SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR. VS.

LAND BANK OF THE PHILLIPPINES

G.R. No. 192602. 18 January 2017. Jardaleza, J. (Third Division)

NATURE OF ACTION: Annulment of the Foreclosure Sale

FACTS

In 1996, Paula Agbisit (herein referred to as Agbisit) was the chairperson of Milflores
Cooperative, and at the time, she needed Php 600,000.00 to Php 650,000.00 for the expansion of her
backyard cut flower business. Agbisit, mother of May Villaluz, requested the latter to provide her with
collateral for a loan. In turn, May convinced her husband Johnny Villaluz (collectively, the Spouses
Villaluz), to allow Agbisit to use their land in Davao City, covered by Transfer Certificate of Title (TCT)
No. T-202276, as collateral. Spouses Villaluz executed a Special Power of Attorney in favor of Agbisit
authorizing her to sell, mortgage, or subject the aforementioned property to other forms of
disposition, and to sign in their behalf documents relating thereto. However, the one-page power of
attorney neither specified the conditions under which the special powers may be exercised nor stated
the amounts for which the subject land may be sold or mortgage.

Thereafter, Agbisit executed her own Special Power of Attorney appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of
Land Bank Philippines. Milflores Cooperative then executed a Real Estate Mortgage in favor of Land
Bank in consideration of the Php 3,000,000.00 loan to be extended by the latter. Upon release of the
said loan, Agbisit borrowed the amount of Php 604,750.00 from Milflores Cooperative. However,
Milflores Cooperative was unable to pay its obligations to Land Bank; thus, the latter filed a Petition
for Extra Judicial Foreclosure Sale. Sometime in August 2003, Spouses Villaluz learned that an auction
sale covering their land had been set, and Land Bank, as the sole bidder thereof, won the auction sale.
Spouses Villaluz filed a complaint with the Regional Trial Court of Davao City seeking the annulment
of the foreclosure sale on ground that Agbisit could not have validly delegated the authority as
attorney in fact to Milflores Cooperative.

The Regional Trial Court of Davao City, citing Art. 1892 of the Civil Code, held that the
delegation was valid since the Special Power of Attorney executed by Spouses Villaluz had no
prohibition against Agbisit appointing a substitute. On appeal, the Court of Appeals affirmed the
assailed RTC Decision.

ISSUE

Whether or not the Real Estate Mortgage executed by the substitute, Milflores Cooperative,
is valid and binding upon the principal, Spouses Villaluz, considering that the Special Power of
Attorney executed by the latter in favor of Agbisit contained no specific condition or provision as to
appointment of a substitute in the disposition of the aforementioned parcel of land.

RULING

The real estate mortgage executed by Milflores Cooperative is valid.

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, i.e., the substitute
becomes the agent of the principal. 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, 18 to act in accordance with the
principal's instructions, 19 and to carry out the agency, 20 among others. In order to make the
presumption inoperative and relieve himself from its effects, it is incumbent upon the principal to
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 the present case, the Special Power of Attorney executed by the Spouses Villaluz contains
no restrictive language indicative of an intention to prohibit Agbisit from appointing a substitute or
sub-agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's appointment of
Milflores Cooperative was valid.

AGENCY: (ART. 1892) Appointment of a Substitute