ELEMENTS OF NEGOTIABILITY

Kauffman v. PNB [G.R. No. 16454. September 29, 1921]

FACTS

Plaintiff, President of Philippine Fiber and Produce Company was entitled to dividend from the
said company. The treasurer of the company Cabled transfer the said dividends through
Respondent bank to New York, then upon the confirmation the New York branch of the receipt
of the funds, communicated the said receipt to the plaintiff informing the availability of the
fund. Subsequently, the respondent bank decided to withhold the said funds denying the
plaintiff of its access. The plaintiff questioned the action of the respondent in the court. The
respondent argued that the plaintiff has not cause of action because he is not a party in the
contract of transferring funds and the transaction will not fall under the provisions of the
Negotiable Instrument Law.

ISSUE

 Whether or not Kauffman has a right of action based on Negotiable Instruments Law.
 Whether the plaintiff has cause of action in with respect to the Negotiable Instrument
Law?
 WON plaintiff has a right over the money withhold.

RULING

 NO. Kauffman has no right of action based on Negotiable Instrument’s Law on the
ground that it can only come into operation if there is a document in existence of the
character described in Section 1 of the said Law, and rights properly speaking arise in
respect to said instrument until it is delivered. In this case, there was an order
transmitted by PNB to its New York branch, for the payment of a specified sum of money
to 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.
Kauffman, however, has remedy based on the Civil Code, particularly on stipulations
pour atrui.
 No, the plaintiff has no cause of action with respect only to the Negotiable Instrument
Law. The transaction of the Respondent and the Philippine Fiber and Produce Company
is not a negotiable Instrument. 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 this case 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.
 No. Provisions of the NIL 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. The order transmitted
by PNB to its NY branch, for the payment of a specified sum of money to the plaintiff was
not made payable “to order” or “to bearer”, as required in subsection (d) of that Act; and
inasmuch as it never left he possession of the bank, or its representative in NY, there was
no delivery in the sense intended in section 16 of the same Law. In connection, it is
unnecessary to point out that the official receipt delivered by the bank to the purchaser
of the telegraphic order cannot itself be viewed in the light of a negotiable instrument,
although it affords complete proof of the obligation actually assumed by the bank.