Patrimonio vs. Gutierrez

A contract of loan entered into by an agent without the principal's express authority is void and does not bind the principal, and a holder who knows that the drawer is not a party to the underlying obligation is not a holder in due course and cannot enforce the instrument against the drawer where the blanks were not filled up strictly in accordance with the authority given.

Petitioner Alvin Patrimonio, a decorated professional basketball player, and respondent Napoleon Gutierrez, a well-known sports columnist, were business partners in Slam Dunk Corporation, a production outfit that produced mini-concerts and basketball-related shows. In the course of their business, Patrimonio pre-signed several blank checks—bearing no payee's name, date, or amount—and entrusted them to Gutierrez for the expenses of Slam Dunk, with the specific instruction that Gutierrez could not fill them out without prior notification to and approval from Patrimonio. Respondent Octavio Marasigan III was Patrimonio's former teammate. The dispute arose when Gutierrez, without Patrimonio's knowledge or consent, used one of the pre-signed checks to secure a loan from Marasigan.

Petitioner Alvin Patrimonio, a decorated professional basketball player, and respondent Napoleon Gutierrez, a well-known sports columnist, entered into a 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. 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 Patrimonio, so that Patrimonio could verify the validity of the payment and make the proper arrangements to fund the account.

Sometime in the middle of 1993, without Patrimonio's knowledge and consent, Gutierrez went to respondent Octavio Marasigan III—Patrimonio's former teammate—to secure a loan in the amount of ₱200,000.00, on the pretext that Patrimonio needed the money for the construction of his house. In addition to 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 both Patrimonio and Gutierrez, Marasigan acceded and gave Gutierrez ₱200,000.00 sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks Patrimonio had pre-signed—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 "₱200,000.00." The upper right portion corresponding to the date was filled out with "May 23, 1994," although Patrimonio 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 Patrimonio's account with the bank had been closed since May 28, 1993. Marasigan sought recovery from Gutierrez, to no avail, and thereafter sent several demand letters to Patrimonio asking for payment of ₱200,000.00, but his demands went unheeded. Marasigan consequently filed a criminal case for violation of B.P. 22 against Patrimonio, docketed as Criminal Case No. 42816.

On September 10, 1997, Patrimonio filed before the RTC a Complaint for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and Marasigan, completely denying authorizing the loan or the check's negotiation and asserting that he was not privy to the parties' loan agreement. Only Marasigan filed an answer; Gutierrez was declared in default by the RTC's order dated December 22, 1997. The RTC found that Patrimonio, in issuing the pre-signed blank checks, intended to issue a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or issue the check without his approval. While Gutierrez had prima facie authority under Section 14 of the Negotiable Instruments Law to complete the checks, the RTC found that he deliberately violated Patrimonio's specific instructions. Nonetheless, the RTC declared Marasigan a holder in due course and dismissed Patrimonio's complaint, ordering him to pay Marasigan the face value of the check with a right to claim reimbursement from Gutierrez. The CA affirmed the RTC's dismissal but on different grounds, agreeing that Marasigan was not a holder in due course as he did not receive the check in good faith, yet still holding Patrimonio liable on the ground that the obligation arose from law.

• No Loan Between Patrimonio and Marasigan: Petitioner argued that there was no loan between him and Marasigan since he never authorized the borrowing of money nor the check's negotiation to the latter.
• Requirement of Special Power of Attorney: Petitioner contended that under Article 1878 of the Civil Code, a special power of attorney is necessary for an individual to make a loan or borrow money on behalf of another, and absent such authority, he should not be held liable.
• Loan Was Between Gutierrez and Marasigan: Petitioner maintained that the loan transaction was between Gutierrez and Marasigan, with his check being used only as a security.
• Check Not Filled Out Strictly Under Authority: Petitioner argued that the check had not been completely and strictly filled out in accordance with his authority, since the condition that the subject check could only be used with his prior approval was not complied with.
• Marasigan Not a Holder in Due Course: Petitioner asserted that even if the check was strictly filled up as instructed, Marasigan was still not entitled to claim the check's value as he was not a holder in due course.
• Entitlement to Damages: Petitioner claimed that by reason of the bad faith in the dealings between the respondents, he was entitled to claim damages.

• Authority Established by Pre-Signed Checks: Respondent Marasigan submitted that Patrimonio's acts of pre-signing the blank checks and releasing them to Gutierrez sufficed to establish that Patrimonio had authorized Gutierrez to fill them out and contract the loan on his behalf.

• Validity of the Contract of Loan: Whether the contract of loan in the amount of ₱200,000.00 granted by Marasigan to Patrimonio, through Gutierrez, may be nullified for being void.
• Liability for Payment: Whether there is basis to hold Patrimonio liable for the payment of the ₱200,000.00 loan.
• Strict Compliance with Authority: Whether Gutierrez completely filled out the subject check strictly under the authority given by Patrimonio.
• Holder in Due Course: Whether Marasigan is a holder in due course.

• Validity of the Contract of Loan: Yes. The contract of loan should be nullified for being void, as Gutierrez had no authority—oral or written—to borrow money on Patrimonio's behalf, and Patrimonio's consent to the contract was never obtained.
• Liability for Payment: No. There is no basis to hold Patrimonio liable for the payment of the ₱200,000.00 loan, as the contract of loan was void and the check was not filled up strictly in accordance with the authority given.
• Strict Compliance with Authority: No. Gutierrez exceeded the authority given by Patrimonio; the check was used to secure a personal loan for the construction of Patrimonio's house, not for the business expenses of Slam Dunk, and no prior approval was ever secured.
• Holder in Due Course: No. Marasigan was not a holder in due course because he knew that the underlying obligation was not actually Patrimonio's, rendering him in bad faith under Section 52(c) and (d) of the Negotiable Instruments Law.

• Validity of the Contract of Loan: Article 1878, paragraph 7 of the Civil Code requires a special power of authority before an agent can loan or borrow money on behalf of the principal. However, Article 1878 does not require that the authority be in writing; as long as the mandate is express, the authority may be either oral or written, but it must be duly established by competent and convincing evidence other than the self-serving assertion of the party claiming such authority was verbally given. The records showed that Patrimonio never executed any special power of attorney in favor of Gutierrez, and Patrimonio's testimony confirmed that he never authorized Gutierrez—verbally or in writing—to borrow money on his behalf. The entrustment of pre-signed blank checks did not constitute sufficient authority to borrow money, because the authority to enter into a loan can never be presumed; the contract of agency and the special fiduciary relationship inherent in it must exist as a matter of fact, and the person alleging it bears the burden of proof. Furthermore, a contract of loan requires the consent of the contracting parties under Article 1318 of the Civil Code. While there may have been a meeting of minds between Gutierrez and Marasigan, such agreement could not bind Patrimonio, whose consent was not obtained and who was not privy to the loan agreement. Without consent from one party, the contract could not have been perfected.

• Liability for Payment: Since the contract of loan was void for lack of authority and consent, Patrimonio could not be held liable under it. As to liability under the check, Section 14 of the Negotiable Instruments Law provides that a person in possession of an incomplete instrument has prima facie authority to complete it, but for the instrument to be enforced against a party who became a party prior to its completion, the blank must be filled up strictly in accordance with the authority given and within a reasonable time. If the holder is not a holder in due course, the maker can set up as a personal defense the fact that the instrument was not filled up strictly in accordance with the authority given. Since Marasigan was not a holder in due course, Patrimonio could validly assert this personal defense, and Marasigan had no right to enforce payment against him.

• Strict Compliance with Authority: Patrimonio's instruction was clear: Gutierrez was authorized to use the checks only for the operation of their business, and only upon Patrimonio's prior approval. No evidence on record showed that Gutierrez ever secured prior approval from Patrimonio to fill up the blank or to use the check. Patrimonio testified that he never authorized anyone, including Gutierrez, to write the date, the word "Cash," or the amount on the check. Moreover, Gutierrez was only authorized to use the check for business expenses; using it to pay a loan supposedly contracted for the construction of Patrimonio's house was a clear violation of the instruction. The prima facie authority to complete the check under Section 14 of the NIL is a presumption juris tantum—subject to contrary proof—and Patrimonio successfully rebutted it by showing that the authority was exceeded. The check was therefore not completed strictly in accordance with the authority given.

• Holder in Due Course: Under Section 52(c) and (d) of the Negotiable Instruments Law, a holder in due course must take the instrument in good faith and for value, and at the time of negotiation must have 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. Marasigan's knowledge that Patrimonio was not a party or privy to the contract of loan rendered him dishonest, hence in bad faith. The testimony of witness Ambet Nabus established that Marasigan knew it was not really Patrimonio who borrowed the money, yet he held Patrimonio's check and intended to hold Patrimonio liable. Marasigan's inaction and failure to verify, despite knowledge that Patrimonio was not a party to the loan, constituted gross negligence amounting to bad faith. Since Marasigan was not a holder in due course, the negotiable instrument was subject to defenses as if it were non-negotiable, including the defense that the blanks were not filled up within the authority given.

• Agency — Authority to Borrow Money — Under Article 1878, paragraph 7 of the Civil Code, a special power of attorney is necessary for an agent to loan or borrow money on behalf of the principal. The requirement refers to the nature of the authorization, not its form; the authority may be oral or written, provided it is express and duly established by competent and convincing evidence other than the self-serving assertion of the party claiming such authority. The authority to enter into a loan can never be presumed; the contract of agency and the special fiduciary relationship must exist as a matter of fact, and the person alleging agency bears the burden of proving its existence, nature, and extent.

• Requisites of a Valid Contract — Consent — Under Article 1318 of the Civil Code, the essential requisites for a valid contract are: (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. Without the consent of one party, no contract is perfected and the purported contract is void.

• Section 14, Negotiable Instruments Law — Blanks; When May Be Filled — Where an instrument is wanting in any material particular, the person in possession has prima facie authority to complete it by filling up the blanks. For the instrument to be enforced against a party who became a party prior to its completion, two requisites must concur: (1) the blank must be filled up strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. If the holder is not a holder in due course, the maker may set up as a personal defense the fact that the instrument was not filled up strictly in accordance with the authority given. 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.

• Holder in Due Course — Under Section 52 of the Negotiable Instruments Law, a holder in due course is one who takes the instrument: (a) complete and regular upon its face; (b) before it is overdue and without notice of prior dishonor; (c) in good faith and for value; and (d) without notice of any infirmity in the instrument or defect in the title of the person negotiating it. Good faith means taking without knowledge or notice of equities of any sort. A holder who is not a holder in due course is not totally barred from recovery, but the instrument is subject to defenses as if it were non-negotiable.

• "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." — This passage articulates the rule that the special power of attorney requirement under Article 1878 of the Civil Code pertains to the nature, not the form, of the authorization, and that oral authority suffices if duly established by competent evidence.

• "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." — This is the ratio decidendi on the first issue: the loan contract was void for lack of authority, and Patrimonio was not bound by it.

• "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." — This passage defines the basis for denying holder-in-due-course status: knowledge that the drawer was not party to the underlying obligation constitutes bad faith under Section 52(c) and (d) of the NIL.

• "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." — This clarifies the scope of the prima facie authority under Section 14 of the NIL: it extends only to completion of the instrument, not to its subsequent use or negotiation, and is a presumption juris tantum subject to contrary proof.

• Lim Pin vs. Liao Tian, 200 Phil. 685 (1982) — Cited as controlling authority for the proposition that the requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form; the authority may be oral or written, provided it is express and duly established by evidence.

• Yasuma vs. Heirs of De Villa, G.R. No. 150350, Aug. 22, 2006, 499 SCRA 466 — Followed for the principle that in the absence of a special power of attorney conferring authority on an agent to borrow money, the principal cannot be held liable for the loan; the liability is personal to the agent.

• Gozun vs. Mercado, G.R. No. 167812, Dec. 19, 2006, 511 SCRA 305 — Followed for the rule that an agent who signs in her own name without indicating she is acting for and on behalf of a principal binds herself in her personal capacity, and that the authority to act for a principal must be shown on the face of the transaction.

• People vs. Yabut, G.R. No. L-42847 and L-42902, Apr. 29, 1977, 167 Phil. 336 — Cited for the doctrine that a contract of agency must exist as a matter of fact; the law makes no presumption thereof, and the person alleging agency bears the burden of proving its existence, nature, and extent.

• De Ocampo vs. Gatchalian, G.R. No. L-15126, Nov. 30, 1961, 3 SCRA 596 — Followed for the definition of bad faith in the context of negotiable instruments: it is sufficient that the holder had notice that something was wrong about the assignor's acquisition of title, even without knowledge of the particular wrong committed; gross negligence may be evidence from which bad faith is inferred.

• Article 1868, Civil Code of the Philippines — Defines a contract of agency as one 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. Applied to determine whether an agency relationship existed between Patrimonio and Gutierrez.

• Article 1869, Civil Code of the Philippines — Provides that agency may be express or implied from the acts of the principal. Cited to support the general rule that a contract of agency may be oral.

• Article 1878, paragraph 7, Civil Code of the Philippines — Requires a special power of attorney for an agent to loan or borrow money on behalf of the principal. Applied to determine that Gutierrez needed express authority to borrow money for Patrimonio, which authority was never granted or established.

• Article 1318, Civil Code of the Philippines — Enumerates the essential requisites of a valid contract: consent, object certain, and cause. Applied to hold that the contract of loan was void for lack of Patrimonio's consent.

• Section 14, Negotiable Instruments Law — Governs the filling up of blanks in incomplete instruments; provides that the person in possession has prima facie authority to complete the instrument, but it must be filled up strictly in accordance with the authority given and within a reasonable time to be enforced against parties prior to completion. Applied to hold that the check was not completed strictly under Patrimonio's authority and that Marasigan, not being a holder in due course, could not enforce it.

• Section 52, Negotiable Instruments Law — Defines a holder in due course as one who takes the instrument complete and regular on its face, before overdue, in good faith and for value, and without notice of any infirmity or defect in title. Applied to hold that Marasigan was not a holder in due course because he took the check in bad faith, knowing Patrimonio was not a party to the underlying loan.

Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Portugal Perez, and Estela M. Perlas-Bernabe concurred in the decision. No separate concurring opinions were written.