ANG TEK LIAN, Petitioner, v. THE COURT OF APPEALS, Respondent.
EN BANC

[G.R. No. L-2516. September 25, 1950.]

ANG TEK LIAN, Petitioner, v. THE COURT OF APPEALS, Respondent.

Laurel, Sabido, Almario & Laurel, for Petitioner.

Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz, for Respondent.

SYLLABUS
1. CRIMINAL LAW; ESTAFA" ; ISSUING CHECK WITH INSUFFICIENT BANK DEPOSIT TO COVER THE SAME. — One who issues a check payable to cash to accomplish deceit and knows that at the time had no sufficient deposit with the bank to cover the amount of the check and without informing the payee of such circumstances, is guilty of estafa as provided by article 315, paragraph (d), subsection 2 of the Revised Penal Code.

2. NEGOTIABLE INSTRUMENTS; CHECK DRAWN PAYABLE TO THE ORDER OF "CASH" ; INDORSEMENT. — A check payable to the order of "cash to the person presenting it for payment without the drawer’s indorsement.

D E C I S I O N

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 Exhibit 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 the 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 bank 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."cralaw virtua1aw library

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 v. 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:jgc:chanrobles.com.ph

". . . 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 v. National City Bank of New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary v. Da Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding & Insurance Co. v. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook & Son v. Moody (1916), 17 Ga. App., 465; 87 S. E., 713."cralaw virtua1aw library

"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 the 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 failing 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 the 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 of certiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.

Moran, C.J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.

PHILIPPINE NATIONAL BANK, Petitioner, v. ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
THIRD DIVISION
[G.R. NO. 170325 : September 26, 2008]
PHILIPPINE NATIONAL BANK, Petitioner, v. ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
D E C I S I O N
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there any exception?cralawred
These questions seek answers in this Petition for Review on Certiorari of the Amended Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a discounting3 arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members.
It was PEMSLA's policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA.4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNB's motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for the named payees to receive the proceeds of the checks. Consequently, the payees were considered as "fictitious payees" as defined under the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. PNB's Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount ofP2,345,804.00 or reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount ofP4,000,000.00, as a result of their having incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorney's fees in the amount of P150,000.00 considering that this case does not involve very complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees' and PEMSLA's business arrangement - that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA's account for payment of the loans it has approved in exchange for PEMSLA's checks with the full value of the said loans. This is the only obvious explanation as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLA's errand boy for presentment to the defendant-appellant that led to this present controversy. It also appears that the teller who accepted the said checks was PEMSLA's officer, and that such was a regular practice by the parties until the defendant-appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez' testimony, PEMSLA allegedly issued post-dated checks to its qualified members who had applied for loans. However, because of PEMSLA's insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their loans, despite the fact that they were disqualified for one reason or another. They were able to achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably payable to order; and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees. They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorney's fees in the amount of P100,000; andcralawlibrary
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?cralawred
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere delivery. Further, testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its judgment with the singular objective of achieving justice for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction careless disposition of cases by courts of justice. The highest degree of diligence must go into the study of every controversy submitted for decision by litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before the promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of '
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. - The instrument is payable to bearer '
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.12(Underscoring supplied)cralawlibrary
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In the said case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferee's lapse of wary vigilance, disregard of suspicious circumstances which might have well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts dishonestly - where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. At most, the bank's thesis shows that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks' proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks' proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation - that the maker of the check intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its operations.21 This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in their banks.22 For this reason, banks are minded to treat their customer's accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer's instructions, i.e., to the named payee in the check. It should charge to the drawer's accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer's account.24
In the case at bar, respondents-spouses were the bank's depositors. The checks were drawn against respondents-spouses' accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.ςrαlαω
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals,25this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.26
PNB's tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be held liable.27
PNB's argument that there is no loss to compensate since no demand for payment has been made by the payees must also fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks.

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-appellant.
G.R. No. L-18103 June 8, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-appellant.
Antonio Gonzalez for appellant.
Roman J. Lacson for appellee.
Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc Donough and Johnson; Julian Wolfson; Ross and Lawrence; Francis B. Mahoney, and Jose A. Espiritu, amici curiae.
MALCOLM, J.:
The question of first impression raised in this case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc., executed and delivered to the Philippine National Bank, a written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank, Manila, P.I.
Without defalcation, value received; and to hereby authorize any attorney in the Philippine Islands, in case this note be not paid at maturity, to appear in my name and confess judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or personal, from levy or sale. Value received. No. ____ Due ____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) RAFAEL LOPEZ,
Treasurer
The Manila Oil Refining and By-Products Company, Inc. failed to pay the promissory note on demand. The Philippine National Bank brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note, together with interest and costs. Mr. Elias N. Rector, an attorney associated with the Philippine National Bank, entered his appearance in representation of the defendant, and filed a motion confessing judgment. The defendant, however, in a sworn declaration, objected strongly to the unsolicited representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for the defendant and filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise squarely the question which was suggested in the beginning of this opinion. In view of the importance of the subject to the business community, the advice of prominent attorneys-at-law with banking connections, was solicited. These members of the bar responded promptly to the request of the court, and their memoranda have proved highly useful in the solution of the question. It is to the credit of the bar that although the sanction of judgement notes in the Philippines might prove of immediate value to clients, every one of the attorneys has looked upon the matter in a big way, with the result that out of their independent investigations has come a practically unanimous protest against the recognition in this jurisdiction of judgment notes.1
Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a confession of judgment commonly called a judgment note. On the contrary, the provisions of the Code of Civil Procedure, in relation to constitutional safeguards relating to the right to take a man's property only after a day in court and after due process of law, contemplate that all defendants shall have an opportunity to be heard. Further, the provisions of the Code of Civil Procedure pertaining to counter claims argue against judgment notes, especially as the Code provides that in case the defendant or his assignee omits to set up a counterclaim, he cannot afterwards maintain an action against the plaintiff therefor. (Secs. 95, 96, 97.) At least one provision of the substantive law, namely, that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (Civil Code, art. 1356), constitutes another indication of fundamental legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law (Act No. 2031) expressly recognizes judgment notes, and that they are enforcible under the regular procedure. The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an instrument otherwise negotiable is not affected by a provision which ". . . (b) Authorizes a confession of judgment if the instrument be not paid at maturity." We do not believe, however, that this provision of law can be taken to sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in jurisdiction where judgment notes are recognized, such clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments. Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the absence of statute of a provision in a note authorizing an attorney to appear and confess judgment against the maker. This situation, in reality, has its advantages for it permits us to reach that solution which is best grounded in the solid principles of the law, and which will best advance the public interest.
The practice of entering judgments in debt on warrants of attorney is of ancient origin. In the course of time a warrant of attorney to confess judgement became a familiar common law security. At common law, there were two kinds of judgments by confession; the one a judgment by cognovit actionem, and the other by confession relicta verificatione. A number of jurisdictions in the United States have accepted the common law view of judgments by confession, while still other jurisdictions have refused to sanction them. In some States, statutes have been passed which have either expressly authorized confession of judgment on warrant of attorney, without antecedent process, or have forbidden judgments of this character. In the absence of statute, there is a conflict of authority as to the validity of a warrant of attorney for the confession of judgement. The weight of opinion is that, unless authorized by statute, warrants of attorney to confess judgment are void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am. St. Rep., 612). The record in this case discloses that on October 4, 1990, the defendant executed and delivered to the plaintiff an obligation in which the defendant authorized any attorney-at-law to appear for him in an action on the note at any time after the note became due in any court of record in the State of Missouri, or elsewhere, to waive the issuing and service of process, and to confess judgement in favor of the First National Bank of Kansas City for the amount that might then be due thereon, with interest at the rate therein mentioned and the costs of suit, together with an attorney's fee of 10 per cent and also to waive and release all errors in said proceedings and judgment, and all proceedings, appeals, or writs of error thereon. Plaintiff filed a petition in the Circuit Court to which was attached the above-mentioned instrument. An attorney named Denham appeared pursuant to the authority given by the note sued on, entered the appearance of the defendant, and consented that judgement be rendered in favor of the plaintiff as prayed in the petition. After the Circuit Court had entered a judgement, the defendants, through counsel, appeared specially and filed a motion to set it aside. The Supreme Court of Missouri, speaking through Mr. Justice Graves, in part said:
But going beyond the mere technical question in our preceding paragraph discussed, we come to a question urged which goes to the very root of this case, and whilst new and novel in this state, we do not feel that the case should be disposed of without discussing and passing upon that question. x x x x x x x x x
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. x x x x x x x x x
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. x x x x x x x x x
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. x x x x x x x x x
It is contended, however, that the old legal maxim, qui facit per alium, facit per se, is as applicable here as in other cases. We do not think so. Strong reasons exist, as we have shown, for denying its application, when holders of contracts of this character seek the aid of the courts and of their execution process to enforce them, defendant having had no day in court or opportunity to be heard. We need not say in this case that a debtor may not, by proper power of attorney duly executed, authorize another to appear in court, and by proper endorsement upon the writ waive service of process, and confess judgement. But we do not wish to be understood as approving or intending to countenance the practice employing in this state commercial paper of the character here involved. Such paper has heretofore had little if any currency here. If the practice is adopted into this state it ought to be, we think, by act of the Legislature, with all proper safeguards thrown around it, to prevent fraud and imposition. The policy of our law is, that no man shall suffer judgment at the hands of our courts without proper process and a day to be heard. To give currency to such paper by judicial pronouncement would be to open the door to fraud and imposition, and to subject the people to wrongs and injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is First National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are condemned as being against public policy. (Farquhar and Co. vs. Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann. Cas. [1914 A]. 640, and First National Bank of Kansas City vs. White, 220 Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are examples of such holding.) By just what course of reasoning it can be said by the courts that such judgments are against public policy we are unable to understand. It was a practice from time immemorial at common law, and the common law comes down to us sanctioned as justified by the reason and experience of English-speaking peoples. If conditions have arisen in this country which make the application of the common law undesirable, it is for the Legislature to so announce, and to prohibit the taking of judgments can be declared as against the public policy of the state. We are aware that the argument against them is that they enable the unconscionable creditor to take advantage of the necessities of the poor debtor and cut him off from his ordinary day in court. On the other hand, it may be said in their favor that it frequently enables a debtor to obtain money which he could by no possibility otherwise obtain. It strengthens his credit, and may be most highly beneficial to him at times. In some of the states there judgments have been condemned by statute and of course in that case are not allowed.
Our conclusion in this case is that a warrant of attorney given as security to a creditor accompanying a promissory note confers a valid power, and authorizes a confession of judgment in any court of competent jurisdiction in an action to be brought upon said note; that our cognovit statute does not cover the same field as that occupied by the common-law practice of taking judgments upon warrant of attorney, and does not impliedly or otherwise abrogate such practice; and that the practice of taking judgments upon warrants of attorney as it was pursued in this case is not against any public policy of the state, as declared by its laws.
With reference to the conclusiveness of the decisions here mentioned, it may be said that they are based on the practice of the English-American common law, and that the doctrines of the common law are binding upon Philippine courts only in so far as they are founded on sound principles applicable to local conditions.
Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way to settle and secure debts. They are a quick remedy and serve to save the court's time. They also save the time and money of the litigants and the government the expenses that a long litigation entails. In one sense, instruments of this character may be considered as special agreements, with power to enter up judgments on them, binding the parties to the result as they themselves viewed it.
On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants of attorney are void as against public policy, because they enlarge the field for fraud, because under these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. The recognition of such a form of obligation would bring about a complete reorganization of commercial customs and practices, with reference to short-term obligations. It can readily be seen that judgement notes, instead of resulting to the advantage of commercial life in the Philippines might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not authorized nor contemplated by our law. We are further of the opinion that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction.
The judgment appealed from is set aside, and the case is remanded to the lower court for further proceedings in accordance with this decision. Without special finding as to costs in this instance, it is so ordered.
Araullo, C.J., Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Footnotes
1MEMORANDA OF "AMICI CURIAE"
Attorney Thos. L. Hartigan, of Hartigan and Welch, states:
"Though we are attorneys for two of the large banks here and keenly interested in the introduction of any improvements that would make for simplication of procedure and rapidity of practice, we cannot favor the introduction of confessions of judgment in the Philippine islands. In our opinion, it would open the doors to fraud to an extent that would more than counterbalance any advantages of its use.
"With our lack of system in recording judgments and with the practice of keeping merchants' books in various foreign languages, there would be ample opportunity for a debtor to make preferences by confessions of judgment which could not be discovered by the creditors until too late and which would be nearly impossible to set aside even when discovered in time.
"Although, as representatives of the banks, we are representing the creditor class, we believe the introduction of confessions of judgment would ultimately cause much more loss than benefit to that class."
Attorney Clyde A. DeWitt, of Fisher and DeWitt, states:
"There is no statutory sanction in this jurisdiction for such provisions in negotiable instruments. Section 5 (b) of the Negotiable Instruments Law does not constitute such sanction because (1) it merely provides that such clauses will not affect the negotiable character of the instrument, and (2) it concludes with language showing that the Legislature did not intend thereby to validate any provision otherwise unlawful. The language is: 'But nothing in this section shall validate any provision or stipulation otherwise illegal.'
"The question then is whether or not, in the absence of express legislative sanction, such warrants of attorney are valid. There are not many American cases in which this precise question has been considered, and in those cases in which the question has been raised, the reasoning of the courts has been colored by the fact that the commercial use of these warrants of attorney as security for debt was sanctioned at common law, and the procedural statutes are held to be merely cumulative and not in derogation of the common law remedies. We, of course, have no such situation here.
"The cases are collected in a note to First National Bank vs. White (220 Mo., 717), found in 16 Ann. Cas., 893, and it is there shown that in Missouri and Kansas such provisions are held to be void as against the public policy of the State as expressed in its laws and the decisions of its courts, while in Colorado and Illinois their validity was upheld as a familiar common-law security not affected by the procedural statutes. Yet it is there pointed out that in Kahn vs. Lesser (97 Wis., 217, 72 N.W., 739), the court, in referring to a judgment by confession under warrant of attorney in a promissory note, said:
"'The judgment in this case must stand, if at all, by the authority of the statute. The proceeding by which it was entered was outside and in derogation of the common-law practice of courts; and the statute, as well as the proceedings under it, must be strictly construed.'"
"In Iowa, in an early case, McClish vs. Manning (3 Green, 233), the validity of these warrants of attorney was upheld, referring to a statute authorizing any person to confess a judgment, by himself or his attorney. In a later decision, Hamilton vs. Schoenberger (47 Ilowa, 385), it was expressly held that such a provision, in a note could not be enforced in the courts of that State, and was not authorized or contemplated by its laws. And in Tolman vs. Jansen (106 Iowa, 455), it was held that such a provision, being void, would not affect the negotiability of a note, even though its effect would be to make uncertain the time of payment.
"The reasoning in First National Bank vs. White, supra, is persuasive. The court there held that these warrants of attorney are void as against the public policy of the state on the ground, first, that their effect is to enlarge the field for fraud; second, that under such an instrument the promissor bargains away his right to his day in court; third, that the effect of the instrument is to strike down the right to appeal accorded by statute, and, fourth, that there was no provision for the public recording of such an instrument if regarded as a security for a debt.
"It seems to me that on the precise grounds stated in the White case, these warrants of attorney should be held void as against public policy in this jurisdiction. If given effect, they bargain away the jurisdiction of the courts to try and determine the liability of the maker of the note on its merits. To uphold them would be to facilitate the operations of usurers, the collection of gambling debts, and would make difficult, if not impossible under our procedure, the setting aside of judgments entered in virtue thereof where the execution of the instrument was obtained by fraud, duress, or where there had been an entire failure of consideration. I can think of no advantage which would result to the commercial world from upholding these warrants of attorney which would outweigh the foregoing considerations."
Attorney e. Arthur Perkins, of Perkins and Kincaid, states:
"Leaving aside entirely the legal considerations involved, I feel that there is only one answer to your inquiry, and that is, that the best interests of the commercial life of the Philippines require the non-recognition of such a form of judgment note. Feeling that you would want to know the reasons which impell me to adopt such a conclusion, I will say briefly that if the Supreme Court should, by a decision, recognize such a judgment note and thereby place the stamp of approval upon transactions of such a nature, the entire business population of the Philippine Islands would be justified in their future transactions with debtors in requiring, in all instances, the execution of notes of a similar tenor, with the consequence that the debtor would thereby be deprived, to all intents and purposes, upon ignorant debtors. It will prove a serious drawback to the campaign being now waged against usury.
"There is the further fear that the banks and money lenders having accounts now outstanding will immediately require every debtor to execute that form of note and to refuse further extensions of credit unless sit is done, which the debtor under the stress of circumstances will be compelled to accept, amounting in effect to duress.
"The recognition of such a form of obligation would be so revolutionary in character as to bring about a complete reorganization of commercial customs and practices with reference to short-term obligations.
"Having in mind that the Philippine National Bank is practically the only institution which can assist the farmers and agriculturists, the practice of requiring a judgment note would place the latter wholly at the mercy of the bank, and this is stated without any reflection on the bank, but merely to point out one of the consequent evils which will necessarily follow if the practice should receive the high judicial sanction which a judgment of the Supreme Court would necessarily give to it.
"Another feature which occurs to me is that where any new enterprise is being launched, it is universally the custom for such company to arrange with some banking institution for credit facilities, over and above the capital with which it brings business. Should it become the custom here to require the execution of so-called judgment notes, organizers of corporations, partnerships and the like, who have in mind to secure additional working capital or credit facilities from banks, will be very reluctant to put their funds into any enterprises which could be destroyed without warning by the creditor exercising the rights which that form of transaction would give him. This is would act therefore as a deterrent to new enterprises and the development of industry through individual initiative and with private funds.
"Let us take a very simple illustration of his. Suppose that you and I should form a partnership, with a capital of P50,000 to buy hemp and , in connection with our business, we went to some banking institution for the purpose of securing credit facilities, as is customary, in the conduct of our business. Let us then suppose that the bank, taking into consideration the capital which we ourselves had furnished and our standing in the community, was willing to allow us a credit in the further sum of P50,000 upon our signing a so-called judgment note. Would not you and I consider a long time before we would so far obligate ourselves as to place it in the power of the bank to send their attorney over to court, upon the least provocation or at the first unfavorable rumor, and to confess judgment in our names, which would permit the sheriff to close us out without even an opportunity to be heard?
"The sum and substance of the whole proposition is that such a practice is contrary to good morals."
Attorney David C. Johnson, of Gibbs, McDonough and Johnson, states:
"It seems that under the common law a confession of judgment was only allowable by the defendant himself, either before or after appearance and answer. The confession of judgment by warrant of attorney is a statutory development (15 R.C.L., 656, 657; 17 Am. and Eng. Encyc. of Law [2d ed.], 765; Pl. and Pr., 973-975; Masson vs. Ward, 80 Vt., 290; 130 A. S. R., 987,988).
"The procedure contemplated in the note quoted in your letter is contrary to that contemplated in our code of procedure, which gives to all defendants an opportunity at least to be heard. An action on the note in question could be so presented that the defendant would never be summoned or notified, since an appearance and confession of judgment might be filed simultaneously. We believe that this procedure should not be recognized in this jurisdiction by implication, but should have legislative sanction with the rights of the defendant amply safeguarded. We believe that section 5 of Act No. 2031 does not of itself sanction any of the acts mentioned in that section, but is only a statement regarding the negotiable character of the instrument. Subsection A of section 5 states that the authority to sell collateral security does not affect negotiability. As we understand the decision of the Supreme Court in the case of Mahoney vs. Tuason(39 Phil., 952), the creditor in this jurisdiction is not authorized by law to sell collateral security except in the manner provided in section 14 of Act No. 1508. This would seem to reinforce our opinion.
"There are some favorable features of a judgment note or warrant for confession of judgment, but we believe that there are many objections which outweigh any of the advantages. Forgery and usury are more prevalent in these Islands than in the United States. The sanctioning of this procedure would add an additional weapon to the money lender who desires to overreach his debtor.
"We have delayed answering your letter in order that we might consult our Mr. Gibbs, who returned from Baguio yesterday.
"The foregoing is the consensus of opinion of the member of this firm."
Attorney Julian Wolfson states:
"It is assumed that the only question propounded is :
"'Admitting that there may be some doubt, as to a correct solution, which solution, the recognition of a confession of judgment, or a non-recognition of a confession of judgment,would be for the best interest of the commercial life of the Philippines? and that no opinion is required upon the incidental questions previously asked, as same have already been determined by an examination of such authorities as: 23 Cyc., pp. 699, 701-2-3-5-6-7, 723-5; 6 C. J., pp. 645-6 (Notes 35 & 42); 8 C. J., p. 128 (Notes 43-47); 12 C. J., p. 418 (Note 37); and such leading textbooks as 'Brannan's Negotiable Instruments Law' and 'Selover on Negotiable Instruments.' "Everyone is entitled to 'his day in court.' This right may be waved after an opportunity has been given to exercise the right, but must not and cannot be taken away before an opportunity has been given to exercise the right.
"The ordinary ship's bill of lading and the ordinary fire and marine insurance policy are generally printed on forms prepared by the carrier and the insurer respectively, and generally contain a clause making it a condition precedent to the institution of an action to first submit the matter to a board of arbitration. The Supreme Court has never recognized this clause. The reasons are stated in the opinions. Once submitted to arbitration, then another question is raised.
"Special defenses to written instruments are common. Need we do more than cite the following cases: Maulini vs. Serrano (28 Phil., 640); Henry W. Peabody and Co. vs. Bromfield and Ross (38 Phil., 841); Cuyugan vs. Santos (34 Phil., 100; 39 Phil., 970).
"If the judgment note (this term is used throughout for brevity and as it is the recognized term) is to be recognized, what chance has defendant of defending as did the defendants in the above cited cases? Non!
"Often a promissory note is a mere formality taken by a bank as evidence of indebtedness, while the real indebtedness may be for a superior or inferior amount incurred by way of overdraft, letters of credit outstanding, acceptances to mature, or a thousand other forms of banking credit. Such "judgment notes" are generally made payable on demand. In the case at bar, the note is made payable on demand. The real indebtedness may be partially paid, or the liquidation may be going along too slow to suit the bank and then use is made of the judgment note. The defendant might have perfect defense except for the judgment note. Would not article 1269 of the Civil Code here apply?
"The 'judgment notes,' is not once in a thousand times signed at the time of receiving money from the bank. The indebtedness represented thereby is incurred in prior transactions, the obligation became past due and the bank, as a forcible measure, produces one of these 'judgment notes,' when the debtor is absolutely helpless, and says 'Sign on the dotted line' and the debtor has no option, he signs. The minds of the parties never met. The debtor owes the money, knows that the bank must have evidence of the indebtedness to pass the auditors and the debtor further realizes he must accept that bank's dictation, because if he declines, he is liable to immediate ruin, or if not that, he will never get further accommodation from the bank. He does not realize, even if he knows, what is meant by a 'judgment note.' Again, would not article 1269 of the Civil Code here apply?
"Just a few months ago there was a suit instituted by a local bank for a large sum of money, based on a written instrument which, on its face, seemed absolute. Special defenses were pleaded, setting up that the instrument did not express the real understanding of the parties and the real understanding was set up. The special defenses were fully proved and the lower court dismissed the bank's suit. The bank did not even attempt to appeal to the Supreme Court (See Cause No. 18239 of the Docket of the Court of First Instance of Manila). Suppose the instrument sued on had contained a clause of confession of judgment, what chance would defendant have had to prove his defense? None!
"Let us go a step further and see where this leads us. A is a dealer in hardware and sells B a bill of goods. A prints a form, which he has B to sign, in which B acknowledges receipt of the goods and in consideration thereof premises to pay A and "a confession of judgment" clause is inserted. The goods turn out entirely different from those ordered and invoiced. B refuses to pay. A sues on his "judgment note." What change has B? None!
"Very often a promissory note is only one of a series of documents given as security for the debt. What about considering the other documents which bear on the transaction?
"A bank may have made certain advances and may have undertaken to make more, but fails to do so, to the damage and prejudice of debtor. Let us assume that the bank agreed to advance several hundred thousand pesos in installments of P60,000 each, and had advanced only the first installments, taking a "judgment note" for said first installment, and had failed to advance further, to the damage of the debtor. What would become of section 97 of the Code of Civil Procedure? How would debtor be able to exercise his right of counterclaim? Was it ever contemplated at the time of signing the judgment note that the debtor would not only waive defense, but absolutely shut himself out of court, as he would, according to section 97 above cited, on his counterclaim? Yet again, would not article 1269 of the Civil Code here apply?
"We dare not attempt to elaborate on what would happen in the provinces of the Philippines should a "judgment note" be held valid.
"What about the Usury Law? How could a defense be offered there? The usurious rate might not appear on the face of the "judgment note," but it may be there all the same.
"Examples could be multiplied until the very absurdity of the proposition would be clearly seen, even by a blind man.
"Of what possible benefit would the recognition of a "judgment note" serve "the best interest of the commercial life of the Philippines? None! An honest creditor is willing to let his debtor have his day in court and is willing to prove to the court his case. It might take slightly longer to go through with a trial, but that cannot be considered a set-back. But, on the other hand, a dishonest creditor would take unfair advantage of a "judgment note" and would use it to the utmost to harass and take advantage of the poor and helpless debtor. The real consequences likely, in fact sure, to arise from such recognition are horrible beyond words to contemplate.
"There can be but one answer to the proposition and that is: The non-recognition of a confession of judgment would be for the best interests of the commercial life of the Philippines."
Attorney J. G. Lawrence, of Ross and Lawrence, states:
"We are aware of no expression of our Legislature or courts which would indicate that confessions of judgment under powers given in a promissory note are contrary to public policy. This action was regularly brought in accordance with the provisions of the Code of Civil Procedure and the defendant served with process. The answer, confessing judgment, was filed in strict accordance with the powers contained in the note — a power coupled with an interest which defendant would be estopped of denying. We think that no express legal sanction is necessary to legalize such a proceeding.
"On the question of what ought to be the public policy of the Philippines, we hold quite a different opinion. While the use of judgment notes might in some cases expedite the collection of just debts, we believe that under conditions as exist here, their use should be discouraged. The lend themselves easily to fraud in the hands of friends of a dishonest debtor, and to extortion in the hands of usurers who are already too well equipped with the pacto de retro.
"While we believe that the position of the bank is sound legally, we should be very glad to be proven mistaken."
Attorney Francis B. Mahoney, of the Philippine Trust Company, states:
"I have not gone into the law and cases, except to take a glance at the subject of judgments in Volume 15 of Ruling Case Law. However, the reasons indicated on page 651 thereof are significant.
"Unquestionably, if our Legislature provided in unmistakable terms for confession of judgment as herein indicated, the validity and constitutionality of the enactment might be questioned as failing to provide those constitutional safeguards of taking a man's property only after a day in court and after the due process of law.
"This conclusion is stronger — a fortiori — where the enacting provision — if such section 5 of Act. No. 2031 may be called — is of a lefthanded nature, apparently relating only to negotiability — incidentally thus answering here your first inquiry. Whatever legal principles there might be in favor of recognizing a confession of judgment — for example, the matter of expediency — stronger and more vital principles oppose such recognition.
"By refusing to recognize confession of judgment under existing statutes or under general legal principles, at the worst phase from the point of view of the plaintiff bank, there would result only possible delay, costs and attorney's fees, which, after all, are only passed on to the clients of the bank in the shape of interests, charges. etc. If the bank has a meritorious case, the judgment is ultimately certain as courts.
"If the defendant debtor has any defense of merit, he is given an opportunity to present it, as, for example, in the matter of usury so common, so difficult to uncover an such an unscrupulous rival of legitimate banking, the courts may keep their doors open to the equities of each individual case. Whereas, if defendant, who theoretically may allege fraud an who practically has great difficulty in proving it, must rely upon a defense of fraud, he has little chance and the doors of the court are closed to any other defense.
"In the final analysis, the matter simmers down to: 1. Possible delay in judgment with costs, etc. 2. Certain justice in the end. 3. The eyes and doors of courts open to the equities of each individual case. 4. Equality before the law, or (a) Expediting judgment. (b) Defendant debtor practically kept out of court by additional expense and difficulty in securing a hearing. (c) Putting a strong weapon in the hands of unscrupulous persons and taking the strength necessary to wield this weapon from the courts.
"At first glance, if a debtor signs a document throwing away his right to be heard, the average man has a feeling such debtor deserves to suffer the consequences. If that were the entire story, probably he should. But what man, needing money badly enough — facing strenuous necessity — will not in the circumstances be inclined to look on the cheerful side-to sign and get the money, letting the future take care of itself? Such is the frailty of human nature. Then, as the usual thing, the rich and powerful can take care of themselves, and it is usually others who have need of courts, just laws and liberal interpretation of them.
"No doubt, banks would favor expediting judgments against their debtors, other things being equal. And no doubt, additional delay in courts and the incidental costs thereof will be borne by the clients of the bank. But sound banking is not established and enhanced by harsh law which put strong weapons in powerful hands. Contented peoples, safe laws and sound banking usually go hand in hand."
Professor Jose A. Espiritu, of the University of the Philippines, states:
"Permit me to cite first of all the authorities that I have gathered concerning the principal question at issue in the case mentioned in your letter, namely, 'The Effect and Validity of Confession of Judgement in the Philippines.'
"1. Confession of judgment has been defined as "a voluntary submission to the jurisdiction of the court, giving by consent and without the service of process, what could otherwise be obtained by summons and complaint, and other formal proceedings, an acknowledgment of indebtedness, upon which it is contemplated that a judgment may and will be rendered." (8 Cyc., pp. 563, 564.)
"2. As to the general effects of confession of judgment, the following statements may be mentioned: 'A warrant to confess judgment does not destroy the negotiability of the note. Such a note is commonly called a "judgement note." Decisions to the contrary in the States where the Negotiable Instruments Law is now in force are abrogated thereby, since it expressly provides that the negotiable character of an instrument otherwise negotiable is not affected by a provision which authorizes a confession of judgment, if the instrument is not paid at maturity. However, this statutory provision does not apply to stipulations for the confession of judgment "prior" to maturity.' (8 C.J., p. 128, sec. 222.)
"3. Nature of Requisites. "A judgment may be rendered upon the confession of defendant, either in an action regularly commenced against him by the issuance and service of process, in which case the confession may be made by his attorney of record, or, without the institution of a suit, upon a confession by defendant in person or by his attorney in fact. It implies something more than a mere admission of a debt to plaintiff; in addition, it is defendant's consent that a judgment shall be entered against him. . . . ." (23 cyc., 699.)
"4. Statutory Provisions, "Statutes regulating the confession of judgments without action, or otherwise than according to the course of the common law, are strictly construed, and a strict compliance with their provisions must be shown in order to sustain the validity of the judgment." (Chapin vs. Tompson, 20 Cla., 681.) "And this applies also to statutory restriction upon the right to confess judgment, as that authority to confess judgment shall not be given in the same instrument which contains the promise or obligation to pay the debt, or that such confession shall not be authorized by any instrument executed prior to suit brought." (23 Cyc., 699, 700.)
"5. Warrant or Power of Attorney — Validity and Necessity. 'A judgment by confession may be entered upon a written authority, called a warrant or letter of attorney, by which the debtor empowers an attorney to enter an appearance for him, waive process, and confess judgment against him for a designated sum, except where this method of proceeding is prohibited by statute. The warrant as the basis of judgment is generally required to be placed on file in the clerk's office, and no judgment can be so entered until it is so filed.' (23 Cyc., 703.)
"6. Requisites and Sufficiency. 'A warrant or power of attorney to confess judgement should be in writing and should conform to the requirements of the statute in force at the time of its execution, although in the absence of specific statutory directions it is sufficient, without much regard to its form, if it contains the essential of a good power and clearly states its purpose. It must be signed by the person against whom the judgment is to be entered . . . .' (23 Cyc., 704.)
"The above quoted authorities are among the various authorities I found bearing on the question at issue. As it can be readily seen none of them decides squarely and definitely the questions propounded in your letter. One thing, however, seems to be clear, from the very provision of section 5 (b) of the Negotiable Instruments Law and from the quotation No. 2 of this letter, that a provision in a note or bill of exchange authorizing a confession of judgment in default of payment at its maturity has particular reference, in so far as Act No. 2031 is concerned, only to the negotiable character of an instrument. I do not believe that the Legislature had the intention in passing the said Act No. 2031 to introduce in the Philippines a new practice in our Remedial Law, namely, that of confession of judgment, which is purely procedural in nature.
"Now as to the second question, to wit: 'Does the silence of the Code of Civil Procedure on the subject mean that a confession of judgement cannot be recognized in this jurisdiction, or can a judgment by confession be imported into the Philippines under general legal principles?' Before answering this question attention is respectfully called to the quotation No. 4 of this letter, which expressly provides that statutes regulating confession of judgments must be strictly construed and their provisions strictly complied with to sustain the validity of judgments rendered under such statutes. Now it being admitted that there is no express provision in our Code of Civil Procedure authorizing or sanctioning this mode of practice in this jurisdiction, and consequently there are no regulations provided to be followed in this particular remedy, I am therefore of the opinion that confession of judgment should not be deemed as imported in the Philippines under the general legal principles. The remedy itself is a most summary one, and when the defendant-debtor, instead of admitting or allowing a judgment be taken against him, presents his appearance and answers the complaint filed against him, it seems that the trial court should not render a judgement without first hearing the evidence that the parties may wish to submit before him, for it may happen that the defendant-debtor may have some valid or good defenses against the plaintiff-creditor. This is especially true in the case of a counterclaim that the defendant may have against the plaintiff as provided in sections 95 and 96 of the Code of Civil Procedure. The same Code provides that in case of an omission to set up his counterclaim, the defendant or his assignee loses all his right to bring further suit on such claim. (Sec. 97, Act No. 190.)
"In answer to the last question, namely: "Admitting that there may be some doubt, as to the correct solution, which solution, the recognition of a confession of judgement, or the non-recognition of a confession of judgment, would be for the best interests of the commercial life of the Philippines?" I wish first of all to state that a confession of judgment is a quick remedy. It saves time and money as far as the parties to the suit are concerned if the same is properly and legally brought. It saves the court's time and the government the expense that a long litigation entails. As to its disadvantages we may say among other things the following: 1. It may be abused in the same way as the usurious rates of interest on loans are now in the Philippines, because a borrower who is in great need of money might be induced, if not actually compelled, to sign such a burdensome obligation; 2. It deprives the defendant of his day in court, and as a consequence it will prevent him to set up and prove before the court his just claims and other lawful defenses against the plaintiff; 3. It will create multiplicity of actions in this jurisdiction, for if the confession of judgment has been wrongfully or unjustly entered, the judgment debtor may start another litigation on the same subject-matter that might have been brought before the court in case a proper trial was formally held before the rendition of such a judgment; and 4. It does not really hold the plaintiff who has a good cause of action against the defendant as his proofs will surely establish his claims and consequently a judgment must necessarily be rendered in his favor.
"From the above statements, I am of the opinion that unless proper regulations are first duly introduced and incorporated in our remedial law, confession of judgments, instead of resulting advantageous to our commercial life in the Philippines, might be the sources of abuse and oppression. The very fact that confession of judgement is almost summary and in fact a violent remedy, it should first of all be properly regulated by statute, and those regulations must be strictly complied with, before the court should concede to such a remedy."

Saturday, September 13, 2014
REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.
SECOND DIVISION
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated, to wit:
Under the PROMISSORY NOTE (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under PROMISSORY NOTE (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the PROMISSORY NOTE (Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under the PROMISSORY NOTE (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was that inasmuch as he signed the PROMISSORY NOTES in his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9) PROMISSORY NOTES with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to APPLY FOR CREDIT facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to:
________ SAVINGS ACCOUNT ______XX Current Account
No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently RUBBER STAMPED above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 4according to the tenor thereof. 5 Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed. 10
A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the INTEREST RATE on the promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only in the absence of any stipulation between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction was not taken into consideration by the appellate court, which instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in INTEREST RATES are not subject to any ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit:
Under the PROMISSORY NOTE marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under PROMISSORY NOTE marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the PROMISSORY NOTE denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the PROMISSORY NOTE denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against private respondent.
SO ORDERED.
SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners, v. MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC’S ** REALTY AND DEVELOPMENT CORP. and the REGISTER OF DEEDS OF BULACAN, Respondents.

THIRD DIVISION

[G.R. No. 148864. August 21, 2003.]

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners, v. MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC’S ** REALTY AND DEVELOPMENT CORP. and the REGISTER OF DEEDS OF BULACAN, Respondents.

D E C I S I O N

PUNO, J.:

Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review onCertiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition.chanrob1es virtua1 1aw 1ibrary

Petitioners filed a complaint 1 for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of land 2 contained in the Real Estate Mortgage 3 executed by them and Embassy Farms, Inc. ("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a PROMISSORY NOTE, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void. 4 With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent Lydia P. Salazar ("Salazar"), and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation ("Lamecs").

Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation ‘for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) . . ..’" 5 It contended that since petitioners and Embassy Farms signed the PROMISSORY NOTE 6 as co-makers, aside from the Continuing Suretyship Agreement 7 subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding PROMISSORY NOTES 8 restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.

Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. 9

During pre-trial, the parties agreed on the following issues:chanrob1es virtual 1aw library

a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp. is null and void;chanrob1es virtua1 1aw 1ibrary

b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void;

c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that executed by the latter in favor of defendant Lamecs Realty and Development Corp. are null and void;

d. Whether or not the parties are entitled to damages. 10

After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent PROMISSORY NOTES restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. 11

Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. 12

The RTC granted the motion for summary judgment and dismissed the complaint. It held:chanrob1es virtual 1aw library

A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase "jointly and severally." On the promissory note appears (sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the foregoing is untenable. 13

Petitioners’ motion for reconsideration was denied for lack of merit. 14 Thus, petitioners went up to the Court of Appeals, but again were unsuccessful. The appellate court held:chanrob1es virtual 1aw library

The appellants’ insistence that THE LOANS secured by the mortgage they executed were not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they signed the subject promissory notes in the(ir) personal capacities and as officers of the said debtor corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128–131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that third persons who are not parties to A LOAN may secure the latter by pledging or mortgaging their own property (Lustan v. Court of Appeals, 266 SCRA 663, 675). . . .. In constituting a mortgage over their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who, to save the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code of the Philippines). 15 (emphases in the original)chanrob1es virtua1 1aw 1ibrary

The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties, why then did they commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12, 1987, and the certificates of title in the name of Mercator on September 27, 1988)?" Petitioners’ "procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say that the complaint was not worth the time of the courts." 16

A motion for reconsideration by petitioners was likewise denied for lack of merit. 17 Thus, this petition where they allege that:chanrob1es virtual 1aw library

THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT GRANTING RESPONDENT’S MOTION FOR SUMMARY JUDGMENT DESPITE THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS NON-ENTITLEMENT TO A JUDGMENT AS A MATTER OF LAW, THEREBY DECIDING THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT. 18

We affirm.

Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation." 19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine issue means "an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial." 20 To forestall summary judgment, it is essential for the non-moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial. 21

In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms.

The promissory note 22 states:chanrob1es virtual 1aw library

For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P844,625.78), Philippine currency, . . ., in installments as follows:chanrob1es virtual 1aw library

September 16, 1982 P154,267.87

October 16, 1982 P154,267.87

November 16, 1982 P154,267.87

December 16, 1982 P154,267.87

January 16, 1983 P154,267.87

February 16, 1983 P154,267.87

x x x.

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.chanrob1es virtua1 1aw 1ibrary

The Continuing Suretyship Agreement 23 also proves the solidary obligation of petitioners, viz:chanrob1es virtual 1aw library

(Embassy Farms, Inc.)

Principal

(Eduardo B. Evangelista)

Surety

(Epifania C. Evangelista)

Surety

(Mercator Finance Corporation)

Creditor

To: MERCATOR FINANCE CORPORATION

(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees (sic) to MERCATOR FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal) to the Creditor. x x x

(3) The obligations hereunder are joint and several and independent of the obligations of the Principal. A separate action or actions may be brought and prosecuted against the Surety whether or not the action is also brought and prosecuted against the Principal and whether or not the Principal be joined in any such action or actions.

x x x.

The agreement was signed by petitioners on February 16, 1982. The promissory notes 24 subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are solidarily liable with Embassy Farms.

Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it.

Courts can interpret a contract only if there is doubt in its letter. 25 But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:chanrob1es virtual 1aw library

SECTION 17. Construction where instrument is ambiguous. — Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:chanrob1es virtual 1aw library x x x

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.chanrob1es virtua1 1aw 1ibrary

Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. 26 Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. 27 Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.

Lastly, the parol evidence rule does not apply in this case. 28 We held in Tarnate v. Court of Appeals, 29 that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing, it is presumed that they have made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived and abandoned.

IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Panganiban and Sandoval-Gutierrez, JJ., concur.

Corona and Carpio Morales, JJ., on official leave.