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SPS. MAY S. VILLALUZ v. LAND BANK OF PHILIPPINES

FACTS:

Paula Agbisit, mother of May Villaluz, requested May to provide collateral for a loan. May convinced her husband, Johnny Villaluz, to allow Agbisit to use their land as collateral. The Spouses Villaluz executed a Special Power of Attorney in favor of Agbisit, authorizing her to negotiate for the sale, mortgage, or other forms of disposition of their property. On June 19, 1996, Agbisit appointed Milflores Cooperative as attorney-in-fact to obtain a loan and execute a mortgage in favor of Land Bank. Milflores Cooperative executed a Real Estate Mortgage in favor of Land Bank and a Deed of Assignment of the Produce/Inventory as additional collateral. Land Bank partially released the loan amount to Milflores Cooperative. However, Milflores Cooperative was unable to pay its obligations, leading to the filing of a petition for foreclosure sale. The Spouses Villaluz filed a complaint seeking the annulment of the foreclosure sale. The RTC held that the delegation of authority from Agbisit to Milflores Cooperative was valid. The CA affirmed this decision, applying Article 1892 of the Civil Code. The Spouses Villaluz filed a petition for review, arguing that the mortgage contract was void and that the Special Power of Attorney was extinguished due to the assignment of collateral.

ISSUES:

  1. Whether the mortgage contract executed by the substitute is valid and binding upon the principal.

RULING:

  1. The mortgage contract executed by the substitute is valid and binding upon the principal. The Court held that the agent may appoint a substitute unless the principal has expressly prohibited it. In this case, there was no express prohibition in the Special Power of Attorney executed by the principal. Therefore, the appointment of the substitute was valid and the principal is bound by the acts of the substitute.

PRINCIPLES:

  • An agent may appoint a substitute if the principal has not prohibited him from doing so (Civil Code, Article 1892).

  • The agent is responsible for the acts of the substitute when he was not given the power to appoint one, or when he was given such power but without designating the person and the person appointed was notoriously incompetent or insolvent (Civil Code, Article 1892).

  • The principal may bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution (Civil Code, Article 1893).