ROSALINE O.

ESCOBAR

ALVIN PATRIMONIO v. NAPOLEON GUTIERREZ and OCTAVIO

MARASIGAN III
G.R. No. 187769, June 4, 2014

FACTS OF THE CASE:

The petitioner and the respondent Gutierrez entered into a business venture under the
name of Slam Dunk Corporation, a production outfit that produced mini-concerts and
shows related to basketball. 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.

without the petitioner's knowledge and consent, Gutierrez went to Marasigan 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 he would be paid an interest of 5% per
month. Marasigan acceded to Gutierrez's request and gave him P200,000.00.

Gutierrez simultaneously delivered to Marasigan one of the blank checks the

petitioner pre-signed with Pilipinas Bank with the blank portions filled out with the
words "Cash" "Two Hundred Thousand Pesos Only", and the amount of
"P200,000.00."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. 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.

Petitioner filed before the RTC a Complaint for Declaration of Nullity of Loan and
Recovery of Damages against Gutierrez and co-respondent Marasigan. RTC ruled in
favor of Marasigan. 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. 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. CA affirmed the RTC ruling.

ISSUE:

Whether or not Marasigan is a holder in due course thus may hold Petitioner liable.
HELD:

NO. Section 14 of the Negotiable Instruments Law provides for when blanks may be
filled. 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 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.

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.

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 beset 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.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. The term
'bad faith' does not necessarily involve furtive motives, but means bad faith in a
commercial sense. Although gross negligence does not of itself constitute bad faith, it
is evidence from which bad faith may be inferred.

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. 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 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.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 tantumonly; 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.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 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