rwrwrSPOUSES 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 RTC’s 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.