Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:
(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.
GENERAL RULE AS TO THE ADDITIONAL ACT
The general rule is that an instrument must not contain an order or promise to do any act in addition to the payment of money. Otherwise, the instrument wouldn’t be negotiable.
FOUR EXCEPTIONS TO THE GENERAL RULE
1. SALE OF COLLATERAL SECURITIES if the instrument be not paid at maturity
2. Authorizes CONFESSION OF JUDGMENT if the instrument be not paid at maturity
3. WAIVER OF BENEFIT OF LAW for the protection and benefit of the obligor
4. Gives the HOLDER an election to require something to be done in lieu of payment of money
PROMISE TO FURNISH ADDITIONAL SECURITY
A promise of the maker to render additional collateral will render the note non-negotiable, as that would be an additional act to the promise to pay money
However, they are to be distinguished from those instruments in which the holder may demand collateral, and failure to furnish it accelerates the instrument which are clearly negotiable, but merely accelerable on the non-performance of an optional act
SALE OF COLLATERAL SECURITIES
The law gives exceptions to the general rule that “an instrument which contains an order or promise to do any act in addition to the payment of money is non-negotiable”
Sometimes, the obligation arising from the transaction which gives rise to the instrument is secured by a mortgage or pledge
The additional act to be performed is to be executed after the date of maturity, when the instrument ceases to be negotiable in the full commercial sense
Before date of maturity, however, the sale of collateral securities would render the instrument non-negotiable
CONFESSION OF JUDGMENT
Must be after the date of maturity
Second exception to the rule
TWO CLASSES OF CONFESSION OF JUDGMENT
1. Cognovit actionem—a written confession of an action by the defendant, subscribed but not sealed, and irrevocably authorizing any attorney of any court of record to confess judgment and issue
execution usually for the sum named. It is given in order to save expense and differs from a warrant of attorney, which is given to an expressly designated attorney before the commencement of any action and is under seal.
2. Confession relicta verificatione—confession of judgment made after plea is pleaded
WARRANT OF ATTORNEY
Instrument in writing addressed to one or more attorneys named therein, authorizing them, generally to appear in court, or in some specified court on behalf of the person giving it, and to confess judgment in favor of some particular person named therein in an action for debt
EFFECT OF CONFESSION OF JUDGMENT IN THE PHILIPPINES
In the Philippines, a confession of judgment is considered void as it is against public policy--
1. Because they enlarge the field for fraud
2. Because under this treatment, the promissory bargains away his right to a day in court
3. Because the effect of the instrument is to strike down the right to appeal accorded by statute
WAIVER OF BENEFIT
Waives the benefit of any law intended for the advantage and protection of the obligor
Examples: presentment for payment, notice of dishonor, protest
ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT
Fourth exception to the rule
Even if there is an additional act, the instrument still remains to be negotiable provided that the right to choose between payment of money or the performance of the additional act is in the hands of the holder
