Republic of the Philippines judgment for the above sum with interest, cost of suit and
SUPREME COURT attorney's fees of ten (10) per cent for collection, a release of
Manila
EN BANC
G.R. No. L-18103 June 8, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-
appellant.
Antonio Gonzalez for appellant.
Roman J. Lacson for appellee.
Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc
Donough and Johnson; Julian Wolfson; Ross and Lawrence; Francis B.
Mahoney, and Jose A. Espiritu, amici curiae.
MALCOLM, J.:
The question of first impression raised in this case concerns the validity in
this jurisdiction of a provision in a promissory note whereby in case the same
is not paid at maturity, the maker authorizes any attorney to appear and
confess judgment thereon for the principal amount, with interest, costs, and
attorney's fees, and waives all errors, rights to inquisition, and appeal, and all
property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining &
By-Products Company, Inc., executed and delivered to the Philippine
National Bank, a written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the
Philippine National Bank sixty-one thousand only pesos at
Philippine National Bank, Manila, P.I.
Without defalcation, value received; and to hereby authorize
any attorney in the Philippine Islands, in case this note be
not paid at maturity, to appear in my name and confess
all errors and waiver of all rights to inquisition and appeal,
and to the benefit of all laws exempting property, real or
personal, from levy or sale. Value received. No. ____ Due
____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) RAFAEL LOPEZ,
Treasurer
The Manila Oil Refining and By-Products Company, Inc. failed to pay the
promissory note on demand. The Philippine National Bank brought action in
the Court of First Instance of Manila, to recover P61,000, the amount of the
note, together with interest and costs. Mr. Elias N. Rector, an attorney
associated with the Philippine National Bank, entered his appearance in
representation of the defendant, and filed a motion confessing judgment. The
defendant, however, in a sworn declaration, objected strongly to the
unsolicited representation of attorney Recto. Later, attorney Antonio
Gonzalez appeared for the defendant and filed a demurrer, and when this
was overruled, presented an answer. The trial judge rendered judgment on
the motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise
squarely the question which was suggested in the beginning of this opinion.
In view of the importance of the subject to the business community, the
advice of prominent attorneys-at-law with banking connections, was solicited.
These members of the bar responded promptly to the request of the court,
and their memoranda have proved highly useful in the solution of the
question. It is to the credit of the bar that although the sanction of judgement
notes in the Philippines might prove of immediate value to clients, every one
of the attorneys has looked upon the matter in a big way, with the result that
out of their independent investigations has come a practically unanimous
protest against the recognition in this jurisdiction of judgment notes.1
Neither the Code of Civil Procedure nor any other remedial statute expressly
or tacitly recognizes a confession of judgment commonly called a judgment
note. On the contrary, the provisions of the Code of Civil Procedure, in
relation to constitutional safeguards relating to the right to take a man's
property only after a day in court and after due process of law, contemplate
that all defendants shall have an opportunity to be heard. Further, the
provisions of the Code of Civil Procedure pertaining to counter claims argue
against judgment notes, especially as the Code provides that in case the
defendant or his assignee omits to set up a counterclaim, he cannot
afterwards maintain an action against the plaintiff therefor. (Secs. 95, 96, 97.)
At least one provision of the substantive law, namely, that the validity and
fulfillment of contracts cannot be left to the will of one of the contracting
parties (Civil Code, art. 1356), constitutes another indication of fundamental
legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law
(Act No. 2031) expressly recognizes judgment notes, and that they are
enforcible under the regular procedure. The Negotiable Instruments Law, in
section 5, provides that "The negotiable character of an instrument otherwise
negotiable is not affected by a provision which ". . . (b) Authorizes a
confession of judgment if the instrument be not paid at maturity." We do not
believe, however, that this provision of law can be taken to sanction
judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdiction where judgment notes are recognized,
such clauses shall not affect the negotiable character of the instrument.
Moreover, the same section of the Negotiable Instruments. Law concludes
with these words: "But nothing in this section shall validate any provision or
stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the
absence of statute of a provision in a note authorizing an attorney to appear
and confess judgment against the maker. This situation, in reality, has its
advantages for it permits us to reach that solution which is best grounded in
the solid principles of the law, and which will best advance the public interest.
The practice of entering judgments in debt on warrants of attorney is of
ancient origin. In the course of time a warrant of attorney to confess
judgement became a familiar common law security. At common law, there
were two kinds of judgments by confession; the one a judgment by cognovit
actionem, and the other by confession relicta verificatione. A number of
jurisdictions in the United States have accepted the common law view of
judgments by confession, while still other jurisdictions have refused to
sanction them. In some States, statutes have been passed which have either
expressly authorized confession of judgment on warrant of attorney, without
antecedent process, or have forbidden judgments of this character. In the
absence of statute, there is a conflict of authority as to the validity of a
warrant of attorney for the confession of judgement. The weight of opinion is
that, unless authorized by statute, warrants of attorney to confess judgment
are void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas
City vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132
Am. St. Rep., 612). The record in this case discloses that on October 4,
1990, the defendant executed and delivered to the plaintiff an obligation in
which the defendant authorized any attorney-at-law to appear for him in an
action on the note at any time after the note became due in any court of
record in the State of Missouri, or elsewhere, to waive the issuing and
service of process, and to confess judgement in favor of the First National
Bank of Kansas City for the amount that might then be due thereon, with
interest at the rate therein mentioned and the costs of suit, together with an
attorney's fee of 10 per cent and also to waive and release all errors in said
proceedings and judgment, and all proceedings, appeals, or writs of error
thereon. Plaintiff filed a petition in the Circuit Court to which was attached the
above-mentioned instrument. An attorney named Denham appeared
pursuant to the authority given by the note sued on, entered the appearance
of the defendant, and consented that judgement be rendered in favor of the
plaintiff as prayed in the petition. After the Circuit Court had entered a
judgement, the defendants, through counsel, appeared specially and filed a
motion to set it aside. The Supreme Court of Missouri, speaking through Mr.
Justice Graves, in part said:
But going beyond the mere technical question in our preceding
paragraph discussed, we come to a question urged which goes to
the very root of this case, and whilst new and novel in this state, we
do not feel that the case should be disposed of without discussing
and passing upon that question.
xxx xxx xxx
And if this instrument be considered as security for a debt, as it was
by the common law, it has never so found recognition in this state.
The policy of our law has been against such hidden securities for
debt. Our Recorder's Act is such that instruments intended as
security for debt should find a place in the public records, and if not,
they have often been viewed with suspicion, and their bona fides
often questioned.
Nor do we thing that the policy of our law is such as to thus place a
debtor in the absolute power of his creditor. The field for fraud is too
far enlarged by such an instrument. Oppression and tyranny would
follow the footsteps of such a diversion in the way of security for
debt. Such instruments procured by duress could shortly be placed in
judgment in a foreign court and much distress result therefrom.
Again, under the law the right to appeal to this court or some other
appellate court is granted to all persons against whom an adverse
judgment is rendered, and this statutory right is by the instrument
stricken down. True it is that such right is not claimed in this case,
but it is a part of the bond and we hardly know why this pound of
flesh has not been demanded. Courts guard with jealous eye any
contract innovations upon their jurisdiction. The instrument before us,
considered in the light of a contract, actually reduces the courts to
mere clerks to enter and record the judgment called for therein. By
our statute (Rev. St. 1899, sec. 645) a party to a written instrument of
this character has the right to show a failure of consideration, but this
right is brushed to the wind by this instrument and the jurisdiction of
the court to hear that controversy is by the whose object is to oust
the jurisdiction of the courts are contrary to public policy and will not
be enforced. Thus it is held that any stipulation between parties to a
contract distinguishing between the different courts of the country is
contrary to public policy. The principle has also been applied to a
stipulation in a contract that a party who breaks it may not be sued,
to an agreement designating a person to be sued for its breach who
is nowise liable and prohibiting action against any but him, to a
provision in a lease that the landlord shall have the right to take
immediate judgment against the tenant in case of a default on his
part, without giving the notice and demand for possession and filing
the complaint required by statute, to a by-law of a benefit association
that the decisions of its officers on claim shall be final and
conclusive, and to many other agreements of a similar tendency. In
some courts, any agreement as to the time for suing different from
time allowed by the statute of limitations within which suit shall be
brought or the right to sue be barred is held void.
xxx xxx xxx
We shall not pursue this question further. This contract, in so far as it
goes beyond the usual provisions of a note, is void as against the
public policy of the state, as such public policy is found expressed in
our laws and decisions. Such agreements are iniquitous to the
uttermost and should be promptly condemned by the courts, until
such time as they may receive express statutory recognition, as they
have in some states.
xxx xxx xxx
From what has been said, it follows that the Circuit Court never had
jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40
L.R.A. [N. S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another well-
considered authority. The notes referred to in the record contained waiver of
presentment and protest, homestead and exemption rights real and personal,
and other rights, and also the following material provision: "And we do hereby
empower and authorize the said A. B. Farquhar Co. Limited, or agent, or any
prothonotary or attorney of any Court of Record to appear for us and in our
name to confess judgement against us and in favor of said A. B. Farquhar
Co., Limited, for the above named sum with costs of suit and release of all
errors and without stay of execution after the maturity of this note." The
Supreme Court of West Virginia, on consideration of the validity of the
judgment note above described, speaking through Mr. Justice Miller, in part
said:
As both sides agree the question presented is one of first impression
in this State. We have no statutes, as has Pennsylvania and many
other states, regulating the subject. In the decision we are called
upon to render, we must have recourse to the rules and principles of
the common law, in force here, and to our statute law, applicable,
and to such judicial decisions and practices in Virginia, in force at the
time of the separation, as are properly binding on us. It is pertinent to
remark in this connection, that after nearly fifty years of judicial
history this question, strong evidence, we think, that such notes, if at
all, have never been in very general use in this commonwealth. And
in most states where they are current the use of them has grown up
under statutes authorizing them, and regulating the practice of
employing them in commercial transactions.
xxx xxx xxx
It is contended, however, that the old legal maxim, qui facit per alium,
facit per se, is as applicable here as in other cases. We do not think
so. Strong reasons exist, as we have shown, for denying its
application, when holders of contracts of this character seek the aid
of the courts and of their execution process to enforce them,
defendant having had no day in court or opportunity to be heard. We
need not say in this case that a debtor may not, by proper power of
attorney duly executed, authorize another to appear in court, and by
proper endorsement upon the writ waive service of process, and
confess judgement. But we do not wish to be understood as
approving or intending to countenance the practice employing in this
state commercial paper of the character here involved. Such paper
has heretofore had little if any currency here. If the practice is
adopted into this state it ought to be, we think, by act of the
Legislature, with all proper safeguards thrown around it, to prevent
fraud and imposition. The policy of our law is, that no man shall
 suffer judgment at the hands of our courts without proper process
and a day to be heard. To give currency to such paper by judicial
pronouncement would be to open the door to fraud and imposition,
and to subject the people to wrongs and injuries not heretofore
contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is
First National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The
Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are
condemned as being against public policy. (Farquhar and Co. vs.
Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann.
Cas. [1914 A]. 640, and First National Bank of Kansas City vs. White,
220 Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas.,
889, are examples of such holding.) By just what course of reasoning
it can be said by the courts that such judgments are against public
policy we are unable to understand. It was a practice from time
immemorial at common law, and the common law comes down to us
sanctioned as justified by the reason and experience of English-
speaking peoples. If conditions have arisen in this country which
make the application of the common law undesirable, it is for the
Legislature to so announce, and to prohibit the taking of judgments
can be declared as against the public policy of the state. We are
aware that the argument against them is that they enable the
unconscionable creditor to take advantage of the necessities of the
poor debtor and cut him off from his ordinary day in court. On the
other hand, it may be said in their favor that it frequently enables a
debtor to obtain money which he could by no possibility otherwise
obtain. It strengthens his credit, and may be most highly beneficial to
him at times. In some of the states there judgments have been
condemned by statute and of course in that case are not allowed.
Our conclusion in this case is that a warrant of attorney given as
security to a creditor accompanying a promissory note confers a
valid power, and authorizes a confession of judgment in any court of
competent jurisdiction in an action to be brought upon said note; that
our cognovit statute does not cover the same field as that occupied
by the common-law practice of taking judgments upon warrant of
attorney, and does not impliedly or otherwise abrogate such practice;
and that the practice of taking judgments upon warrants of attorney
as it was pursued in this case is not against any public policy of the
state, as declared by its laws.
With reference to the conclusiveness of the decisions here mentioned, it may
be said that they are based on the practice of the English-American common
law, and that the doctrines of the common law are binding upon Philippine
courts only in so far as they are founded on sound principles applicable to
local conditions.
Judgments by confession as appeared at common law were considered an
amicable, easy, and cheap way to settle and secure debts. They are a quick
remedy and serve to save the court's time. They also save the time and
money of the litigants and the government the expenses that a long litigation
entails. In one sense, instruments of this character may be considered as
special agreements, with power to enter up judgments on them, binding the
parties to the result as they themselves viewed it.
On the other hand, are disadvantages to the commercial world which
outweigh the considerations just mentioned. Such warrants of attorney are
void as against public policy, because they enlarge the field for fraud,
because under these instruments the promissor bargains away his right to a
day in court, and because the effect of the instrument is to strike down the
right of appeal accorded by statute. The recognition of such a form of
obligation would bring about a complete reorganization of commercial
customs and practices, with reference to short-term obligations. It can readily
be seen that judgement notes, instead of resulting to the advantage of
commercial life in the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties thereto. If the bank has
a meritorious case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not
authorized nor contemplated by our law. We are further of the opinion that
provisions in notes authorizing attorneys to appear and confess judgments
against makers should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express legislative
sanction.
The judgment appealed from is set aside, and the case is remanded to the
lower court for further proceedings in accordance with this decision. Without
special finding as to costs in this instance, it is so ordered.
Araullo, C.J., Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ.,
concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 111190 June 27, 1995
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his
personal capacity as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and
RAUL H. SESBREÑO, respondents.
BELLOSILLO, J.:
RAUL H. SESBREÑO filed a complaint for damages against Assistant City
Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the
Regional Trial Court of Cebu City. After trial judgment was rendered ordering
the defendants to pay P11,000.00 to the plaintiff, private respondent herein.
The decision having become final and executory, on motion of the latter, the
trial court ordered its execution. This order was questioned by the defendants
before the Court of Appeals. However, on 15 January 1992 a writ of
execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto
D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto,
Jr., was then detailed. The notice directed petitioner not to disburse, transfer,
release or convey to any other person except to the deputy sheriff concerned
the salary checks or other checks, monies, or cash due or belonging to
Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent
filed a motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was
dismissed. Thus the trial court, finding no more legal obstacle to act on the
motion for examination of the garnishees, directed petitioner on 4 November
1992 to submit his report showing the amount of the garnished salaries of
Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration
the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner
to explain why he should not be cited in contempt of court for failing to
comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice
of garnishment claiming that he was not in possession of any money, funds,
credit, property or anything of value belonging to Mabanto, Jr., except his
salary and RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as such, they
were still public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner
to immediately comply with its order of 4 November 1992. 3 It opined that the
checks of Mabanto, Jr., had already been released through petitioner by the
Department of Justice duly signed by the officer concerned. Upon service of
the writ of garnishment, petitioner as custodian of the checks was under
obligation to hold them for the judgment creditor. Petitioner became a virtual
party to, or a forced intervenor in, the case and the trial court thereby
acquired jurisdiction to bind him to its orders and processes with a view to
the complete satisfaction of the judgment. Additionally, there was no
sufficient reason for petitioner to hold the checks because they were no
longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments
Law.
With regard to the contempt charge, the trial court was not morally convinced
of petitioner's guilt. For, while his explanation suffered from procedural
infirmities nevertheless he took pains in enlightening the court by sending a
written explanation dated 22 July 1992 requesting for the lifting of the notice
of garnishment on the ground that the notice should have been sent to the
Finance Officer of the Department of Justice. Petitioner insists that he had no
authority to segregate a portion of the salary of Mabanto, Jr. The explanation
however was not submitted to the trial court for action since the stenographic
reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court
explained that it was not the duty of the garnishee to inquire or judge for
himself whether the issuance of the order of execution, writ of execution and
notice of garnishment was justified. His only duty was to turn over the
garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the
hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter: and, (2) whether the salary check
of a government official or employee funded with public funds can be subject
to garnishment.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that petitioner
as garnishee has no legal obligation to hold and deliver them to the trial court
to be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that
the salary checks still formed part of public funds and therefore beyond the
reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a stranger to the
litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor"
since it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public
funds. He receives his compensation in the form of checks from the
Department of Justice through petitioner as City Fiscal of Mandaue City and
head of office. Under Sec. 16 of 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. As
ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee
and recognize him as the holder thereof.7
According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer concerned
through petitioner and upon service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At the same time
however it considered the checks as no longer government funds and
presumed delivered to the payee based on the last sentence of Sec. 16 of
the Negotiable Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed." Yet, the presumption is
not conclusive because the last portion of the provision says "until the
contrary is proved." However this phrase was deleted by the trial court for no
apparent reason. Proof to the contrary is its own finding that the checks were
in the custody of petitioner. Inasmuch as said checks had not yet been
delivered to Mabanto, Jr., they did not belong to him and still had the
character of public funds. In Tiro v. Hontanosas 8 we ruled that —
The salary check of a government officer or employee such
as a teacher does not belong to him before it is physically
delivered to him. Until that time the check belongs to the
government. Accordingly, before there is actual delivery of
the check, the payee has no power over it; he cannot assign
it without the consent of the Government.
As a necessary consequence of being public fund, the checks may not be
garnished to satisfy the judgment. 9 The rationale behind this doctrine is
obvious consideration of public policy. The Court succinctly stated
in Commissioner of Public Highways v. San Diego 10 that —
The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific
objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed
the additional ratiocination that it was not the duty of the garnishee to inquire
or judge for himself whether the issuance of the order of execution, the writ of
execution, and the notice of garnishment was justified, citing our ruling
in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our precise
ruling in that case was that "[I]t is not incumbent upon the garnishee to
inquire or to judge for itself whether or not the order for the advance
execution of a judgment is valid." But that is invoking only the general rule.
We have also established therein the compelling reasons, as exceptions
thereto, which were not taken into account by the trial court, e.g., a defect on
the face of the writ or actual knowledge by the garnishee of lack of
entitlement on the part of the garnisher. It is worth to note that the ruling
referred to the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was applicable to a
notice of garnishment as well. In the case at bench, it was incumbent upon
petitioner to inquire into the validity of the notice of garnishment as he had
actual knowledge of the non-entitlement of private respondent to the checks
in question. Consequently, we find no difficulty concluding that the trial court
exceeded its jurisdiction in issuing the notice of garnishment concerning the
salary checks of Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and
20 April 1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the
petition are SET ASIDE. The notice of garnishment served on petitioner
dated 3 February 1992 is ordered DISCHARGED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG,
ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK
OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic
Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
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 by respondent Sima Wei on
June 9, 1983; and
(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-PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTS-RESPONDENTS
HEREIN.
(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:
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.
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.
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.2
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 the instrument for the purpose of
giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him.3Delivery 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.
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.
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.5
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.
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.
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.
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.
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.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.