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).
The Supreme Court affirmed the decision of the CA. Although it is clear in the law that those who are guilty of delay in the performance of their obligations are liable for damages, the court clarified that one will only be liable for damages if the delay in the performance of the obligation, was malicious or negligent. The lawyer neither acted maliciously nor negligently in the payment of his instalments, explained the Court –
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. Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent cannot be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. Indeed, we agree with the Court of Appeals’ finding that such omission was mere “inadvertence” on the part of private respondent. Toyota salesperson Jorge Geronimo testified that he even verified whether private respondent had signed all the checks and in fact returned three or four unsigned checks to him for signing.
In consequence, no proof for malicious intent or negligence can be derived from the acts of the buyer. Thus, the SC held that rendering the total remaining balance of the debt due and demandable was improper. Moreover, he could not be made liable for liquidated damages related to the delay of payment for his car (RCBC v. CA, G.R. No. 133107, 25 March 1999, J. Kapunan).