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

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* 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 petitioner’s
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 instrument’s
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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 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 instrument’s 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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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

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[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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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 payee’s 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 petitioner’s knowledge and
consent, Gutierrez went to Marasigan (the petitioner’s 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

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

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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 petitioner’s 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 check’s
negotiation, and asserted that he was not privy to the parties’ loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s
order dated December 22, 1997, Gutierrez was declared in default.

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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 petitioner’s 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 petitioner’s 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 petitioner’s

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[4] Rollo, pp. 67-72.

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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 check’s 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 check’s 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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 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 Court’s 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 petitioner’s 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

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

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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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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 petitioner’s 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 petitioner’s 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.
Marasigan’s 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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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
Petitioner’s 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. x x x (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 Yambao’s receipt of the bad checks from Cecilia Que Yabut or
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of
the respondent

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

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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 Latter’s 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

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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
petitioner’s 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 petitioner’s grant of
consent to the parties’ loan agreement. Without any evidence to
prove Gutierrez’ authority, the petitioner’s 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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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

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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 instrument’s
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.

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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 defendant’s assignor, it being sufficient to show
that the defendant had notice that there was something wrong about his
assignor’s 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.

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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, Marasigan’s 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

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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 Alvin’s 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.

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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 petitioner’s 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.

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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 petitioner’s house. This is a clear violation of the petitioner’s
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.

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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 Patrimonio’s 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

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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])

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