CELESTINA NAGUIAT v.

COURT OF APPEALS and AURORA QUEANO

G. R. No. 118375, 3 October 2003, SECOND DIVISION (TINGA, J.)

FACTS:

Aurora Queaño applied with Celestina Naguiat for a loan in the amount of P200,000, which Naguiat granted. Naguiat
indorsed to Quano various checks to cover the loan granted by her. To secure the loan, Queano executed a Deed of Real Estate
Mortgage in favor of Naguiat. Queano also issued a promissory note for the amount of P200,000 with interest at 12% per annum
and a Security Bank check payable to the order of Naguiat.

The Security Bank check was dishonored for insufficiency of funds. Subsequently, Queano receveid a letter from Naguiat’s
lawyer, demanding the settlement of the loan. Shortly thereafter, Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with
Naguiat. At the meeting, Queaño told Naguiat that she did not receive the proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiat’s agent.

Naguiat ordered for the extrajudicial foreclosure of the mortgage. Three days before the scheduled sale, Queano filed the
case before the RTC of Pasay City annulment of the mortgage deed. The lower court declared the Deed of REM null and void. The CA
affirmed in toto the ruling of the lower court.

ISSUE: Whether Queaño had actually received the loan proceeds which were supposed to be covered by the two checks

(1) Naguiat vigorously insists that Queaño received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents.

(2) Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they
could not bind her following the res inter alios acta alteri nocere non debet rule (things done between strangers ought not to
affect a third person, who is a stranger to the transaction).

RULING:

(1) NO, Naguiat is not correct. 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. This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the
contrary, as in this case.

On the other hand, 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 loan. For 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. It is only after the checks have produced the effect of payment that the contract of
loan may be deemed perfected. (Art. 1934 of the Civil Code)

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the
contract.

(2) NO, Naguiat is not correct. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized exception to the rule. Still, Naguiat insists that
Ruebenfeldt was not her agent.

The Court of Appeals recognized the existence of an “agency by estoppel” citing Article 1873 of the Civil Code. 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 the honest belief that he is what he appears to be. The Court of Appeals is correct
in invoking the said rule on agency by estoppel.

NOTE: Estoppel by laches, or the negligence or omission to assert a right within a reasonable time, warrants a presumption that the
party entitled to assert it either has abandoned it or declined to assert it. (Ochagabia vs. Court of Appeals, 304 SCRA 587 [1999])