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."
