G.R. No.

L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion
Torrijos-Agapinan for defendants-appellees.
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine Education
Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00 each
payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money ordersnumbered
124685, 124687-124695, Montinola offered to pay for them with a private checks were not generally accepted in payment of
money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message
was sent to all postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay
anyone of the money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of its
sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it
with the Bureau of Posts and received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting
for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented
had been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of America
debited appellant's account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office deducting the
sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was appellant's
subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the
matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal
officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila
(Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment as
follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the
said Bank's clearing account the sum of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-% per annum from September 27,
1961, which is the rate of interest being paid by plaintiff on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in
the amount of P1,000.00 or in such amount as will be proved and/or determined by this Honorable Court:
exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the Record
on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to
the Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum of
P200.00 representing the amount of postal money order No. 124688, or in the alternative, to indemnify the
plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per annum from September 27,
1961 until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same
stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed
to all banks with a clearing account with the Post Office, and that money orders, once issued, create a contractual
relationship of debtor and creditor, respectively, between the government, on the one hand, and the remitters payees or
endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United States
is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers
National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely exercises a governmental power for the
public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations
are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not
more than one endorsement; payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of
Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it from
its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster,
Manila, who reserves the right to deduct the value thereof from any amount due you if such step is deemed necessary." The
conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore enjoyed by its depositors,
were accepted by the Bank of America. The latter is therefore bound by them. That it is so is clearly referred from the fact
that, upon receiving advice that the amount represented by the money order in question had been deducted from its
clearing account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a Department Head in accordance with Sec.
79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain conditions upon the privilege granted
to the Bank of Amrica to accept and pay postal money orders presented for payment at the Manila Post Office. Such being
the case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised
Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on
March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that
he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and
submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement
of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of
Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in
favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount
of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that
he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after date"
of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity (TSN,
February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the
document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr.
Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit
564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the
CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August
5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan
(TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to
pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition
wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite
being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of
deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to
bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved
in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00

CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said depositor 731 days. after date, upon presentation
and surrender of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to
note that after the word "BEARER" stamped on the space provided supposedly for the name of the
depositor, the words "has deposited" a certain amount follows. The document further provides that the
amount deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text of the
instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself
to pay said depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with
regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in
1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the depositor
referred (sic) in these certificates states that it was Angel dela Cruz?
witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who
cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time deposit
insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in order to more
perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward
and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court
in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties meant must be determined by what they
said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts
deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that
Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel
the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The
records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks
to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any

doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and
resolved in favor of the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager,
wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel
products" (Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations notwithstanding. Under the
doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. 14 A party may not go back on his own acts and representations
to the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon
such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily
said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates ofpayment of the alleged indebtedness of Angel de
la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz
as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt
prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be
adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank, et
al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their intention,
regardless of what language was used or what the form of the transfer was. If it was
intended to secure the payment of money, it must be construed as a pledge; but if there
was some other intention, it is not a pledge. However, even though a transfer, if regarded
by itself, appears to have been absolute, its object and character might still be qualified
and explained by contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of property by the debtor to a
creditor, even if sufficient on its face to make an absolute conveyance, should be treated
as a pledge if the debt continues in inexistence and is not discharged by the transfer, and
that accordingly the use of the terms ordinarily importing conveyance of absolute
ownership will not be given that effect in such a transaction if they are also commonly used
in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other circumstances
excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee
the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the
terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a
holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but the requirements

therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil
Code provisions on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at
the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner
any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a
public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or
lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public
instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent
bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent
observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates
therefor, on the ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not
included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and
the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each
other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration
does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal must be within the

issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on
appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus,
to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which
they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination of issues at
a pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could
raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action, of
which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pretrial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the
odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to the
CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed
owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where
the provision reads "may," this word shows that it is not mandatory but discretional. 34 The word "may" is usually permissive,
not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which petitioner
seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of recourse in favor
of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other,
an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the
instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate
or replacement instrument sans compliance with the procedure outlined therein, and none establishes a mandatory
precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby
AFFIRMED.
SO ORDERED.

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.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial,
judgment was rendered in favor of Golden Savings, 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.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this 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. 7 It was 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." 8 For a bank with its 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. 9 This was the finding of the lower courts which we 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 11 where the Court held:
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, 12 but we feel this case is
inapplicable to the present controversy.1wphi1 That case 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.

[G.R. NO. 148789. January 16, 2003]

BPI Family Savings Bank, Inc. and Hedzelito Noel Bayaborda, petitioners, vs. Romeo Manikan, respondent.
DECISION
VITUG, J.:
Petitioners seek a review of the decision of the Court of Appeals in C.A. G.R. SP. No. 48011 which has affirmed the
judgment of the Regional Trial Court, Branch 26, of Iloilo City, dismissing the complaint of petitioners for mandamus and
ordering them to pay respondent the sum of P30,000.00 by way of attorney's fees.
It would appear that respondent, being the City Treasurer of Iloilo City, assessed petitioner bank business taxes for the
years 1992 and 1993. On 26 January 1994, the bank issued two manager's checks payable to the City Treasurer of Iloilo
City, the first, Manager's Check No. 010649 for P462,270.60, was to cover the business tax for the year 1992, and the
second, Manager's Check No. 010650 in the amount of P482,988.45, was to settle the business tax for the year
1993. Hedzelito Bayaborda, then manager of the banks Iloilo Branch, instructed an employee, Edmund Sabio, to deliver the
two manager's checks to the Secretary to the City Mayor, a certain Toto Espinosa, who, in turn, handed them over to his
secretary, Leila Salcedo, for transmittal to the City Treasurer. The value of the checks were eventually credited to the
account of the City Treasurer of Iloilo City. The checks, however, were not applied to satisfy the tax liabilities of petitioner but
of other taxpayers.
The misapplication of the proceeds of the checks came to the knowledge of respondent City Treasurer who, thereupon,
created a committee to look into the matter. The investigation revealed that it was upon the representation of Leila Salcedo
that the manager's checks were used to pay tax liabilities of other taxpayers and not those of petitioner bank. Meanwhile,
the bank, through counsel, made a demand on respondent to issue official receipts to show that it had paid its business
taxes for the years 1992 and 1993 covered by the diverted manager's checks. When he refused to issue the receipts
requested, respondent was sued by petitioners for mandamus and damages.
The Regional Trial Court dismissed the complaint for mandamus and ruled that petitioners had no clear legal right to
demand the issuance of official receipts nor could respondent, given the circumstances, be compelled to issue another set
of receipts in the name of the bank. The trial court further ordered petitioners to pay respondent the sum of P30,000.00 by
way of attorney's fees.
The Court of Appeals, on appeal by petitioners, sustained the trial court in toto.
In their petition for review before this Court, petitioners urge a reversal of the decision of the appellate court contending
that a) AN ACTION FOR MANDAMUS NECESSARILY INCLUDES INDEMNIFICATION FOR DAMAGES AND IS ASSESSED
ON A PUBLIC OFFICIAL'S PRIVATE CAPACITY. HENCE, SUING A PUBLIC OFFICIAL IN HIS PRIVATE CAPACITY DOES
NOT AS A MATTER OF RIGHT ENTITLE HIM TO AN AWARD OF ATTORNEY'S FEES BY WAY OF COUNTERCLAIM.
b) THE RECEIPT BY THE CITY TREASURER'S OFFICE OF ILOILO OF THE FACE VALUE OF THE TWO MANAGER'S
CHECKS INTENDED FOR PAYMENT OF ITS BUSINESS TAXES FOR THE YEAR 1992 AND 1993 ENTITLES IT TO THE
ISSUANCE OF AN OFFICIAL RECEIPT ENFORCEABLE BY A WRIT OF MANDAMUS.
In order that a writ of mandamus may aptly issue, it is essential that, on the one hand, the person petitioning for it has a
clear legal right to the claim that is sought and that, on the other hand, the respondent has an imperative duty to perform

that which is demanded of him. [1] Mandamus will not issue to enforce a right, or to compel compliance with a duty, which is
questionable or over which a substantial doubt exists. The principal function of the writ of mandamus is to command and to
expedite, not to inquire and to adjudicate; thus, it is neither the office nor the aim of the writ to secure a legal right but to
implement that which is already established. Unless the right to the relief sought is unclouded, mandamus will not issue.[2]
The checks delivered by petitioner bank to Toto Espinosa were managers checks. A managers check, like a cashiers
check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its
issuance. By its peculiar character and general use in commerce, a managers check or a cashiers check is regarded
substantially to be as good as the money it represents. [3]
By allowing the delivery of the subject checks to a person who is not directly charged with the collection of its tax
liabilities, the bank must be deemed to have assumed the risk of a possible misuse thereof even as it appears to have fallen
short of the diligence ordinarily expected of it. The bank, of course, is not precluded from pursuing a right of action against
those who could have been responsible for the wrongdoing or who might have been unjustly benefited thereby.
The award of attorneys fees in favor of respondent City Treasurer, however, should be deleted. Such an award, in the
concept of damages under Article 2208 of the Civil Code, demands factual and legal justifications. [4] While the law allows
some degree of discretion on the part of the courts in awarding attorneys fees and expenses of litigation, the use of that
judgment, however, must be done with great care approximating as closely as possible the instances exemplified by the
law. Attorneys fees in the concept of damages are not recoverable against a party just because of an unfavorable
judgment. Repeatedly, it has been said that no premium should be placed on the right to litigate. [5]
WHEREFORE, the instant petition is partly granted. The appealed decision is affirmed save for the award of attorneys
fees in favor of private respondent which is ordered deleted. No costs.
SO ORDERED.

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 confessionrelicta 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., Avancea, 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 socalled 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 wavedafter 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."

G.R. No. L-2516

September 25, 1950

ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The Court
of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check Exhibits A
upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of
the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant went to
his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he (appellant) then
brought with him with cash alleging that he needed badly the sum of P4,000 represented by the check, but could not
withdraw it from the bank, it being then already closed; that in view of this request and relying upon appellant's assurance
that he had sufficient funds in the blank to meet Exhibit A, and because they used to borrow money from each other, even
before the war, and appellant owns a hotel and restaurant known as the North Bay Hotel, said complainant delivered to him,
on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify him that the check had been dishonored
by the bank, appellant could not be located any-where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not paid as yet the amount of the check, or any part
thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether under the
facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a check,
or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the bank, or the
funds deposited by him in the bank were not sufficient to cover the amount of the check, and without informing the payee of
such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated that,
as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or an ordinary
check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian, the
defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all banks in the
Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in support of the
argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so with full
knowledge that it would be dishonored upon presentment. In that sense, the appellant could not be said to have
acted fraudulently because the complainant, in so accepting the check as it was drawn, must be considered, by
every rational consideration, to have done so fully aware of the risk he was running thereby." (Brief for the appellant,
p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required the
indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where no such requirement
had been made . It depends upon the circumstances of each transaction.

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable to
bearer, and the bank may pay it to the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York (1933), 146
Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831;
Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d),
818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of any
person", and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the
check, but may pay it to the person presenting it without any indorsement. . . . (Zollmann, Banks and Banking,
Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification and /or
assurance against possible complications, for instance, (a) forgery of drawer's signature, (b) loss of the check by the
rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection, that the indorsement
of the drawer or of some other person known to it be obtained. But where the Bank is satisfied of the identity and /or
the economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question;
and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is payable
to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not have the holder
identified, and is not negligent in falling to do so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p.
343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the
holder identified and ordinarily may not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3
If the bank has no reasonable cause for suspecting any irregularity, it will be protected in paying a bearer check, "no
matter what facts unknown to it may have occurred prior to the presentment." 1 Morse, Banks and Banking, sec.
393.
Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for
the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its dishonor. The
Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ ofcertiorari is
denied and the decision of the Court of Appeals is hereby affirmed, with costs.