Development Bank of Rizal (DBR) v Wei (Kian Huat, Tung, Plastic Corp and Producers Bank)

1993
PONENTE
DIGEST BY Cocoy Licaros

TOPIC and Provisions: Incomplete Instruments
Section 15.Incomplete Instrument Not Delivered Where an incomplete instrument has not been delivered, it will not, if completed
and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed
thereon before delivery.

Facts:
DBR filed complaint for sum of money against Wei for the following:
o A promissory note upon a loan (Wei was able to make partial payments)
o 2 checks (supposedly to cover the entirety of the amount in the promissory note)
Respondents filed motion to dismiss for lack of cause of action
o Granted by the RTC and affirmed by the CA
It turns out that the checks never made it to the hands of DBR but instead were in the possession of Lee Kian Huat who deposited
the same without indoresement to the account of Plastic Corporation via Producers Bank (PB)
o Branch manager of PB, on the basis of assurance by Plastic Corp. credited the same to their account despite the fact that
the checks were crossed and payable to DBR

Issue: WON DBR has cause of action against any or all of the defendants?

Held: NO. Without delivery of said checks to the petitioner-payee, the former did not acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said checks, against the respondents.

Dispositive: 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.

Ratio:
A negotiable instrument, of which a check is, is not only a written evidence of a contract but is also a species of property. Just as a
deed to land must be delivered in order to convey title, so must a negotiable instrument be delivered to the payee to evidence its
existence as a binding contract.
o Thus a payee acquires no interest in the negotiable instrument until its delivery to him.
o Without delivery of the instrument from drawer to payee, there can be no liability on the instrument. Delivery must be
intended to give effect to the instrument
o As such, DBR has no cause of action against the respondents under the checks
However, Wei is not free from liability under the still unpaid promissory note
o Since the checks were never delivered, let alone encashed for value, there has been no payment of the outstanding
obligation.
o Barring a showing that either (1) the checks were received and encashed by DBR, or (2) they have been impaired by
DBRs fault, Wei is still liable to pay for the promissory note.