BPI INVESTMENT CORPORATION vs.

C A and ALS MANAGEMENT & DEVELOPMENT CORPORATION

G.R. No. 133632; February 15, 2002

Facts:

Frank Roa obtained a loan from Ayala Investment and Development Corporation (AIDC), the
predecessor of petitioner BPIIC, for the construction of a house on his lot in Muntinlupa. Said house and
lot were mortgaged to AIDC to secure the loan. In 1980, Roa sold the house and lot to private
respondents ALS and Antonio Litonjua for P850,000. The loan contract was signed on 31 March 1981 and
was perfected on 13 September 1982, when the full loan was released to private respondents. In June
1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed
to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to P475,585.31.

Private respondents assert that based on Article 1934 of the Civil Code, a simple loan is perfected
upon the delivery of the object of the contract, hence a real contract. The motion for reconsideration
filed by petitioner BPIIC was likewise denied.

Issue:

Whether or not the contract of loan is a real contract

Ruling:

YES.

A loan contract is not a consensual contract but a real contract. Under Article 1934, it is a real
contract when it is perfected only upon the delivery of the object of the contract.

Private respondents did not incur in delay when they did not commence paying the monthly
amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its
obligation under the loan contract. As found by the Court of Appeals and affirmed by the Supreme Court,
private respondents obligation to pay commenced only on October 13, 1982, a month after the perfection
of the contract.
SAURA IMPORT and EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE PHILIPPINES

G.R. No. L-24968 April 27, 1972

Facts:

Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for
an industrial loan to be used for construction of factory building, for payment of the balance of the
purchase price of the jute machinery and equipment and as additional working capital amounting to
P500,000.00. On January 7, 1954 RFC passed Resolution No. 145 approving the said loan applied to be
secured by a first mortgage on the factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. But then,
later on, was cancelled to make way for the registration of a mortgage contract over the same property in
favor of Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the
jute machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to
pay said obligation, Prudential sued Saura.

On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as
predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan
applied for and approved, thereby preventing the plaintiff from completing or paying contractual
commitments it had entered into, in connection with its jute mill project. The trial court rendered
judgment for the plaintiff Saura, ruling that there was a perfected contract between the parties and that
the defendant was guilty of breach thereof.

ISSUE:

Whether or not there was a perfected contract of loan between the parties

Ruling:

YES.

There was undoubtedly offer and acceptance in the case. When an application for a
loan of money was approved by resolution of the respondent corporation and the
responding mortgage was executed and registered, there arises a perfected consensual
contract.

The application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was executed and registered.

G.R. No. 118375             October 3, 2003

CELESTINA T. NAGUIAT, petitioner,
vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.
DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth
Division of the respondent Court of Appeals promulgated on 21 December 1994 , which affirmed in
1 

toto the decision handed down by the Regional Trial Court (RTC) of Pasay City. 2

The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered
into with petitioner Celestina Naguiat (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. 1ªvvphi1.nét

The operative facts follow:

Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(₱200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queaño Associated
Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos
(₱95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queaño, also
dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (₱95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queaño. 3

To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owner’s duplicates of the titles covering the
mortgaged properties. On the same day, the mortgage deed was notarized, and Queaño issued to
4 

Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (₱200,000.00),
with interest at 12% per annum, payable on 11 September 1980. Queaño also issued a Security
5 

Bank and Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (₱200,000.00) and payable to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of
funds. On the following day, 12 September 1980, Queaño 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. 6

On 16 October 1980, Queaño received a letter from Naguiat’s lawyer, demanding 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. 7

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province,
who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale,
Queaño filed the case before the Pasay City RTC, seeking the annulment of the mortgage deed.
8 

The trial court eventually stopped the auction sale.

9

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and
void, and ordering Naguiat to return to Queaño the owner’s duplicates of her titles to the mortgaged
lots. Naguiat appealed the decision before the Court of Appeals, making no less than eleven
10 
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.

Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queaño had actually received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking
the rule on the non-binding effect of the admissions of third persons. 11

The resolution of the issues presented before this Court by Naguiat involves the determination of
facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which
governs appeal by certiorari, only questions of law may be raised as the Supreme Court is not a trier
12 

of facts. The resolution of factual issues is the function of lower courts, whose findings on these
13 

matters are received with respect and are in fact generally binding on the Supreme Court. A 14 

question of law which the Court may pass upon must not involve an examination of the probative
value of the evidence presented by the litigants. There is a question of law in a given case when the
15 

doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of
the lower courts. But Naguiat’s case does not fall under any of the exceptions. In any event, both
17 

the decisions of the appellate and trial courts are supported by the evidence on record and the
applicable laws.

Against the common finding of the courts below, 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. The
Court of Appeals, however, 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. This Court has held that the presumption of truthfulness engendered by
18 

notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the
contrary, as in this case. 19

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
20 

contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides:

"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."

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract. In this case, the objects of the contract are the loan proceeds which
21 

Queaño would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. 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
Queaño’s account. 1awphi1.nét
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 alia acta alteri nocere non debet rule.
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,22 

Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queaño
the checks she issued or indorsed to Queaño, pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan application of Queaño’s friend, Marilou
Farralese, and it was in connection with that transaction that Queaño came to know Naguiat. It was
23 

also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion, on
her own and without Queaño asking for it, Reubenfeldt actually drew a check for the sum of
₱220,000.00 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 estoppel citing Article 1873 of the
25 

Civil Code. Apparently, it considered that at the very least, as a consequence of the interaction
26 

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
27 

estoppel.1awphi1.nét

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 Queaño were never encashed
or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the 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
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
28 

contract, its validity would depend on the validity of the loan secured by it.
29

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.

SO ORDERED.

Naguiat v. CA
Facts:
Queao applied with Naguiat for a loan in the amount of P200,000.00, which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 dated 11
August 1980 for the amount of P95,000.00, which was earlier issued to Naguiat by the Corporate
Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to
the order of Queao, also dated 11 August 1980 and for the amount of P95,000.00. The proceeds
of these checks were to constitute the loan granted by Naguiat to Queao.
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties. On the same day, the mortgage deed was notarized, and Queao issued to
Naguiat a promissory note for the amount of P200,000.00, with interest at 12% per annum,
payable on 11 September 1980. Queao 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.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds. On the following day, 12 September 1980, 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.

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and Ruebenfeldt met with Naguiat. At the 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, who then scheduled the foreclosure sale on 14 August 1981.Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC, seeking the annulment of the
mortgage deed. The trial court eventually stopped the auction sale.

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null
and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the
mortgaged lots. Naguiat appealed the decision before the Court of Appeals, making no less than
eleven assignments of error. CA promulgated the decision now assailed before us that affirmed
in toto the RTC decision.

Issues:
I. Whether or not Queao had actually received the loan proceeds which were supposed to be
covered by the two checks Naguiat had issued or indorsed
II. Whether or not there is the admissibility of various representations and pronouncements of
Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.

Held:
The Court 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 provides:
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.

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
delivery of the object of the contract. The objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. 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.

On the second issue, CA 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.

The existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample
evidence. 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. 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.

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, Queao got the impression that Ruebenfeldt was
the agent of Naguiat, but Naguiat did nothing to correct Queaos 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. CA is correct in invoking the said rule on agency by
estoppel.

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.
CELESTINA T. NAGUIAT vs. CA

G.R. No. 118375; October 3, 2003

Facts:

Queao applied with Naguiat for a loan in the amount of P200,000.00, which Naguiat granted. On 11
August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 dated 11 August 1980 for
the amount of P95,000.00, which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11
August 1980 and for the amount of P95,000.00. The proceeds of these checks were to constitute the loan
granted by Naguiat to Queao.

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged
properties. On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a
promissory note for the amount of P200,000.00, with interest at 12% per annum, payable on 11
September 1980. Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding
settlement of the loan. At the 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, who then
scheduled the foreclosure sale on 14 August 1981.Three days before the scheduled sale, Queao filed the
case before the Pasay City RTC, seeking the annulment of the mortgage deed. On 8 March 1991, the RTC
rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and ordering Naguiat to
return to Queao the owners duplicates of her titles to the mortgaged lots.

Issue:

Whether or not mere issuance of the checks would perfect the contract of loan

Ruling:

No. The mere issuance of the checks would not perfect the contract of loan.

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract. It is only after the checks have produced the effect of payment that the
contract of loan may be deemed perfected.
 In this case, the objects of the contract are the loan proceeds which Queaño would enjoy only
upon the encashment of the checks signed or indorsed by Naguiat. 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 Queaño’s account.