Development Bank of Rizal v. Sima Wei
REITERATIONFacts
The Antecedents: The Development Bank of Rizal (DBR) filed a complaint for a sum of money against Sima Wei, Lee Kian Huat, Mary Cheng Uy, Asian Industrial Plastic Corporation (Plastic Corporation), and Producers Bank of the Philippines. The complaint had two causes of action: (1) to enforce payment of the balance of P1,032,450.02 on a promissory note executed by Sima Wei on June 9, 1983; and (2) to enforce payment of two checks executed by Sima Wei, payable to DBR, drawn against China Banking Corporation, to pay the balance due on the promissory note. Sima Wei executed a promissory note for P1,820,000.00 with interest at 32% per annum, and made partial payments, leaving a balance. Sima Wei issued two crossed checks, totaling P1,050,000.00, allegedly in full settlement of the promissory note. These checks were not delivered to DBR but came into the possession of Lee Kian Huat, who deposited them, without DBR's indorsement, to the account of Plastic Corporation at Producers Bank. The branch manager of Producers Bank accepted the deposit despite the checks being crossed and payable to DBR and lacking DBR's indorsement, relying on the assurance of Samson Tung, President of Plastic Corporation. Procedural History: Defendants filed Motions to Dismiss, alleging no cause of action. The trial court granted these motions, and the Court of Appeals affirmed the decision. The Petition: DBR filed a Petition for Review by Certiorari, assigning as errors the Court of Appeals' holding that DBR had no cause of action and that Section 13, Rule 3 of the Revised Rules of Court on alternative defendants was not applicable.
Issue(s)
Whether the Court of Appeals erred in holding that the plaintiff-petitioner has no cause of action against the defendants-respondents regarding the checks and the promissory note. Whether the Court of Appeals erred in holding that Section 13, Rule 3 of the Revised Rules of Court on alternative defendants is not applicable to the defendants-respondents, given the lack of cause of action on the checks.
Ruling
The Supreme Court affirmed the Court of Appeals' judgment dismissing the petitioner's complaint insofar as the second cause of action (based on the checks) is concerned. On the first cause of action (based on the promissory note), the case was remanded to the trial court for trial on the merits to determine Sima Wei's liability under the promissory note.
Ratio Decidendi
On the issue of cause of action based on the checks and promissory note: The Court held that for a negotiable instrument, such as a check, to be binding, it must be delivered to the payee. Section 16 of the Negotiable Instruments Law provides that every contract on a negotiable instrument is incomplete and revocable until delivery for the purpose of giving effect thereto. The petitioner's allegations showed that the two checks were never delivered to DBR, the payee. Without delivery, DBR did not acquire any right or interest in the checks and therefore could not assert any cause of action founded on them against any of the respondents. However, the dismissal of the second cause of action did not necessarily free Sima Wei from liability under the promissory note. Her claim that she paid the balance with the two checks was without merit because the checks were never delivered to DBR. Furthermore, even if delivery were assumed, payment by checks does not constitute payment unless they are cashed or their value is impaired through the creditor's fault, neither of which was alleged. Therefore, unless Sima Wei could prove she was relieved from liability by some other cause, DBR had a right of action against her for the balance due on the promissory note. The case was remanded to the trial court for a determination of this liability. The Court also noted that DBR's attempt to shift its theory of the case on appeal to one of quasi-delict for fraudulent acts and bad faith was impermissible, as a party cannot change its theory on appeal. On the applicability of Section 13, Rule 3 of the Rules of Court: In view of the finding that DBR had no cause of action on the checks due to lack of delivery, the Court found it unnecessary to discuss the applicability of Section 13, Rule 3, which deals with alternative defendants. The core issue was the absence of a cause of action on the instrument itself, rendering the procedural rule on alternative defendants moot in this context.
Main Doctrine
Delivery of a negotiable instrument to the payee is essential for the payee to acquire any right or interest therein and to assert a cause of action founded on said instrument. A party cannot change its theory of the case on appeal.