Obligations and Contracts

Article 1311

KAUFFMAN V. PHILIPPINE NATIONAL BANK

September 29, 1921 | J. Street

Plaintiff-Appellee: George A. Kauffman

Defendant-Appellant: Philippine National Bank

Doctrine: In a contract containing a stipulation in favor of a third party, it is important to look into the
intention of the contracting parties to determine whether or not the stipulation is indeed for the benefit of
such third person. Should this be in the affirmative, such third person must signify his acceptance before
the benefit is revoked.

FACTS
 Plaintiff George A. Kauffman was the president and owner of almost all shares of stocks of the
Philippine Fiber and Produce Company (PFPC) in the Philippine Islands. On February 5, 1918, the
board of directors of said company, declared a dividend of P100K from its surplus earnings for the
year 1917, of which the plaintiff was entitled to the sum of P98K. This amount was accordingly
placed to his credit on the books of the company, and so remained until in October of the same
year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the
plaintiff in New York City.
 On October 9, 1918, George B. Wicks, treasurer of the PFPC, presented himself in the exchange
department of the Philippine National Bank (PNB) in Manila and requested that a telegraphic
transfer of $45,000 should be made to the plaintiff in New York City, upon account of PFPC. Wicks
delivered the check for the total amount (inclusive of bank costs) to PNB.
 On the same day PNB dispatched to its New York agency a cablegram to the following effect:
o "Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000.
(Sgd.) PHILIPPINE NATIONAL BANK, Manila."
 In its reply, the NY bank representative told PNB Manila of plaintiff’s reluctance to accept certain
bills from PFPC. As such, PNB Manila sent another telegram message on October ordering the NY
bank representative to withhold the payment to plaintiff as originally suggested by the latter.
 Meanwhile, Wicks cabled the plaintiff in New York advising him that the money had been placed to
his credit in the New York agency of PNB. Thereafter, plaintiff presented himself at the office of
PNB in New York City on October 15 demanding payment. By this time, however, the message
from PNB Manila of October 11 directing the withholding of payment was already transmitted;
payment to him was therefore refused.
 In view of these facts, the plaintiff Kauffman instituted the present action in CFI Manila to recover
said sum, with interest and costs.
 Judgment having been there entered favorably to the plaintiff, herein defendant appealed.

ISSUES + HELD

W/N Kauffman can maintain his action against PNB considering his lack of privity to the contract
between PNB and PFPC?- YES

 The only express provision of law as bearing directly on this question is the second paragraph of
Article 1257 of the (Old) Civil Code.1 The second paragraph (quoted below) states an exception to
the general rule expressed in the first paragraph of the same article (to the effect that contracts are
productive of effects only between the parties who execute them).
o "Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment, provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked." (Art. 1257, par. 2, Civ. Code.)

1
Now Art. 1311 of the New Civil Code
Ilagan
March 03, 2019
Obligations and Contracts
Article 1311

 The case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471) summarizes the conditions governing
the right of the person for whose benefit a contract is made to maintain an action for the breach
thereof.
o “So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether
the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.”
o "If a third person claims an enforceable interest in the contract, that question must be
settled by determining whether the contracting parties desired to tender him such an
interest. Did they deliberately insert terms in their agreement with the avowed purpose of
conferring a favor upon such third person? In resolving this question, of course, the
ordinary rules of construction and interpretation of writings must be observed."
o "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in
the nature of a gift or whether there is an obligation owing from the promise to the third
person. That no such obligation exists may in some degree assist in determining whether
the parties intended to benefit a third person, whether they stipulated for him.
 As applied in the present case, Kauffman’s right to maintain the present action is clear enough; it
is undeniable that the bank's promise to cause a definite sum of money to be paid to him in New
York City is a stipulation in his favor within the meaning of the paragraph above quoted.
Furthermore, the circumstances under which that promise was given disclose an evident intention
on the part of the contracting parties that he be given that money upon demand in New York City.
 It will be noted that under the paragraph cited a third person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance before it has been revoked. In this case,
Kauffman clearly signified his acceptance to PNB by demanding payment. Although PNB had
already directed its New York agency to withhold payment when this demand was made, the rights
of the plaintiff cannot be considered to have been prejudiced by this fact. The word "revoked," as
there used, must be understood to imply revocation by the mutual consent of the contracting parties,
or at least by direction of the party purchasing the exchange.

RULING: Judgment of the lower court in favor of the plaintiff is affirmed.

SUPERDIGEST ENTRY
Trigger Words: Inter-country bank transfer of money

Facts: Kauffman was entitled to a sum of money from a local corporation, who enlisted the services of PNB
to transfer such money to its New York agent. Arguably as a result of miscommunication, the New York
agent refused to give Kauffman the money, leading to his filing of an action for recovery of the sum.

Doctrine: In a contract containing a stipulation in favor of a third party, it is important to look into the intention
of the contracting parties to determine whether or not the stipulation is indeed for the benefit of such third
person. Should this be in the affirmative, such third person must signify his acceptance before the benefit
is revoked.

Ruling: Judgment of the lower court in favor of the plaintiff is affirmed.

Relevant Provisions: Art. 1311

Ilagan
March 03, 2019