PATRIMONIO vs GUTIERREZ GR 187769 JUNE 4, 2014

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
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.

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
petitioner’s 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 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.