There must be malice or negligence in delay of payment in claiming for damages

In 1991, a lawyer bought a Toyota Corolla from an authorized car dealer. After paying a downpayment for the car, both parties agreed that the remaining amount would be paid in 24 equal installments through post-dated checks dated every 10th of the month. To secure the payment of the car, a contract of chattel mortgage was executed over the car in favor of the car dealer, which was later on assigned to a bank. Under the contract for chattel mortgage, an acceleration clause was inserted stating that if the mortgagor defaulted in the payment of any instalment, the whole amount remaining unpaid would become due. A stipulation for liquidated damages amounting to 25 percent of the principal was also added in case of default.

It was eventually discovered in 1993 that the check for the 5th installment had not been signed by the lawyer. As consequence, the vendor of the car did not receive the payment for the 5th instalment and the last two (2) instalments were no longer presented for payment. On the belief that the lawyer defaulted on his payment, the bank demanded the payment of the balance of debt, including the liquidated damages since the entire balance became due and demandable. Because the lawyer refused to pay the balance as well as liquidated damages, a case for replevin and damages was filed with the Regional Trial Court. The court dismissed the complaint for lack of cause of action. The decision was affirmed by the Court of Appeals (CA).