FACTS:

This case involves a business venture between petitioner Alvin Patrimonio and respondent Napoleon Gutierrez under the name of Slam Dunk Corporation. Petitioner, a professional basketball player, and Gutierrez, a sports columnist, produced mini-concerts and shows related to basketball. During the course of their business, petitioner pre-signed several checks without payee's name, date, or amount, which were entrusted to Gutierrez with the instruction not to fill them out without petitioner's approval.

Without petitioner's knowledge and consent, Gutierrez approached respondent Octavio Marasigan to secure a loan of P200,000.00, falsely claiming that the petitioner needed the money for his house construction. Marasigan agreed and gave the loan to Gutierrez, who also gave Marasigan one of the blank checks with the amount of P200,000.00 filled out. Marasigan deposited the check on May 24, 1994, but it was dishonored due to petitioner's closed bank account. Marasigan sought recovery from Gutierrez but was unsuccessful, so he filed a criminal case against the petitioner for violation of B.P. 22.

The petitioner filed a Complaint for Declaration of Nullity of Loan and Recovery of Damages, denying authorizing the loan or the check's negotiation. The RTC ruled in favor of Marasigan, declaring him as a holder in due course, ordering the petitioner to pay Marasigan the face value of the check, with a right to claim reimbursement from Gutierrez. The CA affirmed the RTC ruling, stating that Marasigan is not a holder in due course but still held the petitioner liable to pay the loan amount. The petitioner filed a petition for review on certiorari before the Supreme Court.

The case presents the following issues: (1) whether the loan may be nullified for being void; (2) whether the petitioner is liable for the payment of the loan; (3) whether Gutierrez filled out the check strictly under the petitioner's authority; and (4) whether Marasigan is a holder in due course.

ISSUES:

1. Whether the contract of loan may be nullified due to lack of authorization.

2. Whether the requirement of a written authority under Article 1878 of the Civil Code applies.

3. Whether the petitioner is bound by the contract of loan.

4. Whether East Cordillera Mining Corporation is liable for the loan contracted by de Villa secured by real estate mortgages.

5. Whether the loan agreement entered into by Gutierrez and Marasigan is valid and binding.

6. Whether the petitioner can be made liable under the loan agreement

7. Whether the petitioner can be held liable under the check he signed

8. Whether Marasigan is a holder in due course

9. Whether or not Marasigan acted in bad faith in negotiating the subject check.

10. Whether or not the check was completed strictly under the authority given by the petitioner.

11. Whether the Regional Trial Court (RTC) committed grave abuse of discretion in dismissing the complaint for injunction.

12. Whether a writ of preliminary injunction is warranted in this case.

RULING:

1. The Court notes that the issues raised in this petition are essentially factual in nature. However, because the lower courts arrived at conflicting factual findings, the Court will review the evidence presented.

2. Article 1878 of the Civil Code does not require the authority to be in writing. As long as the mandate is express, it may be either oral or written.

3. In this case, there is no evidence or special power of attorney showing that the petitioner authorized the borrowing of money. Therefore, the contract of loan entered into by the agent should be nullified and the petitioner is not bound by it.

4. East Cordillera Mining Corporation is not liable for the loan contracted by 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 the petitioner. The liability arising from the loan was the sole indebtedness of de Villa.

5. The loan agreement entered into by Gutierrez and Marasigan is null and void. 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. The petitioner is not bound by the parties' loan agreement.

6. The petitioner cannot be held liable under the loan agreement as there is no evidence to prove his authority or consent to the contract of loan.

7. The petitioner can be held liable under the check he signed based on Section 14 of the Negotiable Instruments Law (NIL), which states that a signature on a blank paper delivered by the person making the signature operates as a prima facie authority to fill it up as a negotiable instrument for any amount. However, for the instrument to be enforced against the petitioner, it must be filled up strictly in accordance with the authority given and within a reasonable time.

8. Marasigan is not a holder in due course because he had notice of an infirmity in the check. To be a holder in due course, one must take the instrument in good faith and for value, without notice of any infirmity or defect in the title of the person negotiating it.

9. Marasigan acted in bad faith in negotiating the subject check. Marasigan had knowledge that the petitioner was not a party or privy to the loan contract and had no obligation or liability to him. Despite this knowledge, Marasigan failed to make further inquiries and deliberately ignored obvious facts. His inaction and failure to verify, coupled with his knowledge that the underlying obligation was not actually for the petitioner, may be construed as gross negligence amounting to bad faith.

10. The check was not completed strictly under the authority given by the petitioner. The petitioner only authorized Gutierrez to fill up the blanks of the check, provided that his prior approval be secured. However, evidence on record shows that Gutierrez exceeded his authority by filling up the check without securing the petitioner's prior approval. Gutierrez used the check to pay a loan for the construction of the petitioner's house, which was a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. Therefore, the check was not completed in accordance with the authority given by the petitioner.

11. The RTC did not commit grave abuse of discretion in dismissing the complaint for injunction. The complaint failed to comply with the requirements under the rules of procedure.

12. A writ of preliminary injunction is not warranted in this case as the petitioner failed to establish clear and convincing evidence of his entitlement to injunctive relief.

PRINCIPLES:

• Contracts of agency may be oral unless the law requires a specific form.

• Article 1878 of the Civil Code does not require the authority for loaning or borrowing money to be in writing. As long as the mandate is express, it may be either oral or written.

• The requirements of a special power of attorney refer to the nature of the authorization and not its form. The same must be duly established by competent and convincing evidence.

• The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney. There must be a special power of attorney conferring authority on the officer to borrow money on behalf of the corporation.

• In order to bind the principal by a mortgage on real property executed by an agent, the mortgage must upon its face purport to be made, signed and sealed in the name of the principal. If the mortgage does not indicate that it was made on behalf of the principal, it will bind the agent only.

• 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.

• A contract of loan, like any other contract, is subject to the rules governing the requisites and validity of contracts in general. The essential requisites for a valid contract are the consent of the contracting parties, object certain which is the subject matter of the contract, and cause of the obligation which is established.

• In order for a contract to be valid and enforceable, there must be consent given by all parties. Without consent, there is no contract to speak of.

• Section 14 of the NIL provides that a person in possession of an incomplete but delivered instrument has prima facie authority to complete it by filling up the blanks therein.

• In order for a person who is not a holder in due course to enforce an instrument against a party prior to its completion, two requisites must exist: (1) the blank must be filled strictly in accordance with the authority given, and (2) it must be filled up within a reasonable time.

• A holder in due course is one who takes the instrument in good faith and for value, without notice of any infirmity in the instrument or defect in the title of the person negotiating it.

• Knowledge that the underlying obligation is not actually for the named payee renders the possessor of the negotiable instrument dishonest and in bad faith.

• Inaction and failure to verify, despite knowledge that the petitioner is not a party to the loan, may amount to gross negligence amounting to bad faith.

• A holder who is not a holder in due course may still recover on the instrument but is subject to defenses as if the instrument were non-negotiable.

• Prima facie authority to complete the check does not extend to its use once the check is completed.

• Evidence that there was no authority or that the authority granted has been exceeded may be presented by the maker to avoid liability under the instrument.

• A check is not completed strictly in accordance with the authority given by the maker if the check is filled up without securing the maker's prior approval.

• A complaint for injunction must comply with the requirements under the rules of procedure for it to prosper.

• To be entitled to a writ of preliminary injunction, the petitioner must establish clear and convincing evidence of his entitlement to injunctive relief.