Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HOFU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and
export business operated by a registered partnership with the firm name of "Jade Mountain Products
Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984
with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu
Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma
Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the
Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant
General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he
actually received only half of his stipulated monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall have secured additional operating funds
from abroad. Benjamin Yu actually managed the operations and finances of the business; he had
overall supervision of the workers at the marble quarry in Bulacan and took charge of the
preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co
and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his
interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private
respondent Willy Co acquired the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade
Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan
Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988. 2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in the business,
all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met
private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it was for him to decide whether or not he
was responsible for the obligations of the old partnership, including petitioner's unpaid salaries.
Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His
unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary damages and
attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The
partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was
never hired as an employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had
been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for
unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC
held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the
Jade Mountain business, that the new partnership had not retained petitioner Yu in his original
position as Assistant General Manager, and that there was no law requiring the new partnership to
absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his former managerial
position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages
should be asserted against the original members of the preceding partnership, but these though
impleaded had, apparently, not been served with summons in the proceedings before the Labor
Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside
and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership
has a juridical personality separate and distinct from that of each of its members. Such independent
legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and
replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a
new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights
under his employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal
effect of the changes in the membership of the partnership was the dissolution of the old partnership
which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987.

The applicable law in this connection of which the NLRC seemed quite unaware is found in the
Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in
good faith, when no definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to
82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not
show what happened to the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do
not, however, automatically result in the termination of the legal personality of the old partnership.
Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up
of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the
limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is
important to underscore the fact that the business of the old partnership was simply continued by the
new partners, without the old partnership undergoing the procedures relating to dissolution and
winding up of its business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name of Jade
Mountain Products Company Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets

or most of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the retiring and
the incoming partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson,
et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new
partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established
in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership

are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns)
his rights in partnership property to two or more of the partners, or to one or more of
the partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone or
with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment
of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners
continue the businessunder the provisions of article 1837, second paragraph, No.
2, either alone or with others, andwithout liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the retiring or deceased partner or
the representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the person or
partnership continuing the business on account of the retired or deceased partner's

interest in the dissolved partnership or on account of any consideration promised for

such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment
on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-visany claim of any retired or previous partner insofar as
such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the
Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would
fall, if only because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is
entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager to run the affairs of the business enterprise take
over. An assistant general manager belongs to the most senior ranks of management and a new
partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention
of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized cause for
termination in the case at bar was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of
Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or
redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's
pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6)
months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ,
we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business
itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is
worthy of note that the new partnership did not try to suggest that there was any cause consisting of
some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to
terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati to
Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including
the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin
Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new
Jade Mountain may legitimately be required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances of this case, believes that an indemnity
for moral damages in the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six
percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from

the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to
attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent
Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the
Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new
Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company
Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six
(36) months (November 1984 to December 1987) in the total amount
of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay
multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully
paid; and
(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

SECOND DIVISION

JOSEFINA P. REALUBIT,
Petitioner,

G.R. No. 178782

Present:
- versus -

PROSENCIO
D.
and EDENG. JASO,
Respondents.

VELASCO, JR.,* J.,

BRION,**
Acting Chairperson,
ABAD,***
PEREZ, and
SERENO, JJ.

JASO

Promulgated:
September 21, 2011

x---------------------------------------------------------- -x

DECISION

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a joint

venture are at issue in this petition for review filed pursuant to Rule 45 of the 1997
Rules of Civil Procedure,[1] assailing the 30 April 2007 Decision[2] rendered by the
Court of Appeals (CA) then Twelfth Division in CA-G.R. CV No. 73861,[3] the
dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order

the dissolution of the joint venture between defendant-appellant Josefina
Realubit and Francis Eric Amaury Biondo and the subsequent conduct of
accounting, liquidation of assets and division of shares of the joint venture
business.
Let a copy hereof and the records of the case be remanded to the trial court
for appropriate proceedings.[4]

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint

Venture Agreement with Francis Eric Amaury Biondo (Biondo), a French national,
for the operation of an ice manufacturing business. With Josefina as the industrial
partner and Biondo as the capitalist partner, the parties agreed that they would each
receive 40% of the net profit, with the remaining 20% to be used for the payment of
the ice making machine which was purchased for the business.[5] For and in
consideration of the sum of P500,000.00, however, Biondo subsequently executed
a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in
the business in favor of respondent Eden Jaso (Eden), the wife of respondent
Prosencio Jaso.[6] With Biondos eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising
her of their acquisition of said Frenchmans share in the business and formally
demanding an accounting and inventory thereof as well as the remittance of their
portion of its profits.[7]

Faulting Josefina with unjustified failure to heed their demand, the Spouses
Jaso commenced the instant suit with the filing of their 3 August 1998 Complaint
against Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for
specific performance, accounting, examination, audit and inventory of assets and

properties, dissolution of the joint venture, appointment of a receiver and

damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of the
Regional Trial Court (RTC) of Paraaque City, said complaint alleged, among other
matters, that the Spouses Realubit had no gainful occupation or business prior to
their joint venture with Biondo; that with the income of the business which earned
not less than P3,000.00 per day, they were, however, able to acquire the two-storey
building as well as the land on which the joint ventures ice plant stands, another
building which they used as their office and/or residence and six (6) delivery vans;
and, that aside from appropriating for themselves the income of the business, the
Spouses Realubit have fraudulently concealed the funds and assets thereof thru their
relatives, associates or dummies.[8]

Served with summons, the Spouses Realubit filed their Answer dated 21
October 1998, specifically denying the material allegations of the foregoing
complaint. Claiming that they have been engaged in the tube ice trading business
under a single proprietorship even before their dealings with Biondo, the Spouses
Realubit, in turn, averred that their said business partner had left the country in May
1997 and could not have executed the Deed of Assignment which bears a signature
markedly different from that which he affixed on their Joint Venture Agreement; that
they refused the Spouses Jasos demand in view of the dubious circumstances
surrounding their acquisition of Biondos share in the business which was established
at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said business
had already stopped operations on 13 January 1996 when its plant shut down after
its power supply was disconnected by MERALCO for non-payment of utility bills;
and, that it was their own tube ice trading business which had been moved to 66-C
Cenacle Drive, Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso
mistook for the ice manufacturing business established in partnership with Biondo.[9]

The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render
its Decision dated 17 September 2001, discounting the existence of sufficient
evidence from which the income, assets and the supposed dissolution of the joint

venture can be adequately reckoned. Upon the finding, however, that the Spouses
Jaso had been nevertheless subrogated to Biondos rights in the business in view of
their valid acquisition of the latters share as capitalist partner,[10] the RTC disposed
of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete

accounting and inventory of the assets and liabilities of the joint venture
from its inception to the present, to allow plaintiffs access to the books
and accounting records of the joint venture, to deliver to plaintiffs their
share in the profits, if any, and to pay the plaintiffs the amount of P20,000.
for moral damages. The claims for exemplary damages and attorneys fees
are denied for lack of basis.[11]

On appeal before the CA, the foregoing decision was set aside in the herein
assailed Decision dated 30 April 2007, upon the following findings and conclusions:
(a) the Spouses Jaso validly acquired Biondos share in the business which had been
transferred to and continued its operations at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses
Realubit; (b) absent showing of Josefinas knowledge and consent to the transfer of
Biondos share, Eden cannot be considered as a partner in the business, pursuant to
Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondos share
in the profits of the business, Eden cannot, however, interfere with the management
of the partnership, require information or account of its transactions and inspect its
books; (d) the partnership should first be dissolved before Eden can seek an
accounting of its transactions and demand Biondos share in the business; and, (e)
the evidence adduced before the RTC do not support the award of moral damages in
favor of the Spouses Jaso.[12]

The Spouses Realubits motion for reconsideration of the foregoing decision

was denied for lack of merit in the CAs 28 June 2007 Resolution,[13] hence, this
petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the
negative of the following issues, to wit:

A.

WHETHER OR NOT THERE WAS A

VALID ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER

[JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO]
HAVE ANY RIGHT IN THE JOINT VENTURE AND IN
THE SEPARATE ICE BUSINESS OF PETITIONER[S].[14]

The Courts Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and
the CA inordinately gave premium to the notarization of the 27 June 1997 Deed of
Assignmentexecuted by Biondo in favor of the Spouses Jaso. Calling attention to the
latters failure to present before the RTC said assignor or, at the very least, the
witnesses to said document, the Spouses Realubit maintain that the testimony of
Rolando Diaz, the Notary Public before whom the same was acknowledged, did not
suffice to establish its authenticity and/or validity. They insist that notarization did
not automatically and conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or, for that matter, appear

before said notary public.[15] The dearth of merit in the Spouses Realubits position
is, however, immediately evident from the settled rule that documents acknowledged
before notaries public are public documents which are admissible in evidence
without necessity of preliminary proof as to their authenticity and due execution.[16]

It cannot be gainsaid that, as a public document, the Deed of

Assignment Biondo executed in favor of Eden not only enjoys a presumption of
regularity[17] but is also considered prima facie evidence of the facts therein
stated.[18] A party assailing the authenticity and due execution of a notarized
document is, consequently, required to present evidence that is clear, convincing and
more than merely preponderant.[19] In view of the Spouses Realubits failure to
discharge this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined strength of
the above-discussed disputable presumptions and the testimonies elicited from
Eden[20] and Notary Public Rolando Diaz.[21] As for the Spouses Realubits bare
assertion that Biondos signature on the same document appears to be forged, suffice
it to say that, like fraud,[22] forgery is never presumed and must likewise be proved
by clear and convincing evidence by the party alleging the same. [23] Aside from not
being borne out by a comparison of Biondos signatures on the Joint Venture
Agreement[24] and the Deed of Assignment,[25] said forgery is, moreover debunked by
Biondos duly authenticated certification dated 17 November 1998, confirming the
transfer of his interest in the business in favor of Eden.[26]

Generally understood to mean an organization formed for some temporary

purpose, a joint venture is likened to a particular partnership or one which has for its
object determinate things, their use or fruits, or a specific undertaking, or the exercise
of a profession or vocation.[27] The rule is settled that joint ventures are governed by
the law on partnerships[28] which are, in turn, based on mutual agency or delectus
personae.[29] Insofar as a partners conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the

partnership does not itself dissolve the partnership, or, as against the other
partners in the absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners
would otherwise be entitled. However, in case of fraud in the management
of the partnership, the assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to
receive his assignors interest and may require an account from the date
only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that (t)he transfer by a partner of

his partnership interest does not make the assignee of such interest a partner of the
firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.[30] Since a partners
interest in the partnership includes his share in the profits,[31] we find that the CA
committed no reversible error in ruling that the Spouses Jaso are entitled to
Biondos share in the profits, despite Juanitas lack of consent to the assignment of
said Frenchmans interest in the joint venture. Although Eden did not, moreover,
become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her
prayer for dissolution of the joint venture conformably with the right granted to the
purchaser of a partners interest under Article 1831 of the Civil Code.[32]

Considering that they involve questions of fact, neither are we inclined to

hospitably entertain the Spouses Realubits insistence on the supposed fact that
Josefinas joint venture with Biondo had already been dissolved and that the ice

manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6,

Quezon City was merely a continuation of the same business they previously
operated under a single proprietorship. It is well-entrenched doctrine that questions
of fact are not proper subjects of appeal bycertiorari under Rule 45 of the Rules of
Court as this mode of appeal is confined to questions of law.[33] Upon the principle
that this Court is not a trier of facts, we are not duty bound to examine the evidence
introduced by the parties below to determine if the trial and the appellate courts
correctly assessed and evaluated the evidence on record.[34]Absent showing that the
factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts, the Court will limit itself
to reviewing only errors of law.[35]

Based on the evidence on record, moreover, both the RTC[36] and the
CA[37] ruled out the dissolution of the joint venture and concluded that the ice
manufacturing business at the aforesaid address was the same one established by
Juanita and Biondo. As a rule, findings of fact of the CA are binding and conclusive
upon this Court,[38] and will not be reviewed or disturbed on appeal[39] unless the case
falls under any of the following recognized exceptions: (1) when the conclusion is a
finding grounded entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its
findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners' main and reply briefs are not disputed by the
respondents; and, (10) when the findings of fact of the CA are premised on the
supposed absence of evidence and contradicted by the evidence on
record.[40] Unfortunately for the Spouses Realubits cause, not one of the foregoing
exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed
CA Decision dated 30 April 2007 is, accordingly, AFFIRMED in toto.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187769

June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals
(CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court
(RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by
petitioner Alvin Patrimonio and ordering him to pay respondent Octavio Marasigan III (Marasigan)
the sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
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 miniconcerts and shows related to basketball. Petitioner was already then a decorated professional
basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses
of Slam Dunk. Although signed, these checks had no payees 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. According to petitioner, the arrangement was made so
that he could verify the validity of the payment and make the proper arrangements to fund the
account.
In the middle of 1993, without the petitioners knowledge and consent, Gutierrez went to Marasigan
(the petitioners former teammate), 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 from
March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez request and gave him P200,000.00 sometime in February 1994.
Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed
with 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 of "P200,000.00". The
upper right portion of the check corresponding to the date was also filled out with the words "May 23,
1994" but the petitioner 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 petitioners account with the bank had been closed since May
28, 1993.
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, docketed as
Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the checks negotiation, and asserted that
he was not privy to the parties loan agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated December 22,
1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 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. While under
Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to complete
the checks by filling up the blanks therein, the RTC ruled that he deliberately violated petitioners
specific instructions and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioners 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.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a
holder in due course. He contended that when Marasigan received the check, he knew that the
same was without a date, and hence, incomplete. He also alleged that the loan was actually
between Marasigan and Gutierrez with his check being used only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual
findings. After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in
due course as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the
petitioners authority. It held that the loan may not be nullified since it is grounded on an obligation
arising from law and ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the
present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never
authorized the borrowing of money nor the checks negotiation to the latter; (2) under Article 1878 of
the Civil Code, a special power of attorney is necessary for an individual to make a loan or borrow
money in behalf of another; (3) the loan transaction was between Gutierrez and Marasigan, with his
check being used only as a security; (4) the check had not been completely and strictly filled out in
accordance with his authority since the condition that the subject check can only be used provided
there is prior approval from him, was not complied with; (5) even if the check was strictly filled up as
instructed by the petitioner, Marasigan is still not entitled to claim the checks value as he was not a
holder in due course; and (6) by reason of the bad faith in the dealings between the respondents, he
is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of P200,000.00 granted by respondent
Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the P200,000.00
loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Courts Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main
point of inquiry of whether the contract of loan may be nullified, hinges on the very existence of the
contract of loan a question that, as presented, is essentially, one of fact. Whether the petitioner
authorized the borrowing; whether Gutierrez completely filled out the subject check strictly under the
petitioners authority; and whether Marasigan is a holder in due course are also questions of fact,
that, as a general rule, are beyond the scope of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for
review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no
exceptions. One notable exception is when the findings off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present case, the tribunals below arrived at two
conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the complaint for nullity
of the loan. Accordingly, we will examine the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly
requires a written authority when the loan is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held liable for the face value of the check
because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract 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." Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest therein through an
agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an
agent can loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation
of the things which are under administration. (emphasis supplied)
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. We unequivocably declared in Lim Pin v. Liao Tian, et
al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly established by competent and
convincing evidence other than the self serving assertion of the party claiming that such authority
was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form.
The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680)
stated that such a mandate may be either oral or written, the one vital thing being that it shall be
express. And more recently, We stated that, if the special authority is not written, then it must be duly
established by evidence:

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority.
And while the same does not state that the special authority be in writing the Court has every reason
to expect that, if not in writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him.(Home Insurance Company
vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210;
225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for
Being Void; Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf
of the petitioner. Records do not show that the petitioner executed any special power of attorney
(SPA) in favor of Gutierrez. In fact, the petitioners testimony confirmed that he never authorized
Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow money in his behalf,
nor was he aware of any such transaction:
1wphi 1

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing
him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank checks and releasing
them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and
contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the
petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by
real estate mortgages in the name of East Cordillera Mining Corporation, in the absence of an SPA
conferring authority on de Villa, there is no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his
death). (citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf
of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she
was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not
as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
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.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of agency
and the special fiduciary relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of agency, but also its nature and
extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of
the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to beno
contract of agency between Yambao and Andan so as to bind the latter for the acts of the former.
Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated
their dealings. 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. This is more
imperative when it is considered that the transaction dealt with involves checks, which are not legal
tender, and the creditor may validly refuse the same as payment of obligation.(at p. 630). (emphasis
supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of
the SPA in favor of the latter and without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by the risk accompanying his trust
on the mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latters Consent
Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any
other contract, is subject to the rules governing the requisites and validity of contracts in
general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a valid contract,
namely:
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.
In this case, the petitioner denied liability on the ground that the contract lacked the essential
element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have the
petitioners written/verbal authority to enter into a contract of loan. While there may be a meeting of
the minds between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose
consent was not obtained and who was not privy to the loan agreement. Hence, only Gutierrez is
bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the
hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money in
his behalf and neither should it be construed as petitioners grant of consent to the parties loan
agreement. Without any evidence to prove Gutierrez authority, the petitioners signature in the
check cannot be taken, even remotely, as sufficient authorization, much less, consent to the contract
of loan. Without the consent given by one party in a purported contract, such contract could not have
been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be
made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the signature in order that
the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.
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.16
In order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instruments 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.17
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.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) 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.(emphasis supplied)
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.18 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.19
As held in De Ocampo v. Gatchalian:20
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.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted
with fraud. It is not necessary that he should know the particulars or even the nature of the fraud,
since all that is required is knowledge of such facts that his action in taking the note amounted bad
faith.
The term bad faith does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan department
provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith
may be inferred. The circumstances thrust the duty upon the defendants to make further inquiries
and they had no right to shut their eyes deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans 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:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew,
there were several visitors that included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap niya si
hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya
yung utang ni Nap, dahil
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang
tsekeng tumalbog (He told me that we have to fix it up before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you want
to appear
xxxx

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N.,
Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
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.22 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 nonnegotiable.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use the check without his prior approval and
argues that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the
blanks and use the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in
their business provided that he could only use them upon his approval. His instruction could not be
any clearer as Gutierrez authority was limited to the use of the checks for the operation of their
business, and on the condition that the petitioners prior approval be first secured.
1wphi 1

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.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23,
1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure P200,000 in this check?

A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words P200,000 only xx
in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
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.
ARTURO D. BRION
Associate Justice