[FORMS OF CONTRACT OF AGENCY; ORAL]

Case Citation: G.R. No. 167812

Date: December 19, 2006

Petitioners: JESUS M. GOZUN

Respondents: JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO

Antecedent ● In the local elections of 1995, Mercado vied for the gubernatorial post in Pampanga.
Facts: ● Upon his request, Gozun, owner of JMG Publishing House, a printing shop located in San
Fernando, Pampanga, submitted to Mercado draft samples and price quotations of campaign
materials.
● According to Gozun, Mercado’s wife had told him that Jose Teofilo already approved his price
quotation and that he could start printing the campaign materials, hence, he did print
campaign materials like posters bearing respondent’s photograph, leaflets containing the
slate of party candidates, sample ballots, poll watcher identification cards, and stickers.
● Given the urgency and limited time, Gozun availed of the services and facilities of Metro
Angeles Printing and of St. Joseph Printing Press, owned by his daughter and mother.
● Gozun delivered the materials to the respondent's headquarters.
● Meanwhile, on March 31, 1995, Mercado’s sister-in-law, Lilian Soriano (Lilian) obtained
from Jesus Gozun "cash advance" of P253,000 allegedly for the allowances of poll
watchers who were attending a seminar and for other related expenses. Lilian
acknowledged on petitioner’s 1995 diary receipt of the amount.
● Gozun later sent Mercado a Statement of Account in the total amount of 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, the "cash advance" obtained
by Lilian.
● On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a
receipt12 therefore.
● Despite repeated demands and respondent’s promise to pay, respondent failed to settle the
balance of his account to petitioner. Petitioner waited for more than 3 years.
● A demand letter was sent but it was left unheeded.

Petitioner’s Petitioner thus filed with the RTC on November 25, 1998 a complaint against respondent to collect
Contention: the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s fees.

Respondent’s ● Respondent denied having transacted with petitioner or entering into any contract for the
Contention: printing of campaign materials. He alleged that the various campaign materials delivered to
him were represented as donations from his family, friends and political supporters.
● On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a
cash advance of P253,000, respondent denied having given her authority to do so and
having received the same.
● When confronted with the official receipt issued to his wife acknowledging her payment to
JMG Publishing House of the amount of P1,000,000, respondent claimed that it was his first
time to see the receipt, albeit he belatedly came to know from his wife and Cabalu that the
P1,000,000 represented "compensation to Gozun who helped a lot in the campaign as a
gesture of goodwill."
● His wife was not authorized to enter into a contract with petitioner regarding campaign
materials as she knew her limitations; that he no longer questioned the P1,000,000 his wife
gave petitioner as he thought that it was just proper to compensate him for a job well done

RTC Ruling: The trial court rendered judgment in favor of the petitioner.

CA Ruling: ● The Court of Appeals reversed the trial court’s decision and dismissed the complaint for lack
of cause of action. There was no evidence to support his claim that Lilian was authorized by
respondent to borrow money on his behalf. The acknowledgment receipt signed by Lilian
did not specify in what capacity she received the money. Thus, applying Article 1317 of
the Civil Code, it held that petitioner’s claim for P253,000 is unenforceable.

Issue: Whether or not there was a contract of agency. - NO.

SC Ruling: Contract of agency
● 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.
● Contracts entered into in the name of another person by one who has been given no authority
or legal representation or who has acted beyond his powers are classified as unauthorized
contracts and are declared unenforceable, unless they are ratified.

Forms of agency
● Generally, the agency may be oral, unless the law requires a specific form.
○ However, a special power of attorney is necessary for an agent to, as in this case,
borrow money, unless it is urgent and indispensable for the preservation of the things
which are under administration.
● Since nothing in this case involves the preservation of things under administration, a
determination of whether Soriano had the special authority to borrow money on behalf of
Mercado is in order.

The requirement of a special power of attorney refers to the nature of the authorization and not
to its form
● 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 expressed. And more recently, We stated that, if the special authority is not
written, then it must be duly established by evidence.

Petitioner’s testimony failed to categorically state, however, whether the loan was made on
behalf of respondent or of his wife.
● While petitioner claims that Lilian was authorized by respondent, the statement of account
marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado."

Apparent authority
● Invoking Article 1873 of the Civil Code, Gozun submits that Mercado informed him that he
had authorized Lilian to obtain the loan, hence, following Macke v. Camps which held that
one who clothes another with apparent authority as his agent, and holds him out to the
public as such, respondent cannot be permitted to deny the authority.
● The contention does not persuade.
● Nowhere in the note can it be inferred that Jose Teofilo was connected with the said
transaction. Under Article 1317 of the New Civil Code, a person cannot be bound by
contracts he did not authorize to be entered into on his behalf.
● It bears noting that Lilian signed in the receipt in her name alone, without indicating therein
that she was acting for and on behalf of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone for that matter.
● General Rule: 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.

Other notes: Petitioner is the real party in interest in this case. The trial court’s findings on the matter were affirmed
by the appellate court. It erred, however, in not declaring petitioner as a real party in interest insofar
as recovery of the cost of campaign materials made by petitioner’s mother and sister are concerned,
upon the wrong notion that they should have been, but were not, impleaded as plaintiffs. In sum,
respondent has the obligation to pay the total cost of printing his campaign materials delivered by
petitioner in the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.

G.R. No. 167812             December 19, 2006

JESUS M. GOZUN, petitioner,
vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.
 DECISION

CARPIO MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December 8, 2004 and
Resolution of April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial court’s decision2 against Jose Teofilo T.
Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly dismissing the complaint of Jesus M. Gozun
(petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request,
petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign materials.

By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that
he could start printing the campaign materials, hence, he did print campaign materials like posters bearing
respondent’s photograph,3 leaflets containing the slate of party candidates,4 sample ballots,5 poll watcher
identification cards,6 and stickers.

Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro
Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania
Macalino Gozun, respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo Road in San
Fernando, Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from petitioner "cash
advance" of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other
related expenses. Lilian acknowledged on petitioner’s 1995 diary 9 receipt of the amount.10

Petitioner later sent respondent a Statement of Account 11 in the total amount of 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, the "cash advance" obtained by Lilian.

On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt 12 therefor.

Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his account
to petitioner.

Petitioner and respondent being compadres, they having been principal sponsors at the weddings of their respective
daughters, waited for more than three (3) years for respondent to honor his promise but to no avail, compelling
petitioner to endorse the matter to his counsel who sent respondent a demand letter. 13 Respondent, however, failed
to heed the demand.14

Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a complaint 15 against
respondent to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s fees.

In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with petitioner or entering into
any contract for the printing of campaign materials. He alleged that the various campaign materials delivered to him
were represented as donations from his family, friends and political supporters. He added that all contracts involving
his personal expenses were coursed through and signed by him to ensure compliance with pertinent election laws.
On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash advance of P253,000,
respondent denied having given her authority to do so and having received the same.

At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner was his over-all
coordinator in charge of the conduct of seminars for volunteers and the monitoring of other matters bearing on his
candidacy; and that while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was authorized to
approve details with regard to printing materials, presented him some campaign materials, those were partly
donated.17

When confronted with the official receipt issued to his wife acknowledging her payment to JMG Publishing House of
the amount of P1,000,000, respondent claimed that it was his first time to see the receipt, albeit he belatedly came
to know from his wife and Cabalu that the P1,000,000 represented "compensation [to petitioner] who helped a lot in
the campaign as a gesture of goodwill." 18

Acknowledging that petitioner is engaged in the printing business, respondent explained that he sometimes
discussed with petitioner strategies relating to his candidacy, he (petitioner) having actively volunteered to help in
his campaign; that his wife was not authorized to enter into a contract with petitioner regarding campaign materials
as she knew her limitations; that he no longer questioned the P1,000,000 his wife gave petitioner as he thought that
it was just proper to compensate him for a job well done; and that he came to know about petitioner’s claim against
him only after receiving a copy of the complaint, which surprised him because he knew fully well that the campaign
materials were donations.19

Upon questioning by the trial court, respondent could not, however, confirm if it was his understanding that the
campaign materials delivered by petitioner were donations from third parties. 20

Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is donated, it must be so
stated on its face, acknowledged that nothing of that sort was written on all the materials made by petitioner. 21

As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence, the Court
hereby renders a decision in favor of the plaintiff ordering the defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of this complaint
until fully paid;

2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.

SO ORDERED.22

Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed the complaint for
lack of cause of action.

In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s testimony, there was no
evidence to support his claim that Lilian was authorized by respondent to borrow money on his behalf. It noted that
the acknowledgment receipt23 signed by Lilian did not specify in what capacity she received the money. Thus,
applying Article 131724 of the Civil Code, it held that petitioner’s claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing – P837,696, and St.
Joseph Printing Press – P446,900, the appellate court, noting that since the owners of the last two printing presses
were not impleaded as parties to the case and it was not shown that petitioner was authorized to prosecute the
same in their behalf, held that petitioner could not collect the amounts due them.

Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the latter’s claim
of P640,310 (after excluding the P253,000) had already been settled.

Hence, the present petition, faulting the appellate court to have erred:
 1. . . . when it dismissed the complaint on the ground that there is no evidence, other than petitioner’s own
testimony, to prove that Lilian R. Soriano was authorized by the respondent to receive the cash advance
from the petitioner in the amount of P253,000.00.

xxxx

2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press and St.
Joseph Printing Press on the ground that the complaint was not brought by the real party in interest.

x x x x25

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. 26 Contracts entered into in the name of another person
by one who has been given no authority or legal representation or who has acted beyond his powers are classified
as unauthorized contracts and are declared unenforceable, unless they are ratified. 27

Generally, the agency may be oral, unless the law requires a specific form. 28 However, a special power of attorney is
necessary for an agent to, as in this case, borrow money, unless it be urgent and indispensable for the preservation
of the things which are under administration.29 Since nothing in this case involves the preservation of things under
administration, a determination of whether Soriano had the special authority to borrow money on behalf of
respondent is in order.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the nature of the
authorization and not to its form.

. . . 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:

"…the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while
the same does not state that the special authority be in writing the Court has every reason to expect that, if
not in writing, the same be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him."31 (Emphasis and underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a
loan from him, viz:

Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95 received by Mrs.
Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the Court and
explain what does that caption means?

A : It is the amount representing the money borrowed from me by the defendant when one morning they
came very early and talked to me and told me that they were not able to go to the bank to get money for
the allowances of Poll Watchers who were having a seminar at the headquarters plus other election related
expenses during that day, sir.

Q : Considering that this is a substantial amount which according to you was taken by Lilian Soriano, did you
happen to make her acknowledge the amount at that time?

A : Yes, sir.32 (Emphasis supplied)

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or
of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had authorized
Lilian to obtain the loan, hence, following Macke v. Camps34 which holds that one who clothes another with
apparent authority as his agent, and holds him out to the public as such, respondent cannot be permitted to
deny the authority.

Petitioner’s submission does not persuade. As the appellate court observed:

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim

unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was received by
one Lilian R. Soriano on 31 March 1995, but without specifying for what reason the said amount was
delivered and in what capacity did Lilian R. Soriano received [sic] the money. The note reads:

"3-31-95

261,120 ADVANCE MONEY FOR TRAINEE –

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE THOUSAND
PESOS

(SIGNED)

LILIAN R. SORIANO

3-31-95"

Nowhere in the note can it be inferred that defendant-appellant was connected with the said transaction.
Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize to be
entered into his behalf.35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for
and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.

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. It is not enough merely that the agent was in fact authorized to make the mortgage, if he
has not acted in the name of the principal. x x x36 (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains that he was the one who personally
and directly contracted with respondent and he merely sub-contracted the two printing establishments in order to
deliver on time the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the case which is not
allowed on appeal.

In Oco v. Limbaring,37 this Court ruled:

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.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on the matter were
affirmed by the appellate court.39 It erred, however, in not declaring petitioner as a real party in interest insofar as
recovery of the cost of campaign materials made by petitioner’s mother and sister are concerned, upon the wrong
notion that they should have been, but were not, impleaded as plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaign materials delivered by petitioner
in the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution dated April 14,
2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is REINSTATED mutatis
mutandis, in light of the foregoing discussions. The trial court’s decision is modified in that the amount payable by
respondent to petitioner is reduced to P924,906.

SO ORDERED.

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