Facts

• Petitioners Spouses May and Johnny Villaluz, Jr. (the principals) executed a Special Power of Attorney in favour of Agbisit (the agent), authorising her "to negotiate for the sale, mortgage, or other forms of disposition" of a parcel of land registered in their names, and "to sign in our behalf all documents relating to the sale, loan or mortgage, or other disposition of the aforementioned property." (The instrument neither named a substitute nor forbade one — the silence that Article 1892§ fills in.)
• Rather than transacting personally, Agbisit executed her own special power of attorney appointing Milflores Cooperative as her attorney-in-fact (the substitute or sub-agent), empowering it to use the property to secure a loan.
• Milflores Cooperative then executed a Real Estate Mortgage over the property in favour of respondent Land Bank of the Philippines (the third person/mortgagee) to secure a loan of ₱3,000,000.
• Milflores defaulted. Land Bank extrajudicially foreclosed, and the property was sold at public auction.
• The Villaluz spouses sued to annul the mortgage and the foreclosure, contending that Agbisit could not validly delegate to Milflores the authority they had personally reposed in her.
• Regional Trial Court and Court of Appeals — mortgage upheld. The Regional Trial Court and the Court of Appeals both upheld the mortgage.

Issue

Ruling

Ratio

• Article 1892§ provides:

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; (2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent.

• The rule is permissive by default.
• Delegation is the general rule; prohibition is the exception, and it must be expressed.

• The Court examined the instrument and found in it no restrictive language indicating any intention to bar Agbisit from appointing a substitute or sub-agent.
• On the contrary, its terms were broad — "to negotiate for the sale, mortgage, or other forms of disposition."
• Since the spouses did not forbid substitution, Agbisit was free to resort to it.

• Article 1893§ provides that where the agent appoints a substitute without express authority but under a valid substitution, all acts of the substitute appointed against the principal's prohibition are void.
• Conversely, where there is no prohibition, the substitute's acts are binding upon the principal as if performed by the agent himself.
• The mortgage Milflores executed therefore bound the Villaluz spouses' property exactly as if Agbisit had signed it.

• The chain of authority — the spouses' SPA to Agbisit, and Agbisit's SPA to Milflores — appeared regular on its face.
• The bank dealt on the strength of instruments the spouses themselves had set in motion.
• Their remedy, if Agbisit chose her substitute badly, lies against Agbisit under Article 1892§, not against the mortgagee.

Doctrine

• Article 1892§ — delegation is presumed permitted. An agent may appoint a substitute unless the principal has prohibited it. Silence is permission; a principal who wants a strictly personal agency must say so in the instrument.
• Article 1893§ — effect of the substitution. Where substitution is not prohibited, the substitute's acts bind the principal as if done by the agent. Only acts of a substitute appointed against the prohibition are void.
• The agent's residual responsibility. The agent answers for the substitute's acts where he had no power to appoint one, or where, having a general power, he chose a notoriously incompetent or insolvent person.