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The petitioner Alvin Patrimonio filed a complaint against Napoleon Gutierrez and Octavio Marasigan regarding several blank checks Patrimonio had pre-signed and given to Gutierrez for Slam Dunk Corporation business. Gutierrez negotiated one of the checks to Marasigan without Patrimonio's approval. The RTC and CA both ruled in favor of Marasigan, finding he was a holder in due course since the check was a negotiable instrument despite Patrimonio's instructions, and his signature made it apparent he intended the check could be negotiated.
The petitioner Alvin Patrimonio filed a complaint against Napoleon Gutierrez and Octavio Marasigan regarding several blank checks Patrimonio had pre-signed and given to Gutierrez for Slam Dunk Corporation business. Gutierrez negotiated one of the checks to Marasigan without Patrimonio's approval. The RTC and CA both ruled in favor of Marasigan, finding he was a holder in due course since the check was a negotiable instrument despite Patrimonio's instructions, and his signature made it apparent he intended the check could be negotiated.
The petitioner Alvin Patrimonio filed a complaint against Napoleon Gutierrez and Octavio Marasigan regarding several blank checks Patrimonio had pre-signed and given to Gutierrez for Slam Dunk Corporation business. Gutierrez negotiated one of the checks to Marasigan without Patrimonio's approval. The RTC and CA both ruled in favor of Marasigan, finding he was a holder in due course since the check was a negotiable instrument despite Patrimonio's instructions, and his signature made it apparent he intended the check could be negotiated.
POWER TO SELL AND TO RAISE MONEY The sps Arguelles filed a complaint10 for Annulment of
Mortgage and Cancellation of Mortgage Lien with
MACARIA ARGUELLES and the HEIRS OF THE Damages against the respondent Malarayat Rural Banlc DECEASED PETRONIO ARGUELLES, Petitioners, with the RTC. In asserting the nullity of the mortgage lien, vs. MALARAYAT RURAL BANK, INC., Respondent. the spouses Arguelles alleged ownership over the land FACTS: The late Fermina M. Guia was the registered that had been mortgaged in favor of the Bank. owner of Lot 3, a parcel of agricultural as evidenced by RTC rendered a Decision ruling that the spouses Guia OCT No. P-12930. were no longer the absolute owners of the land described Fermina M. Guia sold the south portion of the land to the as Lot 3-C and covered by TCT No. T-83944 at the time spouses Petronio and Macaria Arguelles. Although the they mortgaged the same to the respondent Malarayat spouses Arguelles immediately acquired possession of the Rural Bank in view of the unregistered sale in favor of the land, the Deed of Sale was neither registered with the vendee spouses Arguelles. Thus, the RTC annulled the Register of Deeds nor annotated on OCT No. P-12930. real estate mortgage, the subsequent foreclosure sale, and the corresponding issuance of the certificate of title. At the same time, Fermina M. Guia ordered her son Eddie Moreover, the RTC declared that the respondent Guia and the latter's wife Teresita Guia to subdivide the Malarayat Rural Bank was not a mortgagee in good faith land covered by OCT No. P-12930 into three lots and to as it failed to exercise the exacting degree of diligence apply for the issuance of separate titles therefor, to wit: required from banking institutions. Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she directed the delivery of the Transfer Certificate of Title (TCT) The CA reversed and set aside the decision of the RTC. corresponding to Lot 3-C to the vendees of the CA held that because of the failure of the spouses unregistered sale or the spouses Arguelles. However, Arguelles to register their deed of sale, the unregistered despite their repeated demands, the spouses Arguelles sale could not affect the respondent Malarayat Rural claimed that they never received the TCT corresponding Bank. Thus, the respondent Malarayat Rural Bank has a to Lot 3-C from the spouses Guia. better right to the land mortgaged as compared to spouses Arguelles who were the vendees in the unregistered sale. In accordance with the instructions of Fermina M. Guia, In addition, the CA found that the respondent Malarayat the spouses Guia succeeded in cancelling OCT No. P- Rural Bank was a mortgagee in good faith as it 12930 and in subdividing the lot: 3-A to Fermina Guia; 3- sufficiently demonstrated due diligence in approving the B to Sps Datingaling; and 3-C to Fermina Guia. loan application of the spouses Guia. The spouses Guia obtained a loan in the amount of Petitioners imputed negligence on the part of respondent ₱240,000 from the respondent Malarayat Rural Banlc and Bank when it approved the loan application of the spouses secured the loan with a Deed of REM over Lot 3-C. The Guia. They pointed out that the bank failed to conduct a loan and REM were made pursuant to the thorough ocular inspection of the land mortgaged and an SPA purportedly executed by the registered owner of Lot extensive investigation of the title of the registered owner. 3-C, Fermina M. Guia, in favor of the mortgagors, And since the respondent Malarayat Rural Bank cannot spouses Guia. be considered a mortgagee in good faith, petitioners Moreover, the Real Estate Mortgage and Special Power argued that the unregistered sale in their favor takes of Attorney were duly annotated in the memorandum of precedence over the duly registered mortgage lien. On the encumbrances of TCT No. T-83944 covering Lot 3-C. other hand, respondent Malarayat Rural Bank claimed that it exercised the required degree of diligence before The spouses Arguelles alleged that it was only in 1997 or granting the loan application. In particular, it asserted the after seven years from the date of the unregistered sale absence of any facts or circumstances that can reasonably that they discovered from the Register of Deeds of arouse suspicion in a prudent person. Thus, the Batangas City the following facts: (1) subdivision of Lot respondent argued that it is a mortgagee in good faith with 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of separate a better right to the mortgaged land as compared to the TCTs for each lot; and (3) the annotation of the Real vendees to the unregistered sale. Estate Mortgage and Special Power of Attorney over Lot 3-C covered by TCT No. T-83944. Two years thereafter, ISSUE: W/N the respondent Malarayat Rural Bank is a or on June 17, 1999, the spouses Arguelles registered their mortgagee in good faith who is entitled to protection on adverse claim9 based on the unregistered sale dated its mortgage lien December 1, 1990 over Lot 3-C. RULING: NO, respondent Malarayat Rural Bank is not Since the subject land was not mortgaged by the owner a mortgagee in good faith. Therefore, the spouses thereof and since the respondent Malarayat Rural Bank is Arguelles as the vendees to the unregistered sale have a not a mortgagee in good faith, said bank is not entitled to superior right to the mortgaged land. protection under the law. The unregistered sale in favor of the spouses Arguelles must prevail over the mortgage lien There is a situation where, despite the fact that the of respondent Malarayat Rural Bank. mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "mortgagee in good faith" based on the rule that all persons dealing with the property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. However, in one case we also ruled that "[i]n cases where the mortgagee does not directly deal with the registered owner of real property, such that when the mortgagor is not the registered owner but merely an atty-in-fact of the same, the law requires that a higher degree of prudence be exercised by the mortgagee." In this case, the respondent Malarayat Rural Bank fell short of the required degree of diligence in approving the loan application of the spouses Guia. Respondent should have diligently conducted an investigation of the land offered as collateral. Although the Report of Inspection and Credit Investigation found at the dorsal portion of the Application for Agricultural Loan29 proved that the respondent Malarayat Rural Bank inspected the land, the respondent turned a blind eye to the finding therein that the "lot is planted [with] sugarcane with annual yield (crops) in the amount of ₱15,000."30 We disagree with respondent's stance that the mere planting and harvesting of sugarcane cannot reasonably trigger suspicion that there is adverse possession over the land offered as mortgage. Indeed, such fact should have immediately prompted the respondent to conduct further inquiries, especially since the spouses Guia were not the registered owners of the land being mortgaged. They merely derived the authority to mortgage the lot from the Special Power of Attorney allegedly executed by the late Fermina M. Guia. Hence, it was incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing with the spouses Guia, and inquire further regarding the identity and possible adverse claim of those in actual possession of the property. ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON The RTC ruled in favor of Marasigan.4 It found that the GUTIERREZ and OCTAVIO MARASIGAN petitioner, in issuing the pre-signed blank checks, had the III, Respondents. intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or issue FACTS: The petitioner and the respondent Napoleon the check without his approval. RTC declared Marasigan Gutierrez (Gutierrez) entered into a business venture as a holder in due course. CA affirmed the RTC ruling. under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and The petitioner argues that: (1) there was no loan between shows related to basketball. Petitioner was already then a him and Marasigan since he never authorized the decorated professional basketball player while Gutierrez borrowing of money nor the check’s negotiation to the was a well-known sports columnist. latter; (2) under Article 1878 of the Civil Code, a special power of attorney is necessary for an individual to make In the course of their business, the petitioner pre-signed a loan or borrow money in behalf of another; (3) the loan several checks to answer for the expenses of Slam Dunk. transaction was between Gutierrez and Marasigan, with Although signed, these checks had no payee’s name, date his check being used only as a security; (4) the check had or amount. The blank checks were entrusted to Gutierrez not been completely and strictly filled out in accordance with the specific instruction not to fill them out without with his authority since the condition that the subject previous notification to and approval by the petitioner. check can only be used provided there is prior approval According to petitioner, the arrangement was made so that from him, was not complied with; (5) even if the check he could verify the validity of the payment and make the was strictly filled up as instructed by the petitioner, proper arrangements to fund the account. Marasigan is still not entitled to claim the check’s value Without the petitioner’s knowledge and consent, as he was not a holder in due course; and (6) by reason of Gutierrez went to Marasigan (the petitioner’s former the bad faith in the dealings between the respondents, he teammate), to secure a loan in the amount of ₱200,000.00 is entitled to claim for damages. on the excuse that the petitioner needed the money for the ISSUE: W/N the contract of loan in the amount of construction of his house. In addition to the payment of 200,000 granted by respondent Marasigan to the the principal, Gutierrez assured Marasigan that he would petitioner, through respondent Gutierrez, may be nullified be paid an interest of 5% per month for being void Marasigan acceded and gave him ₱200,000.00. Gutierrez RULING: YES. simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, with The petitioner seeks to nullify the contract of loan on the the blank portions filled out with the words "Cash" "Two ground that he never authorized the borrowing of money. Hundred Thousand Pesos Only", and the amount of He points to Article 1878, paragraph 7 of the Civil Code, "₱200,000.00". The upper right portion of the check which explicitly requires a written authority when the corresponding to the date was also filled out with the loan is contracted through an agent. The petitioner words "May 23, 1994" but the petitioner contended that contends that absent such authority in writing, he should the same was not written by Gutierrez. not be held liable for the face value of the check because he was not a party or privy to the agreement. Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." Marasigan sought Article 1878 paragraph 7 of the Civil Code expressly recovery from Gutierrez, to no avail. He thereafter sent requires a special power of authority before an agent can several demand letters to the petitioner asking for the loan or borrow money in behalf of the principal, to wit: payment of ₱200,000.00, but his demands likewise went Art. 1878. Special powers of attorney are necessary in the unheeded. Consequently, he filed a criminal case for following cases: violation of B.P. 22 against the petitioner xxxx Petitioner then filed before the RTC a Complaint for Declaration of Nullity of Loan and Recovery of Damages (7) To loan or borrow money, unless the latter act be against Gutierrez and co-respondent Marasigan. He urgent and indispensable for the preservation of the things completely denied authorizing the loan or the check’s which are under administration. (emphasis supplied) negotiation, and asserted that he was not privy to the parties’ loan agreement. 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 one Other rulings: case that the requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to It is a contract of loan so the petitioner denied liability its form. Be that as it may, the authority must be duly on the ground that the contract lacked the essential established by competent and convincing evidence other element of consent. We agree with the petitioner. As than the self serving assertion of the party claiming that we explained above, Gutierrez did not have the such authority was verbally given. And more recently, We petitioner’s written/verbal authority to enter into a stated that, if the special authority is not written, then it contract of loan. While there may be a meeting of the must be duly established by evidence. minds between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent Here, the Contract of Loan Entered Into by Gutierrez in was not obtained and who was not privy to the loan Behalf of the Petitioner Should be Nullified for Being agreement. Hence, only Gutierrez is bound by the Void; Petitioner is Not Bound by the Contract of Loan. contract of loan. Sec. 14 of NIL. This provision applies to an A review of the records reveals that Gutierrez did not have incomplete but delivered instrument. Under this rule, any authority to borrow money in behalf of the petitioner. if the maker or drawer delivers a pre-signed blank Records do not show that the petitioner executed any paper to another person for the purpose of converting special power of attorney (SPA) in favor of Gutierrez. In it into a negotiable instrument, that person is deemed fact, the petitioner’s testimony confirmed that he never to have prima facie authority to fill it up. It merely authorized Gutierrez (or anyone for that matter), whether requires that the instrument be in the possession of a verbally or in writing, to borrow money in his behalf, nor person other than the drawer or maker and from such was he aware of any such transaction: possession, together with the fact that the instrument Marasigan however submits that the petitioner’s acts of is wanting in a material particular, the law presumes pre-signing the blank checks and releasing them to agency to fill up the blanks. Gutierrez suffice to establish that the petitioner had In order however that one who is not a holder in due authorized Gutierrez to fill them out and contract the loan course can enforce the instrument against a party prior in his behalf. to the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in Marasigan’s submission fails to persuade us. In the accordance with the authority given; and (2) it must absence of any authorization, Gutierrez could not enter be filled up within a reasonable time. into a contract of loan in behalf of the petitioner. Notably, Gutierrez was only authorized to use the In the absence of any showing of any agency relations or check for business expenses; thus, he exceeded the special authority to act for and in behalf of the petitioner, authority when he used the check to pay the loan he the loan agreement Gutierrez entered into with Marasigan supposedly contracted for the construction of is null and void. Thus, the petitioner is not bound by the petitioner's house. This is a clear violation of the parties’ loan agreement. petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly Furthermore, that the petitioner entrusted the blank pre- concluded that the check was completed strictly in signed checks to Gutierrez is not legally sufficient accordance with the authority given by the petitioner. because the authority to enter into a loan can never be Considering that Marasigan is not a holder in due presumed. The contract of agency and the special course, the petitioner can validly set up the personal fiduciary relationship inherent in this contract must exist defense that the blanks were not filled up in as a matter of fact. The person alleging it has the burden accordance with the authority he gave. Consequently, of proof to show, not only the fact of agency, but also its Marasigan has no right to enforce payment against the nature and extent. petitioner and the latter cannot be obliged to pay the The records show that Marasigan merely relied on the face value of the check. 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. LEONARDO C. CASTILLO, REPRESENTED BY Both parties elevated the case to the CA. The CA denied LENNARD V. CASTILLO VS SECURITY BANK Leonardo’s appeal and granted that of the Spouses CORPORATION, JRC POULTRY FARMS OR SPS Castillo and SBC. It reversed and set aside the RTC LEON C. CASTILLO, JR., AND TERESITA Decision, essentially ruling that the August 5, 1994 real FLORESCASTILLO estate mortgage is valid. FACTS: Petitioner Leonardo C. Castillo and respondent ISSUE: W/N the real estate mortgage constituted over the Leon C. Castillo, Jr. are siblings. Leon and Teresita property under TCT No. T-28297 is valid and binding. Flores-Castillo (the Spouses Castillo) were doing RULING: YES. CA affirmed. business under the name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo obtained a loan from The following are the legal requisites for a mortgage to be respondent SBC in the amount of ₱45,000,000.00. To valid: secure said loan, they executed a real estate mortgage on August 5, 1994 over eleven (11) parcels of land belonging (1) It must be constituted to secure the fulfillment of a to different members of the Castillo family and which are principal obligation; all located in San Pablo City.4 They also procured a (2) The mortgagor must be the absolute owner of the thing second loan5 amounting to ₱2,500,000.00, which was mortgaged; covered by a mortgage on a land in Pasay City. Subsequently, the Spouses Castillo failed to settle the (3) The persons constituting the mortgage must have the loan, prompting SBC to proceed with the foreclosure of free disposal of their property, and in the absence thereof, the properties. SBC was then adjudged as the winning they should be legally authorized for the purpose bidder in the foreclosure sale held on July 29, 1999. Leonardo asserts that his signature inthe SPA authorizing Thereafter, they were able to redeem the foreclosed his brother, Leon, to mortgage his property covered by properties, withthe exception of the lots covered by TCT No. T-28297 was falsified. He claims that he was in Torrens Certificate of Title(TCT) Nos. 28302 and 28297. America at the time of its execution. As proof of the On January 30, 2002, Leonardo filed a complaint for the forgery, he focuses on his alleged CTC used for the partial annulment of the real estate mortgage. He alleged notarization10 of the SPA on May 5, 1993 and points out that he owns the property covered by TCT No. 28297 and that it appears to have been issued on January 11, 1993 that the Spouses Castillo used it as one of the collaterals when, in fact, he only obtained it on May 17, 1993. But it for a loan without his consent. He contested his supposed is a settled rule that allegations of forgery, like all other Special Power of Attorney (SPA) in Leon’s favor, allegations, must be proved by clear, positive, and claiming that it is falsified. According to him, the date of convincing evidence by the party alleging it. It should not issuance of his Community Tax Certificate (CTC) as be presumed, but must beestablished by comparing the indicated on the notarization of said SPA is January 11, alleged forged signature with the genuine 1993, when he only secured the same on May 17, 1993. signatures.11 Here, Leonardo simply relied on his self- He also assailed the foreclosure of the lots under TCT serving declarations and refused to present further Nos.20030 and 10073 which were still registered in the corroborative evidence, saying that the falsified document name of their deceased father. Lastly, Leonardo attacked itself is the best evidence.12 He did not even bother SBC’s imposition of penalty and interest on the loans as comparing the alleged forged signature on the SPA with being arbitrary and unconscionable. samples of his real and actual signature. What he consistently utilized as lone support for his allegation was On the other hand, the Spouses Castillo insisted on the the supposed discrepancy on the date of issuance of his validity of Leonardo’s SPA. They alleged that they CTC as reflectedon the subject SPA’s notarial incurred the loan not only for themselves, but also for the acknowledgment. On the contrary, in view of the great other members of the Castillo family who needed money ease with which CTCs are obtained these days,13 there is at that time. Upon receipt of the proceeds of the loan, they reasonable ground to believe that, as the CA correctly distributed the same to their family members, as agreed observed, the CTC could have been issued with the space upon. However, when the loan became due, their relatives for the date left blank and Leonardo merelyfilled it up to failed to pay their respective shares such that Leon was accommodate his assertions. Also, upon careful forced to use his own money until SBC had to finally examination, the handwriting appearing on the space for foreclose the mortgage over the lots. the date of issuance is different from that on the RTC ruled in favor of Leonardo that REM is null/void. computation of fees, which in turn was consistent with the rest of the writings on the document.14 He did not likewise SBC was remiss in the exercise of the standard care and attempt to show any evidence that would back up his prudence required of it or that it was negligent in claim that at the time of the execution of the SPA on May accepting the mortgage.26 SBC could not likewise 5, 1993, he was actually in America and therefore could befaulted for relying on the presumption of regularity of not have possibly appeared and signed the document the notarized SPA when it entered into the subject before the notary. mortgage agreement. And even if the Court were to assume, simply for the sake Finally, the Court finds that the interest and penalty of argument, that Leonardo indeed secured his CTC only charges imposed by SBC are just, and not excessive or on May 17, 1993, this does not automatically render the unconscionable. SPA invalid. The appellate court aptly held that defective notarization will simply strip the document of its public character and reduce it to a private instrument, but nonetheless, binding, provided its validity is established by preponderance of evidence Here, the preponderance ofevidence indubitably tilts in favor of the respondents, still making the SPA binding between the parties even with the aforementioned assumed irregularity. There are several telling circumstances that would clearly demonstrate that Leonardo was aware of the mortgage and he indeed executed the SPA to entrust Leon with the mortgage of his property. Leon had in his possession all the titles covering the eleven (11) properties mortgaged, including that of Leonardo.20 Leonardo and the rest of their relatives could not have just blindly ceded their respective TCTs to Leon.21 It is likewise ridiculous how Leonardo seemed to have been totally oblivious to the status of his property for eight (8) long years, and would only find outabout the mortgage and foreclosure from a nephew who himself had consented to the mortgage of his own lot.22 Considering the lapse of time from the alleged forgery on May 5, 1993 and the mortgage on August 5, 1994, to the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it appears that the suit is a mere afterthought or a last-ditch effort on Leonardo’s part to extend his hold over his property and to prevent SBC from consolidating ownership over the same. More importantly, Leonardo himself admitted on cross-examination that he granted Leon authority to mortgage, only that, according to him, he thought it was going to be with China Bank, and not SBC.23 But as the CA noted, there is no mention of a certain bank in the subject SPA with which Leon must specifically deal. Leon, therefore, was simply acting within the bounds of the SPA’s authority when he mortgaged the lot to SBC. True, banks and other financing institutions, in entering into mortgage contracts, are expected to exercise due diligence.24 The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.25 In this case, however, no evidence was presented to show that LIMITATION ON AUTHORITY NPC VS NATIONAL MERCHANDISING CORP SYNOPSIS: Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising Corporation (NAMERCO), the Philippine representative of New York-based International Commodities Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of breach. Defendant-appellant Domestic Insurance Company executed a performance bond in favor of NPC to guarantee the seller’s obligation. In entering into the contract, Namerco, however, did not disclose to NPC that Namerco’s principal, in a cabled instruction, stated that the sale was subject to availability of a steamer, and contrary to its principal’s instruction, Namerco agreed that non-availability of a steamer was not a justification for non-payment of liquidated damages. The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. Consequently, the Government Corporate Counsel rescinded the contract of sale due to the supplier’s non-performance of its obligations, and demanded payment of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the stipulated liquidated damages. After trial, the Court of First Instance rendered judgment ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.
The Supreme Court held that Namerco is liable fur
damages because under Article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient notice of his powers is personally liable to such party. The Court, however, further reduced the solidary liability of defendants-appellants for liquidated damages.
Meadow Limited Partnership v. The Meadow Farm Partnership Reuben Freelander Eric Freelander Eve Freelander, and Heritage Savings & Loan Association Jay W. Weinberg Theodore W. Potter Bud Smith William R. Baldwin III, 816 F.2d 970, 4th Cir. (1987)