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Naguiat v Court of Appeals (2003, Tinga,J.) PARTIES Petitioner:Celestina T.

Naguiat Respondent: Aurora Queano FACTS:

Queao applied with Naguiat for a loan in the amount P200,000.00, which Naguiat granted. Naguiat indorsed to Queao 2 checks, one for the amount P95,000.00 which was earlier issued to Naguiat by the Corporate Resources Financing Corporation and another for the amount of P95,000.00 from her own Filmanbank account. The proceeds of these checks were to constitute the loan granted by Naguiat to Queao. Queao executed a Deed of Real Estate Mortgage (notarized on the same day) in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties. Queao issued a promissory note for the amount of P200,000.00with interest at 12% per annum, payable on 11 September 1980. She also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the amount of P200,000.00 and payable to the order of Naguiat. On Sept 11, 1980, the Security Bank check was dishonored for insufficiency of funds. The following day Queao requested Security Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds. Queao received a letter from Naguiats lawyer, demanding settlement of the loan. In a meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province. Three days before the scheduled sale, Queao filed the case before the Pasay City RTC (which stopped the auction sale).

RTC: Brought by Queao against Naguiat. Action was a complaint for cancellation of a Real Estate Mortgage she had entered into with the latter. REM void. CA: Appealed by Naguiat. RTC decision upheld. ISSUE

1) WON Queao had actually received the loan proceeds which were supposed to be 2)
covered by the two checks Naguiat had issued or indorsed. WON the various representations of and pronouncements of Ruebenfeldt were binding. (relevant)

Petitioner Naguiat asserts:

Respondent received the loan proceeds. Being a notarial instrument or public document, the mortgage deed enjoys the presumption that the recitals therein are true. representations and pronouncements of Ruebenfeldt were not binding, invoking the rule on the non-binding effect of the admissions of third persons.

HELD: 1) NO.

The Court of Appeals was is correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration. absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of loan1. It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected.2 In this case, if indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos account.

2) YES. There was Agency by Estoppel (Article 1873). 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. In this case: Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao came to know Naguiat. Ruebenfeldt also accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement. As a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression.

Art 1249 NCC 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.
2

Art. 1934 NCC: "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."

Note: whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to her account of Naguiat. DISPOSITIVE: Petition is denied and the assailed decision is affirmed.

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