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SSS vs.

Moonwalk Development and Housing Corporation

FACTS:

Plaintiff SSS approved the application of Defendant Moonwalk for an


interim loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for
the purpose of developing and constructing a housing project in the
provinces of Rizal and Cavite.
Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the
sum of P9,595,000.00 was released to defendant Moonwalk as of
November 28, 1973
A third Amendment Deed of Mortgage was executed for the payment of
the amount of P9,595,000.
Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter
respectively, under paragraph 5 of the aforesaid Third Amended Deed of
First Mortgage substituted Associated Construction and Surveys
Corporation, Philippine Model Homes Development Corporation, Mariano
Z. Velarde and Eusebio T. Ramos, as solidary obligors.
Moonwalk made a total payment of P23,657,901.84 to SSS for the loan
principal of P12,254,700.
After settlement of the account, SSS issued to Moonwalk the release of
Mortgage for Moonwalks Mortgaged properties.
In letter to Moonwalk, SSS alleged that it committed an honest mistake in
releasing defendant.
That Moonwalk has still 12% penalty for failure to pay on time the
amortization which is in the penal clause of the contract.
Moonwalks counsel told SSS that it had completely paid its obligation to
SSS and therefore there is no recovery of any penalty.
The trial court issued an order dismissing the complaint on the ground that
the obligation was already extinguished by the payment by Moonwalk of
its indebtedness to SSS and by the latter's act of cancelling the real estate
mortgages executed in its favor by defendant Moonwalk. The Motion for
Reconsideration filed by SSS with the trial court was likewise dismissed by
the Supreme Court.

ISSUE:

Is the penalty demandable even after the extinguishment of the principal


obligation?

HELD:

No. There has been a waiver of the penal clause as it was not demanded before
the full obligation was fully paid and extinguished.

Default begins from the moment the creditor demands the performance of the
obligation. In this case, although there were late amortizations there was no
demand made by SSS for the payment of the penalty.

Hence, Moonwalk is not in delay in the payment of the penalty. No delay


occurred and there was no occasion when the penalty became demandable and
enforceable.
Since there was no default in the performance of the main obligation-payment of
the loan- SSS was never entitled to recover any penalty.

If the demand for the payment of the penalty was made prior to the
extinguishment of the obligation which are: 1. The principal obligation 2. The
interest of 12% on the principal obligation 3.The penalty of 12% for late payment
for after demand, Moonwalk would be in delay and therefore liable for the
penalty.

To support its claim, SSS cited the case of United Christian Missionary Society v.
Social Security Commission.

It was found out that it is not applicable to the present case as it dealt not with
the right of the SSS to collect penalties which were provided for in contracts
which it entered into but with its right to collect premiums and its duty to collect
the penalty for delayed payment or non-payment of premiums.

The Supreme Court, in that case, stated:

"No discretion or alternative is granted respondent Commission in the


enforcement of the law's mandate that the employer who fails to comply with his
legal obligation to remit the premiums to the System within the prescribed
period shall pay a penalty of three (3%) per month. The prescribed penalty is
evidently of a punitive character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the police power in the
implementation of the Republic's declared policy "to develop, establish gradually
and perfect a social security system which shall be suitable to the needs of the
people throughout the Philippines and (to) provide protection to employers
against the hazards of disability, sickness, old age and death . . ."

The case at bar does not refer to any penalty provided for by law nor does it
refer to the non remittance of premium. The case at bar refers to a contract of
loan entered into between plaintiff and defendant Moonwalk Development and
Housing Corporation. Note, therefore, that no provision of law is involved in this
case, nor is there any penalty imposed by law nor a case about non-remittance
of premium required by law. The present case refers to a contract of loan payable
in instalments not provided for by law but by agreement of the parties.
Therefore, the ratio decidendi of the case of United Christian Missionary Society
vs. Social Security Commission which plaintiff-appellant relies is not applicable in
this case; clearly, the Social Security Commission, which is a creature of the
Social Security Act cannot condone a mandatory provision of law providing for
the payment of premiums and for penalties for non remittance. The life of the
Social Security Act is in the premiums because these are the funds from which
the Social Security Act gets the money for its purposes and the non-remittance of
the premiums is penalized not by the Social Security Commission but by law.

The petition is DISMISSED and the decision of the respondent court is AFFIRMED.