Case 3

459 Phil. 237 issued her own Filmanbank Check No. 065314, to the order of
Queaño, also dated 11 August 1980 and for the amount of Ninety
SECOND DIVISION Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queaño. [3]
[ G.R. No. 118375, October 03, 2003 ]
To secure the loan, Queaño executed a Deed of Real Estate
CELESTINA T. NAGUIAT, PETITIONER, VS. COURT OF Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered
APPEALS AND AURORA QUEAÑO, RESPONDENTS. to the latter the owner's duplicates of the titles covering the
mortgaged properties.[4] On the same day, the mortgage deed was
DECISION notarized, and Queaño issued to Naguiat a promissory note for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00),
with interest at 12% per annum, payable on 11 September 1980.
[5]
TINGA, J.:  Queaño also issued a Security Bank and Trust Company check,
postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the order of
Before us is a Petition for Review on Certiorari under Rule 45,
Naguiat.
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 1994[1], which
Upon presentment on its maturity date, the Security Bank check was
affirmed in toto the decision handed down by the Regional Trial
dishonored for insufficiency of funds. On the following day, 12
Court (RTC) of Pasay City.[2]
September 1980, Queaño requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant to
The case arose when on 11 August 1981, private respondent Aurora
its policy not to honor such requests if the check is drawn against
Queaño (Queaño) filed a complaint before the Pasay City RTC for
insufficient funds.[6]
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
On 16 October 1980, Queaño received a letter from Naguiat's lawyer,
declaring the questioned Real Estate Mortgage void, which Naguiat
demanding settlement of the loan. Shortly thereafter, Queaño and
appealed to the Court of Appeals. After the Court of Appeals upheld
one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
the RTC decision, Naguiat instituted the present petition.
meeting, Queaño told Naguiat that she did not receive the proceeds
of the loan, adding that the checks were retained by Ruebenfeldt,
The operative facts follow:
who purportedly was Naguiat's agent.[7]
Queaño applied with Naguiat for a loan in the amount of Two
Naguiat applied for the extrajudicial foreclosure of the mortgage
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On
with the Sheriff of Rizal Province, who then scheduled the
11 August 1980, Naguiat indorsed to Queaño Associated Bank
foreclosure sale on 14 August 1981. Three days before the scheduled
Check No. 090990 (dated 11 August 1980) for the amount of Ninety
sale, Queaño filed the case before the Pasay City RTC, [8] seeking the
Five Thousand Pesos (P95,000.00), which was earlier issued to
annulment of the mortgage deed. The trial court eventually stopped
Naguiat by the Corporate Resources Financing Corporation. She also
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the auction sale.[9] Naguiat's case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are
On 8 March 1991, the RTC rendered judgment, declaring the Deed supported by the evidence on record and the applicable laws.
of Real Estate Mortgage null and void, and ordering Naguiat to
return to Queaño the owner's duplicates of her titles to the mortgaged Against the common finding of the courts below, Naguiat vigorously
lots.[10] Naguiat appealed the decision before the Court of Appeals, insists that Queaño received the loan proceeds. Capitalizing on the
making no less than eleven assignments of error. The Court of status of the mortgage deed as a public document, she cites the rule
Appeals promulgated the decision now assailed before us that that a public document enjoys the presumption of validity and
affirmed in toto the RTC decision. Hence, the present petition. truthfulness of its contents. The Court of Appeals, however, is
correct in ruling that the presumption of truthfulness of the recitals in
Naguiat questions the findings of facts made by the Court of a public document was defeated by the clear and convincing
Appeals, especially on the issue of whether Queaño had actually evidence in this case that pointed to the absence of consideration.
[18]
received the loan proceeds which were supposed to be covered by  This Court has held that the presumption of truthfulness
the two checks Naguiat had issued or indorsed. Naguiat claims that engendered by notarized documents is rebuttable, yielding as it does
being a notarial instrument or public document, the mortgage deed to clear and convincing evidence to the contrary, as in this case. [19]
enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and On the other hand, absolutely no evidence was submitted by Naguiat
pronouncements of Ruebenfeldt, invoking the rule on the non- that the checks she issued or endorsed were actually encashed or
binding effect of the admissions of third persons. [11] deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that
The resolution of the issues presented before this Court by Naguiat the delivery of bills of exchange and mercantile documents such as
involves the determination of facts, a function which this Court does checks shall produce the effect of payment only when they have been
not exercise in an appeal by certiorari. Under Rule 45 which governs cashed.[20] It is only after the checks have produced the effect of
appeal by certiorari, only questions of law may be raised [12] as the payment that the contract of loan may be deemed perfected. Art.
Supreme Court is not a trier of facts.[13] The resolution of factual 1934 of the Civil Code provides:
issues is the function of lower courts, whose findings on these "An accepted promise to deliver something by way of commodatum
matters are received with respect and are in fact generally binding on or simple loan is binding upon the parties, but the commodatum or
the Supreme Court.[14] A question of law which the Court may pass simple loan itself shall not be perfected until the delivery of the
upon must not involve an examination of the probative value of the object of the contract."
evidence presented by the litigants.[15] There is a question of law in a A loan contract is a real contract, not consensual, and, as such, is
given case when the doubt or difference arises as to what the law is perfected only upon the delivery of the object of the contract. [21] In
on a certain state of facts; there is a question of fact when the doubt this case, the objects of the contract are the loan proceeds which
or difference arises as to the truth or the falsehood of alleged facts. [16] Queaño would enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were encashed or
Surely, there are established exceptions to the rule on the deposited, Naguiat would have certainly presented the corresponding
conclusiveness of the findings of facts of the lower courts. [17] But documentary evidence, such as the returned checks and the pertinent
Case 3

bank records. Since Naguiat presented no such proof, it follows that the honest belief that he is what he appears to be. [27] The Court of
the checks were not encashed or credited to Queaño's account. Appeals is correct in invoking the said rule on agency by estoppel.

Naguiat questions the admissibility of the various written More fundamentally, whatever was the true relationship between
representations made by Ruebenfeldt on the ground that they could Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
not bind her following the res inter alia acta alteri nocere non checks issued or indorsed to Queaño were never encashed or
debet rule. The Court of Appeals rejected the argument, holding that deposited to her account of Naguiat.
since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the rule. All told, we find no compelling reason to disturb the finding of the
[22]
 Still, Naguiat insists that Ruebenfeldt was not her agent. courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
Suffice to say, however, the existence of an agency relationship the mortgage which is supposed to secure the loan is null and void.
between Naguiat and Ruebenfeldt is supported by ample evidence. The consideration of the mortgage contract is the same as that of the
As correctly pointed out by the Court of Appeals, Ruebenfeldt was principal contract from which it receives life, and without which it
not a stranger or an unauthorized person. Naguiat instructed cannot exist as an independent contract.[28] A mortgage contract
Ruebenfeldt to withhold from Queaño the checks she issued or being a mere accessory contract, its validity would depend on the
indorsed to Queaño, pending delivery by the latter of additional validity of the loan secured by it.[29]
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño's friend, Marilou Farralese, and it was in WHEREFORE, the petition is denied and the assailed decision is
connection with that transaction that Queaño came to know Naguiat. affirmed. Costs against petitioner.
[23]
 It was also Ruebenfeldt who accompanied Queaño in her meeting
with Naguiat and on that occasion, on her own and without Queaño SO ORDERED.
asking for it, Reubenfeldt actually drew a check for the sum of
P220,000.00 payable to Naguiat, to cover for Queaño's alleged
liability to Naguiat under the loan agreement.[24]

The Court of Appeals recognized the existence of an "agency by Supreme Court E-Library
estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño's impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds
him out to the public as such, cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith, and in