The agent delegates

Wanda, mother of May, requested the latter to provide her with collateral for a loan. At the time, Wanda was the chairperson of a cooperative and she needed money for the expansion of her backyard cut flowers business.

May convinced her husband, Thor, to allow Wanda to use their land as collateral. So May and Thor executed a Special Power of Attorney in favor of Wanda authorizing her to, among others, “negotiate for the sale, mortgage, or other forms of disposition a parcel land covered by TCT 123” and “sign in our behalf all documents relating to the sale, loan or mortgage, or other disposition of the aforementioned property.”

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 mortgaged.

Armed with the SPA, Wanda executed her own Special Power of Attorney, the cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of the Bank. The cooperative in a representative capacity, executed a Real Estate Mortgage in favor of the Bank in consideration of a loan to be extended by the latter. The Cooperative also executed a Deed of Assignment of the Produce/Inventory as additional collateral for the loan. The Bank partially released one-third of the total loan amount to the Cooperative. On the same day, Wanda borrowed a portion of the loan from the Cooperative. The Bank later released the remaining loaned amount.

Unfortunately, the Cooperative was unable to pay the loan. Thus, the Bank filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court. May and Thor later learned that an auction sale covering their land had been set, and that the Bank won the auction sale as the sole bidder.

May and Thor filed a complaint with the Regional Trial Court seeking the annulment of the foreclosure sale. They assert that their mother cannot validly delegate her power of attorney to another without their consent.

Q: Can Wanda validly delegate her authority as attorney-in-fact to the Cooperative without the prior consent of Mary and Thor?

A: Yes Articles 1892 and 1893 of the Civil Code provide the rules regarding the appointment of a substitute by an agent: Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:(1) When he was not given the power to appoint one; and (2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent. All acts of the substitute appointed against the prohibition of the principal shall be void.

Moreover, Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution.

Clearly, 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, 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 prohibit the agent from appointing a substitute.

(Source: Spouses Villaluz vs. Land Bank of the Phils, G.R. No. 192602, Jan 18, 2017)The author is Dean of Lyceum of the Philippines University; chairman of Philippine Association of Law Schools; and founder of Mawis Law Office