Patrimonio vs. Gutierrez | June 4, 2014| J. Brion
Consequently, he filed a criminal case for
Drawer: Alvin rsePatrimonio
Drawee: Pilipinas Bank, Greenhills Branch
Payee (not written by Patrimonio): Cash
Amount (not written by Patrimonio): Php 200,000
Facts:
The Patrimonio and 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.
Patrimonio 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’ 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.”
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.
violation of B.P. 22 against the petitioner.
Patrimonio filed a complaint in the RTC for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez
and Marasigan. He denied authorizing the loan and the check’s
negotiation. He also asserted that he was not privy to the
contract between Marasigan and Gutierrez.
The 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.
The CA affirmed the RTC ruling. The CA agreed to the
contention of Patrimonio that Marasigan is not a holder in due
course. However, it rules that Gutierrez filled up the said
checks in accordance with his authority.
Issue: Whether or not Marasigan is a holder in due course
and thus may hold Patrimonio liable? – 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 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.
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 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.

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.