Social Security System v.

Moonwalk Development & Housing Corporation

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

Facts:
1. Plaintiff (SSS) approved the application of the defendant (Moonwalk) for an interim loan.
2. The loan was released to the Moonwalk.
3. Moonwalk made a payment to SSS for the loan principal released to it.
4. The last payment made by Moonwalk was based on the Statement of Account prepared by the SSS.
5. After the settlement of the account, SSS issued to Moonwalk the Release of Mortgage of Moonwalk's mortgaged
properties.
6. In the letters to Moonwalk, SSS alleged that it committed an honest mistake in releasing Moonwalk (in the mortgage).
7. Moonwalk replied in a letter that it had completely paid its obligations to SSS.

Issue/s:
1. Whether or not the 12% penalty demandable even after the extinguishment of the principal obligation
2. Whether or not Moonwalk was in default (mora)

Ruling:
1. No. 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.

What is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to pay on
time the amortization. What is sought to be enforced therefore is a penal clause of the contract entered into between the
parties.

Penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special presentation in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled. Accessory obligation is dependent for its existence on the existence of a principal
obligation. In the present case, the principal obligation is the loan between the parties. The accessory obligation of a
penal clause is to enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist
the penalty being accessory cannot exist.

2. No. A penalty is demandable in case of non performance or late performance of the main obligation. There must be a
breach of the obligation either by total or partial non fulfillment or there is non-fulfillment in the point of time which is
called mora or delay. There is no mora or delay unless there is a demand.

In the present case, during all the period when the principal obligation was still subsisting, although there was late
amortizations there was no demand made by the creditor, for the payment of the penalty. Therefore up to the time of the
letter of SSS there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of
the penalty.

SSS issued its statement of account showing total obligation of Moonwalk, and forthwith demanded payment from
Moonwalk. Because of the demand for payment, Moonwalk made a complete payment of its obligation. Because of this
payment the obligation of Moonwalk was considered extinguished, and pursuant to said extinguishment, the real estate
mortgages given by Moonwalk were released. For all purposes therefor the principal obligation of Moonwalk was
deemed extinguished as well as the accessory obligation of real estate mortgages.

The demand for payment of the penal clause made by SSS in its demand letter (November 28, 1989) are therefore
ineffective as there was nothing to demand. If the demand for the payment of the penalty was made prior to the
extinguishment because then the obligation of Moonwalk would consist of (1) principal obligation, (2) an interest of
12% on the principal obligation, and (3) the penalty of 12% for the late payment for after demand.

Moonwalk is not in default since there was no mora prior to the demand.

Notes/Doctrine:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty may be also be reduced by the courts if it is iniquitous.
If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the debtor
which is nonetheless a breach of the obligation, with more reason the penal clause is not demandable when full
obligation has been complied with since in that case there is no breach of obligation.
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in
case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay
the payment or is guilty of fraud in the fulfillment of the obligation.

Function of a Penal Clause:

1. to provide for liquidated damages, and
2. strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.

Art. 1169. Those obliged to deliver or to something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.

Requisites for a debtor to be in default (mora):

1. The obligation be demandable and already liquidated;
2. the debtor delays performance; and
3. the creditor requires the performance judicially and extrajudicially.

Instances when demand is not necessary:

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 be delivered or the service 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.
Santos Ventura Hocorma Foundation, Inc. v. Santos
G.R. No. 153004 (November 4, 2004)

Facts:
1. There are several civil cases between herein respondent (then petitioner, Ernesto Santos) and petitioner (then
respondent, Santos Ventura Hocorma Foundation, Inc., SVHFI for brevity).
2. On October 26, 1990, Santos and SVHFI executed a Compromise Agreement which amicable ended all their pending
litigations.
3. Pertinent portions of the agreement read as follows:
a. SVHFI shall pay Santos P14.5 million in the following manner:
i. P 1.5 million immediately upon the execution of this agreement;
ii. The balance of P13 million shall be paid, whether in one lump rum or in installments, at the
discretion of the Foundation, within a period of not more than two (2) years from the execution of
this agreement.
iii. ... Santos shall cause the dismissal with prejudice of Civil Cases.... and for immediate lifting of the
aforesaid various notices of lis pendens on the real properties aforementioned; ... in the event that
SVHFI shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of
any such sale, or any part thereof as may be required, shall be partially devoted to the payment of
the Foundations obligations under this agreement as may still be subsisting and payable at the time
of any such sale or sales.

b. Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement
shall ipso facto and ipso jure automatically entitle the aggrieved party to a write of execution for the
enforcement of this agreement.

4. Santos move for the dismissal of the aforesaid cases and caused the lifting of the notices of lis pendens on the real
properties involved. SVHFI, paid P1.5 million to Santos, leaving a balance of P13 million.
5. On September 30, 1991, the RTC of Makati approved the compromise agreement.
6. SVHFI sold two real properties, which were previously subjects of lis pendens. Santos then sent a letter to the SVHFI
demanding the payment of the remaining P13 million, which the latter ignored.
7. On October 28, 1992, Santos send another letter to SVHFI inquiring when it would pay the balance. There was no
response from SVHFI.
8. Santos applied for the issuance of the writ of execution of its compromise agreement. Granted by the RTC.
9. Sheriff levied on the real properties petitioner, which were formerly subjects of the lis pendens.
10. On November 22, 1994, the real properties were auctioned. Riverland, Inc. was the highest bidder and issued a
Certificate of Sale covering the real properties subject of the auction sale, provided for the right of redemption within
one year from the date of registration of properties.
11. Santos and Riverland, Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on the
part of the petitioner in paying the balance of P13 million. They prayed that petitioner be ordered to pay legal interest
and for the sales be declared final and not subject to legal redemption.
12. SVHFI was able to fully settle its outstanding balance on February 8, 1995.

Issue/s:
1. Whether or not the respondent are entitled to legal interest considering that the compromise agreement does not provide
for the payment of interest.
2. Whether or not the petitioner is in default (mora).

Ruling:
1. Yes. In the absence of agreement, the legal rate of interest shall prevail. The legal interest for loan as forbearance of
money is 12% per annum to be computed from default.

2. Yes. A compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely
stated therein, or which by implication from its terms should be deemed to have been included therein. This holds true
even if the agreement has not been judically approved.

In the present case, Compromise Agreement was entered into by the parties on October 26, 1990. it was judicially
approved on September 30, 1991. The compromise agreement as a consensual contract became binding between the
parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligation of the parties thereto.

The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and
not on the judicial approval of the compromise agreement on September 30, 1991. When the respondents wrote a
 demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner
failed to pay its due obligation after the demand was made, it incurred delay.

The two-year period ended on October 26, 1992. The respondent gave a demand letter on October 29, 1992, to the
petitioner. The obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to py
it. The petitioner delayed in the performance, it was able to fully settle its outstanding balance only on February 8,
1995.

Notes/Doctrine:

Art. 1169. Those obliged to deliver or to something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.

Requisites for a debtor to be in default (mora):

1. The obligation be demandable and already liquidated;
2. the debtor delays performance; and
3. the creditor requires the performance judicially and extrajudicially.

The Compromise Agreement as a consensual contract became binding between the parties UPON ITS EXECUTION and not
upon its court approval.
Pantaleon v. American Express International, Inc.
G.R. No. 174269 (May 8, 2009)

Facts:
1. The petitioner (Pantaleon) and his family, joined an escorted tour of Western Europe.
2. In Coster Diamond House, Amsterdam, Mrs. Pantaleon (wife) was about to bought a 2.5 karat diamond brilliant cut, a
pendant and a chain, all of which totaled U.S. $13,826.00.
3. To pay these purchases, around 9:15am, Pantaleon presented his American Express Credit Card together with his
passport.
4. By 9:40am, Pantaleon was already worried about further inconveniencing the tour group, he asked the store clerk to
cancel the sale. the store manager though asked him to wait a few more minutes.
5. Around 10:00am (around 45 minutes after Pantaleon had presented his AmexCard), Coster decided to release the items
even without American Express International, Inc.'s (herein respondent, Amex for brevity) approval of the purchase.
This was 30 minutes after the tour group was supposed to have left the store.
6. The spouses Pantelon returned. Their offers of apology were met by their tourmates with stony silence. The tour
group's visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be
canceled due to lack of remaing time. Mrs. Pantaleon ended up weeping.
7. After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to Manila.
While in the United States, Pantaleon continued to use his AmEx card, several times without hassle or delay, but with
two other incidents similar to the Amsterdam brouhaha.

Issue/s:
1. Whether or not Amex was in default or mora.
2. Whether Amex (Credit Card Company) is in mora solvendi or in mora accipiendi.

Ruling:
1. Yes. The Court is convinced that Amex's delay constituted breach of its contractual obligation to act on his use of the
card abroad "with special handling.:

Notwithstanding the popular notion that credit card purchases are approved "WITHIN SECONDS," there really is no
strict, legally determinative point of demarcation on how long must it take for a credit car company to approve or
disapprove a customer's purchase, much less one specifically contracted upon by the parties. yet this is one of those
instances when "you'd know it what you'd see it," and one hour appears to be an awfully long, patently unreasonable
length of time to approve or disapprove a credit card purchases. It is long enough time for the customer to walk to a
bank a kilometer away, withdraw money over the counter, and return to the store.

The Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands viewed
the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the charge purchased was
referred for authorization:
01:22 - the authorization is referred to manila Amexco.
01:32 - Netherlands gives information that the identification of the card member has been
presented and he is buying jewelries worth US $13,826
01:33 - Netherlands asks "How long will this take?"
02:08 - Netherlands is still asking "How long will this take?"

The Amex has a right to verify whether the credit it is extending upon on a particular purchase was indeed contracted
by the cardholder, and that the cardholder is within his means to make such transaction. The culpable failure of
respondent herein is not the failure to timely approve petitioner's purchase, but the more elemental failure to timely act
on the same, whether favorably or unfavorably. Even assuming the respondent's credit authorizers did not have
sufficient basis on hand to make a judgment, we see no reason why Amex could not have promptly informed petitioner
the reason for the delay, and duly advised him that resolving the same could take some time. In that way, petitioner
would have had informed basis on whether or not to pursue the transaction at Coster, given the attending circumstances.
instead, Pantaleon was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to
confront the wrath of foreign folk.

The delay committed by Amex was clearly attended by unjustified neglect and bad faith, since it alleges to have
consumed more than one hour to simply go over Pantaleon's pas credit history with Amex, his payment record and his
credit and bank references, when all such data are already stored and readily available from its computer. There is
nothing in Pantaleon's billing history that would warrant the imprudent suspension of action by Amex in processing the
purchase.
 2. Amex is in mora solvendi. Generally, the relationship between a credit card provided and its card holder is that of
creditor-debtore, with the card company as a the creditor extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. The relationship already takes exception to the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while the depositor is considered as the creditor. In the present case, we
should shift perspectives and again see the credit card company as the debtor/obligor, insofar as it has the obligation to
the customer as creditor/obligee to act promptly on its purchases on credit.

If there was delay on the part of Amex in its normal role as creditor to the cardholder, such delay would not have been
in acceptance of the performance of the debtor's obligation (i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall under mora accipiendi, which contemplates that the
obligation of the debtor, such as the actual purchases on credit has already been instituted. The establishment of the
debt itself (purchases on credit of the jewelry) had not yet been perfected, as it remained pending the approval or
consent of the credit card company.

Notes / Doctrine:

Requisites of Mora Solvendi (delay of debtor)

1. Obligation is demandable and liquidated;
2. debtor delays performance; and
3. the creditor judicially or extrajudicially required the debtor's performance.

Requisites of Mora Accipiendi

1. An offer of performance by the debtor who has the required capacity;
2. offer must be to comply with the prestation as it should be performed; and
3. creditor refuses the performance without just cause.

Moral damages
Can be availed in cases of breach of contract where the defendant acted fraudulently or in bad faith.
In the present case, there was a deadline for the completion of that purchase by Pantaleon before any delay would
redound to the injury of his several traveling companions - gave rise to the moral shock, mental anguish, serious
anxiety, wounded feelings and social humiliation sustained by Panaleon family. These circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a more mundane set of facts.
There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or injury suffered.
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation
G.R. No. 176868 (July 26, 2010)

Facts:
1. The petitioner (Solar Harvest, Inc., Solar for brevity) entered into an agreement with respondent, Davao Corrugated
Carton Corporation (DCCC for brevity), for the purchase of corrugated carton boxes, specifically designed for
petitioners business of exporting fresh bananas.
2. The agreement was not reduced into writing.
3. To start the production, Solar deposited in DCCC's US Dollar Savings Account with Westmont bank, as full payment
for the ordered boxes.
4. Despite such payment, Solar did not receive any boxes from DCCC.
5. Solar wrote a demand letter for reimbursement of the amount paid.
6. DCCC replied that the boxes had been completed as early as April 3, 1998 and that Solar failed to pick them up from
the formers warehouse 30 days from completion, as agreed upon. It was also mentioned that Solar placed an additional
order, out of which, half had been manufactured without any advanced payment from Solar. (Solar alleges that the
agreement was for DCCC to deliver within 30 days from payment the said cartons, which the latter failed to
manufacture and deliver within such time.)
7. DCCC then demanded Solar to remove the boxes from the factory and to pay the balance for the additional boxes.

Issue/s:
1. Whether or not the respondent (Davao Corrugated Carton Corporation) is in default.

Ruling:
1. No. It was unthinkable that, over a period of more than two years, Solar did not even demand for the delivery of the
boxes. Even assuming that the agreement was for DCCC to deliver the boxes, the latter would not be liable for breach
of contract as Solar had not yet demanded from it the delivery of the boxes.

In reciprocal obligations, as in contract of sale, the general rule is that the fulfillment of the parties respective obligation
should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs delay. But when different dates for performance of the
obligation are fixed, the default for each obligation must be determined, that is, the other party would incure in delay
only from the moment the other party demands fulfillment of the formers obligation.