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 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. 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 corespondent Marasigan. 8. RTC--- in favor of Marasigan. It found that the petitioner, in issuing the presigned 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. 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 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. Costs against the respondents. SO ORDERED.