C3- Different Kinds of Obligation-S6
Obligation with a Penal Clause
ARTICLE 1226:
In obligation with penal clause, the penalty shall substitute Kinds of Penalty
the indemnity for damages and the payment of interest in 1. As to origin
case on noncompliance, if there is no stipulation to the a. Legal- when it is constituted by law
contrary. Nevertheless, damages shall be paid if the b. Conventional- when it is constituted by agreement of the
obligor refuses to pay the penalty or is guilty of fraud in ` parties
the fulfillment of the obligation. 2. As to purpose
a. Compensatory- when it is established for the purpose of
The penalty may be enforced only when it is demandable
indemnifying the damages suffered by
in accordance with the provisions of this code. the oblige or creditor in case of breach
b. Punitive- established for the purpose of punishing the
Sa obligasyon na may penal clause, ang parusa ay maaaring c. obligor in case of breach
kapalit sa pagbayad ng danyos at sa interes kung hindi man 3. As to effect
ito maisagawa, kung walang stipulasyon na iba. Gayunpaman a. Subsidiary- When only the penalty may be demanded in
, ang danyos ay babayaran kung ang nangutang ay tatanggi case of breach of the obligation
na magbayad ng parusa o kung siya ay nagkasala ng b. Joint- When the injured party may demand the enforcement
pandaraya sa pagsakatuparan ng obligasyon. of both the penalty and the principal obligation
Ang parusa ay maaring maipatupad lamang, kung ito ay
hinihiling na, ayon sa probisyon ng Coda na ito. Effect of Penalty, General Rule
Discussions: Penalty may be considered as reparation or
The penal clause is an accessory undertaking to assume greater substitute for damages
liability in case of breach, to insure performance of the obligation. If the injured party desires to recover the damages
actually suffered by him in addition to the penalty,
Kinds of penal clause he must prove such damages
A-According to source The penalty is fixed by the contracting parties as a
1-Legal-legal-penalty - imposed by law compensation or substitute for damages
2-conventional-penalty - agreed upon by parties
B-According to extent of liability Exceptions
3 Exceptions to the rule that the penalty shall substitute the indemnity for
1-Subsidiary or alternative- when only the penalty can be recovered
damages and the payment of interest in case of noncompliance
in case of non-performance of the obligation
1. When there is a stipulation to the contrary
2-Joint or cumulative- when in case of non-performance of the 2. When the obligor is sued for refusal to pay the agreed penalty
obligation both the principal obligation 3. When the obligor is guilty of fraud
and the penalty can be recovered.
Enforceability of Penalty
Case illustration: May be enforced only when it is demandable
FACTS: Bachrach entered into a contract with Golingco, he sold a o Demandable: upon breach or nonfulfillment of the
truck with the latter which was secured by a promissory principal obligation by the obligor or debtor
note and a chattel mortgage on the truck. The promissory
note provided that there would be payment of 25% attorney’s fees.ARTICLE 1227:
ISSUE: If there is an express written contract for fees between an The debtor cannot exempt himself from the performance of the
attorney and his client, may the court still disregard the contract? obligation by paying the penalty, save in the case where this
HELD: Yes, because a contract for attorney’s fees is different from right has been expressly reserved for him. Neither can the
other contracts. It may be disregarded if the amount fixed is creditor demand the fulfillment of the obligation and the
unconscionable or unreasonable, considering the value of satisfaction of the penalty at the same time, unless this right has
the work accomplished. been clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the
A claim for attorney’s fees may be asserted either in the very action in performance thereof should become impossible without his
which the services in question have been rendered, or in a separate action. If fault, the penalty may be enforced. (1153a)
the first alternative is chosen, the court may pass upon said claim even if its
amount were less than the minimum prescribed by law for the jurisdiction Ang nangutang ay hindi mapapalaya ang kanyang sarili sa
of the court over the subject matter of the case for so long as the main tungkulin nya sa kanyang obligasyon sa pamamagitan ng
action is within the jurisdiction of said court, upon the theory that the right pagbabayad ng multa, depende kung saan ang karapatan na ito
to recover attorney’s fees is but an INCIDENT of the case in which the ay malinaw na nakasaad para sa kanya. Kahit ang nagpautang
services of counsel have been rendered. ang nag demand ng pagpuno sa obligasyon at ang satisfaction
para sa multa sa parehong panahon, maliban na lang kung ang
Purpose of Penal Clause karapatan na ito ay malinaw na pinagkakaloob sa kanya. Ngunit
1. It is attached to an obligation in order to ensure performance kung pagkatapos ng obligasyon, ang pagganap dito ay maging
2. The penalty shall substitute the indemnity for damages and the payment imposible na hindi nagmula sa kanyang kapabayaan, ang multa
of interests in case of noncompliance ay maaring maipatupad.
Function of Penal Clause Right of the debtor
1. To provide for liquidated damages - The general rule is the debtor cannot substitute by paying the penalty and
2. To strengthen the coercive force of the obligation by the threat of not fulfilling the obligation.
greater responsibility in the evnt of breach
Exception: When the debtor is expressly granted the right.
Purpose of Penalty Example: PPD promises to finish the house within a stipulated period of 8
1. Función coercitiva o de garantia- to insure the performance of the obligation months. The contract stipulates that in case he does not build the
2. Función liquidatoria- to liquidate the amount of damages to be awarded house at all, he is supposed to forfeit the sum of 100k pesos.
to the injured party in case of breach of the principal In this case, as a general rule, SC as the contractor cannot just give the sum
obligation as a substitute for the non performance of the obligation.
3. Función estrictamente penal- in certain exceptional cases, to punish the
obligor in case of breach of the principal
Right of the creditor
obligation.
C3- Different Kinds of Obligation-S6
Obligation with a Penal Clause
- As a general rule the creditor cannot demand the penalty and the fulfillment ISSUE: W/N Fox should be penalized
of the obligation at the same time.
HELD: YES. The judgment is reversed, the case remanded with
Exception: The creditor can only demand both when it is clearly granted to him. instructions to enter a judgment in favor of the plaintiff and against
the defendant for P1,000, with interest; without costs in this
Santiago Navarro, ET AL vs. Felix Mallari, ET AL instance.
parties expressly stipulated that the contract should last one year
FACTS: This action was instituted in the CFI of Pampanga by Navarro regardless of the objective it should be applied
et al, to require the defendants to return the sum of P12k paid parties who are competent to contract may make such agreements
to them, together with the sum of P4kas stipulated damages for within the limitations of the law and public policy as they desire,
failure to construct the chapel according to specifications. and that the courts will enforce them according to their terms
The defendant, Mallari et al, was obliged to construct a chapel The suspension of the power to sell has a beneficial purpose,
for the plaintiff for P16k. results in the protection of the corporation as well as of the
Of this amount P12k has already been paid and there is a individual parties to the contract, and is reasonable as to the
balance of P4k to be paid when the work should be finished length of time of the suspension.
and accepted to the satisfaction of the trustees.
There was a stipulation in their contract and agreed by both ARTICLE 1229:
that if either party should fail to comply with any of its The judge shall equitably reduce the penalty when the
conditions, such party should pay P4k as indemnity. principal obligation has been partly or irregularly complied
It was proved at the trial that the defendant did not construct with by the debtor. Even if there has been no performance,
the chapel according to the specifications. the penalty may also be reduced by the courts if it is
Judgement rendered against the plaintiff’s at the CFI to pay iniquitous or unconscionable. (1154a)
the sum of P4k to the defendant’s.
Hence this appeal. Ang hukom ay makatuwiran babaan ang tubo kapag ang
ISSUE: W/N the plaintiff’s are entitled to recover the said damages? kabuuhan ng obigasyon ay bahagya o hindi natupad ng may
HELD: The SC ruled that, the chapel appears to be in use for the pagkakautang. Ganun din kung hindi pa nakapagbayad, ang tubo
purpose it was intended and the plaintiffs are not entitled to ay maaring babaan ng hukuman kung ito at hindi makatarungan
confiscate the sum of P4k which is yet unpaid upon the at patas.
purchased price.
The general rule is that the creditor cannot demand the Penalty may be reduce by the courts
fulfillment of the principal obligation and stipulated penalty at 1. When the principal obligation has been partly complied with the debtor
the same. The balance of Php 4,000.00 is not yet paid so 2. When the principal obligation has been irregularly complied with by the
Navarro cannot reimburse the said amount and claim the debtor
stipulated damages at the same time. 3. If the penalty is iniquitous or unconsiderable
ARTICLE 1228: ARTICLE 1230:
Proof of actual damages suffered by the creditor is not The nullity of the penal clause does not carry with it that of
necessary in order that the penalty may be demanded. (n) the principal obligation.The nullity of the principal obligation
carries with it that of the penal clause. (1155)
Ang patunay ng tunay na mga damyos na sinapit ng
maypautang ay hindi kailangan upang ang tubo ay singilin. Walang kinalaman ang principal na obligasyon sa
pagpapawalang bisa ng isang obligasyon na may katumbas na
If the contracting parties had fixed the penalty for the purpose of compensating kaparusahan. Ang principal na obligasyon na pinawalang bisa ay
or substituting the indemnity for damages as well as the payment of interests, taglay ang obligasyong may kaparusahang penal.
proof of actual damages suffered by the creditor is not necessary to enforce the
penalty whether or not damages had been suffered as long as the agreement or Effect of nullity of the penal clause
contract had been breached. Thusly, in this sense, penalty and liquidated - The nullty of the penal clause does not carry with it that of the principal
damages are the same. obligation because of the principle that accessory folloews the principal
Case Effect of the nullity of the principal obligation
Lambert Vs. Fox - The nullity of the principal obligation carries with it that of the penal
clause because of the penalty is merely an accessory obligation.
FACTS: Early in 1911: John R. Edgar & Co., engaged in the retail book Consequently, if the principal obligation is null and void, then penal
and stationery business was taken over by its creditors including clause is also null and void. Again, the principle is that accessory follows
Lambert and Fox the principal.
Lambert and Fox became the 2 largest stockholders in the new
corporation called John R. Edgar & Co., Incorporated
Lambert and Fox entered into an agreement wherein they
mutually and reciprocally agree not to sell, transfer, or
otherwise dispose of an part of the stock until after 1 year from
the agreement date unless consented in writing
violation: P1,000 pesos as liquidated damages
October 19, 1911: Fox sold his stock E. C. McCullough & Co.
of Manila, a strong competitor
sale was made by the defendant against the protest
Foz offered to sell his shares of stock to the Lambert for the
same sum that McCullough was paying them less P1,000, the
penalty specified in the contract
Trial Court: dismissed
