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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

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.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. (Article 1868, Civil Code of the Philippines)

Although the relationship between principal and agent is founded on trust and confidence, the law allows an agent to appoint a substitute, or sub-agent, to assist in the performance of an act for the principal.

Authority to Appoint a Substitute

Article 1892 of the Civil Code is instructive that 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.

All acts of the substitute appointed against the prohibition of the principal shall be void. 

In connection therewith, Article 1893 of the Civil Code provides that in the cases mentioned in Nos. 1 and 2 of the Article 1892, the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution. 

Legal Presumption and Effect of Substitution

As held in the case of Spouses May S. Villaluz and Johnny Villaluz, Jr. v. Land Bank of the Philippines, G.R. No. 192602, January 18, 2017, 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.

Liability of the Agent

Moreover, in the same case of Spouses Villaluz v. Land Bank of the Philippines , 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.

Jurisprudence on Sub-Agency

The case of Escueta v. Lim, G.R. No. 137162, illustrates the prevailing rule. In that case, the father, through a special power of attorney, appointed his daughter as his attorney-in-fact for the purpose of selling real properties. The daughter then appointed a substitute or sub-agent to sell the properties. After the properties were sold, the father sought to nullify the sale effected by the subagent on the ground that he did not authorize his daughter to appoint a subagent. The Court refused to nullify the sale because it is clear from the special power of attorney executed by the father that the daughter is not prohibited from appointing a substitute. Applying Article 1892, the Court held that the daughter merely acted within the limits of the authority given by her father, but she will have to be ‘responsible for the acts of the sub-agent, among which is precisely the sale of the subject properties in favor of respondent.

Related Articles: WHAT IS AGENCY TO SELL?

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