SECTION 12-13

PACHECO V. CA  
319 SCRA 595
 

FACTS:
Due to dire financial needs of petitioner spouses who were engaged in the construction  business, 
they  secured  loans  from  Vicencio.    At  every  loan secured,  the  lender  compelled  the 
spouses  to  issue  an  undated  check despite  the  admission  of  spouses  that  their  bank 
account  has  insufficient
funds or as on a later date, already closed.  Lender assured them that the issuance of the check
was only evidence of indebtedness, that it would not be presented to the bank, and it would be for
formalities only.  On the date wherein there was an unpaid balance to the loans secured  by the
spouses, the  lender  had  them  place  a  date  on  two  of  the  later  checks  issued.  Surprised 
later  on,  the  spouses  were  charged  with  estafa  as  the  checks were presented for
encashment and was dishonored.  
 

HELD:
BY MUTUAL AGREEMENT OF  THE PARTIES, THE NEGOTIABLE CHARACTER OF A CHECK
MAY BE WAIVED AND THE INSTRUMENT BE SIMPLY TREATED AS PROOF OF AN
OBLIGATION.  There cannot be deceit on the part of the spouses because they agreed with the
lender at the time  of the issuance and  postdating  of  the  checks  that  the  same  shall  not  be 
encashed  or presented  to  the  bank.    As  per  assurance  of  the  lender,  the  checks  are
nothing but evidence of the loan or security thereof in lieu of and for the
same purpose as a promissory note.  

G.R. No. 126670 December 2, 1999

ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners,

vs.
HON. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.

YNARES-SANTIAGO, J.:

Petitioner spouses are engaged in the construction business. Complainant

Romualdo Vicencio was a former Judge and his wife, Luz Vicencio,
owns a pawnshop in Samar. On May 17, 1989, due to financial difficulties
arising from the repeated delays in the payment of their receivables for the
construction projects from the DPWH,   petitioners were constrained to obtain a
1

loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely
requiring a note of indebtedness, however, her husband Mr. Vicencio required
petitioners to issue an undated check as evidence of the loan which allegedly will
not be presented to the bank. Despite being informed by petitioners that their bank
account no longer had any funds, Mrs. Vicencio insisted that issue the check,
which according to her was only a formality. Thus, petitioner Virginia Pacheco issued on
May 17, 1989 an undated RCBC   check with number CT 101756 for P10,000.00.
2

However, she only received the amount of P9,000.00 as the 10% interest on the loan
was already deducted. Mrs. Vicencio also required Virginia's husband, herein petitioner
Ernesto Pacheco, to sign the check on the same understanding that the check is not
to be encashed but merely intended as an evidence of indebtedness which cannot be
negotiated.

On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She
received only P35,000.00 as the previous loan of P10,000.00 as well as the 10% interest
amounting to P5,000.00 on the new loan were deducted by the latter. With the payment
of the previous debt, Virginia asked for the return of the first check (RCBC check
no. 101756) but Mrs. Vicencio told her that her filing clerk was absent. Despite
several demands for the return of the first check, Mrs. Vicencio told Virginia that they can
no longer locate the folder containing that check. For the new loan, she also required
Virginia to issue three (3) more checks in various amounts — two checks for
P20,000.00 each and the third check for P10,000.00. Petitioners were not amendable
to these requirements, but Mrs. Vicencio insisted that they issue the same assuring them
that the checks will not be presented to the banks but will merely serve as guarantee for
the loan since there was no promissory note required of them. Due to her dire financial
needs, Virginia issued three undated RCBC checks numbered 101783 and 101784 in the
sum of P20,000.00 each and 101785 for P10,000.00, and again informed Mrs. Vicencio
that the cheeks cannot be encashed as the same were not funded. Petitioner
Ernesto also signed the three checks as required by Mrs. Vicencio on the same
conditions as the first check.

On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for
P10,000.00 and another for P15,000.00. Again she issued two more RCBC checks (No.
101768 for P10,000.00 and No. 101774 for P15,000.00) as required by Mrs. Vicencio
with the same assurance that the checks shall not be presented for payment but shall
stand only as evidence of indebtedness in lieu of the usual promissory note.

All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The
six checks represent a total obligation of P85,000.00. However, since the loan of
P10,000.00 under the first check was already paid when the amount thereof was
deducted from the proceeds of the second loan, the remaining account was only
P75,000.00. Of this amount, petitioners were able to settle and pay in cash P60,000.00 in
July 1989. Petitioners never had any transaction nor ever dealt with Mrs. Vicencio's
husband, the complainant herein.

When the remaining balance of P15,000.00 on the loans became due and demandable,
petitioners were not able to pay despite demands to do so. On August 3, 1992, Mrs.
Vicencio together with her husband and their daughter Lucille, went to petitioners'
residence to persuade Virginia to place the date "August 15, 1992" on checks nos.
101756 and 101774, although said checks were respectively given undated to Mrs.
Vicencio on May 17, 1989 and July 21, 1989. Check no. 101756 was required by Mrs.
Vicencio to be dated as additional guarantee for the P15,000.00 unpaid balance allegedly
under check no. 101774. Despite being informed by petitioner Virginia that their account
with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her
daughter insisted that she place a date on the checks allegedly so that it will
become evidence of their indebtedness. The former reluctantly wrote the date on the
checks for fear that she might not be able to obtain future loans from Mrs. Vicencio.

Later, petitioners were surprised to receive on August 29, 1992 a demand letter from
Mrs. Vicencio's spouse informing them that the checks when presented for payment
on August 25, 1992 were dishonored due to "Account Closed". Consequently, upon
the complaint of Mrs., Vicencio's husband with whom petitioners never had any
transaction, two informations for estafa, defined in Article 315 (2) (d) of the Revised
Penal Code, were filed against them. The informations which were amended on April 1,
1993 alleged that petitioners "through fraud and false pretenses and in payment of a
diamond ring (gold necklace)" issued checks which when presented for payment were
dishonored due to account closed.    3

After entering a plea of not guilty during arraignment, petitioners were tried and
sentenced to suffer imprisonment and ordered to indemnify the complainant in the
total amount of P25,000.00.   
4

On appeal, the Court of Appeals (CA) affirmed the decision of the court a quo.   Hence
5

this petition.

Estafa may be committed in several ways. One of these is by postdating a check or

issuing a check in payment of an obligation, as provided in Article 315, paragraph 2(d) of
the RPC, viz:

Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:

x x x           x x x          x x x

2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:

x x x           x x x          x x x

(d) By postdating a check, or issuing a check in payment of an obligation when the

offender had no funds in the bank, or his funds deposited therein were not sufficient
to cover the amount of the check. The failure of the drawer of the check to deposit the
amount necessary to cover his check within three (3) days from receipt of notice from the
bank and/or the payee or holder that said check has been dishonored for lack or
insufficiency of funds shall be prima facie evidence of deceit constituting false pretense
or fraudulent act.

The essential elements in order to sustain a conviction under the above paragraph are:

1. that the offender postdated or issued a check in payment of an payment obligation

contracted at the time the check was issued;

2. that such postdating or issuing a check was done when the offender had no funds in
the bank, or his funds deposited therein were not sufficient to cover the amount of the
check;

3. deceit or damage to the payee thereof.  6

The first and third elements are not present in this case. A check has the character of
negotiability and at the same time it constitutes an evidence of indebtedness. By mutual
agreement of the parties, the negotiable character of a check may be waived and
the instrument may be treated simply as proof of an obligation. There cannot be
deceit on the part of the obligor, petitioners herein, because they agreed with the obligee
at the time of the issuance and postdating of the checks that the same shall not be
encashed or presented to the banks. As per assurance of the lender, the checks are
nothing but evidence of the loan or security thereof in lieu of and for the same
purpose as a promissory note. By their own covenant, therefore, the checks became
mere evidence of indebtedness. It has been ruled that a drawer who issues a check
as security or evidence of investment is not liable for estafa.   Mrs. Vicencio could
7

not have been deceived nor defrauded by petitioners in order to obtain the loans
because she was informed that they no longer have funds in their RCBC accounts.
In 1992, when the Vicencio family asked Virginia to place a date on the check, the latter
again informed Mrs. Vicencio that their account with RCBC was already closed as
early as August 1989. With the assurance, however, that the check will only stand as a
firm evidence of indebtedness, Virginia placed a date on the check. Under these
circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by
petitioners in obtaining the loan. In the absence of the essential element of
deceit,   no estafa was committed by petitioners.
8

Both courts below relied so much on the fact that Mrs. Vicencio's husband is a
former Judge who knows the law. He should have known, then, that he need not even
ask the petitioners to place a date on the check, because as holder of the check, he
could have inserted the date pursuant to Section 13 of the Negotiable Instruments
Law (NIL).   Moreover, as stated in Section 14 thereof, complainant, as the person in
9

possession of the check, has prima facie authority to complete it by filling up the

blanks therein. Besides, pursuant to Section 12 of the same law, a negotiable
instrument is not rendered invalid by reason only that it is antedated or
postdated.   Thus, the allegation of Mrs. Vicencio that the date to be placed by Virginia
10

was necessary so as to make the check evidence of indebtedness is nothing but a ploy.
Petitioners openly disclosed and never hid the fact that they no longer have funds in the
bank as their bank account was already closed. Knowledge by the complainant that
the drawer does not have sufficient funds in the bank at the time it was issued to
him does not give rise to a case for estafa through bouncing
checks.  11

Moreover, a check must be presented within a reasonable time from

issue.   By current banking practice, a check becomes stale after more than six (6)
12

months. In fact a check long overdue for more than two and one-half years is considered
stale.   In this case, the checks were issued more than three years prior to their
13

presentment. In his complaint, complainant alleged that petitioners bought jewelry

from him and that he would not have parted with his jewelry had not petitioners
issued the checks. The evidence on record, however, does not support the theory of the
crime.

There were six checks given by petitioners to Mrs. Vicencio but only two were presented
for encashment. If all were issued in payment of the alleged jewelry, why were not
all the checks presented? There was a deliberate choice of these two checks as the
total amount reflected therein is equivalent to the amount due under the unpaid
obligation. The other checks, on the other hand, could not be used as the amounts
therein do not jibe with the amount of the unpaid balance. Following complainant's
theory that he would not have sold the jewelries had not petitioners issued
"postdated" checks, still no estafa can be imputed to petitioners. It is clear that the
checks were not intended for encashment with the bank, but were delivered as mere
security for the payment of the loan and under an agreement that the checks would be
redeemed with cash as they fell due. Hence, the checks were not intended by the parties
to be modes of payment but only as promissory notes. Since complainant and his wife
were well aware of that fact, they cannot now complain there was deception on the
part of petitioners. Awareness by the complainant of the fictitious nature of the pretense
cannot give rise to estafa by means of deceit.   When the payee was informed by the by
14

the drawer that the checks are not covered by adequate funds it does not give rise to bad
faith or estafa.  15

Moreover, complainant's allegations that the two subject checks were issued in 1992 as
payment for the jewelry he allegedly sold to petitioners is belied by the evidence on
record. First, complainant is not engaged in the sale of jewelry.   Neither are 16

petitioners. If the pieces of jewelry were important to complainant considering that they
were with him for more than twenty-five years already,   he would not have easily parted
17

with them in consideration for unfunded personal checks in favor of persons whose
means of living or source of income were unknown to him.   Applicable here is the legal
18

precept that persons are presumed to have taken care of their business.  19

Second, petitioners' bank account with RCBC was opened on March 26, 1987 and
was closed on April 17, 1989, during the span of which they were issued 10 check
booklets with the last booklet issued on April 6, 1984. This last booklet contains 50
checks consecutively numbered from 101751 to 101800. The two subject checks came
from this booklet. All the checks in this booklet were issued in the year 1989 including the
two subject checks, so that the complainants' theory that the jewelry were sold in
1992 cannot be believed.

The rule that factual findings of the trial court bind this court is not absolute but
admits of exceptions such as when the conclusion is a finding grounded on speculation,
surmise, and conjecture and when the findings of the lower court is premised on the
absence of evidence and is contradicted by the evidence on record.   Based on the
20

foregoing discussions, this Court is constrained to depart from the general rule. Equally
applicable is what Vice-Chancellor Van Fleet once said:  21

Evidence to be believed must not only proceed from the mouth of a credible witness but
must be credible in itself — such as the common experience and observation of mankind
can approve as probable under the circumstances. We have no test of the truth of human
testimony, except its conformity to our knowledge, observation and experience. Whatever
is repugnant to these belongs to the miraculous, and is outside of judicial cognizance.

Petitioners, however, are not without liability. An accused acquitted of a criminal

charge may nevertheless be held civilly liable in the same case where the facts
established by the evidence so warrant.   Based on the records, they still have an
22

outstanding obligation of P15,000.00 in favor of Mrs. Vicencio. There was mention that
the loan shall earn interests. However, an agreement as to payment of interest must be
in writing, otherwise it cannot be valid,   although there was actual payment of interests
23

by virtue of the advance deductions from the loan. Once the judgment becomes final and
executory, the amount due is deemed equivalent to a forbearance of credit during the
interim period from the finality of judgment until full payment, in which case it shall earn
legal interest at the rate of twelve per cent (12%) per annum pursuant to Central Bank
(CB) Circular No. 416. 24

WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are
ACQUITTED of the charge of estafa but they are ORDERED to pay Mrs. Vicencio the
amount of P15,000.00 without interest. However, from the time this judgment becomes
final and executory, the amount due shall earn legal interest of twelve percent (12%) per
annum until full payment.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.

SECTION 14
Patrimonio vs. Gutierrez
(G.R. No. 187769, June 4, 2014)
Doctrines: 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.

Facts: 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. In the course of
their business, the petitioner pre-signed several checks to answer
for the expenses of Slam Dunk; however, 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 ₱200,000.00 and  Gutierrez
simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank in the amount of
"₱200,000.00. When Marasigan deposited the check, it was
dishonored for the reason "ACCOUNT CLOSED" and so Marasigan
sought recovery from Gutierrez and petitioner asking for the
payment of ₱200,000.00.

Issue: Whether or not Marasigan is a holder in due course thus

may hold petitioner liable.

Held: No, Marasigan is not a holder in due course. Section 52(c) &

(d) of the NIL states that a holder in due course is one who takes
the instrument “in good faith and for value" and that 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. In the present case, 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. 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. 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; hence, Marasigan has no
right to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.

G.R. No. 187769               June 4, 2014

ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

Assailed in this petition for review on certiorari  under Rule 45 of the Revised
1

Rules of Court is the decision  dated September 24, 2008 and the resolution  dated April
2 3

30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court
affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio Marasigan III (Marasigan) the
sum of ₱200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

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 columnist.

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
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.
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
₱200,000.00 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 from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and
Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00
sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of the
blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No.
21001764 with the blank portions filled out with the words "Cash" "Two Hundred
Thousand Pesos Only", and the amount of "₱200,000.00". The upper right portion of the
check corresponding to the date was also filled out with the words "May 23, 1994" but the
petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the
reason "ACCOUNT CLOSED." It was later revealed that petitioner’s account with the
bank had been closed since May 28, 1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several

demand letters to the petitioner asking for the payment of ₱200,000.00, but his demands
likewise went unheeded. Consequently, he filed a criminal case for violation of B.P.
22 against the petitioner, docketed as Criminal Case No. 42816.

On September 10, 1997, the
Complaint for Declaration of
Gutierrez and co-respondent
the check’s negotiation, and
agreement.
petitioner filed before the Regional Trial Court (RTC) a
Nullity of Loan and Recovery of Damages against
Marasigan. He completely denied authorizing the loan or
asserted that he was not privy to the parties’ loan

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December
22, 1997,Gutierrez was declared in default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan.  It found that the petitioner, in
4

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. While under Section 14 of the Negotiable Instruments
Law Gutierrez had the prima facie authority to complete the checks by filling up the
blanks therein, the RTC ruled that he deliberately violated petitioner’s specific
instructions and took advantage of the trust reposed in him by the latter.

Nonetheless, the 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 petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan
is not a holder in due course. He contended that when Marasigan received the
check, he knew that the same was without a date, and hence, incomplete. He also
alleged that the loan was actually between Marasigan and Gutierrez with his check being
used only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different
factual findings. After careful analysis, the CA agreed with the petitioner that Marasigan is
not a holder in due course as he did not receive the check in good faith.

The CA also concluded that the check had been strictly filled out by Gutierrez in
accordance with the petitioner’s authority. It held that the loan may not be nullified
since it is grounded on an obligation arising from law and ruled that the petitioner is
still liable to pay Marasigan the sum of ₱200,000.00.

After the CA denied the subsequent motion for reconsideration that followed, the
petitioner filed the present petition for review on certiorari under Rule 45 of the Revised
Rules of Court.

The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he
never authorized the borrowing of money nor the check’s negotiation to the latter; (2)
under Article 1878 of the Civil Code, a special power of attorney is necessary for an
individual to make a loan or borrow money in behalf of another; (3) the loan transaction
was between Gutierrez and Marasigan, with his check being used only as a security; (4)
the check had not been completely and strictly filled out in accordance with his authority
since the condition that the subject check can only be used provided there is prior
approval from him, was not complied with; (5) even if the check was strictly filled up as
instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as he
was not a holder in due course; and (6) by reason of the bad faith in the dealings
between the respondents, he is entitled to claim for damages.

The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent

Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00
loan;

3. Whether respondent Gutierrez has completely filled out the subject check strictly under
the authority given by the petitioner; and

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are essentially factual in
nature. The main point of inquiry of whether the contract of loan may be nullified, hinges
on the very existence of the contract of loan – a question that, as presented, is
essentially, one of fact. Whether the petitioner authorized the borrowing; whether
Gutierrez completely filled out the subject check strictly under the petitioner’s authority;
and whether Marasigan is a holder in due course are also questions of fact, that, as a
general rule, are beyond the scope of a Rule 45 petition.

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. One notable exception is when the findings off act of
both the trial court and the CA are conflicting, making their review necessary.  In the
5

present case, the tribunals below arrived at two conflicting factual findings, albeit with the
same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we
will examine the parties’ evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that he never authorized
the borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which
explicitly requires a written authority when the loan is contracted through an agent. The
petitioner contends that absent such authority in writing, he should not be held liable for
the face value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a
person "binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter." Agency may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.

As a general rule, a contract of agency may be oral.  However, it must be written when
6

the law requires a specific form, for example, in a sale of a piece of land or any interest
therein through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority
before an agent can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration. (emphasis supplied)

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 Lim
Pin v. Liao Tian, et al.,  that the requirement under Article 1878 of the Civil Code refers to
7

the nature of the authorization and not to its form. Be that as it may, the authority must be
duly established by competent and convincing evidence other than the self serving
assertion of the party claiming that such authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a
special authority in Rule 138 of the Rules of Court refer to the nature of the authorization
and not its form. The requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906, this Court in Strong
v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or
written, the one vital thing being that it shall be express. And more recently, We stated
that, if the special authority is not written, then it must be duly established by evidence:

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the
Court has every reason to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself that such authority was
verbally given him.(Home Insurance Company vs. United States lines Company, et al.,
21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should
be Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow
money in behalf of the petitioner.  Records do not show that the petitioner
1âwphi1

executed any special power of attorney (SPA) in favor of Gutierrez. In fact, the
petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for that
matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware
of any such transaction:
ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing
authorizing him to borrow using your money?

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105) 8

xxxx

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks
and releasing them to Gutierrez suffice to establish that the petitioner had authorized
Gutierrez to fill them out and contract the loan in his behalf.

Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a contract of loan in
behalf of the petitioner. As held in Yasuma v. Heirs of De Villa,  involving a loan
9

contracted by de Villa secured by real estate mortgages in the name of East Cordillera
Mining Corporation, in the absence of an SPA conferring authority on de Villa, there is no
basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where corporate officers as agents of
the corporation need a special power of attorney. In the case at bar, no special power of
attorney conferring authority on de Villa was ever presented. x x x There was no showing
that respondent corporation ever authorized de Villa to obtain the loans on its behalf.

xxxx

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to
hold the corporation liable since there was no authority, express, implied or apparent,
given to de Villa to borrow money from petitioner. Neither was there any subsequent
ratification of his act.

xxxx

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate
after his death). (citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,  where this court
10

held:

Petitioner submits that his following testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him.

xxxx

Petitioner’s testimony failed to categorically state, however, whether the loan was made
on behalf of respondent or of his wife. While petitioner claims that Lilian was authorized
by respondent, the statement of account marked as Exhibit "A" states that the amount
was received by Lilian "in behalf of Mrs. Annie Mercado.

It bears noting that Lilian signed in the receipt in her name alone, without indicating
therein that she was acting for and in behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage
on real property executed by an agent, it must upon its face purport to be made, signed
and sealed in the name of the principal, otherwise, it will bind the agent only. It is not
enough merely that the agent was in fact authorized to make the mortgage, if he has not
acted in the name of the principal. x x x (emphasis supplied).

In the absence of any showing of any agency relations or special authority to act for and
in behalf of the petitioner, the loan agreement Gutierrez entered into with Marasigan is
null and void. Thus, the petitioner is not bound by the parties’ loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not
legally sufficient because the authority to enter into a loan can never be presumed.
The contract of agency and the special fiduciary relationship inherent in this contract
must exist as a matter of fact. The person alleging it has the burden of proof to show, not
only the fact of agency, but also its nature and extent.  As we held in People v. Yabut:
11 12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano
Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be
licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City
to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or
"indorsee." And there appears to beno contract of agency between Yambao and Andan
so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time
employee." There was no special fiduciary relationship that permeated their dealings. For
a contract of agency to exist, the consent of both parties is essential, the principal
consents that the other party, the agent, shall act on his behalf, and the agent consents
so to act. It must exist as a fact. The law makes no presumption thereof. The person
alleging it has the burden of proof to show, not only the fact of its existence, but also its
nature and extent. This is more imperative when it is considered that the transaction dealt
with involves checks, which are not legal tender, and the creditor may validly refuse the
same as payment of obligation.(at p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the 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.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The

Latter’s Consent Was Not Obtained.

Another significant point that the lower courts failed to consider is that a contract of loan,
like any other contract, is subject to the rules governing the requisites and validity of
contracts in general.  Article 1318 of the Civil Code  enumerates the essential requisites
13 14

for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the contract lacked the
essential element of consent. We agree with the petitioner. As we explained above,
Gutierrez did not have the petitioner’s written/verbal authority to enter into a contract of
loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such
agreement cannot bind the petitioner whose consent was not obtained and who was not
privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell
into the hands of Marasigan. This act, however, does not constitute sufficient
authority to borrow money in his behalf and neither should it be construed as
petitioner’s grant of consent to the parties’ loan agreement. Without any evidence to
prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even
remotely, as sufficient authorization, much less, consent to the contract of loan.
Without the consent given by one party in a purported contract, such contract could not
have been perfected; there simply was no contract to speak of. 15

With the loan issue out of the way, we now proceed to determine whether the petitioner
can be made liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in 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 blanks.16

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. 17

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.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the
following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) 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.(emphasis supplied)

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
18

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. 19

As held in De Ocampo v. Gatchalian: 20

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.

It is sufficient that the buyer of a note had notice or knowledge that the note was in
some way tainted with fraud. It is not necessary that he should know the
particulars or even the nature of the fraud, since all that is required is knowledge of
such facts that his action in taking the note amounted bad faith.

The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in
a commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of
"no questions asked." Although gross negligence does not of itself constitute bad faith, it
is evidence from which bad faith may be inferred. The circumstances thrust the duty upon
the defendants to make further inquiries and they had no right to shut their eyes
deliberately to obvious facts. (emphasis supplied).

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. The following exchange is significant on
this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?

A: Since I celebrated my birthday in that place where Nap and I live together with the
other crew, there were several visitors that included Danny Espiritu. So a week after my
birthday, Bong Marasigan called me up again and he was fuming mad. Nagmumura na
siya. Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi
na niya na kailangan I-settle na niya yung utang ni Nap, dahil…

xxxx

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan
ang tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung
saan…

xxxx

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed money from you or what
you want to appear…

xxxx

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.
(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied) 21

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 22

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
23

filling up blank not within the authority.

On this point, the petitioner argues that the subject check was not filled up strictly on the
basis of the authority he gave. He points to his instruction not to use the check without
his prior approval and argues that the check was filled up in violation of said
instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner

Our own examination of the records tells us that Gutierrez has exceeded the authority to
fill up the blanks and use the check.  To repeat, petitioner gave Gutierrez pre-signed
1âwphi1

checks to be used in their business provided that he could only use them upon his
approval. His instruction could not be any clearer as Gutierrez’ authority was limited to
the use of the checks for the operation of their business, and on the condition that the
petitioner’s prior approval be first secured.

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.

In the present case, no evidence is on record that Gutierrez ever secured prior
approval from the petitioner to fill up the blank or to use the check. In his testimony,
petitioner asserted that he never authorized nor approved the filling up of the blank
checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date,
May 23, 1994?

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this
check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words
₱200,000 only xx in this check?

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999). 24

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.

ARTURO D. BRION
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.

MARIA LOURDES P. A. SERENO

Chief Justice