G.R. No. 73345 . April 7, 1993.
SOCIAL SECURITY SYSTEM, petitioner, vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE COURT, respondents.

FACTS

On October 6, 1971, the Social Security System (SSS) approved a loan for Moonwalk Development & Housing Corporation (Moonwalk). A Third Amended Deed of First Mortgage was executed on December 18, 1973, restructuring the payment of the released amount. Moonwalk made total payments of P23,657,901.84 for a principal loan of P12,254,700.00. The last payments, totaling P15,004,905.74, were based on a Statement of Account (Annex “F”) prepared by SSS. After Moonwalk settled the account as stated in Annex “F”, SSS issued Releases of Mortgage for Moonwalk’s properties on October 9 and 11, 1979. Subsequently, in letters dated November 28 and December 17, 1979, SSS claimed it had committed an honest mistake in releasing Moonwalk, as it had failed to compute the 12% penalty for delayed payments, resulting in an alleged unpaid balance on penalties of P7,517,178.21. Moonwalk, through counsel, replied that it had completely paid its obligations. SSS filed a complaint to recover the alleged unpaid penalties. The trial court dismissed the complaint, ruling the obligation was extinguished by payment and the cancellation of the mortgages. The Intermediate Appellate Court affirmed the dismissal.

ISSUE

Are the respondents still liable for the unpaid penalties claimed by SSS, or was their obligation extinguished?

RULING

The obligation was extinguished. The Supreme Court affirmed the decision of the Intermediate Appellate Court. The penalty clause is an accessory obligation attached to the principal obligation of the loan. An accessory obligation cannot exist independently of the principal obligation. When Moonwalk fully paid the amount demanded in the Statement of Account (Annex “F”), which included the principal and interest, and SSS accepted the payment and released the mortgages, the principal obligation was extinguished. Consequently, the accessory obligation of the penalty clause was also extinguished. The demand for payment of the penalty was made only after the principal obligation had been extinguished (via letters dated November 28 and December 17, 1979), at which point there was no longer any obligation to which a penalty could attach. The Court distinguished this case from United Christian Missionary Society v. Social Security Commission, noting that the penalties here arose from a contractual agreement between parties to a loan, not from a mandatory legal provision concerning the non-remittance of SSS premiums, and that SSS, when entering into such contracts, descends to the level of a private party. The petition was dismissed.