Kauffman v. Philippine National Bank
REITERATIONFacts
The Antecedents: George A. Kauffman, president and majority stockholder of Philippine Fiber and Produce Company, was entitled to P98,000 from a P100,000 dividend declared by the company. On October 9, 1918, the company's treasurer, George B. Wicks, requested a telegraphic transfer of $45,000 from the Philippine National Bank (PNB) in Manila to Kauffman in New York City. The cost of the transfer was P90,355.50, for which Wicks issued a check to PNB. PNB issued an official receipt for the transaction. PNB dispatched a cable to its New York agency to pay Kauffman. Subsequently, PNB's New York agency advised withholding payment due to Kauffman's reluctance to accept certain company bills. PNB acquiesced and cabled its New York agency to withhold payment. Kauffman, having been informed of the transfer, presented himself at PNB's New York office on October 15, 1918, to claim the money, but payment was refused. Procedural History: Kauffman instituted an action in the Court of First Instance of Manila to recover the sum. The trial court rendered judgment in favor of Kauffman, and PNB appealed. The Petition: PNB's primary defense was that Kauffman, not being a party to the contract with the bank for the transmission of credit, had no right of action for its breach. The company that contracted with the bank was the Philippine Fiber and Produce Company.
Issue(s)
Whether the plaintiff, George A. Kauffman, a third-party beneficiary, can maintain an action against the defendant bank for the breach of a contract for telegraphic transfer of funds, despite not being a direct party to the contract. Whether the telegraphic order issued by the defendant bank to its New York agency constituted a negotiable instrument or a delivery sufficient to vest rights in the plaintiff under the Negotiable Instruments Law. Whether the stipulation in favor of the plaintiff constituted a "stipulation pour autrui" under Article 1257 of the Civil Code, allowing him to demand its fulfillment.
Ruling
The Supreme Court affirmed the judgment of the lower court, holding that the plaintiff, George A. Kauffman, can maintain an action against the defendant bank for the breach of the contract for telegraphic transfer of funds.
Ratio Decidendi
On the plaintiff's right to maintain an action as a third-party beneficiary: The Court held that the plaintiff, George A. Kauffman, can maintain an action against the defendant bank for the breach of the contract. The Court invoked the second paragraph of Article 1257 of the Civil Code, which provides that "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." The Court found that the bank's promise to cause a sum of money to be paid to the plaintiff in New York City was a stipulation in his favor. The circumstances under which the promise was given indicated an evident intention by the contracting parties that the plaintiff should have the money upon demand. The recognition of the plaintiff's unqualified right to receive the money implied the right to maintain an action to recover it. The Court clarified that the plaintiff signified his acceptance by demanding payment, and this demand occurred before any effective revocation of the stipulation. On the nature of the telegraphic order and negotiable instruments: The Court ruled that the telegraphic order issued by the defendant bank to its New York agency did not constitute a negotiable instrument under the Negotiable Instruments Law. The order was not made payable "to order" or "to bearer" as required by law. Furthermore, the order never left the possession of the bank or its representative, meaning there was no delivery in the sense contemplated by Section 16 of the Negotiable Instruments Law. The official receipt issued by the bank to the purchaser of the telegraphic order was also not considered a negotiable instrument, although it served as proof of the bank's obligation. On the applicability of "stipulation pour autrui": The Court found that the bank's agreement to cause the payment to the plaintiff constituted a "stipulation pour autrui" under Article 1257 of the Civil Code. The Court relied on its previous ruling in Uy Tam and Uy Yet vs. Leonard, which established that the intention of the parties, as disclosed by their contract, is the fairest test to determine if a third person's interest is a stipulation pour autrui. In this case, the bank's promise to pay Kauffman was a deliberate term inserted with the purpose of conferring a favor upon him. The plaintiff's subsequent demand for payment served as his acceptance of this stipulation, which had not been revoked by the mutual consent of the contracting parties prior to such acceptance.
Main Doctrine
A third person, who is not a party to a contract, may maintain an action for the breach thereof if the contract contains a stipulation in his favor and he has given notice of his acceptance to the person bound before the stipulation has been revoked.