PNB v Manila Oil Refining & By-Products By -Products Co GR No. 18103. June 8, 1922 Topic: Provisions that do not affect Negotiability Petitioner: PHILIPPINE NATIONAL BANK Respondents: MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC Ponente: Malcolm Facts:
This case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions. In May1920, the manager and the treasurer of Respondent Manila Oil Refining & By-Products Company, Inc. (MORB), (MORB), executed and delivered to Petitioner Philippine Phi lippine National Bank (PNB), a promissory note whereby MORB promises to pay to the order of PNB the amount of P 61,000. The note contains the following stipulations: “Without defalcation, value received; and do hereby authorize any attorney in the Philippines, in case this note be not paid at maturity, to appear in the name and confess judgment for the above sum with interest, cost of suit and attorney’s fees of 10% for collection, a release of all errors and waiver of all rights to inquisition i nquisition and appeal, and to the benefit of all laws exempting property, real or personal, from levy or sale.” Problem Arise: The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. The Philippine National Bank brought action in the CFI- Manila, to recover the amount of P61,000 in the note, together with interest and costs. Elias Recto, an attorney associated with PNB, entered his appearance in representation of the defendant, and filed a motion confessing judgment. MORB however, objected against the representation of Recto. Later, another lawyer represented MORB and fil ed a demurrer. The trial judge rendered judgment on the motion of Atty. Recto.
MORB claims that the instrument is not negotiable because the above stipulation is not valid. Issue: Whether the invalidity of a stipulation would affect the negotiability of an instrument. Held: No. The negotiability of the instrument is not affected by the stipulation. Ruling:
The Negotiable Instruments Instruments Law, in section 5, provides that "The negotiable character character of an instrument otherwise negotiable is not affected by a provision which "* * * (b) Authorizes a confession of judgment if the instrument be not paid at maturity." Moreover, the same section of the Negotiable Instruments Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal." In the present case, MORB is correct in stating that the stipulations are void. Warrants of attorney to confess judgment are void as against public policy, because they enlarge the field for
fraud, because under these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. However, the note is still negotiable if all the requisites in Section 1 of the NIL are present. These stipulations are in the nature of stipulations authorizing confessions of judgment which is considered void for being against public policy in this jurisdiction. But due to Sec 5 of the NIL, the instrument’s negotiable character is not affected by a provision which authorizes confession judgment if the instrument is not paid at maturity. In other words, only the stipulation is avoided. Doctrines:
Section 5 (b) of the Negotiable Instruments Law providing that the negotiable character of an instrument otherwise negotiable is not affected by a provision which authorizes a confession of udgment if the instrument be not paid at maturity, cannot be taken to sanction judgments by confession. In the absence of express legislative sanction, provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication. A provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions, is not valid in this jurisdiction.
