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SSS v.



Moonwalk contracted an interim loan with SSS for 30M and executed several deeds
of mortgage to secure such loan. About 12M was released and Moonwalk executed a
promissory note and Moonwalk paid about 23.6M for the entire loan (principal and
interest) based on the statement of account prepared by SSS. SSS then released the
properties from the mortgage. However, SSS sent letters to Moonwalk stating that it
committed an honest mistake for releasing Moonwalk from its obligation because
the penalty charges, as stated in the contract, were not included in the computation.
SSS then sued Moonwalk but the same was dismissed because of extinguishment by
payment and the subsequent release of the mortgage. The IAC affirmed the decision,
stating that a penal clause is an accessory obligation to enforce the performance of a
principal obligation. Thus, the penalty charges being claimed cannot exist without
the main obligation.

ISSUE: WON the penalty can be collected by SSS. (When is the penalty demandable?)

HELD: No. A penalty is demandable in case of non-performance or late performance
of the main obligation. In other words, in order that the penalty may arise, there
must a breach of the obligation either by total or partial non-fulfillment or there is
non-fulfillment in point of time which is called mora or delay. Considering also that
the principal obligation had been extinguished, the demand made by SSS was
therefore ineffective. According to Art. 1226 of the Civil Code, a penalty may be
enforced only when it is demandable in accordance with the Code. Thus, a
distinction must be made between a positive and a negative obligation. In positive
obligations (to give or to do), the penalty is demandable when the debtor is in mora;
hence, the necessity of demand by the debtor unless the same is excused.

According to Art. 1169, delay is incurred from the time the obligee judicially or
extrajudicially demands from the obligor. There are only three instances when
demand is not necessary to render the obligor in default: (1) when the obligation or
the law expressly so declares; (2) when from the nature and the circumstances of
the obligation it appears that the designation of the time when the thing is to
delivered or the services is to be rendered was a controlling motive for the
establishment of the contract; or (3) when the demand would be useless, as when
the obligor has rendered it beyond his power to perform. The case does not fall
under the exceptions and the provision on the promissory note (providing for the
time when payment by amortization is to be made) does not excuse SSS from
making a demand (considering that Moonwalk has been delinquent for a long time).
Mere delinquency in payment does not necessarily mean delay in the legal concept.
To be in default, the following requisites must be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3)
that the creditor requires the performance judicially and extrajudicially. Default
generally begins from the moment the creditor demands the performance of
the obligation. Nowhere in the case did it appear that SSS demanded from
Moonwalk the payment of its monthly amortizations, neither the payment of the
stipulated penalty. Moonwalk paid its obligation in full based on the statement of
account so it was never in default because SSS never compelled performance. If the
statement of account could be interpreted as a demand, the demand was complied
with on time. Thus, SSS cannot demand such penalty after the extinguishment of the

When a government created corporation enters into a contract with a private party
concerning a loan, it descends to the level of a private person. Hence, it is subject to
the rules on contracts applicable to private persons.