OBLI WEEK 3 DIGESTS
 Parot (plaintiff) as indorsee brought an action against Gemora (defendant), as one of the
1. Un Pak Leung V. Nigorra
By: Clyne
DOCTRINE: Parties to a contract are not solidarily liable for the obligation thereby created, in the
absence of an express agreement to that effect
FACTS
- An original action was already decided by the lower court (Justice of the Peace / CFI)
wherein Nigorra and co-respondent are ordered to pay Un Pak Leung a sum of P443.35
- Nigorra wasn’t able to present his facts hence this present petition to include the facts in
order to show his perspective regarding this case
- However, the Supreme Court stated that they can only decide on matters regarding to laws
not facts since it is the duty of the lower courts to do so
- Furthermore, the Supreme Court reminded Nigorra that he should’ve instead filed a motion
for a new trial in order to insert his evidences
- However, it was already established that the respondents were partners in the management
of a bakery called La Isleña
- There were no other facts to support that the obligation stipulated that the respondents
should be held solidarily liable
ISSUE
Whether Nigorro is solidary liable to the debt of P443.35
HELD
No
RATIO
The Supreme Court held that in the event of an absence of an express agreement regarding on the
liability of a debtor, it shall be presumed that such obligation shall be done jointly by the debtors. Since
the obligation between Un Pak Leung and Nigorra doesn’t explicitly states that there is an express
stipulation regarding such matter, Nigorra is now entitled to pay the half amount of P443.35.
2. PAROT v GEMORA
GR NO: L-2242
December 1, 1906
By: MIKHEL BELTRAN
Topic: Liability of Comakers
Plaintiff-Appellant (Petitioner): Houston Parot
Defendant-Appellees(Respondent) : Carlos Gemora
Ponente: Johnson, J
RECIT-READY: Ito lang naman yung issue dito kasi may promissory note tapos dun sa promissory
note nakasulat dun yung phrase na “Pagaremos juntos o separadamente”. Contention ni Gemora
na Phrase “juntos o separadamente” did not render each of the original makes of the said PN
liable for the full amount at Art. 1137 and 1138 of the Civil Code provides: Where 2 or more
persons are obligated in a single contract by express terms makes them severally liable for the
full amount of the obligation. Sabi ng SC yung phrase na yun ay an express statement making
each of the persons who signed it individually liable for the payment of the full amount of
the obligation it creates the same obligation as “mancomun o insolidum” which is in
connection with the nature of the liability of the parties creating an individual liability it
means, jointly and severally.
DOCTRINE: Where a promissory note is signed by two or more person, promising to pay the amount
of the said note juntos o separadamente, such co-makers are individually liable for the payment
of the full amount of the obligation of such contract.
FACTS:
makers of the Promissory Note executed on April 1, 1899
o The PN stated: “Pagaremos juntos o separadamente”
 Plaintiff alleges the following in his complaint:
o Aguilar, wife of Gemora, one of the co – makers, died in 1901
o Tomasa Gemora, on February 1901, sold and delivered by proper indorsement
the Promissory Note to Hermanos
o January 1903, Hermanos sold and delivered by proper indorsement the
Promissory Note to Parot
o Gemora alleged that he has already paid the Promissory Note
 CFI found out:
o Note was executed and delivered by proper indorsement to Hermanos and was
subsequently indorsed to Parot.
o Gemora has failed to pay such Promissory Note amounting to P5, 857 (Mexican
currency) with an interest rate of 6% as of Mar. 31, 1903 and with an exchange
rate of 60 cents equivalent to 1 Philippine Peso
 Gemora argued:
o Phrase “juntos o separadamente” did not render each of the original makes of
the said PN liable for the full amount.
o Art. 1137 and 1138 of the Civil Code provides: Where 2 or more persons are
obligated in a single contract by express terms makes them severally liable for
the full amount of the obligation.
ISSUE:
 WON Gemora is liable for the payment of the full amount of the PN? - YES
HELD/RATIO:
 Court ruled that the phrase “juntos o separadamente” is:
o an express statement making each of the persons who signed it individually
liable for the payment of the full amount of the obligation
o it creates the same obligation as “mancomun o insolidum” which is in connection
with the nature of the liability of the parties creating an individual liability
o it means, jointly and severally.
RULING:
 We find that the facts contained in the judgment of the lower court are sufficient to justify his
conclusion. The judgment of the lower court is therefore affirmed.
NOTES:
 “We promise to pay” signed by two or more persons without the use of any words to
designate the character of the liability, that the signers of such promissory note were liable
pro rata only.
 “I promise to pay” signed by two or more persons means that they are individually liable for
the payment of the full amount of the obligation.
3. Quiombing v CA
G.R. No. 93010
August 30, 1990
________________________________________________
Topic: JOINT AND SOLIDARY OBLIGATIONS; DIVISIBLE AND INDIVISIBLE OBLIGATIONS;
OBLIGATIONS WITH A PENAL CLAUSE
Petitioner: NICENCIO TAN QUIMBONG
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Respondent: COURT OF APPEALS
________________________________________________
Recit-Ready:
Doctrine: (1) The essence of active solidarity consists in the authority of each creditor to claim and
enforce the rights of all, with the resulting obligation of paying every-one what belongs to him; there is
no merger, much less a renunciation of rights, but only mutual representation
(2) Where the obligation of the parties is solidary, either one of the parties is indispensable, and the
other is not even necessary (now proper) because complete relief may be obtained from either
Facts:
Spouses Saligo (Defendant) contracted Quiombing
(Petitioner) and his co-creditor Bischoco to construct a house for them.
The Construction and Service Agreement between the parties stated that the creditors Quiombing (P)
and Bischoco "jointly and severally" bound themselves to construct a house for the debtors. Upon
completion, Quiombing (P) was paid partially, but was unable to collect the balance after repeated
demands.
On November 19, 1984, Manuelita Saligo signed a promissory note for P125,363.50 representing the
amount still due from her and her husband, payable on or before December 31, 1984, to Nicencio Tan
Quiombing
On October 9, 1986, Quiombing filed a complaint for recovery of the said amount, plus charges and
interests, which the private respondents had acknowledged and promised to pay — but had not,
despite repeated demands — as the balance of the contract price for the construction of their house.
Quiombing (P) alone filed for recovery of the balance to the Spouse Francisco and Manuelita Soligo,
plus charges and interests.
 
Francisco and Manuelita's allegation:
The other solidary creditor (Biscocho) must be included as co-plaintiff being an indispensable party to
the claim.
Issue:
May one of the 2 solidary creditors sue by himself alone for the recovery of amounts due to both of
them without joining the other creditor as a co-plaintiff? Is the second solidary creditor an indispensible
party?
 
Held:
YES. The question as to who should sue the spouses was an issue only between the solidary creditors
(Quiombing and Biscocho)
It did not matter who as between them filed the complaint because the private respondents were liable
to either of the two as a solidary creditor for the full amount of the debt.
Payment of judgment debt to the complaint will be considered payment to the other solidary creditor
even if latter was not a party to the suit.
Art 1214
The debtor may pay ANY of the solidary creditors; but if judicial or extrajudicial has been made by any
one of them, payment should be made to him.
So, in here Quiombing made a judicial demand. So the payment should be paid to him. It does not
matter if Biscocho was included as a party in suing the spouses because if Quiombing eventually
collects the amount due from the debtors, Biscocho may later claim his share from Quiombing.
4. DIMAYUGA v. PHIL. COMMERCIAL BANK
GR NO. L-42542
AUGUST 5, 1991
By: CHESKA DOMINGUEZ
Topic: JOINT AND SOLIDARY OBLIGATIONS; DIVISIBLE AND INDIVISIBLE OBLIGATIONS;
OBLIGATIONS WITH A PENAL CLAUSE
Petitioners: CARLOS DIMAYUGA
Respondents: PHIL. COMMERCIAL AND INDUSTRIAL BANK and COURT OF APPEALS
Ponente: BIDIN, J.
RECIT-READY/SUMMARY: Dimayuga and Tanjuatco, solidary debtors, borrowed from the Bank
the amount of P10,000. They failed to pay so the Bank filed a complaint. The trial court favored the
Bank. Tanjuatco died. Dimayuga then argued that since his co-debtor already died, the claim of the
Bank should be dismissed. TC, CA, and SC denied his motion. Since the obligation is solidary, the
Bank can proceed against any of them two. In this case, the Bank can claim from Dimayuga.
DOCTRINE: In solidary obligations, the creditor may proceed against any one of the solidary debtors,
or some, or all of them simultaneously.
FACTS
 Carlos Dimayuga, petitioner herein, borrowed from the Phil. Commercial and Industrial
Bank, respondent herein, the sum of P10,000 as evidenced by a promissory note executed
jointly and severally by Dimayuga and one Tanjuatco. (Solidary obligation)
o Due on May 7, 1962 with 10% interest per annum in case of non-payment
 Dimayuga had only paid P4,000 to the Bank. Upon the default of the debtors to pay, the
Bank filed a complaint for the sum of money.
 Trial Court held Dimayuga and Tanjuatco jointly and severally liable to pay the Bank the
sum of P9,139.69 with interest at 10% per annum until fully paid plus attorney's fees.
 Dimayuga filed a motion alleging that since Tanjuatco already died, the money claim of the
Bank should be dismissed, and the estate of Tanjuatco must be prosecuted. Trial court
denied the motion.
 Dimayuga then appealed to the CA but was denied. Hence, this petition.
ISSUE
(1) WON the claim of the Bank should be dismissed since one of the debtors already died
HELD/RATIO
(1) NO. Since they are solidary debtors, the Bank can claim from any of them.
 When the obligation is solidary, the creditor may bring his action in toto (as a whole) against
the debtors obligated in solidum (solidary)
 Under CC 1216, the creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously.
 It is then up to the Bank to choose who it will enforce collection since it is a solidary
obligation.
 SC ordered Dimayuga to pay P9,139.69 with 10% interest per annum. The Bank won this
case.
5 PNB v INDEPENDENT PLANTERS ASSOCIATION INC.
G.R. No. L-28046
May 16, 1983
By: Gayares
Topic: Joint and Solidary Obligations; Divisible and Indivisible Obligations; Obligations with a penal
clause
Petitioners: Philippine National Bank
Respondents: Independent Planters Association, Inc., Antonio Dimayuga, Delfin Fajardo, Ceferino
Valencia, Moises Carandang, Luciano Castillo, Aurelio Valencia, Lauro Leviste, Gavino Gonzales,
Lope Gevana, and Bonifacio Laureana
Ponente: Plana, J.
RECIT-READY/SUMMARY: PNB is claiming money from the solidary debtors based on a contract
2
 entered into by the respondents. One of the solidary debtors died during the proceedings. CFI
dismissed PNB’s initial claim due to the said death. PNB appealed the dismissal order and invoked
Art. 1216 of the CC so that it may collect against one, some, or all of the surviving solidary debtors
despite the sudden death of one of the solidary debtors.
DOCTRINE:
In case of the death of one of the solidary debtors, the creditor may proceed against the surviving
solidary debtors without necessity of filing a claim in the estate of the deceased debtors.
FACTS:
 This is an appeal by PNB from the order of the CFI, which dismissed PNB’s complaint
against several solidary debtors for the collection of a sum of money of on the ground that
one of the defendants (C. Valencia) died during the pendency of the case and therefore the
complaint, being a money claim based on contract, should be prosecuted in the testate or
intestate proceeding for the settlement of the estate of the deceased defendant pursuant to
Sec. 6 of Rule 86 of the Rules of Court (Solidary Obligation of Decedent).
 Appellant assails the order of dismissal, invoking its right to recourse against one, some, or
all of its solidary debtors under Art. 1216 CC.
ISSUE:
W/N the death of one of the defendants in an action to collect a sum of money based on a contractual
obligation against all the solidary debtors stops the proceedings of the case against the surviving
defendants?
HELD/RATIO:
NO - Art. 1216 of the CC grants the creditor substantive right to seek satisfaction of his credit from one,
some, or all of his solidary debtors as he deems fit or convenient for the protection of his interests; and
if, after instituting a collection suit based on contract against them and, during its pendency, one of the
defendants dies, the court retains jurisdiction to continue the proceedings and decide the case in
respect of the surviving defendants.
Art. 1216 is the governing provision in this case. Not Sec. 6, Rule 86 of the Rules of Court since
nothing in this law prevents a creditor from proceeding against the surviving solidary debtors.
Art. 1216 gives the creditor the right to proceed against anyone of the solidary debtors or some or all of
them simultaneously. The choice is undoubtedly left to the solidary creditor to determine against whom
he will enforce collection. In case of the death of one of the solidary debtors, the creditor may proceed
against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased
debtors. It is not mandatory for him to have the case dismissed against the surviving debtors and file its
claim in the estate of the deceased solidary debtor.
WHEREFORE, appealed order of dismissal is set aside in respect of the surviving defendants and the
case is remanded to the corresponding RTC for proceedings.
6 ALIPIO v COURT OF APPEALS
GR NO. 134100
SEPTEMBER 29, 2000
By: GUZMAN
Topic: JOINT AND SOLIDARY OBLIGATIONS
Petitioners: PURITA ALIPIO
Respondents: ROMEO G. JARING
Ponente: MENDOZA, J.
RECIT-READY/SUMMARY: Respondent Jaring entered into a sublease contract over a 14.5
hectare fishpond with Spouses Placido and Purita Alipio and Spouses Bienvenido and Remedios
Manuel, with the rent payable in two installments. All the sublessees signed the contract. When the
unpaid balance remained unpaid, Spouses Alipio and Spouses Manuel were sued by private
respondent for the collection of the said amount. Purita Alipio moved to dismiss the complaint only
against them pursuant to Section 21, Rule 3 of the Rules of Court, claiming that her husband
Placido had died 10 months before the commencement of the action. The trial court denied the
motion, holding that she can be independently impleaded in the case with the exclusion of her
deceased husband. Thereafter, judgment was rendered ordering petitioner and Spouses Manuel to
pay the unpaid balance without specifying whether payment should be made jointly or solidarily.
Petitioner appealed to the Court of Appeals, but the same was dismissed. It held that the rule that
the action for recovery of money, debt or interest thereon must be dismissed when the defendant
dies before final judgment does not apply where there are other defendants against whom the
action should be maintained. Hence, this petition.
A creditor cannot sue the surviving spouse of a decedent in an ordinary proceeding for the
collection of sum of money chargeable against the conjugal partnership and that the proper remedy
is for him to file a claim in the settlement of estate of the decedent.
Section 21, Rule 3 of the Rules of Court does not apply where the collection suit was filed after the
death of the defendant.
If from the law or the nature of the wording of the obligation the contrary does not appear, an
obligation is presumed to be only joint, with the debt divided into as many equal shares as there are
debtors, each debt being considered distinct from one another. Thus, the liability of the sub-lessees
is merely joint with the unpaid balance of the rent to be divided equally between the two couples.
DOCTRINE: If from the law or the nature or the wording of the obligation the contrary does not
appear, an obligation is presumed to be only joint, i.e., the debt is divided into as many equal shares
as there are debtors, each debt being considered distinct from one another.
FACTS
 Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco,
Hermosa, Bataan. The lease was for a period of five years ending on September 12, 1990.
o On June 19, 1987, he subleased the fishpond, for the remaining period of his
lease, to the spouses Placido and Purita Alipio and the Manuel Spouses. 
 The sub-lessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. 
 Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had
passed away on December 1, 1988.  
 RTC: Surviving spouse should pay. The trial court denied petitioner's motion on the ground
that since petitioner was herself a party to the sublease contract, she could be
independently impleaded in the suit together with the Manuel spouses and that the death of
her husband merely resulted in his exclusion from the case.  
 CA: Surviving spouse should pay. It is noted that all the defendants, including the
deceased, were signatories to the contract of sub-lease. The remaining defendants cannot
avoid the action by claiming that the death of one of the parties to the contract has totally
extinguished their obligation.  
ISSUE
(1) WON spouses Alipio and Manuel are jointly liable for the debt.
HELD/RATIO
(1) Yes. Spouses Alipio and Manuel are jointly liable for the debt.
 The SC that a creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of a sum of money chargeable against the conjugal
partnership and that the property remedy is for him to file a claim in the settlement of
estate of the decedent.
o The trial court ordered petitioner and the Manuel spouses to pay private
respondent the unpaid balance of the agreed rent in the amount of
P50,600.00 without specifying whether the amount is to be paid by them
jointly or solidarily.
 Accdg. To Art. 1208, if from the law or the nature or the wording of the obligation the
contrary does not appear, an obligation is presumed to be only joint, i.e., the debt is
divided into as many equal shares as there are debtors, each debt being considered
3
 distinct from one another.
 Private respondent does not cite any provision of law which provides that when there
are two or more lessees, or in this case, sublessees, the latter's obligation to pay the
rent is solidary.
o To be sure, should the lessees or sublessees refuse to vacate the leased
property after the expiration of the lease period and despite due demands
by the lessor, they can be held jointly and severally liable to pay for the use
of the property.
o The basis of their solidary liability is not the contract of lease or sublease
but the fact that they have become joint tortfeasors.
o In the case at bar, there is no allegation that the sublessees refused to
vacate the fishpond after the expiration of the term of the sublease. Indeed,
the unpaid balance sought to be collected by private respondent in his
collection suit became due on June 30, 1989, long before the sublease
expired on September 12, 1990.
o Neither does petitioner contend that it is the nature of lease that when there
are more than two lessees or sublessees their liability is solidary.
7. SSS v. Moonwalker
221 SCRA 119
APRIL 7, 1993
By: Madrid
Topic: Penal Clause; Waiver of Penal Clause
Petitioner: Social Security System (SSS)
Respondent: Moonwalk Development & Housing Corporation, Rosita U. Alberto, et.al.
Summary:
So ang nangyare dito is nag loan si Moonwalk kay SSS. Ngayon nabayaran rin naman ni Moonwalk
yung loan pero late. Pero narealize lang yun ni SSS after na mabayaran ni Moonwalk lahat ng
payments and after na cancel na ni SSS yung mortage. Ngayon sinisingil ni SSS si Moonwalk ng 12%
penalty dahil late siya sa pagbayad (nakalagay sa penal clause) pero sabi ni Moonwalk tapos na
obligation ko eh nabayaran ko na so kasalanan mo na yun kung di mo napansin na late yung mga
payments ko sayo. Ngayon sabi ng SC tama si Moonwalk. Although late yung payments ni Moonwalk,
di parin siya macoconsider as in delay/mora kasi never nag demand si SSS. Ang golden rule kasi, para
maconsider ang isang party in delay, dapat mag demand yung creditor. Eh hindi siya nag demand, so
walang delay. Also, too late na raw para mag demand si SSS sabi ni SC kasi the obligation has
already been extinguished. So wala nang legal tie; wala nang obligation; di na si Moonwalk liable.
Doctrine:
As to Default:
1. Default generally begins from the moment the creditor demands the performance of the
obligation unless such obligation falls within the exceptions of Art. 1169
2. Mere delinquency in payment does not necessarily mean delay in the legal concept.
As to Penalty:
1. A penalty is demandable in case of non-performance or late performance of the main
obligation.
2. There is a waiver of a penal clause when it is not demanded before the full obligation is
fulfilled.
Facts:
- SSS approved the application of loan by respondent Moonwalk for 30M Pesos.
- Out of the 30M, 9.6M was released to respondent.
- A Third Amended Deed of First Mortgage was executed providing for restructuring of the payment of
the released amount of 9.6M.
- After considering additional releases in the amount of 2.7M, respondent Moonwalk delivered a
promissory note for 12M to petitioner.
- Moonwalk made a total payment of 23.7M to SSS for the loan principal of 12.3M. The last payment by
Moonwalk of 15M were based on the Statement of Account prepared by SSS.
- After settlement of the account, SSS issued to Moonwalk the RELEASE OF MORTGAGE FOR
MOONWALK’S MORTGAGED PROPERTIES.
- After 1 month, SSS sent a letter to Moonwalk alleging that SSS committed an honest mistake in
releasing Moonwalk since they still have 12% penalty for FAILURE TO PAY ON TIME THE
AMORTIZATION WHICH IS THE PENAL CLAUSE OF THE CONTRACT.
- Moonwalk replied that it had completely paid its obligations to SSS.
- SSS filed a complaint against respondent. SSS alleged that it committed an error in failing to compute
the 12% interest due on delayed payments on the loan and also in not reflecting in its statement of
account an unpaid balance on the said penalties for delayed payments.
- Moonwalk argued that it had completely paid its obligation to SSS and therefore there is no recovery
of any penalty.
- CFI dismissed the complaint stating that the obligation was already extinguished by the
payment by respondent of its indebtedness and by the SSS’s cancellation of the real estate
mortgages.
- CA affirmed.
Issue/s:
1. WON respondent incurred delay in the performance of its obligation.
2. WON the penalty is demandable even after the extinguishment of the principal obligation.
Held:
1. No.
2. No.
Ratio:
1. Pursuant to Art. 1169 CC, delay begins from the time the oblige judicially/extrajudicially
demands from the obligor the performance of the obligation, EXCEPT: a.) when the obligation
or the law expressly so declares; b.) 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 to be rendered was a controlling motive for the establishment of the contract; c.) when
demand would be useless, as when the obligor has rendered it beyond his power to perform.
Since the case does not fall within any of the exceptions, petitioner is not excused from making a
demand. Hence, respondent does not incur any delay.
While respondent has long been delinquent, mere delinquency in payment does not necessarily mean
delay in the legal concept. Default generally begins from the moment the creditor demands the
performance of the obligation.
2. The penal clause has been waived since it was not demanded before the full obligation was fully
paid and extinguished.
Default begins from the moment the creditor demands the performance of the obligation.
In the case, although the payment of amortizations by Moonwalk were late, there was no demand
made by SSS. Hence, respondent is not in delay in the payment of the penalty. No delay occurred and
there was no occasion when the penalty became demandable and enforceable.
Decision:
Petition is dismissed, decision of CA affirmed.
# 8 LAMBERT VS. FOX
GR # L-7991
DATE: January 29, 1914
By: Julpha Policina
Topic: Obligations with a penal clause
Petitioners: Leon Lambert
Respondents: TJ Fox
Ponente: Moreland, J.
SUMMARY: Lambert and Fox became two of the largest stockholders of a newly built
company named John R. Edgar & Co., Inc.. They entered into an agreement wherein stipulated that
they cannot dispose or sell their stocks, unless with the consent of the other, within one year from
thereon. But, 9 months after, Fox sold his stocks to the competitor company. Lambert filed a complaint
4
for breach of contract. RTC ruled in favor of Fox on the ground that the agreement’s intention was to
build the stability of the company within one year and once stable, they could dispose stocks even one
year hasn’t transpired yet. But the SC ruled otherwise. That the stipulation in the contract is clear,
which means one year before they be allowed to dispose or sell the stocks. SC ruled to impose
penalty, which is P1,000 as liquidated damages in favor of Lambert.
DOCTRINE: Where the language used by the parties is plain, then construction and
interpretation are unnecessary and, if used, result in making a contract for the parties.
In this jurisdiction, there is no difference between a penalty and liquidated
damages, so far as legal results are concerned. Whatever differences exists between them as a matter
of language, they are treated the same legally.
FACTS:
 1911: John R. Edgar & Co. (firm engaged in retail book and stationery business) was
agreed upon that creditors including Lambert and Fox to take over the said business.
 Lambert and Fox became the 2 largest stockholders (new corporation: John R. Edgar & Co.,
Incorporated)
 After completion of the incorporation, Lambert and Fox entered in an agreement:
o Mutually and reciprocally agree not to sell, transfer or dispose any part of present
holdings of stock till after one year
o And that one who violates shall pay the other sum of P1k as liquidated damages,
UNLESS previous consent in writing to such sale/transfer/disposition be obtained
 Oct. 19, 1911: Fox sold his stocks to EC McCullough (competitor)
 Fox did actually offered it as well with Lambert as same amount with McCullough less P1k
as penalty specified in contract.
 Lambert filed for breach of contract.
 RTC: in favor for the defendant on the ground that the intention of the parties for the said
agreement is that it shall be only effective until the corporation reached a sound financial
basis which occurred even before the one year stipulated in the contract
 Appealed.
ISSUE: Whether or not Fox be enforced to pay the liquidated damages of P1k
HELD/RATIO:
 Court held that:
o Intention of the parties to a contract must be determined from the words of
contract itself.
o Where the language used by the parties is plain, construction and interpretation
is unnecessary
o By applying law, Court conserve both provisions for benefit of litigants.
o That the first and fundamental duty of courts is to apply law. Construction and
interpretation come only after it has been demonstrated that application is
impossible or inadequate.
 In case at bar, parties expressly stipulated that the contract should last one year. No reason
is shown for saying it shall last only nine months.
 Therefore, penalties provided in contracts should be enforced.
 Court cannot intervene in reducing the penalty stipulated in contracts except when principal
obligation has been partly or irregularly fulfilled and court can see that the demanding
person has received the benefit partly or irregularly.
 In this jurisdiction, penalty and liquidated damages has no difference. They are treated the
same legally.
 Judgment reversed, case remanded to award Lambert P1k with interest from Fox.
MANILA RACING CLUB vs MANILA JOCKEY CLUB
G.R. No. 46533,
DATE: October 28, 193
By: Enzo
Topic: III. Obligations with Penal Clause
Petitioners: Manila Racing Club
Respondents: Manila Jockey Club
Ponente: AVANCEÃ'A, C.J
SUMMARY: So si Rafael Campos bumili siya ng lupa kay manila jockey club in installment para itayo
yung Manila Racing Club for an amount of 1.2M. Dun sa contract ang sabi na it was agreed that should
the purchaser fail to pay the amount corresponding to each installment in due time, the vendor may
rescind the contract and keep the amounts paid for itself. Tapos during sap ag babayad, trinansfer na
ni Campos sa Manila Racing Club yung rights sa lupa. Tapos nakapag bayad na ng 100K si petitioner
for 2 installments tapos nung sa 3 rd installment na di na sila nakapag bayad so nag sabi ngayon ni
Manila Jockey Club (respondent) sige bigyan naming kayo extension pag di pa kayo nag bayad, amin
na yung 100K and irerescind na namin yung contract. Hanggang say un nga di pa ulit nakapag bayad
si Manila Racing Club nirescind na ng board ng Manila Jockey Club yung contract. So nag reklamo
ngayon so Manila Racing Club saying na irefund daw yung 100K na initial installment na binyad nila +
damages kasi dapat wala daw deadline yung pag babayad nila and contrary to public moral and law
daw yung penalty na forfeited na yung 100K na binayad nila. Pero nag rule against sa kanila yung
lower court. Tapos yung issue na. Sabi ng SC hindi contrary to law ang pag lagay ng penal clause sa
contract kasi its purpose is to assure performance of the obligation. And sabi din ng SC na tama lang
yung amount na 100K for forfeiture kasi parang 8 percent lang yun nung total amount na (1.2M),
meaning di siya excessive. Hence, talo si Manila Racing Club.
DOCTRINE: It is in the nature of a penal clause which may be legally established by the parties
(articles 1152 and 1255 of the Civil Code). In its double purpose of insuring compliance with the
contract and of otherwise measuring beforehand the damages which may result from non-compliance,
it is not contrary to law, morals or public order because it was voluntarily and knowingly agreed upon
by the parties.
FACTS:
• Rafael J. Campos entered into a contract with the Manila Jockey Club, an unregistered
partnership, whereby he purchased from it a parcel of land.
• The price agreed upon in this transaction is P1,200,000, payable as follows: P50,000 upon
the signing of the contract; P50,000 on or before September 28, 1936; P300,000 on or
before December 24, 1936; P200,000 on or before March 24, 1937; and P600,000 on or
before September 24, 1937.
• It was agreed that should the purchaser [Campos] fail to pay the amount corresponding to
each installment in due time, the vendor may rescind the contract and keep the amounts
paid for itself.
• One of the clauses of the deed also states that the purchaser may form a corporation called
the Manila Racing Club, Inc., to whom he may transfer all his rights and obligations under
the contract.
• Campos made the down payment of P50, 000 upon signing the contract and a second
installment of another P50, 000 on September 28, 1938.
• The Manila Racing Club, Inc., was organized on October 22, 1936. Campos transferred to it
all his rights and obligations.
• As the third installment of P300,000 became due on December 24, 1936, and the purchaser
could not pay it, the vendor, on January 11, 1937, declared the contract cancelled and kept
the amount of P100,000 already paid, corresponding to the first two installments.
• Campos was given an extension until January 22, 1937 to revive the contract by paying
P300,000 but failed to do so. The MRC ratified the cancellation of the contract and forfeiture
of the initial P100, 000 paid by the petitioner.
ISSUE: WON the clause of the contract referring to the forfeiture of the P100, 000 is a valid clause
HELD/RATIO: YES ; Judgment affirmed
 “The clause of the contract referring to the forfeiture of the P100,000 already paid, should
the purchaser fall to pay the subsequent installments, is valid.
 It is in the nature of a penal clause which may be legally established by the parties (Articles
1152 and 1255 — now Arts. 1226 and 1306, Civil Code.) In its double purpose of insuring
compliance with the contract and of otherwise measuring beforehand the damages which
result from noncompliance, it is not contrary to law, morals or public order because it was
voluntarily and knowingly agreed upon by the parties.
 Viewing concretely the true effects thereof in the present case, the amount forfeited
constitutes only eight per cent of the stipulated price, which is not excessive if considered as
the profi t which would have been obtained had
5
  the contract been complied with. There is, moreover, evidence that the defendants, because
of this contract, had to reject other propositions to buy the same property. At any rate, the
penal clause does away with the duty to prove the existence and measure of the damages
caused by the breach
10. MAKATI DEVELOPMENT v. EMPIRE INSURANCE
GR NO. 21780
JUNE 30, 1967
By: Emmanuel Yrreverre
Topic: OBLIGATIONS – COURTS MAY REDUCE LIABILITY (PENAL CLAUSE)
Petitioners: MAKATI DEVELOPMENT CORPORATION
Respondents: EMPIRE INSURANCE CO., RODOLFO P. ANDAL
Ponente: CASTRO, J.
RECIT-READY: Makati Development Corporation (MDC) sold to Andal a lot in the Urdaneta
Village, Makati, Rizal. The Deed of Sale included a “special condition” which states that atlas 50%
of the house must be built after the period. If he fails to do so, the surety bond will be forfeited in
favor of MDC (Empire Insurance as surety). Andal sold the land to Carlos, and also did not build the
house. MDC sent a notice of claim to Empire due to Andal’s failure to comply. They filed a
complaint in court. The SC held that mitigation of the obligor’s liability is allowed because of the
partial performance already made by Carlos.
DOCTRINE: The courts may reduce the liability of the obligor if there is already a partial performance.
FACTS
 Makati Development Corporation (MDC) sold to Andal a lot in the Urdaneta Village, Makati,
Rizal.
 The Deed of Sale included a “special condition” provided that:
o the vendee (Andal) shall “commence the construction of at least 50% of
his/her/their/its residence on the property within two (2) years from March 31,
1959 (the date of the sale) to the satisfaction of the VENDOR (MDC)”;
o and in the event of failure to do so, the P11,123-bond delivered by the Andal to
the MDC will be forfeited in favor of the MDC by the mere fact of failure of Andal
to comply with the special obligation.
 Andal gave a surety bond, backed by the Empire Insurance Company (“Empire,”) to pay
P12,000 in case Andal failed to comply with his obligation under the deed of sale.
 Andal did not build his house, instead, he sold the lot to Carlos. Neither of them built a
house on the lot within the stipulated period.
 Three days after the lapse of the 2-year period, the MDC sent a notice of claim to Empire
due to Andal’s failure to comply with his undertaking. Empire refused to pay, whereupon
MDC instituted a complaint against the same at the CFI.
 CFI rendered judgment sentencing Empire to pay the MDC (P1500 @ 12% interest, from
the time the complaint was filed until the amount was fully paid, as well as P500 in
attorney’s fees.) Also, it was directed that should Empire pay, Andal should in turn pay
Empire in the same manner. In effect, the CFI reduced Andal’s liability for breaching the
undertaking, from P12,000 as stipulated in the bond, to P1,500.
 MDC appealed directly to the SC.
ISSUE
(1) W/N Andal was liable for the full amount of the bond upon his failure to build a house – No
HELD/RATIO
(1) NO
(2) The “special condition” is in reality an obligation – to build a house at least 50% of which
must be finished within two years. It was to secure the performance of the obligation that a
penal clause was inserted. Generally, in obligations with a penal sanction, the penalty takes
the place of “damages and the payment of interest in case of non-compliance,” and the
oblige is entitled to recover upon breach without proving damages. However, there are
instances in which a mitigation of the obligor’s liability is allowed.
CC 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 is no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
(3) Here, the CFI found that more than 50% of the house was done by April 1961, barely a
month after the lapse of March 31. This constitutes partial performance, within the meaning
of CC 1229.
(4) The penal clause was not inserted to indemnify MDC for any damages it might suffer.
Rather, it is to compel performance of the “special condition” to encourage home-building.
Considering that a house had been built shortly after the stipulated period, in view of the
penal clause’s purpose, the CFI was justified in reducing the penalty.
(5) That it was Carlos, having no contractual relation with MDC, who is building is of no
importance to the case at bar. There is nothing in the deed of sale restricting Andal’s right to
sell the lot. If it were intended, it should have been explicitly stated in the contract.
(6) Even before March 31, 1961 (when the 2 year period was to lapse), the entire area was
fenced with a stone wall, and building materials were also stocked. These indicated the
owner’s desire to construct. There was only a little delay.
#11 UMALI VS. MICLAT
GR # L-9262
DATE: July 10, 1959
By: Julpha Policina
Topic: Obligations with a penal clause
Petitioners: Marino Umali (defendant)
Respondents: Efrain Miclat (plaintiff)
Ponente: Bautista, Angelo J.
SUMMARY: Umali is the President and General Manager of Maharlika Pictures, Inc. in which seeks
the service of Miclat for signage boards and advertisement materials for their film. Umali refused to pay
the obligation with Miclat claiming that it must be filed for action against Maharlika and not on his
personal capacity. But both RTC and CA ordered him to pay the balance with 10% surcharge per
month and 6% interest per annum. He claims that the 10% surcharge is unreasonable. SC held that it
is indeed unreasonable so SC reduced it to 20% per annum but the 6% is justified in compliance with
Art. 1226 of NCC. In the contract, there is express stipulation to pay damages in addition to the
penalty, and Umali failed to pay his obligation as well as the penalty.
DOCTRINE: Penalty takes the place of the interests only if there is no stipulation in the
contract to the contrary.
The Court may reduce the penalty if equity demands in fairness to the debtor.
FACTS:
 Umali is the President and Gen. Manager of Maharlika Pictures, Inc.
 For a work not complete and satisfactorily, Miclat filed an action to recover sum of money,
damages and atty’s fees. Antonio Tingco as his guarantor was included but was never
served summons.
 Umali then also filed 3 rd party complaint against Maharlika Pictures, Inc but Maharlika failed
to answer so declared default.
 Umali’s contention: that the work of Miclat was not complete and satisfactorily and Umali
being merely the Pres. And Gen. Manager, Miclat’s action should be directed with Maharlika
and not to him.
 FACTS OF THE WORK: That Miclat would produce posters and board displays for the
showing of film LAGRIMAS in where Umali agreed to pay P900 and another P344.50. Umali
payed in advance P225 of the P900 leaving with P675 balance. The work were complete
done by Miclat but after numerous demand of payment from Umali, Umali refused to pay.
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  Umali’s defense: that the contract is between Miclat and Maharlika Pictures and even
though he is the president and gen. manager of said company, the action should be directed
against the corporation and not against his personal capacity.
 RTC: rendered judgment in favor of Miclat. (sum of P675 plus 10% per month surcharge for
unpaid balance, P200 atty’s fees and the P344.50 plus 6% per annum for the date of filing
the complaint until paid). Complaint with Tingco and the 3 rd party complain against Maharlika
Pictures, Inc. were dismissed.
 Umali appealed with CA. CA affirmed.
o CA held: Umali signed in his personal capacity. It is not stated in the conract that
he was duly authorized to enter for and on behalf of Maharlika. And that if it is
true that Maharlika should be the one liable, why as a President and Gen.
Manager of Maharlika be decalred default by not filing answer to the 3 rd party
complaint.
 Hence, this petition for review, claiming that the 10% surcharge per month is
unconscionable and unreasonable for being tantamount having 120% per year.
ISSUE: WHETHER OR NOT THE 10% SURCHARGE STIPULATED IN THE CONTRACT BE IN
EFFECT ALTHOUGH CLAIMED TO UNCONSCIONABLE AND UNREASONABLE - NO
HELD/RATIO:
 It is stipulated in the contract that a 10% surcharge must be paid for every delay after the
lapse of 30 days for the payment of the balance amounting to P625.
 Court held that that it is unreasonable which will lead to an amount of P67.5 per month or
P810 a year.
 This case demands for equity that penalty be reduced in fairness to the debtor.
 Court held to reduce the surcharge to 20% per annum.
 On the 6% per annum interest from the date of filing of action until fully paid is justified since
in accordance with Art. 1226 of NCC, penalty takes the place of the interest only if there is
no stipulation and damages may still be collected if the obligor refuses to pay the penalty.
 In the contract, there is express stipulation to pay damages in addition to the penalty, and
Umali failed to pay his obligation as well as the penalty.
On the issue of personal capacity:
 Although Umali described himself in the contract as the President and Gen. Manager of
Maharlika, he contracted for the work to be done in his personal capacity and signed as
“party of the 2nd part” without stating that he was acting in behalf of the corporation.
CABARROGUIS vs VICENTE
G.R. No. L-14304
Date: March 23, 1960
By: Enzo
Topic: III. Obligations with Penal Clause
Petitioners: ANTONIA A. CABARROGUIS and MAMERTO CABARROGUIS
Respondents: TELESFORO B. VICENTE,
Ponente: GUTIERREZ DAVID, J
SUMMARY: So what happened is nagkaroon ng car accident tapos si (Cabarroguis) petitioner yung
passenger tapos si (Vicente) respondent yung operator/driver nung AC jeepney tapos para wala ng
court litigation nagkaroon nalang sila ng compromise agreement wherein babayaran nalang daw ni
vicente si petitioner ng 2500 tapos meron sa contract na penalty which is 200 pag within SIXTY days
hindi nabayaran ng buo ni vicente yung 2K. After SIXTY days 1500 palang yung nababayad despite
repeated demands ni petitioner, so may balance pa na 1K. Nag file ngayon ng action si petitioner para
maclaim yung kulang. Tapos ang decision ng lower court was in delay na si Vicente (respondent) so
dapat bayaran na niya yung 1000 (principal obligation) + 200 (penalty) + interest. Sabi ngayon ni
Vicente na unjust and unfair daw kasi bakit daw may interest pa na kasama eh babayaran na nga niya
yung penalty so dapat wala daw yun. Tapos yung issue na. Sabi ng SC as a GENERAL RULE the
penalty will substitute for the damages and payment for interest PERO one of the EXCEPTIONS is pag
nag refuse mag bayad si debtor entitled na si creditor for payment of interest in accordance with 1226
and 2210. So talo si Vicente.
DOCTRINE: In obligations with a penal clause: General Rule: The penalty shall substitute the
indemnity for damages and the payment of interests. However, if it is an obligation for payment of a
sum of money wherein a penalty is stipulated for default, both the principal obligation and the penalty
can be demanded by the creditor with interest (from date of demand or from the filing of the complaint)
on the amount of penalty upon refusal to comply with demand to pay in accordance with 2210
FACTS:
 Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries as a result
of an accident when the AC jeepney of which she was a passenger hit another vehicle at a
street corner.
 To avoid court litigation, defendant Vicente, owner and operator of the jeepney entered a
compromise agreement with the plaintiff: Obligating himself to pay 2,500 as actual and
compensatory, exemplary and moral damages suffered by plaintiff.
 Defendant has paid a total amount of 1,500 leaving a balance of 1,000. It was stipulated in
the agreement that should defendant fail to complete payment within 60 days, he would pay
an additional amount of 200.00 as liquidated damages.
 As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a suit in the
Municipal Court of Davao and rendered judgment in favor of plaintiff.
 Defendant appealed to the Court of First Instance which ordered the defendant to pay the
plaintiff the amount of 1,200 with interest at legal rate from the date of the filing of the
complaint until full payment
 Municipal Court of Davao – Judgment rendered in favor of plaintiff
 Court of First Instance – Ordered defendant to pay plaintiff the amount of 1,200 with interest
at legal rate from the date of the filing of the complaint until full payment
 CA remanded to SC since it is a question of law
ISSUE: WON the lower court erred in sentencing the defendant to pay interest from the date of the
filing of the complaint until full payment?
HELD/RATIO: NO ; Wherefore, with the modification that the interest shall be allowed on the amount
of the penalty, the decision appealed from is affirmed.
 In obligations with a penal clause, the general rule is that the penalty shall substitute the
indemnity for damages and the payment of interest, except when the contrary is
stipulated; or when the obligor refuses to pay the penalty; or when the obligor is guilty of
fraud in the fulfillment of the obligation. (Art. 1226, Civil Code.)
 Applying the law it is evident that no interest can be awarded on the principal obligation, the
penalty of P200 agreed upon having taken the place of the payment of such interest and the
indemnity for damages, the case not falling under any of the exceptions.
 The case, however, takes a different aspect with respect to the penalty attached to the
principal obligation. It has been held that in obligations for the payment of a sum of money
when a penalty is stipulated for default, both the principal obligation and the penalty can be
demanded by the creditor
 Defendant having refused to pay when demand was made by plaintiff, the latter clearly is
entitled to interest on the amount of the penalty. Art. 2210 of the new Civil Code also
provides that in the discretion of the court, interest may be allowed upon damages awarded
for breach of contract.
13. GOVERNMENT v. LIM
GR NO. 41917
August 9, 1935
By: Emmanuel Yrreverre
Topic: OBLIGATIONS – PENAL CLAUSE
Petitioners: THE GOVERNMENT OF THE PHILIPPINES ISLANDS
Respondents: DOLORES LIM Y CHUMBUQUE, ANTONIA LIM Y CHUMBUQUE, JOSEFA LIM Y
CHUMBUQUE, and CHINA INSURANCE AND SURETY CO., INC
Ponente: IMPERIAL, J.
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 RECIT-READY: Defendants obtained a loan from the Government. Wherein they failed to pay their
debt. They did not deny their debt but questioned the recovery of P1,300 for cost, expenses of
collection and attorney’s fee as a which served as a penal clause for non-compliance or payment of
debt. The SC held that the stipulation is a valid and permissible penal clause, not contrary to any
law, morals, or public order, and is, therefore, strictly binding upon the defendants.
DOCTRINE: Penal Clauses that are not contrary to any law, morals, or public order, neither it be
excessive nor exorbitant are deemed valid and permissible and are strictly binding upon the obligor.
FACTS
 Defendants, on July 28, and October 28, 1930, obtained loans from the Government of
P10,000 and P3,000, respectively, and that they bound themselves to pay, jointly and
severally, the first amount within five years and the second amount within four years and
nine months, as well as the interest which they were ordered to pay, the taxes, the
insurance premiums, the expenses of repair, and the stipulated penalties.
 Having failed to pay the stipulated interest, the obligations and mortgages became due and
demandable, and on December 19, 1933, the defendants were indebted for the amounts
and interest.
 The defendants did not deny their indebtedness, their obligation to pay the stipulated
interest and the other amounts advanced by the Government, nor question the latter's right
to foreclose the mortgages. The only question raised in their sole assignment of error is
plaintiff's right to recover the sum of P1,300 representing 10 per cent on the principal
indebtedness of P13,000, for cost, expenses of collection, and attorney's fees.
 They contend that the enforcement of this penalty is unjustified in view of the fact that the
Government has its own salaried counsel, and that it did not employ private counsel in the
instant case.
 NOTE: In the promissory notes executed by the defendants and incorporated in the
mortgage deeds, they voluntary undertook to pay the sum of P1,300 as court costs,
expenses of collection, and attorney's fees, whether incurred or not.  (THIS IS THE PENAL
CLAUSE)
ISSUE
(2) W/N The Penal Clause is valid – Yes
HELD/RATIO
(7) YES
 This stipulation is a valid and permissible penal clause, not contrary to any law, morals, or
public order, and is, therefore, strictly binding upon the defendants.
 It is neither excessive nor exorbitant, and the defendants have not made any payment upon
their principal obligations, wherefore, the discretion conferred by article 1154 of the Civil
Code may not be exercised to reduce the penalty.
 There being no merit in the appeal taken by the defendants, the appealed judgment is
affirmed in toto, with the costs of this instance to the defendants. So ordered.
 Government wins.
NOTES
Decision of the CFI (affirmed by the SC)
Judgment of the Court of First Instance of Manila, sentencing the defendants (Except China Insurance)
to pay the plaintiff, jointly and severally upon the first cause of action, the sum of P13,278.04 with 8 per
cent interest per annum, payable quarterly, on the principal of P10,000 from December 20, 1933 until
fully paid, plus 8 per cent interest per annum on all unpaid quarterly interest from the said date until
fully paid, plus the further interest of 10 per cent per annum on the amount of P128.23, from December
20, 1933, until fully paid; and, upon the second cause of action, the sum of P3,944.91 with 8 per cent
interest per annum payable quarterly on the principal of P3,000 from December 20, 1933, until fully
paid, plus 8 per cent interest per annum on all unpaid quarterly interest from the said date until fully
paid, and such other sum as the Pension and Investment Board may have advanced from the date of
the judgment by way of taxes, insurance premiums, and repair of the mortgaged property. The
judgment likewise provides that, in case the aforesaid amounts should not be paid or deposited with
the court within three months, the mortgaged property be sold at public auction and the proceeds
thereof applied to the judgment. 
14. FIlinvest Land V CA
By: Clyne
DOCTRINE: As a general rule, penal clause may substitute for damages in case of breaches in the
contract but it is still up to the court to determine whether such penal clause will be wholly applied with
respect to the work done by the obligor
FACTS
- Filinvest awarded Pacific the development of its residential subdivisions over 2 parcels of
land in a contract amounting to P12,470,000.00.
- However on October 1979 (Deadline for the completion of the project), Pacific wasn’t able to
accomplish their obligation to Filinvest
- Filinvest and Pacific was able to agree upon a new penal clause wherein it states that a
penalty of P15,000 per day will be imposed in case of delay
- Pacific was given three extensions but wasn’t still able to accomplish the obligation due to
inclement weathers
- This prompted Filinvest to file for a breach of contract against Pacific
- The court ordered a commissioner to establish the facts from claims and counter claims of
both Filinvest and Pacific
- Filinvest claimed that the total damages should be P3.9 Million while the commissioner
established that Pacific is only liable for P1.8 Million
- RTC and CA affirmed the computation of the commissioner on the basis that the project was
already 94.53 completed and that the penalty was too excessive
ISSUE
Whether the liquidated damages agreed herein should be reduced
HELD
Yes
Ratio
Article 1226 of the New Civil Code provides that the Court may reduce the penalty provided in the penal clause. Such article may be
applied in this case since the Supreme Court found the penalty of P15,000 per day was excessive. Hence, the Supreme Court
lowered the penalty since the lower courts already agreed it and that of the Supreme Court that the obligation of Pacific to Filinvest
was already 94.53% complete. Moreso, Pacific complied with their obligation in good faith, which makes the full force of the penalty
unconscionable. Pacific's delay was not due to negligence or was done in bad faith. Filinvest was also not free of blame because
they did not pay Pacific P1,881,867.66 for work performed.
15. COMMERCIAL CREDIT CORPORATION OF CAGAYAN DE ORO v COURT OF APPEALS AND
CAGAYAN DE ORO COLISEUM
GR NO: 78315
December 1, 1906
8
 By: MIKHEL BELTRAN
Topic: Modification of Compromise Judgement
Plaintiff-Appellant (Petitioner): Commercial Credit Corp of CDO
Defendant-Appellees(Respondent) : Court of Appeals and CDO Coliseum Inc.
Ponente: Gancayco J,
RECIT-READY: So bale yung respondent nag issue ng promissory note na payable in 36 months
pero yung respondent na default so dahil dito 5 minority stockholders nag file ng case questioning
the authority of real estate mortgage ng wala nilang consent because of that nagkaroon sila ng
Compromise Agreement pero si Respondent ulit hindi naka comply dun sa Compromise Agrement
nila so nagkaroon sila ng auction tapos pero hindi natuloy dahil nagkaproblem so si CA nakialam
tapos minodify yung Compromise agreement tapos binabaan. So nag complain si Petitioner na uy
bawal yan! So sabi ni SC bawal talaga yan kasi ; When the parties entered into the said
compromise agreement and submitted the same for the approval of the trial court, its terms
and conditions must be the primordial consideration why the parties voluntarily entered into
the same. The trial court approved it because it is lawful and is not against public policy or
morals. Even the respondent Court of Appeals upheld the validity of the said compromise
agreement. The respondent court has no authority to reduce the penalty and attorney’s fees
therein stipulated which is the law between the parties and is res judicata.
therefore, no cogent basis for the respondent appellate court to modify said
compromise agreement by reducing the penalty and attorney’s fees provided for
therein.
 When the parties entered into the said compromise agreement and submitted the same for
the approval of the trial court, its terms and conditions must be the primordial consideration
why the parties voluntarily entered into the same. The trial court approved it because it is
lawful and is not against public policy or morals. Even the respondent Court of Appeals
upheld the validity of the said compromise agreement.
 The respondent court has no authority to reduce the penalty and attorney’s fees therein
stipulated which is the law between the parties and is res judicata.
RULING:
The petition is GRANTED. The decision of the respondent Court of Appeals dated February 13, 1987
and its resolutions dated March 23, 1987 and May 19, 1987 are hereby SET ASIDE and another
judgment is hereby rendered affirming in toto the compromise judgment of the trial court dated March
11, 1980, with costs against private respondent. This decision is immediately executory.

DOCTRINE: Art. 1229 of the Civil Code applies only to obligations or contract subject of a litigation but
it cannot apply to a final and executory judgment.The appellate court has no authority to reduce the
penalty and attorney’s fees stipulated in the compromise agreement which is the law between
the parties and is res judicata

FACTS:
 Respondent issued a promissory note in favor of the Petitioner, payable in 36
monthly instalments which was secured by a real estate mortgage executed by
the private respondent in favor of the petitioner.
 Respondent Defaulted and proceeded in extra-judicial foreclosure.
 5 minority stockholders filed a civil case questioning the respondent’s authority in
executing the real estate mortgage without their consent.
 A Compromise Agreement was entered by the parties which a compromise
judgement was rendered by the trial court.
 Private Respondent failed to comply with the Compromise agreement which lead
the petitioner to file an ex-parte motion for the issuance of a writ of execution.
 The said property was set for public auction but did not take place due to internal
problems in the office of the sheriff.
 CA modified the Compromise agreement reducing the penalty charge to 1/2%
from 3% and 2% of the outstanding balance from 5%


ISSUE:
 WON CA’s modification of the Compromised agreement was valid when they applied art.
1229 of the civil code?- NO SIR!

HELD/RATIO:
 Explanation lang regarding kung kalian ma-modify yung executory judgment:
o Such a final and executory judgment cannot be modified or amended.
o If an amendment is to be made, it may consist only of supplying an omission,
striking out a superfluity or interpreting an ambiguous phrase therein in relation to
the body of the decision which gives it life
o A compromise judgment should not be disturbed except for vices in consent or
forgery
 In the present case, the compromise agreement was voluntarily entered into by the
parties assisted by their respective counsel and was duly approved by the trial court.
Indeed, it was confirmed by the respondent appellate court to be lawful. There was,

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