3.

Devt Bank of Rizal vs Sima Wei

FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to
pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two
crossed checks payable to petitioner Bank drawn against China Banking Corporation in full
settlement of the drawer's account evidenced by the promissory note. These two checks however
were not delivered to the petitioner-payee or to any of its authorized representatives but instead
came into the possession of respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers
Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the
checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:
No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the NIL provides that 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. Without the initial delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for
the balance due on the promissory note.