G.R. No.

85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-Petitioner, vs. SIMA WEI and/or

Yngson & Associates for petitioner.chanrobles virtual law library

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic
Corporation.chanrobles virtual law library

Eduardo G. Castelo for Sima Wei.chanrobles virtual law library

Monsod, Tamargo & Associates for Producers Bank.chanrobles virtual law

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a
complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary
Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for
short) and the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed

(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and
drawn against the China Banking Corporation, to pay the balance due on the promissory
note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a
common ground that the complaint states no cause of action. The trial court granted the
defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which
the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by
Certiorari, assigning the following as the alleged errors of the Court of Appeals: 1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-

(2) 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 HEREIN DEFENDANTS-RESPONDENTS.

The antecedent facts of this case are as follows:chanrobles virtual law library

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the petitioner
Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at
32% per annum. Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to
petitioner Bank drawn against China Banking Corporation, bearing respectively the serial
numbers 384934, for the amount of P550,000.00 and 384935, for the amount of
P500,000.00. The said checks were allegedly issued in full settlement of the drawer's
account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. For reasons not shown, these
checks came into the possession of respondent Lee Kian Huat, who deposited the checks
without the petitioner-payee's indorsement (forged or otherwise) to the account of
respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the
Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers
Bank, relying on the assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular, instructed the cashier of Producers
Bank to accept the checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as
aforestated.chanroblesvirtualawlibrarychanrobles virtual law library

The main issue before Us is whether petitioner Bank has a cause of action against any or
all of the defendants, in the alternative or otherwise.chanroblesvirtualawlibrarychanrobles
virtual law library

A cause of action is defined as an act or omission of one party in violation of the legal
right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2)
correlative obligation of the defendant; and (3) an act or omission of the defendant in
violation of said legal right. 2chanrobles virtual law library

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have
long recognized the business custom of using printed checks where blanks are provided
for the date of issuance, the name of the payee, the amount payable and the drawer's
signature. All the drawer has to do when he wishes to issue a check is to properly fill up
the blanks and sign it. However, the mere fact that he has done these does not give rise to
any liability on his part, until and unless the check is delivered to the payee or his
representative. A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. Just as a deed to a piece of
land must be delivered in order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides
in part:

Every contract on a negotiable instrument is incomplete and revocable until delivery of

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until
its delivery to him. 3 Delivery of an instrument means transfer of possession, actual or
constructive, from one person to another. 4 Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability on the instrument. Moreover, such
delivery must be intended to give effect to the
instrument.chanroblesvirtualawlibrarychanrobles virtual law library

The allegations of the petitioner in the original complaint show that the two (2) China
Bank checks, numbered 384934 and 384935, were not delivered to the payee, the
petitioner herein. Without the delivery of said checks to petitioner-payee, the former did
not acquire any right or interest therein and cannot therefore assert any cause of action,
founded on said checks, whether against the drawer Sima Wei or against the Producers
Bank or any of the other respondents.chanroblesvirtualawlibrarychanrobles virtual law
library

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the
promissory note, and the alternative defendants, including Sima Wei, on the two checks.
On appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank
alleged that its cause of action was not based on collecting the sum of money evidenced
by the negotiable instruments stated but on quasi-delict - a claim for damages on the
ground of fraudulent acts and evident bad faith of the alternative respondents. This was
clearly an attempt by the petitioner Bank to change not only the theory of its case but the
basis of his cause of action. It is well-settled that a party cannot change his theory on
appeal, as this would in effect deprive the other party of his day in court. 5chanrobles
virtual law library

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is
freed from liability to petitioner Bank under the loan evidenced by the promissory note
agreed to by her. Her allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have earlier explained, these
checks were never delivered to petitioner Bank. And even granting, without admitting,
that there was delivery to petitioner Bank, the delivery of checks in payment of an
obligation does not constitute payment unless they are cashed or their value is impaired
through the fault of the creditor. 6 None of these exceptions were alleged by respondent
Sima Wei.chanroblesvirtualawlibrarychanrobles virtual law library

Therefore, unless respondent Sima Wei proves that she has been relieved from liability on
the promissory note by some other cause, petitioner Bank has a right of action against her
for the balance due thereon.chanroblesvirtualawlibrarychanrobles virtual law library

However, insofar as the other respondents are concerned, petitioner Bank has no privity
with them. Since petitioner Bank never received the checks on which it based its action
against said respondents, it never owned them (the checks) nor did it acquire any interest
therein. Thus, anything which the respondents may have done with respect to said checks
could not have prejudiced petitioner Bank. It had no right or interest in the checks which
could have been violated by said respondents. Petitioner Bank has therefore no cause of
action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei,
the drawer, who would have a cause of action against her
co-respondents, if the allegations in the complaint are found to be
true.chanroblesvirtualawlibrarychanrobles virtual law library

With respect to the second assignment of error raised by petitioner Bank regarding the
applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to
discuss the same in view of Our finding that the petitioner Bank did not acquire any right
or interest in the checks due to lack of delivery. It therefore has no cause of action against
the respondents, in the alternative or otherwise.chanroblesvirtualawlibrarychanrobles
virtual law library

In the light of the foregoing, the judgment of the Court of Appeals dismissing the
petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned.
On the first cause of action, the case is REMANDED to the trial court for a trial on the
merits, consistent with this decision, in order to determine whether respondent Sima Wei
is liable to the Development Bank of Rizal for any amount under the promissory note
allegedly signed by her.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.