[ G.R. No. 7790. March 19, 1914 ] 27 Phil. 183
[ G.R. No. 7790. March 19, 1914 ]
EL BANCO ESPAÑOL-FILIPINO, PLAINTIFF AND APPELLEE, VS. MCKAY & ZOELLER, DEFENDANTS AND APPELLANTS. D E C I SI O N
TRENT, J.:
An appeal from a judgment upon the pleadings condemning the defendants to pay the plaintiff the sum of P4,600 with interest and costs.
The note which forms the basis of this action and which is copied in the complaint is as follows:
“APRIL 10, 1911. “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. “McKAY & ZOELLER, “G. McKAY, “Member of the firm.”
The third paragraph of the complaint reads: “That on July 7, 1911, the said Levy Hermanos, in whose favor the promissory note was made, indorsed and transferred to the plaintiff, for value received, the said promissory note; and that the present plaintiff is at this time the owner and holder of the said promissory note.”
The defendants, in their answer, admit paragraph one of the complaint, in which are alleged the personality and residence of the parties, and deny each and every other allegation; and as a special defense allege that the note in question is not a negotiable one; that the payees are the real parties in interest in the collection of said note, they having transferred it to the plaintiff for collection only; that said note was given in part payment for a certain number of diamonds purchased from the payees; that the payees stated and guaranteed that said diamonds were genuine, first-class, blue-water diamonds, when, as a matter of fact, they were not; that it was through these false representations that the defendants were induced to purchase the diamonds, paying therefor P9,200 of which P4,600 was paid in cash and the balance secured by the execution and delivery of the note in question; and that they have offered to return the diamonds and are now ready and willing to return them, but the payees refuse to accept them. The defendants ask in their counterclaim that the payees be made parties to this action; that judgment be rendered against the plaintiff and the payees for the sum of P4,600; for the rescission of the contract of sale of the diamonds; for the cancellation of the note; and for the costs of the cause.
The plaintiff demurred to the answer on the ground that the allegations in the same were not sufficient to constitute a defense. The demurrer was sustained and upon the defendants’ refusing to amend their answer judgment was rendered in favor of the plaintiff, without the introduction of any evidence.
Counsel for the defendants insists that the court erred (1) in holding that the note in question is a negotiable instrument; (2) in sustaining the plaintiff’s demurrer; and (3) in rendering judgment against the defendants.
The note being copied into and made a part of the complaint, and the defendants having failed to deny the execution of the note under oath, its genuineness and due execution are admitted, without the need of proof on the part of the plaintiff. (Sec. 103, Code Civ. Proc, and Chamber of Commerce vs. Pua Te Ching, 14 Phil. Rep., 222, where the cases are collected.) This is not, however, true of the indorsement: Heinszen & Co. vs. Jones (5 Phil. Rep., 27), where this court said:
“It is claimed by the appellees that section 103 of the Code of Civil Procedure applies not only to the note itself, but also to the indorsement thereon, inasmuch as the indorsement was not denied by the defendant under oath, its genuineness is admitted. We cannot agree with this contention. The instrument upon which this action was brought is the promissory note. The action was not brought upon the indorsement. That imposed no liability upon the defendant, and while it was the duty of the latter to deny execution of the note under oath, it was not his duty to do this with reference to the indorsement. The reason for this is plain. The defendant is supposed to know whether he signed the note or not, but in a great majority of cases there is no reason for saying that he is supposed to know whether the payee has or has not indorsed the note to a third person.”
And again, in Lim-Chingco vs. Terariray (5 Phil. Rep.,120), it is said:
“Reasonably construed, the purpose of the enactment (sec.103) appears to have been to relieve a party of the trouble and expense of proving in the first instance an alleged fact, the existence or nonexistence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponent’s case) of establishing which such adverse party is notified by his opponent’s pleading.”
It is further contended that the note is defective because it does not comply with the sixth requisite of article 531 of the Code of Commerce by designating the place of payment. In Compania General de Tabacos vs. Molina (5 Phil. Rep., 142), it is held that this provision is not strictly applicable to promissory notes drawn to order, and that such omission does not in any event destroy their commercial character.
Nor is the objection that the instrument is defective in not containing its specific name as provided by the first paragraph of article 531 a valid one. The words “I promise to pay” sufficiently identify its character. (Rodriguez vs. Lasala, 5 Phil. Rep., 357.)
The note does not show that it arose from commercial transactions. Counsel for the appellants contends that its failure to do so is fatal and quotes extensively from Banco Espanol-Filipino vs. Tan-Tongco (13 Phil. Rep., 628), to support this contention. It may be well to review the former decisions of this court on the point in question. In Compania General de Tabacos vs. Molina (5 Phil. Rep., 142), the note under consideration read as follows:
“Three months after date I promise to pay to the order of the Compania General de Tabacos de Filipinas three thousand three hundred and nineteen pesos and seventy-four cents, value received in merchandise to my entire satisfaction.”
The court said: “In order to bring the document within the Code of Commerce it must appear that it had its origin in commercial operations. It seems to be the contention of the appellant that this fact must appear in the note itself. This, in our opinion, can not be sustained. If the requirements of article 531 are complied with, and, nevertheless, it does not appear from the note itself that it had its origin in commercial operations, this fact can be proved by other evidence. In other words, if the origin and nature of the consideration is stated, and that statement does not show that the note proceeded from commercial operations, the document, nevertheless, is a commercial document, if it can be proved by other evidence that it did proceed from such operations.”
In Noel vs. Lasala (5 Phil. Rep., 260), two promissory notes were in question, reading as follows:
“I acknowledge to have received from Juan Noel the sum of seven thousand pesos which I promise to pay to him or to his order within two years from this date, together with interest at the rate of ten per cent per annum.”
“I acknowledge to have received from Juan Noel the sum of two thousand pesos which I promise to pay to him or to his order within two years from date, with interest at the rate of ten per cent per annum.”
The defendant claimed that those notes were negotiable under, the Code of Commerce. As to this, the court said:
“Promissory notes payable to order and drawn as prescribed in article 531 of the Code of Commerce shall be considered mercantile instruments when they arise from mercantile transactions as required in article 532, and not otherwise. There is nothing in the notes indicating that such was the case in this particular instance, nor has any evidence been introduced on this point. For this reason they can not be considered mercantile instruments, and the provisions of article 950 of the Code of Commerce are not applicable thereto.”
(The phrase, “nor has any evidence been introduced on this point,” was omitted from the English translation.)
The notes themselves were the sole evidence before the court, and as they showed no indication of a commercial origin, they were properly held not to have arisen from commercial transactions.
In Rodriguez vs. Lasala (5 Phil. Rep., 357), the note read:
“I have in my possession the sum of six thousand pesos in cash, received of Da. Vicenta Rodriguez, which I will pay (pagare) to said lady or to her order, within two years from date, with interest at the rate of ten per cent per annum.”
The court said: “It does not appear upon the face of the pagare in question that it had its origin in commercial operations, and therefore the burden of proof as to this point is on the defendant, who alleges that it is a commercial instrument. * * * The defendant having failed to establish this point affirmatively, his contention that the pagare is a mercantile instrument can not be sustained, and plaintiff is entitled to judgment.”
The result is that this court has up to this time firmly established by an unbroken line of decisions: (1) that in order to bring promissory notes made payable to order within the Code of Commerce it must appear that they had their origin in commercial operations; (2) that if this fact does not appear in the notes themselves it can be proved by other evidence; and (3) that in such cases the burden of proof is on the person who alleges that the notes are commercial instruments. Does the case of Banco Espanol-Filipino vs. Tan-Tongco (13 Phil. Rep., 628), change or materially modify this doctrine ?
The note in the case last mentioned reads as follows:
“Three months from this date I hereby promise to pay, in Manila, to the order of D. Geronimo Jose, the sum of three thousand six hundred pesos, Mexican currency, value received in cash for commercial transactions.
“Manila, 21st of July, 1902.
(Signed) “FULGENCIO TAN-TONGCO.
“Pay to the order of the Banco Espanol-Filipino for value received from the same in cash.
(Signed) “GERONIMO JOSE.”
Counsels’ quotation, referred to above, is as follows:
“According to the language of article 532, which states that ‘drafts payable to order between merchants, and bills or promissory notes, likewise payable to order, which arise from commercial transactions, shall produce the same obligations and effects as bills of exchange, except with regard to acceptance, which is a quality of the latter only/ it would seem (1) that drafts payable to order between parties who are not merchants have not a mercantile character; (2) that a promissory note made payable to order, even though it were made by a person who is hot a merchant, provided it arose from commercial transactions, has the character of a mercantile document.
“On the second point, the majority holds that it is not necessary to show, either judicially or extra judicially, that the note herein arose from commercial transactions; it need not be shown judicially, because the defendant has not offered any denial in his answer to the complaint. On the contrary, the parties have submitted the document, as executed, to the courts for a decision as to whether, in accordance with the law, it is a mercantile document or not. It need not be shown extrajudicially, because it would be absolutely contrary to the idea of mercantile transactions and to the nature of contracts arid commercial legislation, that a bank, every time a promissory note was presented, drawn in terms similar to those of the one at bar, should require the drawer and the indorser to produce books and other evidence to establish the fact, and to show that the note arose from commercial transactions as, for example, from the dissolution of a commercial copartnership, from a current account, from the balancing of accounts of a commission agent, from the liability resulting from a commercial deposit, etc., and to make sure of all these proofs against the contingency of a litigation.
“Beyond the fact that the question set up is purely one of law, and as both parties agree to the facts contained in the document, the point to be decided is whether or not a promissory note payable to order for a certain sum received in cash for commercial transactions, as it is worded, is a mercantile document.
“As to the third point, the decisions cited of the supreme court of Spain, its doctrine is as follows:
" ‘It is not sufficient that a vale or promissory note, in order to be juridically valued as a commercial document, contain the conditions stated in article 571 of the Code of Commerce; it must, in addition, arise from commercial transactions as required by article 558 (of the code of 1829), and there is nothing whatever about the note in question to show that said essential requirement of the law had been fulfilled, because it is only stated therein that the borrower received the 5,000 pesetas for a business matter, and said isolated statement neither proves that the loan arose from a commercial transaction, as the law requires, nor can it possess legal value so long as the truth of the fact contained in said statement remains unproven, namely, that the borrower used the 5,000 pesetas for commercial purposes.’ (Decision of April 10, 1894.) “From the whole of this doctrine it would seem that the promissory note in question did not contain the form of article 387, to wit: ‘for commercial transactions;’ that with said statement the note would have appeared as a commercial loan; and that, being a commercial document, it would have then contained the necessary indication that it arose from commercial transactions. This is the important part of the decision: that a note arises from a commercial transaction if it is the outcome of a commercial loan, and the loan is a commercial one when the things loaned are for commercial operations or transactions.”
The above quotation standing alone seems to support counsels’ contention, but on examination of the entire opinion we think it will be found that the doctrine does not go that far. Both the maker and the indorser were sued. No proof whatever was presented except the note. The only question before the court was the liability of the indorser, and his liability depended upon the question whether or not the note was a mercantile instrument. It was so decided, the court holding that the words, “for commercial transactions,” were sufficient to bring the note within the provisions of the Code of Commerce. The question whether the fact that a promissory note made payable to order had its origin in commercial operations could be proved by other evidence than the note itself was not an issue in the case. The note did not show that either the payor or payee was a merchant. Out of this fact arose the principal issue before the court. It was during the consideration of this point that the court used the language above set forth. This case does not warrant the statement that it is authority for the doctrine that all promissory notes, in order to be negotiable, must bear the expression “for commercial transactions” or an equivalent, unless it were also authority for the statement that promissory notes made payable to order never arise from commercial transactions except as the result of loans of money. It need hardly be said that this latter proposition is clearly erroneous. Such notes often arise from the settlement of accounts between merchants, transactions of purchase and sale, etc., wherein no money is transferred at all. To require such a phrase (for commercial transactions) to be inserted would be paradoxical in the extreme, for the reason that there would be no funds to be devoted to commercial operations. Furthermore, the phrase, “for commercial transactions,’ used in connection with a loan of money implies future operations while a promissory note evidencing a purchase and sale, for example, obviously cannot refer to any future transactions. It is true that a promissory note made payable to order containing the words, “for commercial transactions,” or an equivalent expression, sufficiently indicates its commercial character. But this test is only positive and inclusive and not negative and exclusive. We therefore conclude that because a promissory note made payable to order does not contain the words, “for commercial transactions,” or some similar expression, it cannot be immediately concluded that it did not arise from commercial operations. In the absence of any such expression in the note itself other evidence is admissible to prove that fact.
We have examined the decisions of this court and restate the doctrine there announced for the purpose of disposing of the assignment of errors. But it might be said that this was unnecessary for the reason that the recitals in the note do not show that it is a negotiable instrument, nor are there any allegations in the complaint to the effect that the note had its origin in commercial operations. If it had been alleged and proved that the note arose from commercial transactions and had been duly indorsed for a valuable consideration, the plaintiff would have established its right to the collection of the note, unaffected by any equities the makers may have against the payees, but as this was not done the ruling of the court on the demurrer and the rendering of final judgment upon untried issues of fact were erroneous. For the foregoing reasons the judgment appealed from is set aside and the case will be returned for further proceedings in accordance with this decision. Without costs.
Arellano, C. J., and Araullo, J., concur. Carson, J. concurs in the result.