Kauffman vs.

PNB
G. R. No. 16454. September 29, 1921

Facts:
On February 5, 1918, the board of directors of Philippine Fiber and Produce Company
(PFPC), declared a dividend of P100,000 from its surplus earnings for the year 1917 where George
A. Kauffman was entitled to the sum of P98,000.
On October 9, 1918, George B. Wicks, treasurer of PFPC, presented himself in the exchange
department of the PNB in Manila and requested that a telegraphic transfer of $45,000 should be
made to Kauffman in New York City, upon account of the PFPC. Accordingly, Wicks drew and
delivered a check in the amount P90,355.50 on the PNB; and the same was accepted by the bank
as evidenced by a document made out and delivered to Wicks in the following language:

"October 9th, 1918

"Manila, P. I. Stamp P18.

"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,

On the same day the PNB 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, PNB in New York sent a reply suggesting the
advisability of withholding this money from Kauffman, in view of his reluctance to accept certain
bills of the PFPC. The PNB acquiesced and dispatched to its New York agency another message to
withhold the Kauffman payment as suggested.

Meanwhile, Wicks cabled to Kauffman in New York, advising him that $45,000 had been
placed to his credit in the New York agency of the PNB. Thus, Kauffman presented himself and
demanded the money, however, PNB refused payment. Consequently, Kauffman instituted this
action to recover said sum with CFI of Manila where the court ruled in his favor. Hence, this appeal
averring that 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.

Issues:
(1) Whether or not Kauffman has the right of action under the Negotiable Instrument Law?
(2) Whether or not the cablegram transmitted by PNB to its NYC Branch is negotiable.
(3) Whether or not the contract between Philippine Fiber and Produce Company (PFPC) and
PNB is in favor of a third party, Kauffman.
(4) Whether or not Kauffman has a cause of action against PNB for non-performance.
(5) Whether or not cable transfers create trust relationship.

Held:
 (1) No. The reason for this is that before the Negotiable Instruments Law can come into
operation there must be a document in existence of the character described in section 1 of that
Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In this
case, 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.

(2) No. The order 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.

(3) Yes. If a third person claims an enforceable interest in the contract, the question must be
settled by determining whether the contracting parties desired to tender him such an interest. The
right of Kauffman 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.

(4) Yes. Art. 1257, par. 2, Civil Code provides: “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.”
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 have been
prejudiced by that 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.

(5) No. In the case of Legniti vs. Mechanics, etc. Bank (130 N. E. Rep., 597), 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
transactions are matters of purchase and sale create no trust relationship.
National Bank vs. Manila Oil Refining & By-Products Company, Inc.
G.R. No.18103. June 8, 1922

FACTS:
On May 8, 1920, the manager and the treasurer of the defendant MORBCI, executed and
delivered to the PNB, a written instrument reading as follows:

"RENEWAL.
"P61,000.00
"MANILA, P. I., May 8,1920.
"On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand
only pesos at Philippine National Bank, Manila, P. I. "Without defalcation, value received; and do hereby
authorize any attorney in the Philippine Islands, in case this note be not paid at maturity, to appear in my
name and confess judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per
cent for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit
of all laws exempting property, real or personal, from levy or sale. Value received. No. Due
"MANILA OIL REFINING & BY-PRODUCTS Co., INC.,
(Sgd.) "VlCENTE SOTELO,
"Manager.
"MANILA OIL REFINING & BY-PRODUCTS Co., INC.,
(Sgd.) "RAFAEL LOPEZ,
"Treasurer."

The MORBCI failed to pay the promissory note on demand. The PNB brought action in the
CFI of Manila the amount of the note, with interest and costs. Mr. Elias N. Recto, an attorney
associated with the PNB, entered his appearance for the defendant, and filed a motion confessing
judgment. The defendant objected strongly to the unsolicited representation of Attorney Recto.
Later, Attorney Antonio Gonzalez appeared for the defendant and filed a demurrer, and when this
was overruled, presented an answer. The trial judge rendered judgment on the motion of Attorney
Recto in the terms of the complaint.

Issues:
1. Whether or not the Negotiable Instruments Law expressly recognizes judgment notes as
enforceable under the regular procedure.
2. Whether or not the invalidity of a stipulation would affect the negotiability of an instrument.
3. Whether or not provisions in notes authorizing attorneys to appear and confess judgments
against makers are recognized in Philippine Jurisdiction by implication.
4. Whether or not the promissory note in question is valid.
5. Whether or not warrants of attorney to confess judgment is valid.

Held:
1. No. The Negotiable Instruments Law, in section 5, provides that “the negotiable character of
an instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of
judgment if the instrument be not paid at maturity”; but this provision of law cannot be taken to
sanction judgments by confession, because it is a portion of uniform law which merely provides
that, in jurisdictions where judgments notes are recognized, such clauses shall not affect the
negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments
Law concludes with these words: “But nothing in this section shall validate any provision or
stipulation otherwise illegal”.

2. No. Section 5 (b) of the Negotiable Instrument providing that the negotiable character of an
instrument otherwise negotiable is not affected by a provision which authorizes a confession of
judgment if the instrument be not paid at maturity, cannot be taken to sanction judgment by
confession. Warrants attorney to confess judgment are not authorized nor contemplated by our law.
 3. No. In the absence of express legislative sanction, provisions in notes authorizing attorneys
to appear and confess judgments against makers should not be recognized in this jurisdiction by
implication.

4. No. The promissory note in question is not a negotiable instrument. Warrants of attorney to
confess judgment are not authorized nor contemplated by our law. Provisions I noted authorizing
attorneys to appear and confess judgments against makers should not be recognized in this
jurisdiction by implication and should only be considered as valid when given express legislative
sanction. Although the Negotiable Instruments Law mentions of the validity of the promissory note
despite the presence of a provision of a confession of judgment, the court points out the conclusion
of the article: “But nothing in this section shall validate any provision or stipulation otherwise illegal”.
If confessions of judgment were allowed, the debtor will be deprived of his right to be heard.
Moreover, it is not the policy of the law to place a debtor in the absolute power of his creditor. The
field for fraud is too far enlarged by such an instrument.

5. No. In the absence of statute, there is a conflict of authority as to validity of a warrant of