SUBJECT – Art.

1170
RCBC v. CA and FELIPE LUSTRE (1999)

Short version/ Summary: RCBC filed an action for replevin and damages against Felipe Lustre on the ground that he
defaulted in his payments of 3 PDCs issued for installment payments of a Toyota Corolla. The 4th PDC issued by
Lustre was recalled for signature. The subject check, however, was recalled only after the amount covered thereby
had been deducted from Lustre’s account. It was subsequently re-credited back to Lustre’s account for lack of
signature. RCBC did not notify Lustre until 16 months later when it wrote its demand letter to Lustre.

SC: Lustre cannot be held liable for damages. Article 1170 of the Civil Code states that those who in the
performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the
obligation, however, must be either malicious or negligent. ICAB, there is no imputation, much less evidence, that
Lustre acted with malice or negligence in failing to sign the check. Such omission was mere inadvertence on the
part of Lustre.

Facts:

Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. He made a down payment, and the balance
of the purchase price to be paid in 24 equal monthly installments. Lustre thus issued 24 postdated checks. The 1 st
was dated 10 April 1991, subsequent checks were dated every 10th of each succeeding month.

As security, Lustre executed a contract of chattel mortgage over the vehicle. Paragraph 11 thereof provided for an
acceleration clause stating that should the mortgagor default in the payment of any installment, the whole amount
remaining unpaid shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as
liquidated damages.

Toyota Shaw assigned all its rights and interests in the chattel mortgage to RCBC.

The first 22 PDCs were encashed and debited by RCBC from Lustre’s account, except the PDC dated 10 August 1991
(5th PDC out of 24 PDCs), which was unsigned. Previously, the amount of the 5th PDC was debited from Lustre’s
account but was later recalled and re-credited to Lustre’s account. Because of the recall, RCBC refused to encash
the last 2 PDCs (pursuant to RCBC policy). Lustre was not informed of RCBC’s actions.

On 21 January 1993, RCBC sent a demand letter to Lustre, demanding payment of balance of the debt (3
installment payments), including liquidated damages. Lustre refused. RCBC filed an action for replevin and
damages against Lustre. Lustre interposed a counterclaim for damages.

Procedure:
RTC: Dismissed RCBC’s complaint. Ordered RCBC to accept the payment equivalent to the 3 checks and to
release/cancel the mortgage on the car.
On the counterclaim, RCBC ordered to pay Lustre moral damages, exemplary damages and attorney’s fees.
CA: Affirmed RTC.

Issue/s: WON Lustre is liable for damages on the ground of delay in the performance of his obligation. NO.

Held/Ratio:
Assuming that Lustre was guilty of delay in payment of the value of the unsigned check, he cannot be held liable
for damages. Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty
of delay are liable for damages. The delay in the performance of the obligation, however, must be either
malicious or negligent. ICAB, there is no imputation, much less evidence, that Lustre acted with malice or
negligence in failing to sign the check. Such omission was mere inadvertence on the part of Lustre.

Toyota salesperson testified that he verified whether Lustre had signed all checks and in fact returned 3 or 4
unsigned checks to him for signing. Lustre signed these returned checks, and only then did the Toyota salesperon
release the car to Lustre.

SC noted that RCBC did not object to the unsigned check when all the PDCs were delivered to it by Toyota Shaw.

In view of the lack of malice or negligence on the part of Lustre, RCBC’s blind and mechanical invocation of
paragraph 11 of the contract of chattel mortgage was unwarranted.

SC also said that this whole controversy could have been avoided if only RCBC bothered to call up Lustre and ask
him to sign the check! RCBC failed to act with good faith and is therefore liable for moral damages suffered by
Lustre, who has been a client of RCBC for 20 years. Lustre also suffered shame and embarrassment after the case
was filed as he was a lawyer, married to another lawyer, and known to the community of golfers. SC also allowed
exemplary damages and attorney’s fees.