Obligation with a Penal Clause

Accessory obligation follows Principal obligation and not other way around.
Article 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is
demandable in accordance with the provision of this code.
A penal clause is an accessory undertaking attached to an obligation to assume greater liability
on the part of the obligor in case of breach of the obligation.
Purposes of Penal Clause
1. Ensure performance
2. Substitute the indemnity for the damages and the payment and the payment of interest in
case of noncompliance
3. Punish the debtor for the non-fulfillment of his obligation.
Example:
Pogi promise to construct the house of Ganda within 90 days for One Million Pesos
“For every day’s delay after the stipulated 90s, Pogi would pay a fine/penalty of Php 10,000.”
Subsidiary Penal Clause:
Pogi obliged himself to give Ganda a specific car on Dec 25, if he fails to do so, Pogi will pay
100,000.
Joint or cumulative penal clause:
Pogi obliged himself to give Ganda a specific car on Dec 25, if he fails to do so, Pogi, in addition
to the car must pay Ganda 100,000.
Article 1227:
ART. 1227.
The debtor cannot exempt himself from the performance of the obligation by paying the penalty,
save in the case where this right has been expressly reserved for him. Neither can the creditor
demand the fulfillment of the obligation and the satisfaction of the penalty at the same time,
unless this right has been clearly granted him. However, if after the creditor has decided to
require the fulfillment of the obligation, the performance thereof should become impossible
without his fault, the penalty may be enforced.
“Penalty is not a substitute for Performance of Obligations”
Can the debtor exempt himself from fulfilling the obligation by just paying the penalty?
The debtor cannot exempt himself from the performance of the obligation by paying the penalty,
save in the case where this right has been expressly reserved for him.
General Rule: He cannot just opt to just pay the penalty so that he will not fulfill his obligation.
Exception: If that right has been granted to him or if both debtor and the creditor have agreed
that he can opt to just pay the penalty without paying for or without fulfilling his obligation.
Example: Pogi oblige himself to construct the house of Ganda and to finish it within 3 months,
otherwise Pogi is going to pay Ganda, Php, 100,000 as penalty. What are the rights and
obligations of the parties?
I. Pogi cannot just pay Ph 100,000 and refuse to construct the house of Ganda, unless of course,
if there is an agreement giving him that option.
2. Ganda cannot demand from Pogi that he will construct the house and at the same time pay Php
100,000, unless agreed upon.
3.If Ganda demand fulfillment, but the performance became impossible due to Pogi's fault,
without the fault of Ganda, Ganda can ask the payment of penalty.

Can creditor demand the fulfillment of the obligation Plus payment of the penalty?
Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless the right has been clearly granted to him.
General Rule: No, he cannot demand for the fulfillment of the obligation plus the penalty.
Exception: When the parties have agreed that he may do so.
However, if after the creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the penalty may be enforced.
Art. 1228: Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded.
Example:
Pogi promised to deliver a specific car to Ganda. The contract carried a penal clause that in case
of non-compliance, Pogi would have to pay a penalty of P20,000.00. Pogi did not deliver theand,
as a consequence, Ganda suffered damage in the amount of P15,000.00.
Note: “Damages recoverable in addition to penalty must be proved”
Can debtor refuse to pay the penalty for failure by the creditor to prove that he suffered
damages?
No. What the creditor needs to prove is that the debtor failed to fulfill his obligation. He did not
need to offer proof that he in fact suffered damages from the non-fulfillment of the debtor. in fact
one of the purposes or reasons why there is a penalty is to liquidate the damages that the creditor
may have suffered and that liquidation of damages will already take the place of proof of actual
damages that may be suffered by the creditor so he need not prove damages to enforce the
penalty.

Article 1229 The court may reduce the penalty.

Article 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 has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Example: Pogi promises to deliver to Ganda 10 bottles of wine on Dec. 25, or upon failure to do
so, to pay a penalty of Php 5,000
Ganda cannot demand the 5,000 instead the court will reduce the penalty because of the partial
compliance.
Example: Pogi promises to pay Ganda 10,000 on Dec. 25, or upon failure, to pay a penalty of
Php 50,000
Ganda cannot get the 50,000 because its not reasonable and it will be reduced by the court. It will
reduce by court event no performance.
Article 1230: The nullity of the penal clause does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries with it that of the penal clause.
For example, if someone takes out a loan and puts up their house as collateral, the obligation to
pay back the loan is the primary obligation, while the obligation to give up the house if the loan
is not repaid is the accessory obligation.
Principal Obligation – P100,000 debt
Penalty – sell prohibited drugs
The principal obligation, which is the P100,000 debt, is a valid obligation.
The penalty (selling of prohibited drugs) is VOID.

Example: Principal obligation – sell prohibited drugs

Penalty – P100,000
Here, the principal obligation is VOID – selling prohibited drugs.
Even if accessory obligation is right, if the principal obligation is VOID, then the accessory
penalty is also void.

Example:
Pogi obliged himself to give Ganda a pack of shabu, and in case of non-compliance,
Php500,0000 will be forfeited from Pogi.

Example:
Pogi obliged himself to construct a house for Ganda within 3 months. In case Pogi is not able to
perform his obligation within the stipulated period, Pogi will give Ganda a pack of shabu.