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 Lustres account. It was subsequently re-credited back to Lustres 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 1st 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 Lustres 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 Lustres account but was later recalled and recredited to Lustres account. Because of the recall, RCBC refused to encash the last 2 PDCs
(pursuant to RCBC policy). Lustre was not informed of RCBCs 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 RCBCs 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
attorneys 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, RCBCs 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 attorneys fees.

Digested by: Agee Romero