GR 18103; (June, 1922) (Digest)

G.R. No. 18103; June 8, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-appellant.

FACTS

On May 8, 1920, the Manila Oil Refining & By-Products Company, Inc., through its manager and treasurer, executed a promissory note in favor of the Philippine National Bank (PNB) for P61,000. The note contained a “judgment note” or “cognovit” clause authorizing any attorney to appear and confess judgment against the maker if the note was not paid at maturity, and waiving all errors, rights to inquisition, appeal, and property exemptions. Upon default, PNB filed an action in the Court of First Instance of Manila. Attorney Elias N. Recto, associated with PNB, entered an appearance for the defendant and filed a motion confessing judgment based on the clause. The defendant objected to this unsolicited representation. Later, Attorney Antonio Gonzalez formally appeared for the defendant, filed a demurrer (which was overruled), and presented an answer. Despite this, the trial judge rendered judgment based on Attorney Recto’s motion confessing judgment.

ISSUE

Whether a provision in a promissory note authorizing an attorney to appear and confess judgment against the maker, waiving all defenses and the right to a hearing, is valid and enforceable in the Philippines.

RULING

No. The Supreme Court declared such “judgment note” or “cognovit” clauses void as against public policy and not authorized by law. The Court ruled that neither the Code of Civil Procedure nor any other statute expressly or tacitly recognizes such confessions of judgment. On the contrary, the Code’s provisions, read in light of constitutional guarantees of due process, contemplate that all defendants shall have an opportunity to be heard. The Court also noted that Article 1356 of the Civil Code, which provides that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties, indicates a fundamental legal principle against such clauses. While Section 5 of the Negotiable Instruments Law mentions that an authorization to confess judgment does not affect an instrument’s negotiability, it does not validate an otherwise illegal stipulation. The Court, examining the conflict of authority in other jurisdictions and considering the potential for abuse and oppression, held that in the absence of authorizing statute, warrants of attorney to confess judgment are void as against public policy. The judgment of the trial court was reversed, and the case was remanded for further proceedings.