Uy Tam and Uy Yet vs. Leonard

A stipulation pour autrui under Article 1257 of the Civil Code requires a clear and deliberate intention by the contracting parties to confer a direct, enforceable benefit upon a third person; a mere incidental or indirect benefit will not suffice. This intention must appear from the language of the contract, construed in light of the ordinary rules of interpretation and the principle that suretyship is not presumed but must be express and cannot be extended beyond what is specified.

Hosty and Brown entered into a contract with the City of Manila to furnish crushed rock for one year. As required, they posted a bond with the city as obligee, securing performance. The bond was signed by Hosty and Brown as principals and by several individuals as sureties. A clause in the bond obligated the principals to “promptly make all payments to all persons supplying them labor or materials in the prosecution of the work.” Uy Tam and Uy Yet, who had supplied materials to the contractors, sought to recover directly against the sureties after the city declined to sue.

• The Parties: Plaintiffs-appellants, Uy Tam and Uy Yet, were suppliers of materials used by the contractors, Hosty and Brown, in the performance of a contract with the City of Manila to furnish crushed rock for one year. Defendants-appellees, Thomas Leonard and others, were sureties on the contractors’ bond. The City of Manila was joined as a pro forma defendant because it refused to join as plaintiff; no damages were claimed against the city.

• The Bond: The bond named the City of Manila as obligee and Hosty and Brown as principals, with Leonard, Sellner, Geo. E. Brown, Olsen, and Pitt as sureties. The penal sum was ₱28,500. The condition clause required faithful performance of the crushed-rock contract “and shall promptly make all payments to all persons supplying them labor or materials in the prosecution of the work provided for in said contract.” The bond further stipulated that suit could be brought “in the courts of the Philippine Islands for the district in which the said contract is executed,” but did not name materialmen as obligees or authorize them to sue.

• Plaintiffs’ Claim: Plaintiffs alleged they had furnished materials to Hosty and Brown for use in the contract, after notifying the defendants sureties of their acceptance of the bond’s condition relating to laborers and materialmen. They sought to recover the value of the materials directly from the sureties, invoking the stipulation in the bond as a stipulation pour autrui under Article 1257 of the Civil Code.

• City’s Position: The City of Manila, through its legal officer, opposed the plaintiffs’ claim on appeal, denying that the bond was intended to confer a benefit upon materialmen and refusing to join as plaintiff. All parties signatory to the bond denied any intention to benefit materialmen.

• Stipulation Pour Autrui: Petitioners maintained that the clause requiring prompt payment to laborers and materialmen was a stipulation in their favor under the second paragraph of Article 1257 of the Civil Code. They argued they had accepted the stipulation by notifying the sureties, thus perfecting their right to demand fulfillment directly from the obligors.

• Direct Right of Action: Petitioners contended that as expressly intended beneficiaries of the bond, they were entitled to sue the sureties without the necessity of the city’s intervention, and that the city’s refusal to join as plaintiff did not defeat their cause of action.

• No Cause of Action: Respondents argued that the complaint failed to state a cause of action because the bond did not name materialmen as obligees and did not confer upon them any right to sue. The bond’s language, read as a whole, showed that the promise to pay laborers and materialmen was given to the city alone, for its own protection.

• Strict Construction of Suretyship: Respondents invoked Article 1827 of the Civil Code, which provides that suretyship is not presumed, must be express, and cannot be extended beyond what is specified. They maintained that to hold them liable to third persons would impose an obligation not clearly expressed in the bond.

• Intention of the Parties: The city, as obligee, denied any intention to benefit materialmen. Respondents argued that the bond should be interpreted according to the contracting parties’ intent, and a court should not rewrite the instrument to create obligations not intended.

• Stipulation Pour Autrui: Whether the clause in the contractor’s bond requiring payment to laborers and materialmen constituted a stipulation pour autrui under Article 1257 of the Civil Code, giving materialmen a direct right of action against the sureties.

• Stipulation Pour Autrui: The clause did not constitute a stipulation pour autrui. A stipulation pour autrui requires a clear and deliberate intention by the contracting parties to confer a direct benefit upon a third person; a mere incidental interest is insufficient. The bond must be interpreted to ascertain whether the parties “desired to tender him such an interest” by “deliberately insert[ing] terms in their agreement with the avowed purpose of conferring a favor upon such third person.” Here, the bond named only the City of Manila as obligee; the clause regarding payment to materialmen was not accompanied by any words naming them as obligees or granting them a right to sue. The bond’s suit clause referred only to enforcement by the city in a specified judicial district. The city itself denied any intent to benefit third persons. The requirement that a stipulation pour autrui be clearly expressed, combined with the rule that suretyship must be express and cannot be extended beyond its terms (Article 1827, Civil Code), compelled the conclusion that the clause was inserted for the city’s protection—perhaps ex abundanti cautela, in view of possible claims under Articles 1111 and 1597 of the Civil Code—and not to create direct obligations to materialmen. The demurrer was properly sustained.

• Stipulation Pour Autrui (Article 1257, Civil Code) — The second paragraph of Article 1257 creates an exception to the principle of relativity of contracts: a third person may demand the fulfillment of a stipulation in his favor, provided he accepts it before revocation. The doctrine requires: (1) a stipulation deliberately inserted in the contract for the benefit of a third person; (2) a clear intention by the contracting parties to confer that benefit; and (3) acceptance by the third person before revocation. The benefit must be direct and intended, not merely incidental or consequential. The test is whether the contracting parties “desired to tender him such an interest” and “deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person.” This intention is determined from the language of the contract, applying ordinary rules of interpretation. The word “any” in “any stipulation in favor of a third person” confirms the removal of the old civil-law prohibition, but does not eliminate the requirement of deliberate intent to benefit the third party.

• Suretyship Not Presumed; Strict Construction — Under Article 1827 of the Civil Code, suretyship is not presumed; it must be express and cannot be extended beyond the terms specified. When a bond names a specific obligee and contains a clause that might incidentally benefit others, the obligation of the sureties is limited to the express terms. A court will not read into a bond an additional obligee or an extension of liability that the language does not clearly support.

• “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.”

• “It is not every promise made by one to another, from the performance of which a benefit may ensue to a third, which gives a right of action to such third person, he being neither privy to the contract nor to the consideration. The contract must be made for his benefit as an object, and he must be the party intended to be benefited.” (quoting Simson vs. Brown, 68 N.Y. 355)

• “The rule requiring a clear intent on the part of the parties to benefit a third person should be reinforced by a due regard for article 1827 of the Civil Code, which provides: ‘Security is not presumed; it must be express and cannot be extended further than that specified therein.’”

• “To hold that the parties intended to make the materialmen obligees in the bond involves a disregard for its actual language which is not becoming in a court of law. To reach such a conclusion it is necessary to surmount two rules of construction peculiarly applicable to the instrument: first, that a stipulation pour autrui must be clearly expressed; and second, that a contract of surety is not to be presumed but must be express.”

• Lawrence vs. Fox (20 N.Y. 268) — Recognized as the starting point of the American doctrine allowing enforcement of stipulations pour autrui where a promise is made for the benefit of a third person. Cited to illustrate the evolution of the rule in American jurisprudence.

• Vrooman vs. Turner (69 N.Y. 280) — Articulated a restrictive formulation requiring an intent to benefit the third party and privity or obligation owing from promisee to third party. The Supreme Court noted this New York limitation but declined to adopt it, stating Article 1257 imposes no such privity requirement, while emphasizing that the requirement of clear intent remains.

• Simson vs. Brown (68 N.Y. 355) — Quoted for the rule that the contract must be made for the third person’s benefit “as an object” and the third person must be the party intended to be benefited; a mere incidental benefit does not confer a right of action.

• Duchamp vs. Nicholson (2 Mart. N.S., 672) — Early Louisiana case tracing the civil-law history of stipulations pour autrui from Roman law through the Code Napoleon. Cited to support the historical foundation of Article 1257 and the conclusion that a third party may sue on a stipulation made for his benefit.

• Salem Brick and Lumber Co. vs. Le Sassier (106 La. 398) — A Louisiana decision holding that a similar contractor’s bond did not confer a direct right of action upon materialmen. The Supreme Court expressly aligned with this civil-law jurisdiction’s ruling.

• Electric Appliance Co. vs. United States Fidelity and Guaranty Co. (110 Wis. 434) — Wisconsin case holding that a contractor’s bond did not disclose an intent to secure third parties and was taken for the city’s benefit; cited as consistent with the Court’s conclusion.

• Article 1257, Civil Code (Spanish Civil Code of 1889) — Second paragraph: “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 persons bound before it may have been revoked.” Applied as the governing provision on stipulations pour autrui. The Court interpreted “any stipulation” to require a deliberate conferral of benefit, not an incidental one.

• Article 1827, Civil Code — “Security is not presumed; it must be express and cannot be extended further than that specified therein.” Applied to reinforce strict construction of the bond and to reject the implication that the sureties undertook liability to materialmen absent express language.

• Article 1258, Civil Code — Contracts are perfected by mere consent and are binding “not only with regard to the fulfillment of what has been expressly stipulated, but also with regard to all the consequences which, according to their character, are in accordance with good faith, use, and law.” Cited to distinguish between express stipulations (from which third-party rights may arise) and other obligations flowing from the contract, and to support the rule that third-party rights are limited to what is expressly stipulated.

• Articles 1111 and 1597, Civil Code — Referenced as possible legal grounds for the city’s insertion of the protective clause—Art. 1111 grants creditors the rights and actions of their insolvent debtor, and Art. 1597 gives materialmen and laborers a right of action against the owner for sums remaining due to the contractor. The Court suggested these provisions gave the city reason to protect itself against claims.

Arellano, C.J., Torres, Carson, and Araullo, JJ., concurred.

• Moreland, J., concurred in a separate opinion. He emphasized that the bond was not susceptible of the construction urged by plaintiffs because it would “seriously affect the interests of the city of Manila,” and it could not be inferred that city officials would accept a bond that might, by its very terms, deprive the city of all protection thereunder.

• Johnson, J., dissented without a written opinion. No specific grounds appear on record.