupulous rival of legitimate
banking, the courts may keep their doors open to the equities of each
individual case. Whereas, if defendant, who theoretically may allege fraud
an who practically has great difficulty in proving it, must rely upon a
defense of fraud, he has little chance and the doors of the court are closed
to any other defense.

"In the final analysis, the matter simmers down to: 1. Possible delay in
judgment with costs, etc. 2. Certain justice in the end. 3. The eyes and
doors of courts open to the equities of each individual case. 4. Equality
before the law,

or

(a) Expediting judgment. (b) Defendant debtor practically kept out of court
by additional expense and difficulty in securing a hearing. (c) Putting a
strong weapon in the hands of unscrupulous persons and taking the
strength necessary to wield this weapon from the courts.

"At first glance, if a debtor signs a document throwing away his right to be
heard, the average man has a feeling such debtor deserves to suffer the
consequences. If that were the entire story, probably he should. But what
man, needing money badly enough — facing strenuous necessity — will
not in the circumstances be inclined to look on the cheerful side-to sign
and get the money, letting the future take care of itself? Such is the frailty
of human nature. Then, as the usual thing, the rich and powerful can take
care of themselves, and it is usually others who have need of courts, just
laws and liberal interpretation of them.

"No doubt, banks would favor expediting judgments against their debtors,
other things being equal. And no doubt, additional delay in courts and the
incidental costs thereof will be borne by the clients of the bank. But sound
banking is not established and enhanced by harsh law which put strong
weapons in powerful hands. Contented peoples, safe laws and sound
banking usually go hand in hand."

Professor Jose A. Espiritu, of the University of the Philippines, states:

"Permit me to cite first of all the authorities that I have gathered concerning
the principal question at issue in the case mentioned in your letter, namely,
'The Effect and Validity of Confession of Judgement in the Philippines.'

"1. Confession of judgment has been defined as "a voluntary submission

to the jurisdiction of the court, giving by consent and without the service of
process, what could otherwise be obtained by summons and complaint,
and other formal proceedings, an acknowledgment of indebtedness, upon
which it is contemplated that a judgment may and will be rendered." (8
Cyc., pp. 563, 564.)

"2. As to the general effects of confession of judgment, the following

statements may be mentioned: 'A warrant to confess judgment does not
destroy the negotiability of the note. Such a note is commonly called a
"judgement note." Decisions to the contrary in the States where the
Negotiable Instruments Law is now in force are abrogated thereby, since it
expressly provides that the negotiable character of an instrument
otherwise negotiable is not affected by a provision which authorizes a
confession of judgment, if the instrument is not paid at maturity. However,
this statutory provision does not apply to stipulations for the confession of
judgment "prior" to maturity.' (8 C.J., p. 128, sec. 222.)

"3. Nature of Requisites. "A judgment may be rendered upon the

confession of defendant, either in an action regularly commenced against
him by the issuance and service of process, in which case the confession
may be made by his attorney of record, or, without the institution of a suit,
upon a confession by defendant in person or by his attorney in fact. It
implies something more than a mere admission of a debt to plaintiff; in
addition, it is defendant's consent that a judgment shall be entered against
him. . . . ." (23 cyc., 699.)

"4. Statutory Provisions, "Statutes regulating the confession of judgments

without action, or otherwise than according to the course of the common
law, are strictly construed, and a strict compliance with their provisions
must be shown in order to sustain the validity of the judgment." (Chapin vs.
Tompson, 20 Cla., 681.) "And this applies also to statutory restriction upon
the right to confess judgment, as that authority to confess judgment shall
not be given in the same instrument which contains the promise or
obligation to pay the debt, or that such confession shall not be authorized
by any instrument executed prior to suit brought." (23 Cyc., 699, 700.)

"5. Warrant or Power of Attorney — Validity and Necessity. 'A judgment by

confession may be entered upon a written authority, called a warrant or
letter of attorney, by which the debtor empowers an attorney to enter an
appearance for him, waive process, and confess judgment against him for
a designated sum, except where this method of proceeding is prohibited
by statute. The warrant as the basis of judgment is generally required to
be placed on file in the clerk's office, and no judgment can be so entered
until it is so filed.' (23 Cyc., 703.)

"6. Requisites and Sufficiency. 'A warrant or power of attorney to confess

judgement should be in writing and should conform to the requirements of
the statute in force at the time of its execution, although in the absence of
specific statutory directions it is sufficient, without much regard to its form,
if it contains the essential of a good power and clearly states its purpose. It
must be signed by the person against whom the judgment is to be
entered . . . .' (23 Cyc., 704.)

"The above quoted authorities are among the various authorities I found
bearing on the question at issue. As it can be readily seen none of them
decides squarely and definitely the questions propounded in your letter.
One thing, however, seems to be clear, from the very provision of section
5 (b) of the Negotiable Instruments Law and from the quotation No. 2 of
this letter, that a provision in a note or bill of exchange authorizing a
confession of judgment in default of payment at its maturity has particular
reference, in so far as Act No. 2031 is concerned, only to the negotiable
character of an instrument. I do not believe that the Legislature had the
intention in passing the said Act No. 2031 to introduce in the Philippines a
new practice in our Remedial Law, namely, that of confession of judgment,
which is purely procedural in nature.

"Now as to the second question, to wit: 'Does the silence of the Code of
Civil Procedure on the subject mean that a confession of judgement
cannot be recognized in this jurisdiction, or can a judgment by confession
be imported into the Philippines under general legal principles?' Before
answering this question attention is respectfully called to the quotation No.
4 of this letter, which expressly provides that statutes regulating
confession of judgments must be strictly construed and their provisions
strictly complied with to sustain the validity of judgments rendered under
such statutes. Now it being admitted that there is no express provision in
our Code of Civil Procedure authorizing or sanctioning this mode of
practice in this jurisdiction, and consequently there are no regulations
provided to be followed in this particular remedy, I am therefore of the
opinion that confession of judgment should not be deemed as imported in
the Philippines under the general legal principles. The remedy itself is a
most summary one, and when the defendant-debtor, instead of admitting
or allowing a judgment be taken against him, presents his appearance and
answers the complaint filed against him, it seems that the trial court should
not render a judgement without first hearing the evidence that the parties
may wish to submit before him, for it may happen that the
defendant-debtor may have some valid or good defenses against the
plaintiff-creditor. This is especially true in the case of a counterclaim that
the defendant may have against the plaintiff as provided in sections 95
and 96 of the Code of Civil Procedure. The same Code provides that in
case of an omission to set up his counterclaim, the defendant or his
assignee loses all his right to bring further suit on such claim. (Sec. 97, Act
No. 190.)

"In answer to the last question, namely: "Admitting that there may be some
doubt, as to the correct solution, which solution, the recognition of a
confession of judgement, or the non-recognition of a confession of
judgment, would be for the best interests of the commercial life of the
Philippines?" I wish first of all to state that a confession of judgment is a
quick remedy. It saves time and money as far as the parties to the suit are
concerned if the same is properly and legally brought. It saves the court's
time and the government the expense that a long litigation entails. As to its
disadvantages we may say among other things the following: 1. It may be
abused in the same way as the usurious rates of interest on loans are now
in the Philippines, because a borrower who is in great need of money
might be induced, if not actually compelled, to sign such a burdensome
obligation; 2. It deprives the defendant of his day in court, and as a
consequence it will prevent him to set up and prove before the court his
just claims and other lawful defenses against the plaintiff; 3. It will create
multiplicity of actions in this jurisdiction, for if the confession of judgment
has been wrongfully or unjustly entered, the judgment debtor may start
another litigation on the same subject-matter that might have been
brought before the court in case a proper trial was formally held before the
rendition of such a judgment; and 4. It does not really hold the plaintiff who
has a good cause of action against the defendant as his proofs will surely
establish his claims and consequently a judgment must necessarily be
rendered in his favor.

"From the above statements, I am of the opinion that unless proper

regulations are first duly introduced and incorporated in our remedial law,
confession of judgments, instead of resulting advantageous to our
commercial life in the Philippines, might be the sources of abuse and
oppression. The very fact that confession of judgement is almost summary
and in fact a violent remedy, it should first of all be properly regulated by
statute, and those regulations must be strictly complied with, before the
court should concede to such a remedy."