G.R. No. 187769.G.R. No. 187769.

*
ALVIN PATRIMONIO, petitioner, vs. NAPOLEON
GUTIERREZ and OCTAVIO MARASIGAN III,
respondents.

Remedial Law; Civil Procedure; Appeals; Petition for

Review on Certiorari; The rule that questions of fact are not the
proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an
absolute rule that admits of no exceptions.The rule that
questions of fact are not the proper subject of an appeal by
certiorari, as a petition for review under Rule 45 is limited only
to questions of law, is not an absolute rule that admits of no
exceptions. One notable exception is when the findings of fact of
both the trial court and the CA are conflicting, making their
review necessary. In the present case, the tribunals below
arrived at two conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the
loan. Accordingly, we will examine the parties evidence
presented.

Civil Law; Contracts; Agency; As a general rule, a contract

of agency may be oral. However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land
or any interest therein through an agent.Article 1868 of the
Civil Code defines a contract of agency as a contract whereby a
person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or
authority of the latter. Agency may be express, or implied from
the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is
acting on his behalf without authority. As a general rule, a
contract of agency may be oral. However, it must be written
when the law requires a specific form, for example, in a sale of
a piece of land or any interest therein through an agent.

Same; Same; Same; Loans; Special Power of Attorney;

Article 1878, paragraph 7 of the Civil Code expressly requires a
special power of authority before an agent can loan or borrow
money in behalf of the principal.Article 1878, paragraph 7 of
the Civil Code

_______________
* SECOND DIVISION.

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Patrimonio vs. Gutierrez

expressly requires a special power of authority before an agent

can loan or borrow money in behalf of the principal, to wit: Art.
1878. Special powers of attorney are necessary in the
following cases: x x x x (7) To loan or borrow money,
unless the latter act be urgent and indispensable for the
preservation of the things which are under administration.
(emphasis supplied) Article 1878 does not state that the
authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably
declared in Lim Pin v. Liao Tian, et al., 115 SCRA 290 (1982),
that the requirement under Article 1878 of the Civil Code
refers to the nature of the authorization and not to its form. Be
that as it may, the authority must be duly established by
competent and convincing evidence other than the self-serving
assertion of the party claiming that such authority was verbally
given.

Same; Same; Same; Same; A contract of loan, like any other

contract, is subject to the rules governing the requisites and
validity of contracts in general.Another significant point that
the lower courts failed to consider is that a contract of loan, like
any other contract, is subject to the rules governing the
requisites and validity of contracts in general. Article 1318 of
the Civil Code enumerates the essential requisites for a valid
contract, namely: 1. consent of the contracting parties; 2.
object certain which is the subject matter of the contract; and 3.
cause of the obligation which is established. In this case, the
petitioner denied liability on the ground that the contract
lacked the essential element of consent. We agree with the
petitioner. As we explained above, Gutierrez did not have the
petitioners written/verbal authority to enter into a contract of
loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not
privy to the loan agreement. Hence, only Gutierrez is bound by
the contract of loan.

Mercantile Law; Negotiable Instruments Law; Incomplete

But Delivered Instruments; In order that one who is not a holder
in due course can enforce the instrument against a party prior to
the instruments completion, two requisites must exist: (1) that
the blank must be filled strictly in accordance with the authority
given; and (2) it must be filled up within a reasonable time.
This provision applies to an incomplete but delivered
instrument. Under this rule, if the maker or drawer delivers a
pre-signed blank paper to another person

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638 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

for the purpose of converting it into a negotiable instrument,

that person is deemed to have prima facie authority to fill it up.
It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such
possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to
fill up the blanks. In order however that one who is not a holder
in due course can enforce the instrument against a party prior
to the instruments completion, two requisites must exist: (1)
that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a reasonable
time. If it was proven that the instrument had not been filled
up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in
due course, there is a conclusive presumption that authority to
fill it up had been given and that the same was not in excess of
authority.

Same; Same; Holder in Due Course; Section 52(c) of the

Negotiable Instruments Law (NIL) states that a holder in due
course is one who takes the instrument in good faith and for
value.Section 52(c) of the NIL states that a holder in due
course is one who takes the instrument in good faith and for
value. It also provides in Section 52(d) that in order that one
may be a holder in due course, it is necessary that at the time it
was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or
notice of equities of any sort which could be set up against a
prior holder of the instrument. It means that he does not have
any knowledge of fact which would render it dishonest for him
to take a negotiable paper. The absence of the defense, when
the instrument was taken, is the essential element of good
faith.

Same; Same; Same; The Negotiable Instruments Law (NIL)

does not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-
negotiable.Since he knew that the underlying obligation was
not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable.
As correctly noted by the CA, his inaction and failure to verify,
despite knowledge of that the petitioner was not a

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 Patrimonio vs. Gutierrez

party to the loan, may be construed as gross negligence

amounting to bad faith. Yet, it does not follow that simply
because he is not a holder in due course, Marasigan is already
totally barred from recovery. The NIL does not provide that a
holder who is not a holder in due course may not in any case
recover on the instrument. The only disadvantage of a holder
who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable. Among such
defenses is the filling up blank not within the authority.

Same; Same; Same; While under the law, Gutierrez had a

prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or
negotiation) once the check is completed.While under the law,
Gutierrez had a prima facie authority to complete the check,
such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation) once the check is
completed. In other words, only the authority to complete the
check is presumed. Further, the law used the term prima
facie to underscore the fact that the authority which the law
accords to a holder is a presumption juris tantum only; hence,
subject to subject to contrary proof. Thus, evidence that there
was no authority or that the authority granted has been
exceeded may be presented by the maker in order to avoid
liability under the instrument.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Reyno, Tiu, Domingo & Santos for petitioner.
Benjamin S. Benito for respondent Marasigan III.

BRION, J.:

Assailed in this petition for review on certiorari[1]

under Rule 45 of the Revised Rules of Court is the
decision[2] dated
_______________
[1] Under Rule 45 of the Rules of Court, Rollo, pp. 9-31.
[2] Id., at pp. 30-47; penned by Associate Justice Monina Arevalo-
Zenarosa, and concurred in by Associate Justices Regalado E.
Maambong and Sixto C. Marella, Jr.

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640 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

September 24, 2008 and the resolution[3] dated April 30,

2009 of the Court of Appeals (CA) in C.A.-G.R. CV No.
82301. The appellate court affirmed the decision of the
Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan
filed by petitioner Alvin Patrimonio and ordering him to
pay respondent Octavio Marasigan III (Marasigan) the
sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are
briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez
(Gutierrez) entered into a business venture under the
name of Slam Dunk Corporation (Slam Dunk), a
production outfit that produced mini-concerts and shows
related to basketball. Petitioner was already then a
decorated professional basketball player while Gutierrez
was a well-known sports columnist.
In the course of their business, the petitioner pre-
signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payees
name, date or amount. The blank checks were entrusted
to Gutierrez with the specific instruction not to fill them
out without previous notification to and approval by the
petitioner. According to petitioner, the arrangement was
made so that he could verify the validity of the payment
and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioners
knowledge and consent, Gutierrez went to Marasigan
(the petitioners former teammate), to secure a loan in
the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his
house. In addition to the payment of the principal,
Gutierrez assured Marasigan that

_______________
[3] Id., at pp. 48-50.

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Patrimonio vs. Gutierrez

he would be paid an interest of 5% per month from

March to May 1994.
After much contemplation and taking into account his
relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez request and gave him
P200,000.00 sometime in February 1994. Gutierrez
simultaneously delivered to Marasigan one of the blank
checks the petitioner pre-signed with Pilipinas Bank,
Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words Cash Two Hundred
Thousand Pesos Only, and the amount of P200,000.00.
The upper right portion of the check corresponding to the
date was also filled out with the words May 23, 1994
but the petitioner contended that the same was not
written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but
it was dishonored for the reason ACCOUNT CLOSED.
It was later revealed that petitioners account with the
bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no
avail. He thereafter sent several demand letters to the
petitioner asking for the payment of P200,000.00, but his
demands likewise went unheeded. Consequently, he filed
a criminal case for violation of B.P. 22 against the
petitioner, docketed as Criminal Case No. 42816.
 On September 10, 1997, the petitioner filed before the
Regional Trial Court (RTC) a Complaint for Declaration
of Nullity of Loan and Recovery of Damages against
Gutierrez and co-respondent Marasigan. He completely
denied authorizing the loan or the checks negotiation,
and asserted that he was not privy to the parties loan
agreement.
Only Marasigan filed his answer to the complaint. In
the RTCs order dated December 22, 1997, Gutierrez was
declared in default.
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642 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

The Ruling of the RTC

The RTC ruled on February 3, 2003 in favor of
Marasigan.[4] It found that the petitioner, in issuing the
pre-signed blank checks, had the intention of issuing a
negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his
approval. While under Section 14 of the Negotiable
Instruments Law Gutierrez had the prima facie
authority to complete the checks by filling up the blanks
therein, the RTC ruled that he deliberately violated
petitioners specific instructions and took advantage of
the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder
in due course and accordingly dismissed the petitioners
complaint for declaration of nullity of the loan. It ordered
the petitioner to pay Marasigan the face value of the
check with a right to claim reimbursement from
Gutierrez.
The petitioner elevated the case to the Court of
Appeals (CA), insisting that Marasigan is not a holder in
due course. He contended that when Marasigan received
the check, he knew that the same was without a date,
and hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his
check being used only as a security.
 The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC
ruling, although premised on different factual findings.
After careful analysis, the CA agreed with the petitioner
that Marasigan is not a holder in due course as he did
not receive the check in good faith.
The CA also concluded that the check had been
strictly filled out by Gutierrez in accordance with the
petitioners

_______________
[4] Rollo, pp. 67-72.

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Patrimonio vs. Gutierrez

authority. It held that the loan may not be nullified since

it is grounded on an obligation arising from law and
ruled that the petitioner is still liable to pay Marasigan
the sum of P200,000.00.
After the CA denied the subsequent motion for
reconsideration that followed, the petitioner filed the
present petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan
between him and Marasigan since he never authorized
the borrowing of money nor the checks negotiation to the
latter; (2) under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make
a loan or borrow money in behalf of another; (3) the loan
transaction was between Gutierrez and Marasigan, with
his check being used only as a security; (4) the check had
not been completely and strictly filled out in accordance
with his authority since the condition that the subject
check can only be used provided there is prior approval
from him, was not complied with; (5) even if the check
was strictly filled up as instructed by the petitioner,
Marasigan is still not entitled to claim the checks value
as he was not a holder in due course; and (6) by reason of
the bad faith in the dealings between the respondents, he
is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the
following issues:
1. Whether the contract of loan in the amount of
P200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be
nullified for being void;
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644 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

2. Whether there is basis to hold the petitioner liable

for the payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely
filled out the subject check strictly under the authority
given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Courts Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this
petition are essentially factual in nature. The main point
of inquiry of whether the contract of loan may be
nullified, hinges on the very existence of the contract of
loan a question that, as presented, is essentially, one
of fact. Whether the petitioner authorized the borrowing;
whether Gutierrez completely filled out the subject check
strictly under the petitioners authority; and whether
Marasigan is a holder in due course are also questions of
fact, that, as a general rule, are beyond the scope of a
Rule 45 petition.
The rule that questions of fact are not the proper
subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not
an absolute rule that admits of no exceptions. One
notable exception is when the findings of fact of both the
trial court and the CA are conflicting, making their
review necessary.[5] In the present case, the tribunals
below arrived at two conflicting factual findings, albeit
with the same conclusion, i.e., dismissal of the complaint
for nullity of the loan. Accordingly, we will examine the
parties evidence presented.

_______________
[5]Republic v. Bellate, G.R. No. 175685, August 7, 2013, 703 SCRA
210, 218.

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Patrimonio vs. Gutierrez

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on
the ground that he never authorized the borrowing of
money. He points to Article 1878, paragraph 7 of the
Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The
petitioner contends that absent such authority in
writing, he should not be held liable for the face value of
the check because he was not a party or privy to the
agreement.
Contracts of Agency May be Oral Unless
The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of
agency as a contract whereby a person binds himself to
render some service or to do something in representation
or on behalf of another, with the consent or authority of
the latter. Agency may be express, or implied from the
acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.[6]
However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or
any interest therein through an agent.
 Article 1878, paragraph 7 of the Civil Code expressly
requires a special power of authority before an agent can
loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary

in the following cases:
xxxx

_______________
[6] Article 1869, CIVIL CODE OF THE PHILIPPINES.

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646 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

(7) To loan or borrow money, unless the latter act be

urgent and indispensable for the preservation of the things
which are under administration. (emphasis supplied)

Article 1878 does not state that the authority be in

writing. As long as the mandate is express, such
authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al.,[7]
that the requirement under Article 1878 of the Civil
Code refers to the nature of the authorization and not to
its form. Be that as it may, the authority must be duly
established by competent and convincing evidence other
than the self-serving assertion of the party claiming that
such authority was verbally given, thus:

The requirements of a special power of attorney in

Article 1878 of the Civil Code and of a special authority
in Rule 138 of the Rules of Court refer to the nature of
the authorization and not its form. The requirements are
met if there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906, this
Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written, the one
vital thing being that it shall be express. And more
recently, We stated that, if the special authority is not written,
then it must be duly established by evidence:
 x x x the Rules require, for attorneys to compromise the
litigation of their clients, a special authority. And while the same
does not state that the special authority be in writing the Court
has every reason to expect that, if not in writing, the same be
duly established by evidence other than the self-serving
assertion of counsel himself that such authority was
verbally given him. (Home Insurance Company vs. United
States Lines Company, et al., 21 SCRA 863, 866 [1967]; Vicente
vs. Geraldez, 52 SCRA 210, 225 [1973]). (emphasis supplied)

______________
[7]200 Phil. 685; 115 SCRA 290 (1982).

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Patrimonio vs. Gutierrez

The Contract of Loan Entered Into
by Gutierrez in Behalf of the Peti-
tioner Should be Nullified for Being
Void; Petitioner is Not Bound by the
Contract of Loan
A review of the records reveals that Gutierrez did not
have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner
executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed
that he never authorized Gutierrez (or anyone for that
matter), whether verbally or in writing, to borrow money
in his behalf, nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any
Special Power of Attorney in writing
authorizing him to borrow using your
money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio,
Nov. 11, 1999, p. 105)[8]
 xxxx

Marasigan however submits that the petitioners acts
of pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had
authorized Gutierrez to fill them out and contract the
loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could
not enter into a contract of loan in behalf of the
petitioner. As held in Yasuma v. Heirs of De Villa,[9]
involving a loan con-

_______________
[8] Rollo, p. 82.
[9] G.R. No. 150350, August 22, 2006, 499 SCRA 466, 472.

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648 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

tracted by de Villa secured by real estate mortgages in

the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there
is no basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where

corporate officers as agents of the corporation need a special
power of attorney. In the case at bar, no special power of
attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its
behalf.
xxxx
Therefore, on the first issue, the loan was personal to
de Villa. There was no basis to hold the corporation
liable since there was no authority, express, implied or
apparent, given to de Villa to borrow money from
petitioner. Neither was there any subsequent
ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness
of de Villa (or of his estate after his death). (citations omitted;
emphasis supplied)

This principle was also reiterated in the case of Gozun

v. Mercado,[10] where this court held:

Petitioner submits that his following testimony suffices to

establish that respondent had authorized Lilian to obtain a
loan from him.
xxxx
Petitioners testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of his
wife. While petitioner claims that Lilian was authorized by
respondent, the statement of ac-

_______________
[10] G.R. No. 167812, December 19, 2006, 511 SCRA 305, 313-314.

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Patrimonio vs. Gutierrez

count marked as Exhibit A states that the amount was

received by Lilian in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name
alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order
to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be
made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the
principal. xxx (emphasis supplied)

In the absence of any showing of any agency relations
or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into
with Marasigan is null and void. Thus, the petitioner is
not bound by the parties loan agreement.
Furthermore, that the petitioner entrusted the blank
pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be
presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must
exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but
also its nature and extent.[11] As we held in People v.
Yabut:[12]

Modesto Yambaos receipt of the bad checks from Cecilia Que

Yabut or Geminiano Yabut, Jr., in Caloocan City cannot,
contrary to the holding of the respondent

_______________
[11]People v. Yabut, Nos. L-42847 and L-42902, April 29, 1977, 167 Phil.
336, 343.
[12] Id.

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650 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

Judges, be licitly taken as delivery of the checks to the

complainant Alicia P. Andan at Caloocan City to fix the venue
there. He did not take delivery of the checks as holder, i.e., as
payee or indorsee. And there appears to be no contract of
agency between Yambao and Andan so as to bind the latter for
the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her
messenger or part-time employee. There was no special
fiduciary relationship that permeated their dealings.
For a contract of agency to exist, the consent of both
parties is essential, the principal consents that the other
party, the agent, shall act on his behalf, and the agent
consents so to act. It must exist as a fact. The law makes
no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its
existence, but also its nature and extent. This is more
imperative when it is considered that the transaction
dealt with involves checks, which are not legal tender,
and the creditor may validly refuse the same as payment
of obligation. (at p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the

words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the
petitioner whether he had authorized the borrowing of
money or release of the check. He was thus bound by the
risk accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected
Between Marasigan And Petitioner,
as The Latters Consent Was Not
Obtained

Another significant point that the lower courts failed

to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites
and validity of
651

VOL. 724, JUNE 4, 2014 651

Patrimonio vs. Gutierrez

contracts in general.[13] Article 1318 of the Civil Code[14]

enumerates the essential requisites for a valid contract,
namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the
contract; and
3. cause of the obligation which is established.
 In this case, the petitioner denied liability on the
ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained
above, Gutierrez did not have the petitioners
written/verbal authority to enter into a contract of loan.
While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind
the petitioner whose consent was not obtained and who
was not privy to the loan agreement. Hence, only
Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed
checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute
sufficient authority to borrow money in his behalf and
neither should it be construed as petitioners grant of
consent to the parties loan agreement. Without any
evidence to prove Gutierrez authority, the petitioners
signature in the check cannot be taken, even remotely, as
sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party
in a purported contract, such contract could not have
been perfected; there simply was no contract to speak of.
[15]

_______________

[13] Pentacapital Investment Corporation v. Mahinay, G.R. No.

171736, July 5, 2010, 623 SCRA 284, 302.
[14] Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261).
[15] Deheza-Inamarga v. Alano, G.R. No. 171321, December 18,
2008, 574 SCRA 651, 660.

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652 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez
 With the loan issue out of the way, we now proceed to
determine whether the petitioner can be made liable
under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory
provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled.Where the

instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by
filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates
as a prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when completed
may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a
reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due course, it is
valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with
the authority given and within a reasonable time.

This provision applies to an incomplete but delivered

instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for
the purpose of converting it into a negotiable instrument,
that person is deemed to have prima facie authority to
fill it up. It merely requires that the instrument be in the
possession of a person other than the drawer or maker
and from such possession, together with the fact that the
instrument is wanting in a
653

VOL. 724, JUNE 4, 2014 653

Patrimonio vs. Gutierrez
material particular, the law presumes agency to fill up
the blanks.[16]
In order however that one who is not a holder in due
course can enforce the instrument against a party prior
to the instruments completion, two requisites must exist:
(1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up
within a reasonable time. If it was proven that the
instrument had not been filled up strictly in accordance
with the authority given and within a reasonable time,
the maker can set this up as a personal defense and
avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority
to fill it up had been given and that the same was not in
excess of authority.[17]
In the present case, the petitioner contends that there
is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the
subject check was not completely filled out strictly under
the authority he has given and second, Marasigan was
not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a
holder in due course, thus:

Sec. 52.A holder in due course is a holder who has taken

the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored,
if such was the fact;

_______________
[16] Dy v. People, G.R. No. 158312, November 14, 2008, 571 SCRA 59, 71-72.
[17] T.B. Aquino, Notes and Cases on Banks, Negotiable Instruments and
Other Commercial Documents, p. 234, 2006 ed.

654

654 SUPREME COURT REPORTS ANNOTATED

 Patrimonio vs. Gutierrez

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
(emphasis supplied)

Section 52(c) of the NIL states that a holder in due

course is one who takes the instrument in good faith and
for value. It also provides in Section 52(d) that in order
that one may be a holder in due course, it is necessary
that at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of
the person negotiating it.
Acquisition in good faith means taking without
knowledge or notice of equities of any sort which could be
set up against a prior holder of the instrument.[18] It
means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument
was taken, is the essential element of good faith.[19]
As held in De Ocampo v. Gatchalian:[20]

In order to show that the defendant had knowledge of such

facts that his action in taking the instrument amounted to bad
faith, it is not necessary to prove that the defendant
knew the exact fraud that was practiced upon the
plaintiff by the defendants assignor, it being sufficient
to show that the defendant had notice that there was
something wrong about his assignors acquisition of
title, although he did not have notice of the particular
wrong that was committed.

_______________
[18] A.F. Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, p. 281, 1992 ed.
[19] Id.
[20] No. L-15126, November 30, 1961, 3 SCRA 596, 598.

655
 VOL. 724, JUNE 4, 2014 655
Patrimonio vs. Gutierrez

It is sufficient that the buyer of a note had notice or

knowledge that the note was in some way tainted with fraud. It
is not necessary that he should know the particulars or
even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note
amounted bad faith.
The term bad faith does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their
plunder. It was a case of no questions asked. Although gross
negligence does not of itself constitute bad faith, it is evidence
from which bad faith may be inferred. The circumstances
thrust the duty upon the defendants to make further inquiries
and they had no right to shut their eyes deliberately to obvious
facts. (emphasis supplied)

In the present case, Marasigans knowledge that the

petitioner is not a party or a privy to the contract of loan,
and correspondingly had no obligation or liability to him,
renders him dishonest, hence, in bad faith. The following
exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call after your
birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that
place where Nap and I live together with the
other crew, there were several visitors that
included Danny Espiritu. So a week after my
birthday, Bong Marasigan called me up again
and he was fuming mad. Nagmumura na siya.
Hinahanap niya si hinahanap niya si Nap,
dahil pinagtataguan na siya at sinabi na niya
na kailangan i-settle na niya yung utang ni
Nap, dahil
xxxx
 656

656 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

WITNESS: Yes. Sinabi niya sa akin na kailangan

ayusin na bago pa mauwi sa kung saan ang
tsekeng tumalbog (He told me that we have
to fix it up before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi
mo? (Whose check is it that you are referring to or talking
about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin
who borrowed money from you or what you want to
appear
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang
hawak ko at si Alvin ang maiipit dito. (T.S.N., Ambet
Nabus, July 27, 2000; pp. 65-71; emphasis supplied)[21]

Since he knew that the underlying obligation was not

actually for the petitioner, the rule that a possessor of
the instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction
and failure to verify, despite knowledge of that the
petitioner was not a party to the loan, may be construed
as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a
holder in due course, Marasigan is already totally barred
from recovery. The NIL does not provide that a holder
who is not a holder in due course may not in any case
recover on the in-

_______________
[21] Rollo, pp. 141-142.
 657

VOL. 724, JUNE 4, 2014 657

Patrimonio vs. Gutierrez

strument.[22] The only disadvantage of a holder who is

not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.[23]
Among such defenses is the filling up blank not within
the authority.
On this point, the petitioner argues that the subject
check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use
the check without his prior approval and argues that the
check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under
The Authority Given by The Petitioner
Our own examination of the records tells us that
Gutierrez has exceeded the authority to fill up the blanks
and use the check. To repeat, petitioner gave Gutierrez
pre-signed checks to be used in their business provided
that he could only use them upon his approval. His
instruction could not be any clearer as Gutierrez
authority was limited to the use of the checks for the
operation of their business, and on the condition that the
petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie
authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent
transfer or negotiation) once the check is completed. In
other words, only the authority to complete the check is
presumed. Further, the law used the term prima facie
to underscore the fact that the authority which the law
accords to a holder is a presumption juris tantum only;
hence, subject to subject to contrary proof. Thus, evidence
that there was no authority or that the authority granted
has been exceeded may be presented by the maker in
order to avoid liability under the instrument.

_______________
 [22] Dino v. Loot, G.R. No. 170912, April 19, 2010, 618 SCRA 393,
404.
[23] Id.

658

658 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

In the present case, no evidence is on record that

Gutierrez ever secured prior approval from the petitioner
to fill up the blank or to use the check. In his testimony,
petitioner asserted that he never authorized nor
approved the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone

including Nap Gutierrez to write the
date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone
including Nap Gutierrez to put the
word cash? In the check?
A: No, sir.
Q: Did you authorize anyone
including Nap Gutierrez to write the
figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize
anyone including Nap Gutierrez to
write the words P200,000 only xx in
this check?
A: No, sir. (T.S.N., Alvin
Patrimonio, November 11, 1999).[24]

Notably, Gutierrez was only authorized to use the

check for business expenses; thus, he exceeded the
authority when he used the check to pay the loan he
supposedly contracted for the construction of petitioners
house. This is a clear violation of the petitioners
instruction to use the checks for the expenses of Slam
Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the
authority given by the petitioner.
Considering that Marasigan is not a holder in due
course, the petitioner can validly set up the personal
defense that the

_______________
[24] Rollo, p. 117.

659

VOL. 724, JUNE 4, 2014 659

Patrimonio vs. Gutierrez

blanks were not filled up in accordance with the

authority he gave. Consequently, Marasigan has no right
to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is
hereby rendered GRANTING the petitioner Alvin
Patrimonios petition for review on certiorari. The
appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals
are consequently ANNULLED AND SET ASIDE. Costs
against the respondents.
SO ORDERED.

Carpio (Chairperson), Del Castillo, Perez and Perlas-

Bernabe, JJ., concur.

Petition granted, judgment and resolution annulled

and set aside.

Notes.Owing to the consumable nature of the thing

loaned, the resulting duty of the borrower in a contract of
loan is to pay, not to return, to the creditor or lender the
very thing loaned, and this explains why the ownership
of the thing loaned is transferred to the debtor upon
perfection of the contract; Evidently, the resulting
relationship between a creditor and debtor in a contract
 of loan cannot be characterized as fiduciary; Absent any
special facts and circumstances proving a higher degree
of responsibility, any dealings between a lender and
borrower are not fiduciary in nature. (Republic vs.
Sandiganbayan [First Division], 648 SCRA 47 [2011])
A crossed check is one where two parallel lines are drawn
across its face or across its corner; The crossing of a
check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check
may be negotiated only once to the one who has an
account with the bank; and (c) the act of crossing the
check serves as a warning to the
660

660 SUPREME COURT REPORTS ANNOTATED

Patrimonio vs. Gutierrez

holder that the check has been issued for a definite

purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in
due course. (Philippine Commercial International Bank
vs. Balmaceda, 658 SCRA 33 [2011])

o0o

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