Case Summary (G.R. No. 85419)
Factual Background
The Development Bank of Rizal extended a loan to Sima Wei evidenced by a promissory note for P1,820,000.00 with interest at 32% per annum. Sima Wei made partial payments and allegedly left a balance of P1,032,450.02. On November 18, 1983, she purportedly issued two crossed checks drawn on the China Banking Corporation, made payable to the Development Bank of Rizal, in the amounts of P550,000.00 and P500,000.00 as full settlement of her indebtedness. The checks were not delivered to the petitioner or to any of its authorized representatives. The checks came into the possession of Lee Kian Huat, who deposited them without the payee’s indorsement to the account of Asian Industrial Plastic Corporation at the Balintawak branch of Producers Bank of the Philippines. Mary Cheng Uy, Branch Manager of the Balintawak branch, accepted the deposit on the assurance of Samson Tung, President of Asian Industrial Plastic Corporation, despite the checks being crossed, payable to the Development Bank of Rizal, and lacking its indorsement.
Trial Court Proceedings
The Development Bank of Rizal sued on two causes of action: enforcement of the promissory note against Sima Wei, and enforcement of the two checks against the drawer and alternative defendants. All defendants except Lee Kian Huat filed Motions to Dismiss on the ground that the complaint stated no cause of action. The trial court granted the Motions to Dismiss. The Court of Appeals affirmed the dismissal. The petitioner, represented by its Legal Liquidator, sought review in the Supreme Court, assigning two errors: that the Court of Appeals erred in holding that the petitioner had no cause of action against the respondents, and that the Court of Appeals erred in finding that Section 13, Rule 3 of the Revised Rules of Court was not applicable.
Issue Presented
The principal issue was whether the Development Bank of Rizal had a lawful cause of action against any or all of the respondents, either in the alternative or otherwise, arising from the two crossed checks and from the promissory note.
Legal Principles Governing Negotiable Instruments and Delivery
The Court reviewed the elements of a cause of action as an act or omission that violates a plaintiff’s legal right, namely the plaintiff’s legal right, the correlative obligation of the defendant, and the defendant’s act or omission in violation of that right. The Court reiterated that a check is a negotiable instrument and a species of property, and that under the Negotiable Instruments Law every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. The Court relied on authorities holding that delivery is the transfer of possession, actual or constructive, and that a payee acquires no interest in a negotiable instrument until delivery intended to give effect to the instrument. The Court cited decisions and authorities to the foregoing effect, including Casenas vs. Rosales, Remitere vs. Vda. de Yulo, and the definitions in the Negotiable Instruments Law.
Court’s Analysis of the Checks and the Absence of Delivery
Applying these principles, the Court found that the complaint itself alleged non-delivery of the two China Bank checks to the Development Bank of Rizal. Because the checks were not delivered to the payee, the payee acquired no right or interest in them. Consequently, the Development Bank of Rizal had no privity with the other respondents with respect to those checks. Acts by Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation, or Producers Bank of the Philippines concerning the checks could not have prejudiced the petitioner because it possessed no right in the checks that could be violated. The Court therefore held that the petitioner stated no cause of action against those respondents grounded on the two checks.
Procedural Restriction on Changing the Theory of the Case
The Court observed that on appeal to the Court of Appeals the petitioner attempted to rely on a different theory, alleging quasi-delict and claiming damages for fraudulent acts and bad faith by the alternative respondents. The Court held that such an attempt effectively sought to change the basis of the cause of action on appeal, which is prohibited because it would deprive the opposing parties of their day in court. The Court cited Ganzon vs. Court of Appeals and related authorities to support the rule that a party may not alter the theory of the case on appeal.
Court’s Analysis of Liability on the Promissory Note
The Court ruled that the lack of delivery of the checks did not relieve Sima Wei from liability on the promissory note. The Court stated that delivery of checks in payment of an obligation does not constitute payment unless the checks are cashed or their value is impaired through the fault of the creditor, as provided in C
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Case Syllabus (G.R. No. 85419)
Parties and Procedural Posture
- Development Bank of Rizal filed a complaint on July 6, 1986 as plaintiff-petitioner against several defendants-respondents on two causes of action.
- Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation, and Producers Bank of the Philippines were named as defendants-respondents.
- The first cause of action sought enforcement of a promissory note and the second sought enforcement of two checks alleged to be payment therefor.
- All defendants except Lee Kian Huat filed separate Motions to Dismiss claiming the complaint stated no cause of action, and the trial court granted those motions.
- The Court of Appeals affirmed the dismissal, and the petitioner, through its Legal Liquidator, filed a Petition for Review by Certiorari to the Supreme Court assigning two errors.
Key Factual Allegations
- Sima Wei executed a promissory note dated June 9, 1983 for P1,820,000.00 payable on or before June 24, 1983 with interest at 32% per annum.
- Sima Wei made partial payments and allegedly owed a remaining balance of P1,032,450.02.
- On November 18, 1983, Sima Wei allegedly issued two crossed checks payable to Development Bank of Rizal, bearing numbers 384934 for P550,000.00 and 384935 for P500,000.00, drawn on China Banking Corporation.
- The two checks were not delivered to Development Bank of Rizal or any of its authorized representatives.
- The checks came into the possession of Lee Kian Huat, who deposited them without the indorsement of Development Bank of Rizal into the account of Asian Industrial Plastic Corporation at the Balintawak branch of Producers Bank of the Philippines.
- Mary Cheng Uy, Branch Manager of the Balintawak branch, acted on the assurance of Samson Tung, President of Asian Industrial Plastic Corporation, and instructed acceptance and crediting of the checks despite their being crossed and payable to Development Bank of Rizal and lacking its indorsement.
- Development Bank of Rizal alleged the two checks were issued in full settlement of the promissory note balance.
Issues Presented
- Whether Development Bank of Rizal had any cause of action against any or all defendants, whether in the alternative or otherwise.
- Whether Section 13, Rule 3 of the Rules of Court on alternative defendants applied to the defendants in this case.
- Whether Sima Wei was discharged from liability on the promissory note by issuance of the two checks.
Statutory Framework
- Negotiable Instruments Law, Sec. 16 provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
- Negotiable Instruments Law, Sec. 191, par. 6 defines delivery as transfer of possession, actual or constructive.
- Civil Code, Art. 1249, par. 2 establishes that payment by a check does not constitute payment unless the check is cashed or its value is impaired through the fault of the creditor.
- Section 13, Rule 3 of the Rules of Court governs the joinder of alternative defendants in an action.
- Precedents cited included Casenas vs. Rosales, et al., Remitere, et al. vs. Vda. de Yulo, et al., In re Martens' Estate, and Shriver vs. Danby for principles on delivery and negotiable instruments.