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 certiorari under Rule 45 of the Revised Rules of Court is the
decision dated September 24, 2008 and the resolution 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.
1

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
theACCOUNT .
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. 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.
4

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. 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.
5

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. 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.
6

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., 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:
7

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:
1wphi1

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)

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, 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:
9

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, where this court held:
10

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 ofACCOUNT 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. As we held in People v. Yabut:
11

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. Article 1318 of the Civil Code enumerates the essential requisites for a valid contract,
namely:
13

14

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. 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.
18

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. 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. Among such defenses is the filling up blank not within the authority.
22

23

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.
1wphi1

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.
G.R. No. 129910

September 5, 2006

THE INTERNATIONAL CORPORATE BANK, INC., petitioner,

vs.
COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 9 August 1994 Amended Decision2 and the 16 July 1997
Resolution3 of the Court of Appeals in CA-G.R. CV No. 25209.
The Antecedent Facts
The case originated from an action for collection of sum of money filed on 16 March 1982 by the International
Corporate Bank, Inc.4 ("petitioner") against the Philippine National Bank ("respondent"). The case was raffled to
the then Court of First Instance (CFI) of Manila, Branch 6. The complaint was amended on 19 March 1982. The
case was eventually re-raffled to the Regional Trial Court of Manila, Branch 52 ("trial court").
The Ministry of Education and Culture issued 15 checks 5 drawn against respondent which petitioner accepted
for deposit on various dates. The checks are as follows:
Check Number
7-3694621-4
7-3694609-6
7-3666224-4
7-3528348-4
7-3666225-5
7-3688945-6
7-4535674-1
7-4535675-2
7-4535699-5
7-4535700-6
7-4697902-2
7-4697925-6
7-4697011-6
7-4697909-4
7-4697922-3

Date
7-20-81
7-27-81
8-03-81
8-07-81
8-10-81
8-10-81
8-21-81
8-21-81
8-24-81
8-24-81
9-18-81
9-18-81
10-02-81
10-02-81
10-05-81

Payee
Trade Factors, Inc.
Romero D. Palmares
Trade Factors, Inc.
Trade Factors, Inc.
Antonio Lisan
Antonio Lisan
Golden City Trading
Red Arrow Trading
Antonio Lisan
Antonio Lisan
Ace Enterprises, Inc.
Golden City Trading
Wintrade Marketing
ABC Trading, Inc.
Golden Enterprises

Amount
P 97,500.00
98,500.50
99,800.00
98,600.00
98,900.00
97,700.00
95,300.00
96,400.00
94,200.00
95,100.00
96,000.00
93,030.00
90,960.00
99,300.00
96,630.00

The checks were deposited on the following dates for the following accounts:
Check Number

Date Deposited

ACCOUNT Deposited

7-3694621-4
7-3694609-6
7-3666224-4
7-3528348-4
7-3666225-5
7-3688945-6
7-4535674-1
7-4535675-2
7-4535699-5
7-4535700-6
7-4697902-2
7-4697925-6
7-4697011-6
7-4697909-4

7-23-81
7-28-81
8-4-81
8-11-81
8-11-81
8-17-81
8-26-81
8-27-81
8-31-81
8-24-81
9-23-81
9-23-81
10-7-81
10-7-81

CA 0060 02360 3
CA 0060 02360 3
CA 0060 02360 3
CA 0060 02360 3
SA 0061 32331 7
CA 0060 30982 5
CA 0060 02360 3
CA 0060 02360 3
CA 0060 30982 5
SA 0061 32331 7
CA 0060 02360 3
CA 0060 30982 5
CA 0060 02360 3
CA 0060 30982 56

After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks
and allowed the withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks
to petitioner without clearing them on the ground that they were materially altered. Thus, petitioner instituted an
action for collection of sums of money against respondent to recover the value of the checks.
The Ruling of the Trial Court
The trial court ruled that respondent is expected to use reasonable business practices in accepting and paying
the checks presented to it. Thus, respondent cannot be faulted for the delay in clearing the checks considering
the ingenuity in which the alterations were effected. The trial court observed that there was no attempt from
petitioner to verify the status of the checks before petitioner paid the value of the checks or allowed withdrawal
of the deposits. According to the trial court, petitioner, as collecting bank, could have inquired by telephone from
respondent, as drawee bank, about the status of the checks before paying their value. Since the immediate
cause of petitioners loss was the lack of caution of its personnel, the trial court held that petitioner is not
entitled to recover the value of the checks from respondent.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered dismissing both the complaint and the counterclaim.
Costs shall, however be assessed against the plaintiff.
SO ORDERED.7
Petitioner appealed the trial courts Decision before the Court of Appeals.
The Ruling of the Court of Appeals
In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial courts Decision. Applying Section 4(c)
of Central Bank Circular No. 580, series of 1977,9 the Court of Appeals held that checks that have been
materially altered shall be returned within 24 hours after discovery of the alteration. However, the Court of
Appeals ruled that even if the drawee bank returns a check with material alterations after discovery of the
alteration, the return would not relieve the drawee bank from any liability for its failure to return the checks
within the 24-hour clearing period. The Court of Appeals explained:
Does this mean that, as long as the drawee bank returns a check with material alteration within 24
hour[s] after discovery of such alteration, such return would have the effect of relieving the bank of any
liability whatsoever despite its failure to return the check within the 24- hour clearing house rule?
We do not think so.

Obviously, such bank cannot be held liable for its failure to return the check in question not later than
the next regular clearing. However, this Court is of the opinion and so holds that it could still be held
liable if it fails to exercise due diligence in verifying the alterations made. In other words, such bank
would still be expected, nay required, to make the proper verification before the 24-hour regular
clearing period lapses, or in cases where such lapses may be deemed inevitable, that the required
verification should be made within a reasonable time.
The implication of the rule that a check shall be returned within the 24-hour clearing period is that if the
collecting bank paid the check before the end of the aforesaid 24-hour clearing period, it would be
responsible therefor such that if the said check is dishonored and returned within the 24-hour clearing
period, the drawee bank cannot be held liable. Would such an implication apply in the case of
materially altered checks returned within 24 hours after discovery? This Court finds nothing in the letter
of the above-cited C.B. Circular that would justify a negative answer. Nonetheless, the drawee bank
could still be held liable in certain instances. Even if the return of the check/s in question is done within
24 hours after discovery, if it can be shown that the drawee bank had been patently negligent in the
performance of its verification function, this Court finds no reason why the said bank should be relieved
of liability.
Although banking practice has it that the presumption of clearance is conclusive when it comes to the
application of the 24-hour clearing period, the same principle may not be applied to the 24-hour period
vis-a-vis material alterations in the sense that the drawee bank which returns materially altered checks
within 24 hours after discovery would be conclusively relieved of any liability thereon. This is because
there could well be various intervening events or factors that could affect the rights and obligations of
the parties in cases such as the instant one including patent negligence on the part of the drawee bank
resulting in an unreasonable delay in detecting the alterations. While it is true that the pertinent proviso
in C.B. Circular No. 580 allows the drawee bank to return the altered check within the period "provided
by law for filing a legal action", this does not mean that this would entitle or allow the drawee bank to
be grossly negligent and, inspite thereof, avail itself of the maximum period allowed by the above-cited
Circular. The discovery must be made within a reasonable time taking into consideration the facts and
circumstances of the case. In other words, the aforementioned C.B. Circular does not provide the
drawee bank the license to be grossly negligent on the one hand nor does it preclude the collecting
bank from raising available defenses even if the check is properly returned within the 24-hour period
after discovery of the material alteration.10
The Court of Appeals rejected the trial courts opinion that petitioner could have verified the status of the checks
by telephone call since such imposition is not required under Central Bank rules. The dispositive portion of the
10 October 1991 Decision reads:
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and the defendantappellee Philippine National Bank is declared liable for the value of the fifteen checks specified and
enumerated in the decision of the trial court (page 3) in the amount of P1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its 9 August 1994 Amended
Decision, the Court of Appeals reversed itself and affirmed the Decision of the trial court dismissing the
complaint.
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed to appreciate that the rule
on the return of altered checks within 24 hours from the discovery of the alteration had been duly passed by the
Central Bank and accepted by the members of the banking system. Until the rule is repealed or amended, the
rule has to be applied.
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997 Resolution, the Court of
Appeals denied the motion for lack of merit.

Hence, the recourse to this Court.

The Issues
Petitioner raises the following issues in its Memorandum:
1. Whether the checks were materially altered;
2. Whether respondent was negligent in failing to recognize within a reasonable period the altered
checks and in not returning the checks within the period; and
3. Whether the motion for reconsideration filed by respondent was out of time thus making the 10
October 1991 Decision final and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and 65
Respondent asserts that the petition should be dismissed outright since petitioner availed of a wrong mode of
appeal. Respondent cites Ybaez v. Court of Appeals13 where the Court ruled that "a petition cannot be
subsumed simultaneously under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners
delegate upon the court the task of determining under which rule the petition should fall."
The remedies of appeal and certiorari are mutually exclusive and not alternative or successive. 14 However, this
Court may set aside technicality for justifiable reasons. The petition before the Court is clearly meritorious.
Further, the petition was filed on time both under Rules 45 and 65.15 Hence, in accordance with the liberal spirit
which pervades the Rules of Court and in the interest of justice, 16 we will treat the petition as having been filed
under Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their serial numbers.
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is avoided, except as against a party who has himself
made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course, not
a party to the alteration, he may enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;

or which adds a place of payment where no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect, is a material alteration.
The question on whether an alteration of the serial number of a check is a material alteration under the
Negotiable Instruments Law is already a settled matter. In Philippine National Bank v. Court of Appeals, this
Court ruled that the alteration on the serial number of a check is not a material alteration. Thus:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instrument[s] Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that
"an innocent alteration (generally, changes on items other than those required to be stated under Sec.
1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder
may enforce it only according to its original tenor.
xxxx
The case at the bench is unique in the sense that what was altered is the serial number of the check in
question, an item which, it can readily be observed, is not an essential requisite for negotiability under
Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and the drawee were not altered. The intended
payee was the same. The sum of money due to the payee remained the same. x x x
xxxx
The checks serial number is not the sole indication of its origin. As succinctly found by the Court of
Appeals, the name of the government agency which issued the subject check was prominently printed
therein. The checks issuer was therefore sufficiently identified, rendering the referral to the serial
number redundant and inconsequential. x x x
xxxx
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was
altered, the same being an immaterial or innocent one. 17

Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the
checks.
Incidentally, we agree with the petitioners observation that the check in the PNB case appears to belong to the
same batch of checks as in the present case. The check in the PNB case was also issued by the Ministry of
Education and Culture. It was also drawn against PNB, respondent in this case. The serial number of the check
in the PNB case is 7-3666-223-3 and it was issued on 7 August 1981.
Timeliness of Filing of Respondents Motion for Reconsideration
Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6 November 1991.
Respondents motion for reconsideration states that it received a copy of the 10 October 1991 Decision on 22
October 1991.18 Thus, it appears that the motion for reconsideration was filed on time. However, the Registry
Return Receipt shows that counsel for respondent or his agent received a copy of the 10 October 1991
Decision on 16 October 1991,19 not on 22 October 1991 as respondent claimed. Hence, the Court of Appeals is
correct when it noted that the motion for reconsideration was filed late. Despite its late filing, the Court of
Appeals resolved to admit the motion for reconsideration "in the interest of substantial justice." 20
There are instances when rules of procedure are relaxed in the interest of justice. However, in this case,
respondent did not proffer any explanation for the late filing of the motion for reconsideration. Instead, there
was a deliberate attempt to deceive the Court of Appeals by claiming that the copy of the 10 October 1991
Decision was received on 22 October 1991 instead of on 16 October 1991. We find no justification for the
posture taken by the Court of Appeals in admitting the motion for reconsideration. Thus, the late filing of the
motion for reconsideration rendered the 10 October 1991 Decision final and executory.
The 24-Hour Clearing Time
The Court will not rule on the proper application of Central Bank Circular No. 580 in this case. Since there were
no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return
them to petitioner, the collecting bank.21 Thus, respondent is liable to petitioner for the value of the checks, with
legal interest from the time of filing of the complaint on 16 March 1982 until full payment. 22 Further, considering
that respondents motion for reconsideration was filed late, the 10 October 1991 Decision, which held
respondent liable for the value of the checks amounting to P1,447,920, had become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July 1997 Resolution of the
Court of Appeals. We rule that respondent Philippine National Bank is liable to petitioner International
Corporate Bank, Inc. for the value of the checks amounting to P1,447,920, with legal interest from 16 March
1982 until full payment. Costs against respondent.
SO ORDERED.