Gozun vs. Mercado

A party who personally contracts with another and merely subcontracts portions of the work to third persons is the real party in interest entitled to sue for the entire contract price, regardless of whether the subcontractors are impleaded. Further, a special power of attorney to borrow money under Article 1878(7) of the Civil Code may be oral, but it must be established by clear and express evidence; a receipt signed by the agent in her own name, without indicating her representative capacity, binds only the agent and not the purported principal.

Jesus M. Gozun owned JMG Publishing House, a printing shop in San Fernando, Pampanga. In the 1995 local elections, respondent Jose Teofilo T. Mercado (also known as Don Pepito Mercado) ran for governor. At respondent’s request, petitioner submitted draft samples and a price quotation for campaign materials. Petitioner claimed that respondent’s wife later informed him the quotation was approved and printing could commence. Petitioner produced posters, leaflets, sample ballots, poll watcher identification cards, and stickers, all delivered to respondent’s headquarters. Due to the volume and time constraints, petitioner used the facilities of Metro Angeles Printing and St. Joseph Printing Press, owned respectively by his daughter and mother. In addition, on March 31, 1995, respondent’s sister-in-law Lilian Soriano obtained P253,000 from petitioner purportedly for poll watchers’ allowances. A statement of account for P2,177,906 was sent; respondent’s wife made a partial payment of P1,000,000. The balance remained unsettled despite demands, leading petitioner to sue. The parties were compadres, each having stood as principal sponsor at the other’s daughter’s wedding.

• The Printing Engagement: In the 1995 local elections, respondent vied for the gubernatorial post in Pampanga. At respondent’s request, petitioner submitted draft samples and a price quotation for campaign materials. Petitioner alleged that respondent’s wife confirmed the quotation had been approved and that printing could begin. Petitioner printed posters, leaflets, sample ballots, poll watcher identification cards, and stickers—all bearing respondent’s name or photograph—and delivered them to respondent’s campaign headquarters.
• Subcontracting: Owing to the volume and urgency of the job, petitioner availed of the services and facilities of Metro Angeles Printing (owned by his daughter Jennifer Gozun) and St. Joseph Printing Press (owned by his mother Epifania Macalino Gozun) to complete the orders on time.
• Cash Advance: On March 31, 1995, Lilian Soriano, respondent’s sister-in-law, obtained from petitioner a cash advance of P253,000, allegedly for poll watchers’ allowances during a seminar and other election-related expenses. Soriano acknowledged receipt by signing a notation in petitioner’s 1995 diary. The entry indicated the sum was received “in behalf of Mrs. Annie Mercado,” not explicitly for respondent.
• Statement of Account and Partial Payment: Petitioner subsequently sent respondent a Statement of Account totaling P2,177,906, itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000 as the cash advance. On August 11, 1995, respondent’s wife paid petitioner P1,000,000, for which an official receipt was issued. The remaining balance of P1,177,906 was never paid despite repeated demands and respondent’s alleged promises.
• Respondent’s Defense: Respondent denied having entered into any contract with petitioner. He claimed the campaign materials were donations from family, friends, and political supporters. Respondent asserted he personally signed all contracts involving his personal expenses to ensure compliance with election laws, and that his wife was not authorized to order printing. He characterized petitioner as a volunteer campaign coordinator and characterized the P1,000,000 payment as compensation for campaign assistance, not for printing costs. He denied authorizing Lilian Soriano to obtain any cash advance on his behalf.
• Trial and Appellate Court Findings: The trial court credited petitioner’s evidence and rendered judgment in his favor. The Court of Appeals reversed, holding: (a) no evidence beyond petitioner’s testimony proved Soriano was authorized by respondent to borrow, making the cash advance unenforceable under Article 1317 of the Civil Code; (b) petitioner was not the real party in interest for amounts due to Metro Angeles Printing and St. Joseph Printing Press because the owners were not impleaded; and (c) after excluding the cash advance, petitioner’s own claim of P640,310 had been fully satisfied by the P1,000,000 payment.

• Agency by Estoppel / Special Authority: Petitioner argued that respondent had specially informed him of Lilian Soriano’s authority to obtain the loan, thereby clothing her with apparent authority under Article 1873 of the Civil Code. He maintained that respondent could not deny Soriano’s authority after holding her out as his agent, and that his testimony sufficiently established the agency.
• Real Party in Interest: Petitioner asserted that he personally and directly contracted with respondent and merely subcontracted Metro Angeles Printing and St. Joseph Printing Press to meet the delivery deadline. He contended he remained the real party in interest for the entire printing cost, and the non-impleading of his sub-contractors was not fatal to his suit.

• Unauthorized Borrowing: Respondent countered that Lilian Soriano lacked any authority, written or oral, to borrow money on his behalf. The acknowledgment receipt she signed did not indicate a representative capacity, and under Article 1317 of the Civil Code, he could not be bound by a contract he did not authorize.
• Real Party in Interest and Change of Theory: Respondent argued that petitioner’s claim of subcontracting represented a change in theory impermissible on appeal. He maintained that Metro Angeles Printing and St. Joseph Printing Press should have been impleaded as plaintiffs because they were the real parties in interest for their respective accounts.

• Authority to Borrow: Whether respondent was liable for the P253,000 cash advance obtained by Lilian Soriano, notwithstanding the lack of a written special power of attorney and the fact that the receipt was signed in her personal capacity.
• Real Party in Interest: Whether petitioner Gozun was the real party in interest entitled to claim the amounts corresponding to Metro Angeles Printing and St. Joseph Printing Press, which performed part of the printing work under subcontract.

• Authority to Borrow: The claim for P253,000 was unenforceable against respondent. Under Article 1878, paragraph 7, of the Civil Code, a special power of attorney is required for an agent to borrow money, absent urgency for the preservation of things under administration—a circumstance not present here. While a special authority may be oral, it must be clearly established by evidence. Petitioner’s own testimony failed to state categorically that the loan was obtained on behalf of respondent rather than respondent’s wife; the diary notation itself described Soriano as acting “in behalf of Mrs. Annie Mercado.” Moreover, Soriano signed the receipt in her own name, without indicating any representative capacity. Applying the settled rule that an agent must act in the name of the principal to bind the principal, the transaction bound Soriano personally and not respondent. Petitioner’s invocation of apparent authority under Article 1873 failed because the receipt did not connect respondent to the transaction.
• Real Party in Interest: Petitioner was the real party in interest for the total printing cost. He directly contracted with respondent; the engagement of his daughter’s and mother’s printing presses was a mere subcontract to ensure timely delivery. As the contracting party, petitioner was entitled to maintain the action for the entire amount, the third-party presses having no direct privity with respondent. The total printing cost of the campaign materials was P1,924,906, from which the P1,000,000 partial payment was deducted, leaving a balance of P924,906 owed to petitioner.

• Special Power of Attorney to Borrow (Art. 1878[7], Civil Code) — A special power of attorney is required for an agent to borrow money, except when urgent and indispensable for the preservation of things under administration. The requirement pertains to the nature of the authorization, not its form. While the special authority may be oral, if not reduced to writing it must be established by evidence other than the self-serving assertion of the agent or the party claiming the agency. The mandate must be express and clearly shown.
• Agent Must Act in the Name of the Principal — In order to bind the principal, an agent must act expressly in the name of the principal. A contract or receipt signed by the agent in his or her personal capacity, without indicating the representative character, binds only the agent, regardless of any actual authority that may have existed. This rule, originally articulated in the context of real property transactions, applies with equal force to other contracts entered into by agents.
• Real Party in Interest in Subcontracts — The parties to a contract are the real parties in interest in any action upon it. One who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action upon it. Conversely, the party who personally contracts with another and merely subcontracts portions of performance to third persons remains the real party in interest to sue for the whole contract price; the subcontractors need not be joined as plaintiffs.

• “The requirements are met if there is a clear mandate from the principal specifically authorizing the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written. The one thing vital being that it shall be express. And more recently, We stated that, if the special authority is not written, then it must be duly established by evidence.”
• “It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only.” — Applied by analogy to the acknowledgment receipt for the cash advance.
• “The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to one’s benefit.”

• Lim Pin v. Liao Tian, 200 Phil. 685 (1982) — Followed for the rule that an oral special power of attorney is valid but must be established by express and clear evidence; the requirement refers to the nature of the authorization, not its form.
• Strong v. Gutierrez-Repide, 6 Phil. 680 (1906) — Cited as early authority confirming that a mandate to an agent may be oral or written, provided it is express.
• Macke v. Camps, 7 Phil. 553 (1907) — Invoked by petitioner for the principle of agency by estoppel; discussed but not applied due to lack of proof that respondent held Soriano out as his agent to petitioner.
• Rural Bank of Bombon v. Court of Appeals, G.R. No. 95703, August 3, 1992, 212 SCRA 25 — Followed for the rule that an agent must act in the name of the principal to bind the principal; otherwise, the agent alone is bound.
• Oco v. Limbaring, G.R. No. 161298, January 31, 2006, 481 SCRA 348 — Followed for the principle that only contracting parties are real parties in interest entitled to sue on a contract.

• Article 1317, Civil Code — No one may contract in the name of another without being authorized; contracts entered into without authority or beyond its scope are unenforceable, unless ratified. Applied by the appellate court to bar enforcement of the cash advance against respondent.
• Article 1403, Civil Code — Classifies unauthorized contracts as unenforceable. Cited as statutory basis for the unenforceability of the loan.
• Article 1868, Civil Code — Defines the contract of agency. Referenced to frame the legal relationship claimed by petitioner.
• Article 1869, Civil Code — Agency may be oral unless the law requires a specific form. Cited to support the possibility of an oral special power of attorney.
• Article 1878, paragraph 7, Civil Code — Requires a special power of attorney for an agent to borrow money, unless urgent and indispensable for the preservation of things under administration. Applied to deny the enforceability of the cash advance due to the absence of a proven special authority.
• Article 1873, Civil Code — Provides for agency by estoppel when a person specially informs another that he has given a power of attorney to a third person. Invoked by petitioner but found inapplicable for lack of proof that respondent gave such special information.

Quisumbing, J., Chairperson; Carpio, Tinga, and Velasco, Jr., JJ.