G.R. No.

187769
June 4, 2014
ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III,
Respondents.
BRION, J.
NATURE: Petition for review on certiorari assailing the decision and the resolution of the CA which
affirmed the decision of RTC dismissing the complaint for declaration of nullity of loan filed
by petitioner Alvin Patrimonio and ordering him to pay respondent Octavio Marasigan III
FACTS:
1. 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.
2.

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.

3.

Without the petitioners 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.

4.

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."

5.

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.

6.

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.

7.

Petitioner filed before the RTC a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan.

8.

RTC--- 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 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. CA--- affirmed the RTC ruling.

ISSUE: Whether or not Marasigan is a holder in due course thus may hold Petitioner liable
HELD: NO.
RATIO:
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 presigned 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 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.
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, 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. 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. Costs against the respondents. SO
ORDERED.