ALVIN PATRIMONIO, petitioner, vs.

NAPOLEON GUTIERREZ and OCTAVIO

MARASIGAN III, respondents.
[G.R. No. 187769. June 4, 2014.]

FACTS:

Petitioner Alvin Patrimonio and respondent Napoleon Gutierrez entered into business
venture under the name of Slam Dunk Corporation, a production outfit that produced mini-
concerts and shows related to basketball. In the course of their business, Patrimonio pre-
signed several checks to answer for the expenses of Slam Dunk. 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 and approval by
Patrimonio.

Without Patrimonio’s knowledge and consent, Gutierrez went to Marasigan (Patrimonio’s

former teammate) to secure a loan in the amount PhP200,000 on the excuse that
Patrimonio needed money for house construction, to which Marasigan acceded.

Gutierrez delivered to Marasigan a blank check with the blank portions filled out with the
words “Cash” “Two Hundred Thousand Pesos Only”, and the amount of “P200,000”. The
upper right portion of the check was with words “May 23, 1994”.

On May 24, 1994, Marasigan deposited the checks but it was dishonored for the reason
“account closed”. He then sought recovery from Gutierrez but to no avail, and sent demand
letters to Patrimonio but his demands likewise went unheeded.

He then filed a BP 22 case against Patrimonio. The latter filed before RTC a complaint for
declaration of nullity of loan and recovery of damages.

RTC ruled in favor of Marasigan, ruled that Patrimonio had the intention of issuing a
negotiable instrument in issuing the pre-signed blank checks, that Marasigan is a holder in
due course, and ordered Patrimonio to pay Marasigan with a right to claim reimbursement
from Gutierrez.

CA ruled that Marasigan is not a holder in due course but still ruled that Patrimonio is still
liable to pay Marasigan because the loan may not be nullified since it is grounded on an
obligation arising from law.

ISSUE:

Whether there is basis to hold Patrimonio liable for the payment of the loan. (NO)

RULING:

The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL)
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.

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.

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.