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Promptness in the performance of an obligation is one thing many of us have to learn. Beating the deadline has become a common practice and indeed requests for extension usually follows in case of inability to perform something on time. In our civil law, a delay in the performance of an obligation has legal implications and so the determination as to when will a person be considered “in default” is very essential. It would seem that “delay” is such a simple matter to be the subject of Supreme Court decisions but it may not be as simple as one might think. Our Civil Code has set the definition or rule on delay or default and several of Supreme Court cases have delved on the issue.

SSS vs. Moonwalk Development

SSS filed a civil case against Moonwalk Development asking that the latter pay a balance on its  loan payments and the penalties for delayed payments. After the parties submitted their stipulations, the Trial Court rendered its decision dismissing the case. The SSS filed a motion for reconsideration but the same was denied. SSS appealed the case to the Intermediate Appellate Court which also dismissed the case. Unsatisfied with the ruling, SSS then filed a petition for review on certiorari with the Supreme Court. One of the main issues in the case is the payment of the penalties as stated in the contract agreement. Since Moonwalk was in delay in its payment of its loan, it should also be liable in the payment of the penalties.

 

Moonwalk is not Liable

The Supreme Court agreed with the lower courts. There is no basis for the claim of SSS. A penalty clause on a contract can only set in or apply if the principal obligation has not been fulfilled. It has been shown that Moonwalk indeed made payments in accordance with the loan agreement with SSS. There is also no showing that Moonwalk was even in delay in its payments to warrant the award of damages or penalties under the provisions of the Civil Code on delay or default. The Supreme Court said: “Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.” (G.R. 73345, April 7, 1993) SSS did not make any demands for Moonwalk to pay its monthly amortizations and did not also make any demand for the payment of the penalties under the penalty clause. The Civil Code explicitly provides that demand is necessary to put the debtor in delay and “There are only three instances when demand is not necessary to render the obligor in default. These are the following: (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.” None of these instances are present in this case. Moonwalk therefore cannot be held liable for interests and penalties since it has fulfilled its obligations with SSS without delay.

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