MEMORY AID:

Petitioners executed a promissory note in favour to respondent Bank in order to secure certain
advances from the Bank in connection with its exportation of logs. Petitioners defaulted in the
payment of the notes. They signed the promissory notes in Blank I n c o m p l e t e N I , w h e n
delivered, the person in possession of such has the
prima facie authority to fill in the blanks
, to complete the NI. It has also t h e a u t h o r i t y t o f i l l u p f o r
any amount,
and in accordance with the
authority given
and within a
reasonable time
.
TITLE:
Quirino Gonzales Logging vs. CA
FACTS:
S p o u s e s Q u i r i n o a n d E u f e m i a G o n z a l e s o f t h e Q u i r i n o G o n z a l e s L o g g i n g Co
ncessionaire (QGLC) executed promissory notes in favour to
respondentR e p u b l i c P l a n t e r s B a n k t o s e c u r e c e r t a i n a d v a n c e s f
r o m t h e B a n k i n connection with its exportation of logs. The notes were payable 30
days afterdate and provided for the solidary liability of petitioners as well as
attorney’sf e e s a t t e n p e r c e n t o f t h e t o t a l a m o u n t d u e i n t h e e v e n t o
f t h e i r n o n - payment at maturity.Later on, petitioner QGLC has long been defaulted
in the payment of theirobligations with the promissory notes they executed. The
Bank then filed acomplaint against the petitioner for “sum
of money.”H o w e v e r , p e t i t i o n e r s s e e k t o e v a d e l i a b i l i t y u n d e r t h e B a n
k ’ s c a u s e s o f action by claiming that they Gonzales signed the
promissory notes inblank
and that they had not received the value of said notes.
ISSUE:
W/N the petitioners would be held liable for the payment of the promissorynotes
they executed despite of the fact that they singed the notes in blank.
RULING:
Yes, because as
Section 14
of the Negotiable Instruments Law allows
the
prima facie
authority of the person in possession of negotiableinstruments
, such as the notes herein,
to fill in the blanks
, to completean incomplete instrument

RCBC VS HI-TRI (G.R. NO. 192413 JUNE 13, 2012)

Rizal Commercial Banking Corporation vs Hi-Tri Development Corporation

G.R. No. 192413 June 13, 201

Facts:

Luz Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are registered
owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City
Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina Register of
Deeds. These lots were sequestered by the Presidential Commission on Good Government
[(PCGG)]. Sometime in 1990, a certain Teresita Millan (Millan), through her representative,
Jerry Montemayor, offered to buy said lots for ₱6,724,085.71, with the promise that she will
take care of clearing whatever preliminary obstacles there may be to effect a completion of the
sale. The Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan
made a downpayment of ₱1,019,514.29 for the intended purchase. However, for one reason or
another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her downpayment of ₱1,019,514.29.
However, Millan refused to accept back the ₱1,019,514.29 down[]payment. Consequently, the
Spouses Bakunawa, through their company, the Hi-Tri Development Corporation (Hi-Tri) took
out on October 28, 1991, a Managers Check from RCBC-Ermita in the amount of ₱1,019,514.29,
payable to Millan’s company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita
Millan and used this as one of their basis for a complaint against Millan and Montemayor which
they filed with the Regional Trial Court of Quezon City, Branch 99. On January 31, 2003, during
the pendency of the above mentioned case and without the knowledge of [Hi-Tri and Spouses
Bakunawa], RCBC reported the ₱1,019,514.29-credit existing in favor of Rosmil to the Bureau of
Treasury as among its unclaimed balances as of January 31, 2003. Allegedly, a copy of the
Sworn Statement executed by Florentino N. Mendoza, Manager and Head of RCBCs Asset
Management, Disbursement & Sundry Department (AMDSD) was posted within the premises of
RCBC-Ermita.

Issue:

Whether or not the escheat of the account in RCBC is proper

Held:

No. An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the drawer. Here,
the bank becomes liable only after it accepts or certifies the check. After the check is accepted
for payment, the bank would then debit the amount to be paid to the holder of the check from
the account of the depositor-drawer.

There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself. Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its written promise to pay
upon demand

Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the managers or cashiers
check retains custody of the instrument, does not tender it to the intended payee, or fails to
make an effective delivery, we find the following provision on undelivered instruments under
the Negotiable Instruments Law applicable:

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote party other than a holder in
due course, the delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property in the instrument. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed. And where the instrument is no longer in the
possession of a party whose signature appears thereon, a valid and intentional delivery by him
is presumed until the contrary is proved.

Since there was no delivery, presentment of the check to the bank for payment did not occur.
An order to debit the account of respondents was never made. In fact, petitioner confirms that
the Managers Check was never negotiated or presented for payment to its Ermita Branch, and
that the allocated fund is still held by the bank. As a result, the assigned fund is deemed to
remain part of the account of Hi-Tri, which procured the Managers Check. The doctrine that the
deposit represented by a managers check automatically passes to the payee is inapplicable,
because the instrument although accepted in advance remains undelivered. Hence,
respondents should have been informed that the deposit had been left inactive for more than
10 years, and that it may be subjected to escheat proceedings if left unclaimed.
RCBC vs. Hi-Tri Dev. Corp. , et. al, G.R. No. 192413, June 13, 2012

Facts: Luz Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are
registered owners of six (6) parcels of land in Quezon City. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)]. Sometime in 1990, a certain Teresita
Millan (Millan), through her representative, Jerry Montemayor, offered to buy said lots for
₱6,724,085.71, with the promise that she will take care of clearing whatever preliminary
obstacles there may be to effect a completion of the sale.

The Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan made
a downpayment of ₱1,019,514.29 for the intended purchase. However, for one reason or
another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her downpayment of ₱1,019,514.29.
However, Millan refused to accept back the ₱1,019,514.29 down payment.

Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development
Corporation (Hi-Tri) took out on October 28, 1991, a Managers Check from RCBC-Ermita in the
amount of ₱1,019,514.29, payable to Millan’s company Rosmil Realty and Development
Corporation (Rosmil) c/o Teresita Millan and used this as one of their basis for a complaint
against Millan and Montemayor which they filed with the Regional Trial Court of Quezon City,
Branch 99.

On January 31, 2003, during the pendency of the above mentioned case and without the
knowledge of [Hi-Tri and Spouses Bakunawa], RCBC reported the ₱1,019,514.29-credit existing
in favor of Rosmil to the Bureau of Treasury as among its unclaimed balances as of January 31,
2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza, Manager
and Head of RCBCs Asset Management, Disbursement & Sundry Department (AMDSD) was
posted within the premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed
with the RTC the action below for Escheat [(Civil Case No. 06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan.
Instead of only the amount of ₱1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil and
Millan the amount of ₱3,000,000.00, [which is] inclusive [of] the amount of []₱1,019,514.29.
But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-
Tri] inquired from RCBC-Ermita the availability of the ₱1,019,514.29 under RCBC Managers
Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they were
informed that the amount was already subject of the escheat proceedings before the RTC.
C.L.T. CORPORATION V PANAC

(District CA, California; 1944)149 P. (2d) 901 (1944); WARD, J.~lora~

FACTS

-Plaintiff (CLT-holder) brought this action to recover from the defendants (Panacs-maker) the
amount of 2promissory notes, negotiable in form, executed in favoured Home Improvement
Company (payee) in payment of certain repairs and renovations to be performed by the payee
upon two dwelling houses owned by the defendants.-The notes were indorsed by the payee to
the plaintiff which claims to be holder in due course.-Defendants denied that the plaintiff was
such a holder and as a separate defense, pleaded fraud on the part of the payee in the
procurement of the notes by its agent-William Hart. The defendants were alleged to be
illiterate.-Hart was introduced to the defendants by a friend of theirs, Krajer, for whom Home
Improvement Company had done repair work similar to that proposed to be done by
defendants.-Hart prepared a document which purported to embody the understanding arrived
at on the work to be performed and the cost. He asked defendants to sign it.Both demurred,
Mrs. Panac stating that she did not read it and wished to see an attorney. Hart assured her that
it was not necessary, that the contract has to be signed at once to get the work started. In
doing so, he read the items of work entered in his note book, stating that they were in
agreement and urged again the defendants to sign. They still objected but their scruples were
overcome by Hart’s assurance that all the work shall be done to their satisfaction and that it
was necessary to start at once. Martin there upon affixed his signature to the contract.-Hart
then presented to them another paper, divided into 3 parts by perforated lines, one part being
an application for credit, the second a form of promissory note and the third a declaration that
the work for which the credit was required had been satisfactorily completed. The defendants
placed their signatures at the point indicated by Hart upon his assurance that it was part of the
contract for the work to be done and without having Hart read it to them. The second note was
executed under the same circumstances.-There were present during the proceedings 2 other
persons beside Krajer but neither the defendants requested any of them to read aloud the
document or to explain the contents thereof.-The defendants testified that they understood
from Hart that the work was to be paid for in monthly installments, but had not contemplated
giving notes.-The work was never completed not withstanding vigorous efforts made by the
plaintiff and the defendants to induce Home Improvement Company to do so, with the
consequence that when the first installment became due on the notes the defendants refused
to pay.-The trial court found that CLT is a holder in due course however, it also held that fraud
was perpetuated against the defendants hence, plaintiff takes nothing by its action.-Plaintiffs
appealed from the judgment.
ISSUES

1. WON plaintiff is a holder in due course.2. WON defendants are free from negligence.3. WON
the defendants can plead the defense of fraud against the plaintiff.

HELD

1. YES. Defendants do not contend that the plaintiff is not a holder in due course. No evidence
was introduced that C.L.T. had actual knowledge of a defect in the instruments or any fact that
would justify a finding that the plaintiff’s acceptance of the instruments amounted to bad faith
on their part.

2. YES. The trial court determined that, notwithstanding the possession of some knowledge of
the English language on the part of the defendants, their neglect to call upon others present to
read to them the documents, and their failure to insist on their request for time to seek
independent legal advice, they are free from negligence. A reading of the record alone might
well disapprove this finding, but, bearing in mind that the trial court had an opportunity to view
the witnesses, note their demeanor, the Court refrained from stating as a matter of law that
there is insufficient evidence to uphold it.

3. NO. Brannan’s Negotiable Instrument: At common law a real defense was held in most
jurisdictions to exist in those cases in which a person, without negligence, has signed an
instrument, which was, in fact a negotiable instrument, but was deceived as to the character of
the instrument and without knowledge of it. In such cases, there is no contract because there
was no consenting mind, but the signer may be stopped by negligence to deny knowledge of
the character of the instrument which he has signed. If he was not negligent he is not liable.-In
Wisconsin, Minnesota and Illinois, the NIL or other legislation expressly makes fraud in the
factum a real defense. The Uniform Act does not cover the question in so many words. It is
possible however, that such conduct is fraud within Sec. 55 and hence causes merely a
defective title, or that it is one of the defenses under Sec. 57. It might also be assimilated to
want of delivery, which was made an equitable defense by Sec.16. Either possibility would
change the common law and protect the holder in due course.-In further support of this
position it should be noted that the other real defenses are covered by the act and broad
interpretation of Sec. 55, especially the lastclause “under such circumstances as amount to
fraud”

certainly includes all kinds of fraud in factum. Since thisis so it is hard to believe that the
framers overlookedthis particular defense. The equities are all in favor of such interpretation,
since the defrauded party really caused the situation and should be the one to suffer.-Under
the old common law view fraud in Sec. 55 would be limited to fraud in the inducement and
defenses inSec, 57 restricted to defenses which were equitable at common law, while fraud in
the factum would continue to be a real defense analogous to forgery under Sec.23. Such is the
result of a number of cases which have arisen since the NIL, most of which do not cite the
act,but there is a strong line of well-reasoned cases contra.-Freedom from negligence on the
part of the makers has never been regarded in California in following the common law rule, or
made by statute a defense, real or personal, against a claim of a holder of a negotiable
instrument in due course. If the legislature had intended such defense it would undoubtedly
have so provided in no uncertain terms, as the courts of this state have not, at any time,
recognized such a defense.-It follows that the defendants were not in position to set up as a
defense in this case any equities existing between them and the Home Improvement
Companyeven if, as found by the court, they were free from negligence in executing notes.

Disposition

Judgment Reversed.PETERS (Dissenting)-The type of fraud here involved has been referred to
as fraud in esse contractus, fraud in the factum, fraud in the inception or fraud in execution, to
distinguish itfrom fraud in the inducement which is a mere personal defense. At common law
the cases were practically unanimous that fraud in the execution was a real defense.-The
overwhelming weight of authority is to the effectthat the adoption of the NIL in now way
changed the common law rule, and that both before and after the adoption of that uniform
statute, fraud in the execution was and remained, a real defense.-The applicable rules under
the NIL is stated as:“Although there are some decisions to the contrary, the weight of authority
holds that if a person intending to sign an instrument of an entirely different character places
his signature to a negotiable instrument not being due to laches or negligence on the part of
thesignor, the latter is not liable on the instrument, although it has passed into the hands of a
bona fideholder for value.”-Mr. Brannan quoted in the majority opinion approvesthe minority
rule.-The many courts and legal writers have not approvedthe rule that fraud in execution,
where the maker is notnegligent, is a real defense, by blindly following thecommon law rule.
Cogent and compelling reasons existfor this approval.-It must be remembered that NIL is not an
entirely newstatute, nor did it purport to repeal the entire law of contracts. It purported to
codify the law of merchantand where there was a conflict to adopt what wasconsidered to be
the better rule. Where the NIL has noexcess provision, or where its meaning is ambiguous,cases
decided under the law merchant andfundamental rules of contract should be looked to
inarriving at a proper interpretation.-So far as the present problem is concerned, the NILhas no
express provision covering the subject. Thereare provisions, however which tend to show that
thedrafter of the act intended fraud in the execution to bereal defense.-Sec. 57 of NIL, Sec.
3138 of the Civil Coe, provides thatthe holder in dues course “free from any defect of titleof
prior parties, and free from defenses available priorparties among themselves.” When a party,
withoutnegligence, signs a document by reason of fraud of another and honestly and
reasonably believes it to besomething else other than a negotiable instrument, thedocument,
when executed is not merely voidable – it isvoid.” Fraud of this type is not a mere defense nor
amere defect of title such as referred to in Sec. 57. It is afactor which renders the instrument
non-existent as abinding obligation

C.I.T. CORPORATION V PANAC

Supreme Court of California25 Cal. (2d) 547, 154 P. (2d) 710, 160 ALR 1285 (1944)~marge~
FACTS

(as found by the District Court of Appeals)SUBJECT: 2 promissory notes in payment of certain
repairs and renovations to be performed by payee upon two dwelling houses owned by makers
MAKERS: Sps. Panac, illiterate, unable to read or write the English language PAYEE: Home
Improvement Company INDORSEE: C.I.T. Corp, a holder for value in due course-Makers were
defrauded by payee in the procurement of the notes. William Hart, agent of the payee, gained
their trust and confidence and secured their signatures to the notes by false representations
w/c induced them to believe that they were signing a contract to repair the houses and nothing
else. They were ignorant of the fact that they were signing notes, and were not negligent in
signing the same.

ISSUE

WON the defense put up by the makers is a real defense, good even against indorsee as a
holder in due course

HELD: YES

-A negotiable instrument which is void (as when there is in fact no contract or there is fraud in
the execution)is not enforceable by a holder in due course in the absence of negligence on the
part of the maker.-A person who cannot read is not always negligent in not calling on a third
person to read the instrument to him. The question as to his negligence is one for the jury (that
is, the courts) to decide. Circumstances showing that makers were not negligent:-Sps. Panac
were illiterate-Hart employed high pressure method-Only contract for repair was read, not the
notes-Hart insisted an immediate execution-Hart brushed aside Mrs. Panac’s suggestion that
legal advice be obtained-Witnesses to the signing were all friends of Hart. Even Krajer, whom
makers personally knew couldn’t have objected to such fraud since he was promised
commission. In fact, it was his apparent acquiescence in the transaction that served to silent
any apprehensions of the makers
COHN V CITY OF TAUNTON

303 Mass. 182, 21 N.E. (2d) 281 (1939)~anton~

FACTS

-Action by Cohn et al., innocent purchasers for value without notice, to prosecute to recover
the face amount of overdue coupons on certain bonds of the defendant city payable to bearer
which have been stolen from the vault of the city treasurer.-After the bearer bonds had been
“delivered to the City Treasurer as agent” in order to have them registered, the Treasurer had
completed the issue of fully registered bonds of like amount but had not destroyed or cancelled
the bearer bonds nor placed any notation upon them and had kept them in his vault.
-Cohn and company held them, but the City Treasurer refused to pay on the ground that the
amount covered by the bonds had been paid already.

ISSUE
WON Cohn et al. were holders in due course, and thus entitled to the amount
HELD: YES
Ratio
An instrument that has once been issued,returned, discharged, and stolen would seem to stand
no differently in the hands of a holder in due course than an instrument that has been
prepared, signed and stolen before being issued.
Reasoning
The validity of municipal obligations is not affected, in the hands of innocent holders for value,
by facts which concern merely the manner of their passing from their maker into currency, and
which do not concern the mode of, or the authority for their creation.-It would be unfortunate
in many respects if bonds of municipalities passing by delivery in the market should be treated
differently in this regard from the negotiable paper of other corporations and individuals.-It is
true that the incurring of liability by municipalities is often strictly regulated by statue, and we
need not now go far as to say that such statutes could never affect the position of an innocent
holder.-The case cited by the defendant was decided before the negotiable instruments law
and at a time when the authorities were divided as to the necessity of unauthorized delivery of
a negotiable instrument.
Disposition

Judgment for the plaintiffs in the sum of $100 and interest from the date of the writ.

INICK V A.J. NUTTING & CO.

New York SC; 125 N.Y.S. 93, 140 App. Div. 265 (1910)~rean~

FACTS

Plaintiff Linick signed his name to a blank check. Thereafter Rycoff and Silber man stole the
check, filled in the name of FA Mann as payee and $147.87 as the amount thereof, and
presented it to the State Bank, where plaintiff kept his account, and procured it to be certified.
Thereafter they indorsed said check with the name of FA Mann and passed it to defendant A.J
Nutting and Co. for value, who collected the amount from said bank. Plaintiff, having taken up
said check from the bank, now sues defendant as for money had and received for the amount
of the check.

ISSUE

WON defendant obtained any title to the check which as against the plaintiff, was a valid
obligation for$147.87.

HELD: NO

-In the case of a commercial paper, when by voluntary act a party instructs another with such
paper with a blank thereon designed to be filled up with a stipulated amount; such party is
liable to a bona fide holder, of the instrument. As to the basis of (plaintiff’s) liability, some say
that it rests upon an implied authority conferred by the maker upon the person to whom it was
delivered to fill in the blanks, and others upon estoppel by reason of negligence.-Not upon
implied authority: for such doctrine grows out of principal-agent relationship, and there’s no
such relation between a thief and his victims. The rule that the bona fide holder of an
incomplete instrument, negotiable but for some lack capable of being supplied, has implied
authority to supply the omission, and tohold the maker thereon, only applies when the latter
has by his own act, or the act of another, authorized, confided in or invested with apparent
authority by him,put the instrument in circulation as a negotiable paper.-Not upon negligence:
since the paper was stolen andthe persons guilty of the crime have been convicted. Plaintiff
then cannot be charged with negligence givingrise to an estoppel, unless a man is guilty of
negligencein writing his name upon a piece of paper which bysome possibility may afterwards
be stolen from him,which paper comes into the hands of a third personwho is an entire
stranger to the transaction, with words written over the signature which are sufficient in form
to make it a check or note. Actionable negligence involves, first, the existence of a duty;
second, the omission to exercise ordinary and reasonable care in connection therewith; and
third, injury resulting inconsequence thereof.-Sec. 34 (NIL 15) states: Where an
incompleteinstrument has not been delivered, it will not, if completed and negotiated, without
authority, be a validcontract in the hands of any holder, as against anyperson whose signature
was placed thereon beforedelivery.-The next section in the same act to the effect that“where
the instrument is in the hands of a holder in duecourse, a valid delivery thereof by all parties
prior tohim so as to make them liable to him is conclusivelypresumed” must be read with Sec
34 (NIL 15), and this provision does not apply in the case of an incompleteinstrument
completed and negotiated w/o authority.-Court concludes: The delivery of a PN by a maker
isnecessary to a valid inception of a contract. The possession of such a note by the payee or
indorsee isprima facie evidence of delivery. But if it appears thatthe note has never been
actually delivered, and that without any confidence, or negligence, or fault of the maker, but by
force and fraud, it was put in circulation, there can be no recovery upon it, even when in the
hands of an innocent holder. So, defendant did not obtain any title to the check, and cannot
recover uponit.

Disposition

Judgment appealed from must be reversed, and a new trial ordered.

Alvin Patrimonio v. Napoleon Gutierrez , et. al. G.R. No. 187769 June 04, 2014
FACTS: 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.

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 the petitioner.

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.

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.”

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.

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.
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 Patrimonio liable

HELD:

No. 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.

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 be set 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. 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.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is
already totally barred from recovery.

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.

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.

WILLIAM BARCO & SON V FORBES (1927)

FACTS

-Plaintiffs brought suit upon a note for $227.25 against defendant who issued it for the
purchase of fertilizer from plaintiff.-The note, dated Jan 10, 1923, was given in renewal of a
former note dated July 1, 1922.-Defendant contended that the fertilizer was bought for use in
producing a sweet potato crop in 1922, and that the fertilizer was worthless and had no effect
whatever upon the crop.-This fact notwithstanding, TC ruled in favor of plaintiffs.

ISSUE
WON defendant is liable
HELD: YES.
Ratio
One who gives a note in renewal of another note,with knowledge at the time of partial failure
of the consideration for the original note, or of false representations by the payee, waives such
defense and cannot set it up to defeat or to reduce the discovery on the renewal note. (Bank v
Howard)

The time for harvest was in July or August1922 and the potatoes were dug at that time. It is
obvious, therefore, that the defendant knew then that the fertilizer was worthless and that
there was a total failure of consideration. Nevertheless, he executed the renewal note.

Singson vs BPI
23 SCRA 1117
FACTS: Singson, was one of the defendants in a civil case, in which judgment had been rendered
sentencing him and his co-defendants therein Lobregat and Villa-Abrille & Co., to pay a sum of
money to the plaintiff therein. Said judgment became final and executory as only against Ville-
Abrille for its failure to file an appeal. A writ of garnishment was subsequently served upon BPI
— in which the Singsons had a current account — insofar as Villa-Abrille’s credits against the
Bank were concerned.

Upon receipt of the said Writ of Garnishment, a clerk of the bank, upon reading the name of
the Singson in the title of the Writ of Garnishment as a party defendants, without further
reading the body and informing himself that said garnishment was merely intended for the
deposits of defendant Villa-Abrille & Co., et al, prepared a letter informing Singson of the
garnishment of his deposits by the plaintiff in that case.

Subsequently, two checks issued by the plaintiff Julian C. Singson, one in favor of B. M. Glass
Service and another in favor of the Lega Corporation, were dishonored by the bank. B. M. Glass
Service then wrote to Singson that the check was not honored by BPI because his account
therein had already been garnished and that they are now constrained to close his credit
account with them.

Singson wrote to BPI, claiming that his name was not included in the Writ of Execution and
Notice of Garnishment, which was served upon the bank. The defendants lost no time to
rectify the mistake that had been inadvertently committed.

Thus this action for damages.

ISSUE: WON the existence of a contract between the parties bars a plaintiff’s claim for damages
based on torts?

HELD: NO. The existence of a contract between the parties does not bar the commission of a
tort by the one against the order and the consequent recovery of damages therefore. Indeed,
this view has been, in effect, reiterated in a comparatively recent case. Thus, in Air France vs.
Carrascoso, involving an airplane passenger who, despite his first-class ticket, had been illegally
ousted from his first-class accommodation and compelled to take a seat in the tourist
compartment, was held entitled to recover damages from the air-carrier, upon the ground of
tort on the latter’s part, for, although the relation between a passenger and a carrier is
“contractual both in origin and nature … the act that breaks the contract may also be a tort”.

In view, however, of the facts obtaining in the case at bar, and considering, particularly, the
circumstance, that the wrong done to the plaintiff was remedied as soon as the President of the
bank realized the mistake he and his subordinate employee had committed, the Court finds
that an award of nominal damages — the amount of which need not be proven — in the sum of
P1,000, in addition to attorney’s fees in the sum of P500, would suffice to vindicate plaintiff’s
rights.