Naguiat vs. Court of Appeals

A contract of loan is a real contract, not consensual, and is perfected only upon delivery of the object of the contract; a mortgage, being a mere accessory contract, is null and void where the principal loan contract was never perfected for failure of the lender to deliver the loan proceeds.

Aurora Queaño applied to Celestina Naguiat for a loan of ₱200,000, to be secured by a real estate mortgage over Queaño's properties covered by Transfer Certificates of Title Nos. 28631 and 28632. Ruby Ruebenfeldt served as intermediary between the parties, having previously acted as Naguiat's agent in connection with a loan application by Queaño's friend, Marilou Farralese. It was through that prior transaction that Queaño came to know Naguiat. The dispute centers on whether the loan proceeds were ever actually delivered to Queaño, which in turn determines the validity of the mortgage securing that loan.

On 11 August 1980, Aurora Queaño applied to Celestina Naguiat for a loan of ₱200,000, which Naguiat granted. To constitute the loan proceeds, Naguiat indorsed to Queaño Associated Bank Check No. 090990, dated 11 August 1980, for ₱95,000, earlier issued to Naguiat by the Corporate Resources Financing Corporation. Naguiat also issued her own Filmanbank Check No. 065314, payable to the order of Queaño, likewise dated 11 August 1980 and in the amount of ₱95,000. Naguiat claimed she further delivered ₱10,000 in cash, rounding off the total to ₱200,000, though Queaño contended that the ₱10,000 was actually deducted as a stipulated 5% interest. To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat over two parcels of land covered by Transfer Certificates of Title Nos. 28631 and 28632, and surrendered the owner's duplicates of those titles. On the same day, the mortgage deed was notarized, and Queaño issued a promissory note for ₱200,000 with interest at 12% per annum, payable on 11 September 1980, as well as a Security Bank and Trust Company check postdated 11 September 1980 for ₱200,000, payable to Naguiat's order.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. The following day, 12 September 1980, Queaño requested Security Bank to stop payment, but the bank refused, citing its policy against honoring such requests when the check is drawn against insufficient funds. Queaño explained that she made the stop-payment request because she was withdrawing her loan application, having never received the loan proceeds—the checks issued or indorsed by Naguiat having been turned over not to her but to Ruby Ruebenfeldt, whom Queaño claimed was Naguiat's agent. According to Queaño, Naguiat had demanded additional collateral and instructed Ruebenfeldt to surrender the checks to Queaño only upon receipt of such additional security.

On 16 October 1980, Queaño received a demand letter from Naguiat's lawyer seeking settlement of the loan. Shortly thereafter, Queaño and Ruebenfeldt met with Naguiat, where Queaño stated that she had not received the loan proceeds and that the checks had been retained by Ruebenfeldt. During that meeting, Ruebenfeldt, on her own initiative and without Queaño's request, drew a check for ₱220,000 payable to Naguiat, ostensibly to cover Queaño's alleged liability. Naguiat accepted the check, purportedly to assure herself of repayment, but when she deposited it on 15 November 1980, it was dishonored for being drawn against a closed account. Naguiat then filed a criminal complaint for violation of B.P. Blg. 22 against Ruebenfeldt, but the City Prosecutor of Caloocan dismissed the case, finding Ruebenfeldt's liability to be civil, not criminal.

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who scheduled the foreclosure sale on 14 August 1981. Three days before the sale, Queaño filed the action before the Pasay City RTC seeking annulment of the mortgage deed, and the trial court enjoined the auction. Both the RTC and the Court of Appeals found that the loan proceeds were never delivered to Queaño, as the checks were never encashed or credited to her account, and that Ruebenfeldt acted as Naguiat's agent in withholding the checks pending delivery of additional collateral.

• Presumption of Public Document: Naguiat maintained that the mortgage deed, being a notarial instrument or public document, enjoys the presumption that the recitals therein are true, and that this presumption had not been overcome.
• Receipt of Loan Proceeds: Naguiat vigorously insisted, against the common finding of the courts below, that Queaño had actually received the loan proceeds covered by the two checks.
• Inadmissibility of Third-Party Admissions: Naguiat questioned the admissibility of the various representations and pronouncements made by Ruebenfeldt, invoking the rule on the non-binding effect of admissions of third persons under Section 28, Rule 130 of the Rules of Court.
• Denial of Agency: Naguiat insisted that Ruebenfeldt was not her agent, thereby rendering Ruebenfeldt's acts and declarations inadmissible against her.

• Nature of Questions Raised: Whether the issues presented by Naguiat involve questions of fact rather than questions of law, and thus are not cognizable in a Petition for Review on Certiorari under Rule 45.
• Rebuttal of Notarial Presumption: Whether the presumption of truthfulness of the recitals in the notarized mortgage deed was rebutted by clear and convincing evidence showing absence of consideration.
• Perfection of Loan Contract: Whether the loan contract was perfected despite the checks constituting the loan proceeds never having been encashed or deposited to the borrower's account.
• Agency Relationship and Admissibility: Whether Ruebenfeldt's representations are admissible against Naguiat by virtue of an agency relationship or agency by estoppel.

• Nature of Questions Raised: No cognizable question of law is presented. The resolution of the issues involves determination of facts—a function the Supreme Court does not exercise in an appeal by certiorari under Rule 45, which permits only questions of law.

• Rebuttal of Notarial Presumption: Yes, the presumption was rebutted. The presumption of truthfulness engendered by notarized documents is rebuttable and yields to clear and convincing evidence to the contrary, as in this case where the evidence pointed to the absence of consideration.

• Perfection of Loan Contract: No, the loan was not perfected. A loan is a real contract perfected only upon delivery of the object of the contract, and the delivery of checks produces the effect of payment only when they have been cashed; since the checks were never encashed, the loan proceeds were never delivered.

• Agency Relationship and Admissibility: Yes, Ruebenfeldt's representations were properly admitted. The existence of an agency relationship between Naguiat and Ruebenfeldt was supported by ample evidence, and the doctrine of agency by estoppel under Article 1873 of the Civil Code applied because Naguiat clothed Ruebenfeldt with apparent authority and did nothing to correct Queaño's impression that Ruebenfeldt was her agent.

• Nature of Questions Raised: Under Rule 45, only questions of law may be raised, as the Supreme Court is not a trier of facts. A question of law arises when the doubt concerns what the law is on a certain state of facts; a question of fact arises when the doubt concerns the truth or falsehood of alleged facts. Naguiat's case required examination of the probative value of the evidence—specifically, whether Queaño actually received the loan proceeds—which is a factual determination. None of the recognized exceptions to the conclusiveness of lower court findings of fact applied. In any event, both lower court decisions were supported by the evidence on record and the applicable laws.

• Rebuttal of Notarial Presumption: The Court of Appeals correctly ruled that the presumption of truthfulness of the recitals in a public document was defeated by clear and convincing evidence demonstrating the absence of consideration. The Court has consistently held that the presumption of truthfulness engendered by notarized documents is rebuttable. No evidence was submitted by Naguiat showing that the checks she issued or endorsed were actually encashed or deposited; the mere issuance of checks did not result in the perfection of the contract of loan.

• Perfection of Loan Contract: Article 1249 of the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed. Article 1934 provides that an accepted promise to deliver something by way of simple loan is binding upon the parties, but the simple loan itself shall not be perfected until the delivery of the object of the contract. A loan contract is a real contract, not consensual, and is perfected only upon delivery of the object of the contract. The objects of the contract were the loan proceeds, which Queaño would enjoy only upon encashment of the checks. Had the checks been encashed or deposited, Naguiat would have presented the corresponding documentary evidence—returned checks and pertinent bank records. Since no such proof was presented, the checks were never encashed or credited to Queaño's account. Because the loan was never perfected, the mortgage securing it—being a mere accessory contract whose validity depends on the validity of the principal loan—was null and void for lack of consideration.

• Agency Relationship and Admissibility: The Court of Appeals correctly rejected Naguiat's invocation of the rule on the non-binding effect of third-party admissions, holding that Ruebenfeldt was an authorized representative or agent of Naguiat, bringing the situation within a recognized exception under Section 29, Rule 130. The existence of the agency relationship was supported by ample evidence: Naguiat instructed Ruebenfeldt to withhold the checks from Queaño pending delivery of additional collateral; Ruebenfeldt had served as Naguiat's agent in the loan application of Queaño's friend; and Ruebenfeldt accompanied Queaño to the meeting with Naguiat and, on her own initiative, drew a check for ₱220,000 payable to Naguiat. The Court of Appeals further recognized agency by estoppel under Article 1873, as Queaño formed the impression that Ruebenfeldt was Naguiat's agent through their interaction, and Naguiat did nothing to correct that impression. One who clothes another with apparent authority as his agent cannot be permitted to deny that authority to the prejudice of innocent third parties dealing in good faith. Ultimately, however, the true relationship between Naguiat and Ruebenfeldt was irrelevant in the face of the decisive fact that the checks were never encashed or deposited to Queaño's account.

• Real Contract Doctrine (Loan) — A contract of loan is a real contract, not a consensual one, and is perfected only upon delivery of the object of the contract. Under Article 1934 of the Civil Code, while an accepted promise to deliver something by way of simple loan is binding upon the parties, the loan itself is not perfected until delivery of the object. The Court applied this doctrine to hold that because the checks constituting the loan proceeds were never encashed, the loan was never perfected.

• Effect of Delivery of Checks as Payment — Under Article 1249 of the Civil Code, the delivery of promissory notes payable to order, bills of exchange, or other mercantile documents produces the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. The mere issuance or indorsement of checks does not constitute delivery of the loan proceeds or perfection of the loan contract.

• Accessory Contract Doctrine (Mortgage) — A mortgage contract is a mere accessory contract whose validity depends on the validity of the principal loan it secures. The consideration of the mortgage is the same as that of the principal contract, from which it receives life and without which it cannot exist as an independent contract. Where the principal loan is void for lack of consideration, the mortgage is likewise null and void.

• Rebuttable Presumption of Notarized Documents — The presumption of truthfulness and validity engendered by notarized documents is rebuttable and yields to clear and convincing evidence to the contrary. In this case, clear and convincing evidence demonstrating the absence of consideration defeated the presumption.

• Agency by Estoppel — 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 the honest belief that he is what he appears to be. Under Article 1873 of the Civil Code, if a person specifically informs another that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent with respect to the person who received the special information.

• "It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected." — This passage articulates the ratio decidendi on the perfection of loan contracts, tying Article 1249's rule on checks as payment to Article 1934's requirement of delivery for real contracts.

• "A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract." — This is the canonical formulation frequently cited in subsequent jurisprudence to distinguish real contracts from consensual contracts, establishing that a loan is not perfected by mere agreement but by actual delivery.

• "The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract." — This passage defines the accessory nature of mortgage contracts and the dependency of their validity on the principal obligation, a principle central to the Court's conclusion that the mortgage was void.

• "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 the honest belief that he is what he appears to be." — This is the standard formulation of the doctrine of agency by estoppel, applied here to bind Naguiat to Ruebenfeldt's representations.

• BPI Investment Corporation vs. Court of Appeals, G.R. No. 133632, 377 SCRA 117 (2002) — Followed. The Court relied on this case for the proposition that a loan contract is a real contract perfected only upon delivery of the object, clarifying the earlier ruling in Bonnevie vs. Court of Appeals which had apparently suggested that a loan was a consensual contract.

• Gerales vs. Court of Appeals, G.R. No. 85909, 218 SCRA 638 (1993) — Followed. Cited for the proposition that the presumption of truthfulness of notarized documents is rebuttable by clear and convincing evidence to the contrary.

• Cuison vs. Court of Appeals, G.R. No. 88531, 26 October 1993 — Followed. Cited for the doctrine of agency by estoppel, providing the standard formulation that one who clothes another with apparent authority cannot deny that authority to the prejudice of innocent third parties.

• China Banking Corporation vs. Lichauco, 46 Phil. 460 (1926) — Followed. Cited for the principle that the consideration of a mortgage contract is the same as that of the principal contract from which it receives life.

• Filipinas Marble Corp. vs. Intermediate Appellate Court, 226 Phil. 109 (1986) — Followed. Cited for the principle that a mortgage contract, being a mere accessory contract, has validity dependent on the validity of the loan secured by it.

• Article 1934, Civil Code — Provides that an accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. Applied to hold that the loan was never perfected because the loan proceeds were never delivered.

• Article 1249, Civil Code — Provides that the delivery of promissory notes payable to order, bills of exchange, or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. Applied to hold that the mere issuance of checks did not constitute delivery of the loan proceeds.

• Article 1873, Civil Code — Provides that if a person specifically informs another or states by public advertisement that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent. Applied by the Court of Appeals in recognizing agency by estoppel.

• Section 1, Rule 45, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law. Applied to bar Naguiat's factual contentions from review.

• Section 28, Rule 130, Rules of Court — Provides that the rights of a party cannot be prejudiced by an act, declaration, or omission of another. Invoked by Naguiat but rejected because Ruebenfeldt's admissions fell under the exception for agents under Section 29.

• Section 29, Rule 130, Rules of Court — Provides that the act or declaration of an agent of the party within the scope of his authority may be given in evidence against such party. Applied to admit Ruebenfeldt's representations against Naguiat.

Bellosillo (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concurred.