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Kauffman vs.

PNB (contracts; stipulation pour autrui)

Facts: Kauffman, based in NYC, was the president of a Philippine Company; he was entitled to receive a dividend so the treasurer of
the company went to the exchange department of PNB and requested to that a telegraphic transfer of the money Kauffman was
supposed to receive from the company. The PNB agreed with additional charges for the transaction. The treasurer issued a check to
PNB and it was accepted. The PNB’s representative in New York sent a message suggesting the advisability of withholding this
money from Kauffman, in view of his reluctance to accept certain bills of the company. PNB acquiesced in this and dispatched to its
NY agency a message to withhold the Kauffman payment as suggested. Meanwhile, Wicks then he informed Kauffman that his
dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to PNB office in NYC and demanded the money,
however, he was refused payment. So he filed this complaint.

Issue: Does Kauffman have a right of action against PNB?

Held: Yes; it is a stipulation pour autrui.

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his acceptance to the person bound before the stipulation has been revoked.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 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 NYC 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 NYC. 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.
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signify his acceptance before it has been revoked.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 PNB had already directed its NY 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.
Note: Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by CA of NYC on March 1, 1921, it was 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

Bonifacio vs. Mora (contracts; stipulation pour autrui)

Facts: Mora mortgaged his car to H.S Reyes with a condition that Mora would insure the car with H.S. Reyes Inc. as the beneficiary.
State Bonding & Company insured the car and a motor car insurance policy was issued to Mora. Right after, the car met an accident.
The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage.
Mora, without the consent and knowledge of H.S. Reyes Inc., authorized Bonifacio Brothers Inc. to fix the car. For the cost of labor
and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiming
a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the
order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to
the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without
payment to the Bonifacio Bros. Inc. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid
directly to them, the Bonifacio Bros. Inc filed a complaint against Mora and the State Bonding & Insurance Co., Inc. for the
collection of the sum of P2,002.73

Held: The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance
contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are
not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take
effect only between the parties thereto, except in some specific instances provided by law where the contract contains some
stipulation in favor of a third person. Such stipulation is known as stipulation pour autrui or a provision in favor of a third person
not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of
the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person. Consequently, a
third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of
the same. The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether
the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed
purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test 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. In the instant case the insurance contract does not contain any words
or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The
parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other
hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it
was only the H.S. Reyes, Inc. which they intended to benefit.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of
insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court
of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured
and third person." In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no
cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is
merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros.

Corpus vs. CA (innominate contracts)

Facts: David accepted the case of Corpus though there was no express agreement regarding attorney’s fees.
Corpus was administratively charged. He employed the services of David. David won the administrative case
For Copuz. Corpus gave a check to David, but was returned by David with the intention of getting paid after
the case is ruled with finality by the SC and Corpus gets his back salaries and wages. (Your appreciation of the
efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a
decision which would have finally resolved the case in your favor, remembering me then will make me happy.
In the meantime, you will make me happier by just keeping the check) David continued to fight for Corpus’
case and got a favorable judgment. Corpus refused to pay David contending that since David refused the first
check given by him, he gave his services gratuitously.

Held: While there was no express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of
the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees.

Payment of attorney's fees to respondent David may be justified by virtue of the innominate contract of facio ut des (I do and you
give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." Innominate contracts have
been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the
stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the people.
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the
case of Perez v. Pomar, supra thus:
Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service
was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because 'it is a well-known principle
of law, that no one should be permitted to enrich himself to the damage of another.

Sanchez vs. Rigos (contracts;acceptance)

Facts: On 3 April 1961, Nicolas Sanchez and Severina Rigos executed an instrument, entitled “Option to Purchase,” whereby Mrs.
Rigos “agreed, promised and committed . . . to sell” to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of
Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in TCT NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall be deemed “terminated and elapsed,” if
“Sanchez shall fail to exercise his right to buy the property” within the stipulated period. Inasmuch as several tenders of payment of
the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on 12 March 1963, the former deposited said
amount with the CFI Nueva Ecija and commenced against the latter the present action, for specific performance and damages. On 11
February 1964, after the filing of defendant’s answer, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on 28 February 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept
the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise,
sentenced to pay P200.00, as attorney’s fees, and the costs. Hence, the appeal by Mrs. Rigos to the Court of Appeals, which case was
the certified by the latter court to the Supreme Court upon the ground that it involves a question purely of law.

Held: The SC affirmed the decision appealed from, with costs against Severina Rigos.
1. Option to purchase not a contract to buy and sell
The option did not impose upon Sanchez the obligation to purchase Rigos’ property. The contract denominated as “Option to
Purchase” is not a “contract to buy and sell,” it merely granted Sanchez an “option” to buy, and both parties so understood it, as
indicated by the caption given by them to said instrument. Under the provisions thereof, Rigos “agreed, promised and committed”
herself to sell the land therein described to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a consideration “distinct from the price” stipulated for the sale
of the land.
2. Article 1354 applicable to contracts in general, Article 1479 refers to sales in particular
Relying upon Article 1354 of the Civil Code, which provides that “when the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised,” the lower court presumed the existence of a consideration distinct from the
price. It must be noted however that Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers
to “sales” in particular, and, more specifically, to “an accepted unilateral promise to buy or to sell.” In other words, Article 1479 is
controlling in the present case. Article 1479 provides that “A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.”
3. Article 1479 imposes condition for a unilateral promise to be binding; Burden of proof
In order that a unilateral promise may be “binding” upon the promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be “supported by a consideration distinct from the price.” Accordingly, the promisee can not compel the promisor
to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee
has the burden of proving such consideration. In the present case, Sanchez has not even alleged the existence thereof in his
4. Implied admission of the truth of the other party’s averment if party joins in the petition for a judgment based on the pleadings
without introducing evidence
In the case of Bauermann v. Casas (14 March 1908), it was held that “one who prays for judgment on the pleadings without offering
proof as to the truth of hie own allegations, and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment
on those allegations taken together with such of his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil.
210).” This view was reiterated in Evangelista V. De la Rosa and Mercy’s Incorporated v. Herminia Verde. In the present case, Rigos
explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by
joining in the petition for a judgment on the pleadings, Sanchez has impliedly admitted the truth of said averment in Rigos’ answer.
5. Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. case
The Court in the Southwestern Sugar case held that “under article 1479 of the new Civil Code ‘an option to sell,’ or ‘a promise to buy
or to sell,’ as used in said article, to be valid must be ’supported by a consideration distinct from the price.’ This is clearly inferred
from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a
consideration. In other words, ‘an accepted unilateral promise’ can only have a binding effect if supported by a consideration, which
means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not
disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by
appellee. The Court held that the general rule regarding offer and acceptance under Article 1324 must be interpreted as modified by
the provision of article 1479, which applies to ‘a promise to buy and sell’ specifically. In short, the rule requires that a promise to sell
to be valid must be supported by a consideration distinct from the price.
6. Atkins, Kroll and Co. v. Cua Hian Tek
In the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co., the Court saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a
contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
7. Option is unilateral
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option
within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to
buy. He is free either to buy or not to buy later. In the present case, however, upon accepting Rigos’ offer a bilateral promise to sell
and to buy ensued, and Sanchez ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy
or not to buy. It was not a mere option then; it was bilateral contract of sale.
8. Option without consideration is a mere offer of a contract of sale, which is not binding until accepted
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a
sufficient consideration. . . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.) It can be taken for
granted that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by
latter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer
and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code;
Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause or consideration, the promisor is
not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.
9. Proper construction of conflicting provisions of the same law; Harmonize to implement the same principle rather than to create
In line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the
presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover,
the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & pacific Co., holding that Art. 1324 (on the general principles on
contracts) is modified by Art. 1479 (on sales) of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said 2 articles are concerned. What
is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the 2 provisions intended to enforce or implement the same principle.
10. Atkins, Kroll & Co. case modifies or abandons Southwestern Sugar case insofar as to inconsistencies
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the
Atkins, Kroll & Co. case, and that, insofar all inconsistent therewith, the view adhered to in the South western Sugar & Molasses Co.
case should be deemed abandoned or modified.

Liguez vs. CA (void contracts)

Plaintiff averred to be a legal owner, pursuant to a deed of donation of a land, executed in her favor by the late owner, Salvador P.
Lopez, on 18 May 1943. The defense interposed was that the donation was null and void for having an illicit causa or consideration,
which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that the property had been
adjudicated to the appellees as heirs of Lopez by the court of First Instance, since 1949.
The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari delicto non oritur actio" as embodied
in Article 1306 of 1889 (reproduced in Article 1412 of the new Civil Code):
ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules
shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract, or ask for
fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.

Held: CA erred in applying to the present case the pari delicto rule. First, because it can not be said that both parties here had equal
guilt when we consider that as against the deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the
appellant was a mere minor, 16 yrs of age, when the donation was made; that there is no finding made by CA that she was fully aware
of the terms of the bargain entered into by and Lopez and her parents; that, her acceptance in the deed of donation (Art. 741) did not
necessarily imply knowledge of conditions and terms not set forth therein; and that the substance of the testimony of the
instrumental witnesses is that it was the appellant's parents who insisted on the donation before allowing her to live with Lopez.
These facts are more suggestive of seduction than of immoral bargaining on the part of appellant. It must not be forgotten that
illegality is not presumed, but must be duly and adequately proved. Second, the rule that parties to an illegal contract, if equally
guilty, will not be aided by the law but will both be left where it finds them, has been interpreted by this Court as barring the party
from pleading the illegality of the bargain either as a cause of action or as a defense.

CA correctly held that Lopez could not donate the entirety of the property in litigation, to the prejudice of his wife Maria Ngo,
because said property was conjugal in character and the right of the husband to donate community property is strictly limited by law

ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by the husband
alone to the children born of the marriage in order to obtain employment for them or give then, a profession or by both spouses by
common consent, should they not have stipulated that such expenditures should be borne in whole or in part by the separate
property of one of them.".
ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Article 1409.)
ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate and encumber the property
of the conjugal partnership without the consent of the wife.
The text of the articles makes it plain that the donation made by the husband in contravention of law is not void in its entirety, but
only in so far as it prejudices the interest of the wife. In this regard, as Manresa points out the law asks no distinction between
gratuitous transfers and conveyances for a consideration. To determine the prejudice to the widow, it must be shown that the value
of her share in the property donated can not be paid out of the husband's share of the community profits. The requisite data,
however, are not available to us and necessitate a remand of the records to the court of origin that settled the estate of the late
Salvador P. Lopez.
The decisions appealed from are reversed and set aside, and the appellant Conchita Liguez declared entitled to so much of the
donated property as may be found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal
partnership with Salvador P. Lopez or the legitimes of the forced heirs of the latter.

Summary of Cui Vs. Arellano University

Article Summary by:leaderspress Original Author: Supreme Court

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G.R. No. L-15127

May 30, 1961


Plaintiff enrolled in the College of Law of the defendant from the school year 1948-1949. He finished his law studies in the defendant

university up to and including the first semester of the fourth year. During all the time he was studying law in defendant university, he

was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of

semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and

refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the

fourth year, is in total of P1,033.87. However, before defendant awarded to plaintiff the scholarship grants as above stated, he was

made to sign the following contract covenant and agreement which provides that in consideration of the scholarship granted to him

by the University, he waives his right to transfer to another school without having refunded to the University (defendant) the

equivalent of his scholarship cash.

For the last semester of his law studies, plaintiff enrolled in the college of law of the Abad Santos University and graduated

therefrom. After graduating in law he applied to take the bar examination. Plaintiff then petitioned the defendant university to issue to

him the needed transcripts. However, the defendant refused until after he had paid back the P1,033 87 which defendant refunded to

him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum

under protest. This is the sum which plaintiff seeks to recover from defendant in this case.


Whether the said provision of the contract is valid.


No. The stipulation in question is contrary to public policy and, hence, null and void. The practice of awarding scholarships to attract

students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in

some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the

Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the

corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the

United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to

attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society

has an established interest or a first lien.

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