[No. 16454.

 September 29, 1921]

GEORGE A. KAUFFMAN, plaintiff and appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant
and appellant.
1.BANKS AND BANKING; TELEGRAPHIC EXCHANGE; ACTION BY THE PAYEE. —A person in
whose favor a bank sells telegraphic exchange on a foreign country may, in case payment is
refused    by the bank of destination, maintain an action against the bank selling the exchange,
without regard to whether such payee was an immediate party to the purchase of the exchange
or not.
2.CONTRACT; STIPULATION IN FAVOR OF THIRD PERSON; REVOCATION OF SUCH STIPULATION.
—A stipulation in favor of a third person cannot be revoked by the obligated party alone,
without the conformity of the other contracting party.

G.R. No. 16454           September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant.

Ross and Lawrence for appellee.

STREET, J.:

At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was
the president of a domestic corporation engaged chiefly in the exportation of hemp from the
Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the
plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918,
the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for
the year 1917, of which the plaintiff was entitled to the sum of P98,000. 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.

In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine
Fiber and Produce Company, presented himself in the exchange department of the Philippine
National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the
plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was
informed that the total cost of said transfer, including exchange and cost of message, would be
P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company,
thereupon drew and delivered a check for that amount on the Philippine National Bank; and the
same was accepted by the officer selling the exchange in payment of the transfer in question. As
evidence of this transaction a document was made out and delivered to Wicks, which is referred to
by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following
language:

October 9th, 1918.

 CABLE TRANSFER BOUGHT FROM
            PHILIPPINE NATIONAL BANK,
           Manila, P.I.                       Stamp P18

Foreign             Amount                 Rate

$45,000.            3/8 %             P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total
P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine
Fiber and Produce Company, Manila.

        (Sgd.) Y LERMA,
Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to
the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.)
PHILIPPINE NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York sent a cable
message in reply suggesting the advisability of withholding this money from Kauffman, in view of his
reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine
National Bank acquiesced in this and on October 11 dispatched to its New York agency another
message to withhold the Kauffman payment as suggested.

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman
in New York, advising him that $45,000 had been placed to his credit in the New York agency of the
Philippine National Bank; and in response to this advice Kauffman presented himself at the office of
the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By
this time, however, the message from the Philippine National Bank of October 11, directing the
withholding of payment had been received in New York, and payment was therefore refused.

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First
Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been
there entered favorably to the plaintiff, the defendant appealed.

Among additional facts pertinent to the case we note the circumstance that at the time of the
transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit
in the Philippine National Bank money adequate to pay the check for P90,355.50, which was
delivered in payment of the telegraphic order; but the company did have credit to that extent, or
more, for overdraft in current account, and the check in question was charged as an overdraft
against the Philippine Fiber and Produce Company and has remained on the books of the bank as
an interest-bearing item in the account of said company.

It is furthermore noteworthy that no evidence has been introduced tending to show failure of
consideration with respect to the amount paid for said telegraphic order. It is true that in the
defendant's answer it is suggested that the failure of the bank to pay over the amount of this
remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect
the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured
at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in
question was sold the bank found that it did not have sufficient to warrant payment of the remittance.
In view, however, of the failure of the bank to substantiate these allegations, or to offer any other
proof showing failure of consideration, it must be assumed that the obligation of the bank was
supported by adequate consideration.

In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as
the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit,
no right of action can be vested in him for the breach thereof. "In this situation," — we here quote the
words of the appellant's brief, — "if there exists a cause of action against the defendant, it would not
be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any
contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which
contracted in its own name with the defendant."

The question thus placed before us is one purely of law; and at the very threshold of the discussion it
can be stated that the provisions of the Negotiable Instruments Law can come into operation there
must be a document in existence of the character described in section 1 of the Law; and no rights
properly speaking arise in respect to said instrument until it is delivered. In the case before us there
was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of
a specified sum of money to George A. Kauffman. But this order was not made payable "to order or
"to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of
the bank, or its representative in New York City, there was no delivery in the sense intended in
section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot
itself be viewed in the light of a negotiable instrument, although it affords complete proof of the
obligation actually assumed by the bank.

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable
consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to
cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the
plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other
words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an
action by him?

The only express provision of law that has been cited as bearing directly on this question is the
second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained
under the provision, the plaintiff admittedly has no case. This provision states an exception to the
more 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; and in harmony with this general
rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad
Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)

The paragraph introducing the exception which we are now to consider is in these words:

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.)

In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation
upon the history and interpretation of the paragraph above quoted and so complete is the discussion
contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say
that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions
governing the right of the person for whose benefit a contract is made to maintain an action for the
breach thereof in the following words:

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.

If a third person claims an enforcible interest in the contract, the 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. (Uy Tam and Uy
Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "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." (Uy Tam and
Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is
clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be
paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given disclose an evident
intention on the part of the contracting parties that the plaintiff should have the money upon demand
in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies
in our opinion the right in him to maintain an action to recover it; and indeed if the provision in
question were not applicable to the facts now before us, it would be difficult to conceive of a case
arising under it.

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 the
plaintiff clearly signified his acceptance to the bank by demanding payment; and although the
Philippine National Bank had already directed its New York agency to withhold payment when this
demand was made, the rights of the plaintiff cannot be considered to 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 he exchange.

In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank
(130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921,
wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a
bank incurs a simple contractual obligation, and cannot be considered as holding the money which
was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers,
therefore, mean a method of transmitting money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that on receipt of the cable directing the
transfer his correspondent at such point will make payment to the beneficiary described in the cable.
All these transaction are matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, wish
is merely that of the right of the beneficiary to maintain an action against the bank selling the
transfer.
Upon the considerations already stated, we are of the opinion that the right of action exists, and the
judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be
computed as prescribed in section 510 of the Code of Civil Procedure.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.