G.R. No. 206184 - Spouses Latonio vs. McGeorge Food Industries, Inc.

On March 10, 1993, Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc.
Atty. Lustre made a down payment of P164,620.00 and agreed to pay the balance in 24 equal monthly installments.
Atty. Lustre issued 24 postdated checks for P14,976.00 each, the first dated April 10, 1991 and subsequent checks dated every 10th day of each succeeding month.
Atty. Lustre executed a promissory note (Exhibit "A") and a contract of chattel mortgage (Exhibit "B") in favor of Toyota Shaw, Inc.
Paragraph 11 of Exhibit "B" contained an acceleration clause providing that failure to pay any installment would render the whole balance immediately due and payable and would obligate the mortgagor to pay 25% of the principal as liquidated damages.

On March 14, 1991, Toyota Shaw, Inc. assigned its rights under the chattel mortgage to Rizal Commercial Banking Corporation (RCBC), the petitioner.
RCBC encashed and debited from Atty. Lustre's account all checks dated April 10, 1991 to January 10, 1993, except RCBC Check No. 279805 for August 10, 1991, which was unsigned.
The amount represented by RCBC Check No. 279805 was initially debited from Atty. Lustre's account, later recalled and re-credited to him.
Because of the recall, RCBC did not present the last two checks dated February 10, 1993 and March 10, 1993, following its procedure that outstanding checks are not presented once an account is forwarded to an account representative.
RCBC did not notify Atty. Lustre about the unsigned check at the time but later encashed subsequent-dated checks prior to sending any demand.

On January 21, 1993, RCBC sent a demand letter to Atty. Lustre demanding payment of the balance including liquidated damages, asserting default due to the unsigned August 10, 1991 check.
Atty. Lustre refused to pay, prompting RCBC to file an action for replevin and damages in the Pasay City Regional Trial Court (Branch 108).
Atty. Lustre filed an Answer and counterclaim for damages.
The RTC rendered judgment dismissing RCBC's complaint for lack of cause of action and ordered RCBC:

To accept payment equivalent to three checks totaling P44,938.00 without interest.
To release/cancel the mortgage upon payment of P44,938.00 without interest.
To pay costs of suit.

(Subscriber-Only)

Whether RCBC was justified in treating the entire balance as due and demandable under paragraph 11 of the chattel mortgage because of the unsigned check for August 10, 1991.
Whether the chattel mortgage being a contract of adhesion required strict construction against RCBC and application of Article 1377, Civil Code.
Whether Atty. Lustre was liable for damages for delay under Article 1170, Civil Code, given the unsigned check and the bank's subsequent actions.
Whether RCBC acted in bad faith or was remiss in its duties such that it became liable for moral damages...(Subscriber-Only)