The Supreme Court held that Alvin Patrimonio was not liable for a loan secured by Napoleon Gutierrez using pre-signed checks. The court emphasized that absent express authorization, particularly a special power of attorney, Gutierrez could not bind Patrimonio to the loan agreement. This ruling underscores the importance of clearly defined authority in agency relationships, especially when dealing with financial instruments, protecting individuals from unauthorized debts incurred by third parties.

Signed Checks, Unsigned Deals: When a Basketball Star Isn’t Accountable

This case revolves around a business venture between Alvin Patrimonio, a well-known basketball player, and Napoleon Gutierrez, a sports columnist, under the name Slam Dunk Corporation. Patrimonio pre-signed several blank checks for business expenses, entrusting them to Gutierrez with the strict instruction that they should not be filled out without his prior approval. Gutierrez, without Patrimonio’s knowledge or consent, used one of these checks to secure a P200,000 loan from Octavio Marasigan III, claiming Patrimonio needed the money for house construction. Marasigan accepted the check, which was later dishonored due to Patrimonio’s account being closed. The central legal question is whether Patrimonio is liable for the loan obtained by Gutierrez and secured with Patrimonio’s pre-signed check.

The Regional Trial Court (RTC) initially ruled in favor of Marasigan, declaring him a holder in due course and ordering Patrimonio to pay the check’s face value. The Court of Appeals (CA) affirmed the RTC’s decision but on different grounds, agreeing that Marasigan was not a holder in due course but still holding Patrimonio liable. The Supreme Court, however, reversed these rulings, emphasizing that Gutierrez lacked the necessary authority to bind Patrimonio to the loan agreement. This decision highlights critical principles of agency, negotiable instruments, and contract law.

The Supreme Court grounded its decision on the principle that a contract of agency requires express authorization, especially when borrowing money on behalf of another, as stipulated in Article 1878 of the Civil Code. Specifically, paragraph 7 of Article 1878 states that a special power of attorney is necessary “to loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration.” The Court clarified that while the authorization does not necessarily need to be in writing, it must be express and duly established by competent and convincing evidence, something lacking in this case. Patrimonio never authorized Gutierrez to secure the loan, either verbally or in writing, making the loan agreement void concerning Patrimonio.

The Court also addressed the issue of liability under the Negotiable Instruments Law (NIL), particularly Section 14, which deals with incomplete instruments. Section 14 provides that when an instrument is wanting in any material particular, the person in possession has a prima facie authority to complete it. However, this authority is not absolute. If the instrument is completed and negotiated to a holder who is not a holder in due course, the instrument can only be enforced against a party prior to completion if the blanks were filled strictly in accordance with the authority given and within a reasonable time.

In this case, Marasigan was not deemed a holder in due course because he knew that Patrimonio was not a party to the loan and had no obligation to him. Section 52 of the NIL defines a holder in due course as one who takes the instrument in good faith, for value, and without notice of any infirmity in the instrument or defect in the title of the person negotiating it. Marasigan’s knowledge that the underlying obligation was not actually for Patrimonio negated his claim to be a holder in due course. Furthermore, Gutierrez exceeded his authority by using the pre-signed check for a purpose other than the agreed-upon business expenses of Slam Dunk, violating Patrimonio’s explicit instructions.

The Supreme Court, in its analysis, contrasted Marasigan’s position with the requirements for being a holder in due course, emphasizing the need for good faith and lack of notice of any defects in the instrument. As the court in De Ocampo v. Gatchalian articulated:

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.

This aligns with the fundamental principle that one cannot claim the rights of a holder in due course if they were aware of circumstances that should have raised red flags regarding the legitimacy of the transaction. Since Marasigan knew Gutierrez was acting beyond his authorized purpose, he was bound by the risks inherent in trusting Gutierrez’s assurances without verifying with Patrimonio directly. Thus, the Supreme Court underscored that trust cannot replace diligence, especially in financial transactions.

The implications of this decision extend to various scenarios involving agency and negotiable instruments. It serves as a reminder of the importance of clearly defining the scope of an agent’s authority and the need for third parties to exercise due diligence in verifying such authority. It protects principals from unauthorized acts of their agents and emphasizes the need for caution when dealing with negotiable instruments, particularly those with incomplete information.

The Court’s ruling underscores that the mere act of entrusting blank, pre-signed checks does not automatically equate to unlimited authority to contract loans. Such authority must be expressly granted, and third parties dealing with agents must ensure they have sufficient proof of this authority. Without such proof, the principal cannot be held liable for the agent’s unauthorized actions. The court in People v. Yabut highlights the essence of agency, stating:

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.

The court’s decision also sheds light on the responsibilities of those who receive negotiable instruments. They cannot simply rely on the instrument itself but must also inquire into the circumstances surrounding its issuance and negotiation. The failure to do so can result in the loss of holder in due course status, subjecting the holder to defenses that could otherwise be unavailable.

Ultimately, the Supreme Court held that Patrimonio could not be held liable for the loan. Gutierrez lacked the authority to enter into the loan agreement, Marasigan was not a holder in due course, and Gutierrez exceeded the limited authority he had over the checks. As the court concluded, “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.”

FAQs

What was the key issue in this case?	The key issue was whether Alvin Patrimonio could be held liable for a loan obtained by Napoleon Gutierrez, who used pre-signed checks from Patrimonio without proper authorization.
What is a holder in due course?	A holder in due course is someone who takes a negotiable instrument in good faith, for value, and without notice of any defects in the instrument or the title of the person negotiating it.
What is a special power of attorney?	A special power of attorney (SPA) is a legal document that authorizes a person (the agent) to act on behalf of another (the principal) in specific matters, such as borrowing money.
Why was Marasigan not considered a holder in due course?	Marasigan was not considered a holder in due course because he knew that Patrimonio was not a party to the loan and that Gutierrez might be acting without Patrimonio’s authorization.
What does it mean to fill up a blank check “strictly in accordance with the authority given”?	It means that the person filling in the blanks on a pre-signed check must adhere precisely to the instructions and limitations set by the person who signed the check.
What is the significance of Article 1878 of the Civil Code in this case?	Article 1878 requires a special power of attorney for an agent to borrow money on behalf of a principal, which was lacking in this case, making the loan agreement unenforceable against Patrimonio.
Can a contract of agency be oral?	Generally, yes, a contract of agency can be oral. However, for certain acts like borrowing money, the authority must be express and convincingly proven, even if not in writing.
What is the main takeaway from this case for people who sign blank checks?	The main takeaway is to exercise extreme caution when signing blank checks and entrusting them to others, clearly defining the scope of authority and ensuring proper verification by third parties.

This case clarifies the limits of liability when pre-signed checks are misused by an agent. It underscores the importance of express authorization and the need for third parties to exercise due diligence. This ruling benefits individuals by providing a legal shield against unauthorized financial commitments made in their name.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Alvin Patrimonio v. Napoleon Gutierrez and Octavio Marasigan III, G.R. No. 187769, June 04, 2014