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Negotiable Instrument

1. Alvin Patrimonio v. Napoleon Gutierrez

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business
venture under the name of Slam Dunk Corporation (Slum 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
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
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
In addition... to the payment of the principal, Gutierrez assured Marasigan that he would be
paid an interest of 5% per month from March to May 1994.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
It was later revealed that petitioner's account with the bank had been closed since May 28,
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.
Only Marasigan filed his answer to the complaint.
In the RTC's order dated December 22, 1997, Gutierrez was declared in default.
Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan
Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
Whether Marasigan is a holder in due course.
The petition is impressed with merit.
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.
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 material particular, the law presumes agency to fill up the...
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.
4. Rodrigo Rivera Vs. Spouses Salvador C. Chua and Violeta S. Chua/Spouses Salvador C.
Chua and Violeta S. Chua Vs. Rodrigo Rivera
G.R. Nos. 184458/184472. January 14, 2015
J. Perez (Commercial Law)

A negotiable promissory note within the meaning of this Act is an unconditional promise in writing
made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to
the maker’s own order, it is not complete until indorsed by him.


Petitioner Rodrigo Rivera obtained a load from his friends Spouses Salvador and Violeta Chua:




C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine
Currency (120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent
to FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is
fully paid for.

In October 1998, Rivera issued and delivered to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, in the amount of 25,000.00 and on 21 December 1998, another
check numbered 013224, duly signed and dated, but blank as to payee. The second check was
issued, as per understanding by the parties, n the amount of 133,454.00 with “cash” as payee. Both
checks were dishonored for the reason “account closed.”

Due to Rivera’s unjustified refusal to pay, respondents were constrained to file a suit on 11 June

In his Answer with Compulsory Counterclaim, Rivera countered, among others, that the subject
Promissory Note was forged and that here was no demand for payment of the amount of -
120,000.00 prior to the encashment of PCIB Check No. 0132224. Respondents presented
documentary and oral evidence of NBI Senior Document Examiner Antonio Magbojos who
concluded that the questioned signature appearing in the Promissory Note and the Rivera’s
specimen signatures on other documents written by one and the same person.

The MeTC ruled in Spouses Chua’s favor. On appeal, the RTC affirmed the MeTC decision but
deleted the award of attorney’s fees. The CA also affirmed Rivera’s liability under the Promissory
Note but reduced the imposition of interest on the loan from 60% to 12% per annum.

Both parties appealed before the SC. Respondent’s petition for review on certiorari was denied for
failure to show any reversible on the CA ruling concerning the correct rate of interest on Rivera’s
indebtnesses under the Promissory Note. Rivera continued to deny that he executed the Promissory
Note and alleged that the Spouses Chua “never demanded payment for the loan nor interest thereof
(sic) from [Rivera] for almost four (4) years from the time of the alleged default in payment.

1. Whether the CA erred in ruling that there was a valid promissory note.
2. Whether the promissory note is negotiable instrument, thus the Negotiable Instruments Law
(NIL) applies to this case.
3. Whether Rivera is still liable under the terms of the Promissory Note assuming that it is not a
negotiable instrument.
4. Whether the CA erred in reducing the interest rate from 60% to 12% per annum.

1. Yes.
First, [the court] cannot give credence to such a naked claim of forgery over the testimony of the
National Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer
to the plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the
whole case or only to certain issues in the case.

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a
handwriting expert from the NBI. While it is true that resort to experts is not mandatory or
indispensable to the examination or the comparison of handwriting, the trial courts in this case, on
its own, using the handwriting expert testimony only as an aid, found the disputed document valid.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a
discordant defense to assail the authenticity and validity of the Promissory Note. Although the
burden of proof rested on the Spouses Chua having instituted the civil case and after they
established a prima facie case against Rivera, the burden of evidence shifted to the latter to
establish his defense. Consequently, Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and subsequently, that he did not fail to pay
his obligation thereunder. On the whole, there was no question left on where the respective
evidence of the parties preponderated—in favor of plaintiffs, the Spouses Chua.

2. No. The subject promissory note is not a negotiable instrument and the provisions of the NIL
do not apply to this case. Section 1 of the NIL requires the concurrence of the following elements
to be a negotiable instrument:

(a)It must be in writing and signed by the maker or drawer;

(b)Must contain an unconditional promise or order to pay a sum certain in money;
(c)Must be payable on demand, or at a fixed or determinable future time;
(d)Must be payable to order or to bearer; and
(e)Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty

On the other hand, Section 184 of the NIL defines what negotiable promissory note is:

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to another, signed
by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain
in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not complete
until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.

3. Yes, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for payment is not necessary
to charge the person liable on the instrument, Rivera is still liable under the terms of the Promissory
Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay
when he failed to pay the amount of 120,000.00 due to the Spouses Chua on 31 December 1995
under the Promissory Note

Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in default: (1) when
there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is
the controlling motive or the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation
fixes a date for performance; it must further state expressly that after the period lapses, default will

The date of default under the Promissory Note is 1 January 1996, the day following 31 December
1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount of -
120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses
Chua damages, in the form of stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 1170 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity
for damages when the obligor incurs in delay:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which
is six percent per annum.

4. No.

At the time interest accrued from 1 January 1996, the date of default under the Promissory Note,
the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular
No. 416 in cases involving the loan or forbearance of money. Thus, the legal interest accruing from
the Promissory Note is 12% per annum from the date of default on 1 January 1996.
However, the 12% per annum rate of legal interest is only applicable until 30 June 2013, before
the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames, BSP Circular No. 799 is prospectively applied from 1 July 2013. In short, the applicable
rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date when this
Decision becomes final and executor is divided into two periods reflecting two rates of legal
interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM
1 July 2013 to date when this Decision becomes final and executory