SSS v Moonwalk Development Housing Corp.

G.R. No. 73345. April 7, 1993

Art. 1226 – Obligations with a penal clause 

Facts:

·         SSS filed a complaint in the CFI Rizal against Moonwalk Development & Housing Corp., alleging that it had committed an error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk — resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid balance on the principal loan agreement of P7,053.77 and, also in not reflecting in its statement or account an unpaid balance on the said penalties for delayed payments of P7,517,178.21

·         Both parties submitted their stipulation of facts to the trial court.

·         The trial court dismissed the complaint because 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 CA affirmed CFI, holding that Moonwalk's obligation was extinguished, and there was no more need for the penal clause.

Issue:

WoN there was a basis for demanding the penal clause since the obligation has been extinguished.

Held:

            No, the Supreme Court rules that there is no basis for demanding the penal clause since the obligation has been extinguished.

            The obligation of Moonwalk was fully complied with, that is, the amount loaned together with the 12% interest has been fully paid. Hence, there is no basis for demanding the penal clause since the obligation has been extinguished.

            SSS has waived the penal clause as it did not demand the same before the full obligation was fully paid and extinguished. In fact, SSS has not lost anything under the contract since it got back in full the amount loan as well as the interest thereof. The same thing would have happened if the obligation was paid on time, for then the penal clause, under the terms of the contract would not apply. Payment of the penalty does not mean gain or loss of SSS since it is merely for the purpose of enforcing the performance of the main obligation, which has been fully complied with and extinguished. Hence, the penal clause has lost its raison d' entre.

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