SPOUSES MAY S. VILLALUZ AND JOHNNY VILLALUZ, JR. vs.

LAND BANK OF
THE PHILIPPINES AND THE REGISTER OF DEEDS FOR DAVAO CITY
G.R. No. 192602, January 18, 2017, J. Jardeleza

An agent may appoint a substitute if the principal has not expressly

prohibited him from doing so.

Facts:

Paula Agbisit, the mother of May Villaluz, requested the latter to provide her a
collateral for a loan. May and her husband Johnny agreed to allow Agbisit to use
their property in Davao as collateral for a loan. For such purpose, they executed an
SPA in favor of Agbisit. Notably, the SPA did not expressly prohibit Agbisit from
appointing a substitute.

Agbisit later executed an SPA, appoint Milflores Cooperative as attorney-in-

fact in obtaining a loan from Land Bank. Milflores Cooperative then executed a Real
Estate Mortgage in favor of Land Bank in consideration for a loan.

Milflores Cooperative was not able to pay the loan to Land Bank. Hence, the
latter foreclosed the property. Land Bank won the auction sale of the property as the
highest bidder.

The Spouses Villaluz filed a complaint for annulment of the foreclosure sale,
claiming that Agbisit could no have validly delegated her authority as attorney-in-
fact to Milflores Cooperative. The RTC, however, ruled in favor of Land Bank and
held that the delegation of Agbisit to Milflores Cooperative was valid because the
SPA executed by the Spouses Villaluz had no specific prohibition againt Agbisit
appointing a substitute. The CA affirmed the RTCs ruling.

Issue:

Whether the mortgage contract executed by the substitute (Milflores

Cooperative) is valid and binding upon the principal (Spouses Villaluz).

Ruling:

The mortgage contract executed by the substitute (Milflores Cooperative) is

valid and binding upon the principal (Spouses Villaluz).

The law creates a presumption that an agent has the power to appoint a
substitute. The consequence of the presumption is that, upon valid appointment of
a substitute by the agent, there ipso jure arises an agency relationship between the
principal and the substitute. As a result, the principal is bound by the acts of the
substitute as if these acts had been performed by the principal's appointed agent.
Concomitantly, the substitute assumes an agent's obligations to act within the
scope of authority, to act in accordance with the principal's instructions, and to
carry out the agency, among others. In order to make the presumption inoperative
and relieve himself from its effects, it is incumbent upon the principal to expressly
prohibit the agent from appointing a substitute.

Although the law presumes that the agent is authorized to appoint a

substitute, it also imposes an obligation upon the agent to exercise this power
conscientiously. To protect the principal, Article 1892 allocates responsibility to the
agent for the acts of the substitute when the agent was not expressly authorized by
the principal to appoint a substitute; and, if so authorized but a specific person is
not designated, the agent appoints a substitute who is notoriously incompetent or
insolvent. In these instances, the principal has a right of action against both the
agent and the substitute if the latter commits acts prejudicial to the principal.

In this case, the SPA executed by the Spouses Villaluz contains no restrictive
language indicative of an intention to prohibit Agbisit from appointing a substitute
or sub-agent.