G.R. No. L-18103 - Philippine National Bank vs. Manila Oil Refining and By-Products Co.

On May 8, 1920, the manager and treasurer of Manila Oil Refining & By-Products Company, Inc. executed and delivered a promissory note to the Philippine National Bank.
The note, which was made payable on demand, contained a controversial provision authorizing any attorney to appear and confess judgment on the principal amount (plus interest, costs, and attorney’s fees) in case of nonpayment at maturity.
The instrument included a waiver of the maker's rights such as the right to inquisition, appeal, and various property exemptions, along with a release from errors.

The defendant, Manila Oil Refining & By-Products Company, Inc., ultimately failed to pay the promissory note when it came due.
Consequently, the Philippine National Bank initiated legal action in the Court of First Instance of Manila to recover the sum of ₱61,000, in addition to interest and other costs.

Mr. Elias N. Recto, an attorney associated with the plaintiff bank, appeared on behalf of the defendant by filing a motion confessing judgment under the authority of the note’s clause.
The representation by attorney Recto was met with strong objections raised in a sworn declaration by the defendant, challenging the unsolicited nature of such appearance.
Subsequently, attorney Antonio Gonzalez appeared for the defendant and filed a demurrer, which was overruled; he later presented an answer.

Relying on the motion submitted by attorney Recto, the trial judge rendered a judgment in terms substantially conforming to the plaintiff's complaint.
The case raised significant issues of first impression regarding the validity of judicial confession clauses, prompting the trial court to seek the advice of prominent attorneys.
Memoranda submitted by members of the bar, particularly those with banking and commercial law experience, revealed nearly unanimous opposition to the recognition of such judgment notes in the jurisdiction due to concerns over due process and potential for abuse.

The controversy centered on whether the instrument’s provision—allowing for confession of judgment by an attorney without traditional judicial process—violated fundamental constitutional and procedural safeguards.
The legal debate involved analyzing existing statutes (such as the Code of Civil Procedure and the Negotiable Instruments Law) and the absence of explicit statutory sanction for such a practice.

Whether the clause in the promissory note that authorizes any attorney to appear and confess judgment without the defendant’s appearance infringes on the constitutional right to due process.
Whether the absence of an express statutory provision in the Code of Civil Procedure validating such a confession of judgment renders the clause void.

Whether the use of judgment notes, permitting immediate entry of judgment without a "day in court," is consistent with the established judicial principles that guarantee every defendant an opportunity to be heard.
Whether enforcing such provisions would lead to potential abuse, fraud, or oppression against debtors, especially in the context of commercial transactions.
The broader impact on judicial administration and commercial practices if creditors routinely obtained judgments bypassing the traditional judicial process.

Whether the recognition of such provisions should be left solely to explicit legislative action rather than judicial importation under general legal principles.
How the absence of statutory redress in the Philippine legal framework contrasts with practices in certain U.S. jurisdictions where similar issues have been addressed either by statute or common law.