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RIZAL COMMERCIAL BANKING CORPORATION v. CA

FACTS:

On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. He made a down payment and issued 24 postdated checks for the balance of the purchase price. To secure the balance, a promissory note and a contract of chattel mortgage were executed in favor of Toyota Shaw, Inc. The chattel mortgage included an acceleration clause and a provision for liquidated damages. On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). RCBC encashed and debited all checks except for one that was unsigned and subsequently re-credited. RCBC claimed respondent defaulted and demanded payment. Respondent refused, and RCBC filed an action for replevin and damages. The trial court dismissed the complaint for lack of cause of action and ordered RCBC to accept payment for three checks, release/cancel the mortgage, and pay damages and attorney's fees. The Court of Appeals affirmed the decision of the trial court.

ISSUES:

  1. Whether or not the acceleration clause in the chattel mortgage contract should be strictly construed against the petitioner bank.

  2. Whether or not the respondent is in default.

  3. Whether or not the petitioner bank was negligent in not notifying the respondent about the unsigned check.

RULING:

  1. The Court of Appeals ruled that the acceleration clause in the chattel mortgage contract should be strictly construed against the petitioner bank since it is a contract of adhesion. The clause should only cover deliberate and advertent failure to pay an amortization as it became due.

  2. The Court of Appeals found that the respondent was not in default because the recalled check was already deducted from his account and the amount was re-credited back to his account due to the lack of signature. The alleged default was not a case of failure to pay since the check was sufficiently funded.

  3. The Court of Appeals held that the petitioner bank was negligent in not notifying the respondent about the unsigned check. The bank could have easily called the respondent's attention and asked him to affix his signature. The bank's demand letter also did not explain how the alleged arrearages were incurred.

PRINCIPLES:

  • Contracts of adhesion are construed strictly against the party who drafted them.

  • Default in payment requires deliberate and advertent failure to pay.

  • Banks have a duty to notify their clients of issues or irregularities in their accounts.

  • Negligence on the part of the bank in performing its functions can result in liability.