Facts:

In the case of El Banco Espanol-Filipino vs. McKay & Zoeller, decided on March 19, 1914, the plaintiff, El Banco Espanol-Filipino, filed a suit against the defendants, McKay & Zoeller, to recover the sum of P4,600 plus interest and costs based on a promissory note dated April 10, 1911. The note stated: "Three months and five days after date, for value received, I promise to pay to Levy Hermanos or order four thousand six hundred pesos, Philippine currency (P4,600.00). Due July 15, 1911." The defendants admitted the allegations regarding their identity and residence but denied all other claims, asserting that the note was non-negotiable and that Levy Hermanos were the real parties in interest regarding the collection of the note, as it was merely transferred to the plaintiff for collection purposes. They further contended that the note was given as part payment for diamonds, which the payees falsely represented to be genuine. The defendants claimed they were rea

...

Facts:

The Promissory Note and Underlying Transaction

• The dispute arose from a promissory note dated April 10, 1911, which stated:
• “Three months and five days after date, for value received, I promise to pay to Levy Hermanos or order four thousand and six hundred pesos, Philippine currency (P4,600.00). Due July 15, 1911.”
• The note was transferred by Levy Hermanos to the plaintiff, EL BANCO ESPANOL-FILIPINO, making the bank the current owner and holder of the note.
• The defendants, McKay & Zoeller, acknowledged the parties’ identities and residences but denied every other allegation contained in the complaint.

Allegations and Special Defenses Raised by the Defendants

• The defendants contended that:
• The note was not a negotiable instrument.
• The proper payees in interest were the original transferees (the payees) since the note was transferred merely for collection purposes.
• The note was executed as partial payment for diamonds purchased from the payees.
• The diamonds were misrepresented as being genuine, first-class, blue-water diamonds, which in fact they were not.
• Their willingness to return the diamonds was rebuffed by the payees.
• Additionally, the defendants counterclaimed:
• They sought to have the original payees joined as parties.
• They requested judgment against the plaintiff and payees for the sum of P4,600.
• They demanded rescission of the contract of sale of the diamonds, cancellation of the note, and costs on the cause.

Procedural Posture and Pleadings

• The plaintiff demurred to the defendants’ answer on the ground that the allegations therein were insufficient to constitute a valid defense.
• The demurrer was sustained, and as the defendants refused to amend their answer, judgment was rendered in favor of the plaintiff without the introduction of any evidentiary proof.
• Counsel for the defendants later contended that:
• The court erred in holding that the note is a negotiable instrument.
• The court erred in sustaining the plaintiff's demurrer.
• The court erred in rendering judgment against the defendants.

Evidence and Admissions

• The note was copied into and made a part of the complaint, thereby its contents were formally admitted absent any sworn denial regarding its execution.
• However, regarding the indorsement:
• The court expressed that the indorsement is a separate matter.
• The defendants’ failure to deny the execution of the note under oath meant the genuineness and due execution of the note were admitted.
• The indorsement, however, required separate proof as to its execution and was not automatically granted such presumption.

Relevant Judicial Citations and Comparisons

• The decision referenced several prior cases for elucidation:
• Heinszen & Co. vs. Jones – emphasizing the need to distinguish between the note and its indorsement.
• Lim-Chingco vs. Terariray – regarding proving facts outside the face of the document.
• Compania General de Tabacos vs. Molina, Noel vs. Lasala, Rodriguez vs. Lasala, and Miller vs. Jones – addressing the requirements under Article 531 of the Code of Commerce and the necessity (or lack thereof) of statements indicating the note’s commercial origin.
• Additionally, the case of Banco Espanol-Filipino vs. Tan-Tongco was discussed in depth, particularly regarding:
• The sufficiency of the words “for commercial transactions” in establishing the note’s character.
• The doctrine on whether a promissory note is deemed a commercial instrument solely by its face or subject to extrinsic evidence to determine its commercial origin.

Issue:

Nature and Negotiability of the Promissory Note

• Whether the promissory note qualifies as a negotiable instrument under the applicable commercial and civil laws.
• Whether the absence of an explicit statement or indication that it arose from commercial operations on the face of the note invalidates its negotiability.

Adequacy of Pleadings and the Demurrer

• Whether the plaintiff’s demurrer to the defendants’ answer was properly sustained.
• Whether the allegations in the complaint were sufficient to sustain a claim for payment despite the defects or omissions in the note’s wording with regard to commercial origin.

Admissibility of Extrinsic Evidence

• Whether, in the absence of required statements on the face of the promissory note, evidence outside the note may be introduced to establish that it arose from commercial transactions.
• How prior case law supports or contradicts the validity of using extrinsic evidence to prove the commercial character of a note.

Effect of the Note’s Defect on the Rights of Third Parties

• Whether the note, as executed and subsequently transferred, retains its legal efficacy as a negotiable instrument.
• Whether the defect in the note affects the plaintiff bank’s right to collect the debt, especially in light of the assignment versus indorsement debate.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)