CHAPTER III, SEC.

6 – Obligations with a Penal Clause (Articles 1226-1230)

SECTION 6
OBLIGATIONS WITH A PENAL CLAUSE
(Arts. 1226-1230)

STUDY GUIDE : SESSION 8

1. Distinguish between a principal and an accessory obligation. –

(a) Principal Obligation – one which can stand by itself and does not
depend for its validity and existence upon another obligation.

(b) Accessory Obligation – one which is attached to a principal obligation

and, therefore, cannot stand alone.

2. Obligation with a penal clause – an obligation which contains an

accessory undertaking to pay a previously stipulated indemnity in case of breach.

3. Penal Clause - an accessory undertaking to assume greater liability in case

of breach. It is attached to the principal obligation in order to insure its performance.

4. Kinds of penal clauses :

(a) As to its origin :

¤ Legal – when it is provided by law; and
¤ Conventional – when it is agreed upon by the parties.

(b) As to its purpose :

¤ Compensatory (Art. 1226) – when the penalty takes the place of
damages.
¤ Punitive – when the penalty is imposed merely as punishment for
breach.

(c) As to its demandability or effect :

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¤ Subsidiary or alternative – when only the penalty can be

enforced.
¤ Joint or cumulative – when both the principal obligation and the
penal clause can be enforced.

5. ART. 1226. –

(a) GENERAL RULE: As a general rule, in an obligation with a penal clause, the
penalty takes the place of the indemnity for damages and the payment of interests in
case of non-compliance. (Art. 1226, par. 1)

(b) EXCEPTIONS: Additional damages (aside from the penalty), however, may be
recovered under the following instances : (Art. 1226, par. 2)

(b.1.) When the parties expressly agree that damages or interest may still be
recovered despite the presence of the penalty clause.
(b.2.) When the debtor refuses to pay the penalty imposed in the obligation, in
which case the creditor may recover legal interest thereon pursuant to Art.
2209 of the Civil Code.
(b.3.) When the debtor is guilty of fraud in the fulfilment of the obligation.

6. ART. 1227. – The rationale for this provision is that the precise purpose of
the penalty is to secure the performance of the principal obligation.

(a) The GENERAL RULE is that the debtor is NOT ALLOWED to just pay the penalty
instead of fulfilling the obligation. He may, however, be EXPRESSLY granted by the
creditor the right to refrain from the execution of the contract by a forfeiture of the
penalty. (Art. 1227, 1st sentence)
RATIONALE: If the debtor can choose to just pay the penalty instead of fulfilling
his obligation, this would in effect make the obligation an alternative one.

(b) The penal clause is presumed to be SUBSIDIARY or ALTERNATIVE and NOT

JOINT or CUMULATIVE (Art. 1227, 2nd sentence). – The GENERAL RULE is
that the creditor does NOT have the right to demand fulfilment of the obligation and

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the penalty at the same time. The creditor, however, may jointly demand
performance and payment of the penalty :

(b.1.) If the right has been clearly granted to him. (Art. 1227, 2nd sentence)
(b.2.) If, after having required fulfilment, the performance of the obligation should
have become impossible with the debtor’s fault, the creditor may enforce
payment of the penalty. (Art. 1227, 3rd sentence)

 READ THIS CASE IN ITS ORIGINAL TEXT : Dimatulac vs.

Coronel, G.R. No. L-14132, January 22, 1920.

7. ART. 1228 – Proof of actual damages suffered by the creditor

is NOT necessary in order that the penalty may be demanded.

(a) To be able to recover the penalty, all that the creditor has to prove is that the debtor
committed a breach of his obligation.
(b) As long as there has been a breach, the creditor may enforce the penalty whether he
suffered damages or not.
(c) The creditor, however, cannot recover more than the penalty agreed upon, even if he
proves that the amount of his damages exceeds the penalty.
(d) Then again, in any of the three exceptions when damages may be recovered by the
creditor in addition to the penalty (Art. 1226, 2nd sentence), the creditor is required
to prove the amount of damages he actually suffered resulting from the debtor’s
breach of the principal obligation.

8. ART. 1229 – When can the court reduce the penalty provided
for in the penal clause?

(a) When there is partial performance of the principal obligation.

(b) When there is irregular performance of the principal obligation.
(c) When, although there has been no performance of the principal obligation, the
penalty is iniquitous or unconscionable.

2. ART. 1230 –

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(a) If the principal obligation is null and void, the penal clause (which is an accessory
obligation) will have no more use for existence, and is therefore also considered null
and void. “The accessory follows the principal.” (2nd paragraph)
(b) On the other hand, nullity of the penal clause does not make the principal obligation
void. Reason: The principal obligation can stand alone, and the void penal clause
(which is subordinate to the principal obligation) will simply be disregarded.
(1st paragraph)

 READ THIS CASE IN ITS ORIGINAL TEXT: SSS vs Moonwalk

Development & Housing Corporation, G.R. No. 73345,
April 7, 1993.

APPLICATION/PROBLEMS :

1. On July 15, 2016, D obliged himself to repaint the car of C, for a consideration
of P80,000.00, and to finish it within 30 days. It was also agreed by the parties that if D is
not able to finish the repainting job in 30 days, D will pay C a penalty of P8,000.00. On
the eighth day of repainting, D informed C that his daughter was treating him to a 45-day
European tour. So D just offered to pay C the P8,000.00 penalty because he could no
longer proceed with the repainting job as he was expected to fly in four (4) days. C,
however, refused to accept the P8,000.00, and insisted that D finish the job as agreed
upon. Is C legally justified in his demands? à Clue: Art. 1227.

2. On March 20, 2016, Engr. D obliged himself to construct a chapel for Fr. C for
P350,000.00. The building contract carried with it a penal clause to the effect that in case
of breach with his obligation, Engr. D will be liable to pay Fr. C a penalty of P35,000.00.
When the chapel was two weeks away from completion, Fr. C detected some
discrepancies in the construction. It was discovered that major portions of the chapel
were not constructed according to the specifications in the parties’ building contract.
Hence, Fr. C refused to pay his unpaid balance of P50,000.00 to Engr. D, and filed a case
against Engr. D to recover the P35,000.00 penalty for breach of contract. Are the actions
of Fr. C legally justified under the factual circumstances of this case? à Clue: Art. 1227.

3. D promised to deliver to C 600 bottles of sparkling wine worth P800,000.00 for

the 70th birthday celebration of his mother. It was stipulated by the parties that if D fails to

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deliver on the day agreed upon, D will be liable to C for a penalty of P50,000.00. On the
day of the celebration, D was able to deliver only 580 of the 600 bottles promised. Hence,
C filed an action against D to recover the penalty of P50,000.00 as stipulated in the
parties’ contract. Is C’s action legally justified? à Clue: Art. 1229.
4. D obliged himself to sell to C for P65,000.00 his Australian kangaroo which was
then pregnant. It was agreed upon by the parties that D would deliver the kangaroo to C
after it gave birth or, in default thereof, to pay a penalty of P5,000.00. However, the
kangaroo died while giving birth to its joey. Hence, D was not able to make good his
obligation to C. In view of the non-delivery of the kangaroo, C filed an action against D
for the recovery of the penalty of P5,000.00 as stipulated by the parties in their contract.
Does C’s action have legal basis? à Clue: Art. 1230.

*** END ***

FOOD FOR THOUGHT

Our greatest glory is not in never failing,

but in rising every time we fall.

When it is obvious that the goals cannot

be reached, don’t adjust the goals, adjust
the action steps.

Real knowledge is to know the extent of

one’s ignorance.

It is easy to hate and it is difficult to

love. This is how the whole scheme of
things works. All good things are difficult
to achieve; and bad things are very easy to
get.

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Confucius

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