Philippine National Bank v. Manila Oil Refining & By-Products Company, Inc.

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

MALCOLM, J.:

FACTS: On May 8, 1920, Manila Oil executed a promissory note in favor of PNB,
pledging to repay P61,000. This note was not an ordinary financial instrument; it
included a controversial clause that authorized any attorney in the Philippines to
confess judgment on behalf of Manila Oil should the note not be repaid upon maturity.
Moreover, the note waived several rights, including the right to appeal, rights to
inquisition, and all property exceptions.

When Manila Oil failed to meet its obligation and repay the promissory note as
demanded by PNB, the bank initiated legal proceedings in the Court of First Instance of
Manila to recover the principal amount of P61,000, along with interest and costs. This
lawsuit marked the beginning of a legal battle over the enforceability of the provision
granting an attorney the power to confess judgment on behalf of the debtor.

ISSUE: Whether or not the provision within the promissory note, authorizing any
attorney in the Philippines to confess judgment on behalf of the debtor if the note is not
paid at maturity, is valid under Philippine law in the absence of statutory authorization.

RULING: The court ruled in favor of Manila Oil, holding that the provision in the
promissory note allowing an attorney to confess judgment on behalf of the debtor was
not valid under Philippine law in the absence of statutory authorization. Additionally, the
court concluded that judgment notes, containing such clauses, should not be
recognized within the Philippine legal system without express legislative sanction.

The court based its ruling on several grounds. Firstly, it highlighted the absence
of explicit legal recognition for judgment notes within Philippine law. The court pointed to
the Code of Civil Procedure and other relevant legal statutes, none of which expressly
or tacitly recognized such instruments. Furthermore, the court argued that the principles
of due process, the sanctity of contracts, and the statutory right to appeal in legal
proceedings all militated against the enforceability of such provisions in promissory
notes.

Additionally, the court expressed concerns about the potential for abuse,
oppression, and fraud associated with judgment notes. It contended that these
instruments could be wielded as hidden and oppressive securities for debt, giving
creditors undue power over debtors while undermining the debtor's right to a fair legal
process. The court emphasized that the recognition of judgment notes could jeopardize
due process, reducing the courts to mere clerks responsible for recording
predetermined judgments, contrary to the principles of justice and fairness enshrined in
Philippine law.

The ruling in this case sent a clear message that the courts would not tolerate
contractual innovations that eroded fundamental legal protections, such as due process
and the right to appeal. Judgment notes, as described in the disputed promissory note,
were held to be void as against the public policy of the state and could only be
considered valid with express legislative sanction. This decision underscored the
importance of upholding fairness and protecting the rights of debtors within the legal
system.
 Equitable Banking Corporation v. The Edward J. Nell Co.
G.R. No. 74451 May 25, 1988
MELENCIO-HERRERA, J.:

FACTS: In the case of Equitable Banking Corporation (the Bank) v. The Edward
J. Nell Co. (NELL), the dispute arose from a complex business transaction. NELL was a
dealer of machinery and equipment, while Casville Enterprises, Inc. (Casville) sought to
purchase Garrett skidders from NELL. The parties agreed that Casville would pay for
the skidders using an irrevocable domestic letter of credit issued by the Bank in favor of
NELL.
However, complications arose when a check issued by NELL, payable to the Bank,
contained the additional notation "A/C OF CASVILLE ENTERPRISES, INC." The Bank's
teller mistakenly credited the check to Casville's account. NELL contended that the
check was meant solely for the Bank, while Casville had other intentions for it.

ISSUE: Whether the Bank was liable to NELL for the value of the check that had
been erroneously credited to Casville's account. Specifically, the court needed to
determine the nature of the check and whether the Bank should bear responsibility for
the mistake made by its employees. Additionally, the court had to assess whether
NELL's own actions contributed to its financial loss.

RULING: The Supreme Court ruled in favor of Equitable Banking Corporation,

absolving it from any liability to The Edward J. Nell Co. (NELL). The Court found that the
check issued by NELL was ambiguous due to the inclusion of "A/C OF CASVILLE
ENTERPRISES, INC." This ambiguity, coupled with NELL's actions, contributed to its
own financial loss. NELL had entrusted the check to Casville and been overly
accommodating. Therefore, the Bank was not liable for the erroneous credit of the
check to Casville, and the amended complaint against the Bank was dismissed.
 Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust
Company
G.R. No. 97753, August 10, 1992
REGALADO, J.:

FACTS: Caltex (Philippines), Inc. (petitioner) brought a complaint against

Security Bank and Trust Company (respondent bank) concerning 280 certificates of
time deposit (CTDs) issued by the bank to Angel dela Cruz, who then delivered these
CTDs to Caltex in connection with fuel product purchases. Later, Angel dela Cruz
reported the loss of the CTDs to the bank and executed an Affidavit of Loss. The bank
issued replacement CTDs to him. Subsequently, Angel dela Cruz obtained a loan from
the bank and assigned the CTDs as collateral. Caltex, claiming ownership of the CTDs,
demanded payment from the bank. The bank set off the CTDs against the outstanding
loan of Angel dela Cruz, prompting Caltex to file a complaint.

ISSUE: (a) Whether the CTDs were negotiable instruments; (b) Whether Caltex
had the right to recover on the CTDs; and (c) Whether the bank was negligent in
handling the lost CTDs.

RULING: The Supreme Court held that the CTDs were negotiable instruments
because they met the requirements of the Negotiable Instruments Law, and they were
payable to the "bearer." However, Caltex could not rightfully recover on the CTDs
because they were delivered to Caltex as security for Angel dela Cruz's fuel purchases,
not as payment. The court also noted that Caltex failed to provide evidence of the
amount of its credit or the extent of its lien. Regarding the alleged negligence of the
bank, the court pointed out that it was not raised as an issue during the pre-trial and
was not included in the stipulation of the parties. Furthermore, the relevant provisions in
the Code of Commerce on lost instruments were permissive, not mandatory. Therefore,
the petition was denied, and the decision of the Court of Appeals was affirmed.
 Evangelista vs. Mercator Finance Corp.
G.R. No. 148864, August 21, 2003
PUNO, J.:

FACTS: Spouses Eduardo B. Evangelista and Epifania C. Evangelista, the

petitioners, filed a complaint for the annulment of titles against Mercator Finance
Corporation, Lydia P. Salazar, Lamec's Realty and Development Corporation, and the
Register of Deeds of Bulacan, the respondents. The dispute revolved around a real
estate mortgage executed by the petitioners in favor of Mercator Finance Corporation.
The petitioners claimed that they executed the mortgage as officers of Embassy Farms,
Inc., and did not personally receive the loan's proceeds. Therefore, they argued that the
mortgage was void due to the absence of consideration for them. The respondents
contended that the petitioners were personally liable for the loan and that the
foreclosure and subsequent transactions were valid. The main issue was whether the
petitioners were personally liable for the loan.

ISSUE: The primary issue in this case was whether the petitioners, Spouses
Eduardo B. Evangelista and Epifania C. Evangelista, were personally liable for a loan
obtained through a real estate mortgage despite their claim that they acted solely as
officers of Embassy Farms, Inc., and did not receive the loan proceeds personally.

RULING: The court ruled in favor of the respondents and affirmed the lower
court's decision. The court found that there were no genuine issues raised by the
petitioners and that they were indeed personally liable for the loan. The promissory note
and continuing suretyship agreement clearly demonstrated their solidary obligation with
Embassy Farms, Inc. The court rejected the petitioners' argument of ambiguity in the
promissory note and emphasized that even if such ambiguity existed, the Negotiable
Instruments Law provided rules of construction that held them jointly and severally
liable. Furthermore, the parol evidence rule did not apply as the parties had admitted
the existence of the loans and mortgage deeds. Therefore, the court dismissed the
petition and ordered the petitioners to pay treble costs.

This case underscores the importance of clear and unambiguous language in

legal documents and the legal consequences of signing documents as sureties, even
when acting on behalf of a corporate entity. The court's decision affirmed the
respondents' claims and held the petitioners personally liable for the loan, based on
their execution of the promissory note and continuing suretyship agreement.