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Celestina Naguiat v. Court of Appeals and Aurora Queao (G.R. No. 118375.

October 3, 2003)
Topic: Kinds and Form of Agency; Agency by Estoppel
Ponente:Tinga, J.
Nature: RTC - ; CA - ;SC Petition for Review on Certiorari under Rule 45
Doctrine:
Quick Facts: Queao filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Naguiat because she never received the checks
corresponding to the loan from Marilou Farralese who behaved as an agent of Naguiat. The RTC
rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the
Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present
petition.
Facts:
Aurora Queao applied with Celestina Naguiat for a PhP 200K loan, which the latter granted. Naguiat
issued 2checks, each for the amount of PhP 95K, to Queao. The proceeds of these checks were to
constitute the loan Naguiat granted to Queao. As security for the loan, Queao executed a Deed of Real
Estate Mortgage in favor of Naguiat. She also surrendered the owners duplicates of the properties titles
to the latter, and issued a promissory note for PhP 200K and a postdated check for the same amount
payable to the order of Naguiat. Queaos check was dishonored for insufficiency of funds, so Naguiat
wrote her to demand settlement of the loan. Queao and Ruby Ruebenfeldt met with Naguiat. Queao
told Naguiat she did not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, purportedly Naguiats agent.
It turns out that Naguiat had instructed Ruebenfeldt to withhold from Queao the checks she issued or
indorsed to Queao, pending delivery by the latter of additional collateral. Also, Ruebenfeldt had 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. It was also Ruebenfeldt who
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
Naguiat applied for extrajudicial foreclosure of the mortgage so the sheriff scheduled the foreclosure sale.
Queao filed for the annulment of the mortgage deed with the Pasay City RTC, which eventually stopped
the auction sale. RTC declared the deed null and void, and ordered Naguiat to return the title duplicates.
CA affirmed in toto the RTC decision. Hence, the present petition.
The presumption of truthfulness of the recitals ina public document was defeated by the clear and
convincing evidence in this case thatpointed to the absence of consideration. Naguiatdid not present
evidence to support her claimthat Queao received the loan proceeds. Thedelivery of bills of exchange
and mercantiledocuments such as checks shall produce theeffect of payment only when they have
beencashed. Being a real contract, a loan contract isperfected only upon the delivery of the object of the
contract (in this case, the loan proceeds).
Issue: (1) Is Ruebenfeldt an agent of Naguiat? (2) Did Ruebenfeldts withholding of the checks
corresponding to the proceeds of the loan sufficient ground to void the loan?

Held: (1) Yes; (2) Yes..


Ratio: Ruebenfeldt served as Naguiats agent on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that Queao came to know Naguiat. Naguiat
instructed Ruebenfeldt to withhold the issued checks from Queao pending delivery by the latter of
additional collateral. Ruebenfeldt went with Queao in the latters meeting with Naguiat, and on that
occasion, without Queao asking for it, Ruebenfeldt drew a check for PhP 220K payable to Naguiat, to
cover for Queaos alleged liability under the loan agreement. The CA recognized the existence of an
agencyby estoppel citing CC 1873, to wit:
Art. 1873. 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, in
the former case with respect to the person who received the special information, and in the latter
case with regard to any person. The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given. (n)
At the very least, because of the interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was Naguiats agent. Naguiat did nothing to correct Queaos impression.
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.
Note: More fundamentally, 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. The lender did not remit and the borrower did not receive the
proceeds of the loan. That being the case, it follows that the mortgage which is supposed to secure the
loan is null and void. 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. A
mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan
secured by it.

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