241. I.

In obligations with a penal clause, the penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance; therefore, proof of actual damages suffered by the
creditor is necessary in order that the penalty may be demanded.

II. A stipulated penalty may be equitably reduced by the courts if it is iniquitous or unconscionable or if
the principal obligation has been partly or irregularly complied with.

A. Only I is true

B. Only II is true

C. Both are true

D. Both are false

B. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance (Art. 1226, NCC); therefore, proof of actual damages
suffered by the creditor is not necessary in order that the penalty may be demanded.

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on
the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of
the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a
breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof
on the existence and on the measure of damages caused by the breach. Although a court may not at
liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order, or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the
principal obligation has been partly or irregularly complied with (Tolomeo Ligutan & Leonidas De La
Lanna vs. CA & Security Bank & Trust Company, G.R. No. 138677, February 12, 2002).

As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms
and conditions as they see fit as long as they are not contrary to law, morals, good customs, public
order, or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract in
two instances: (1) if the principal obligation has been partly or irregularly complied; and (2) even if there
has been no compliance if the penalty is iniquitous or unconscionable (Filinvest Land, Inc., CA, et.al., G.R.
No. 138,980, September 20, 2005).

242. In the following instances, the penalty may be reduced by the courts, except:
A. When the principal obligation has been partly complied with by the debtor.

B. When the principal obligation has been irregularly complied with by the debtor.

C. If the penalty is iniquitous or unconscionable.

D. If the penalty has been remitted.

D. The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial
Banking Corp. vs. Court of Appeals, the Supreme Court has tempered the penalty charges after taking
into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor
bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made
by the debtor. The stipulated penalty might even be deleted such as when there has been substantial
performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, or
when exceptional circumstances so exist as to warrant it (Tolentino Ligutan and Leonidas De La Llana vs.
CA & Security Bank & Trust Company, G.R. No. 138677, February 12, 2002).

243. I. The nullity of the penal clause does not carry with it that of the principal obligation.

II. The nullity of the principal obligation carries with it that of the penal clause.

A. Only I is true

B. Only II is true

C. Both are true

D. Both are false

C. The law provides that the nullity of the penal clause does not carry with it that of the principal
obligation. Moreover, the nullity of the principal obligation carries with it that of the penal clause.

X promised to pay P50,000 to Y on December 31, 2018. As an additional stipulation, they agreed that X
will be liable to deliver 1 kilogram of illegal drugs as penalty in case of failure to deliver his obligation on
maturity date. The obligation to pay P50,000 is valid; however, the penalty is void meaning as if it did
not exist from the very beginning. Thus, only the penalty is disregarded.

What if X promised to deliver one kilogram of illegal drugs to Y on December 31, 2018. As an additional
stipulation, they agreed that X will be liable to pay P50,000 as penalty in case of failure to deliver his
obligation on maturity date. The entire obligation is void. Accessory follows the principal.

244. R was an approved cardholder of Y bank. R made some purchases through the use of the said credit
card and defaulted inn paying for said purchases. She subsequently received a letter dated January 5,
2018 from Y bank, demanding payment of the amount of P100,000.

Under the Terms and Conditions Governing the Issuance and Use of the card, the charges or balance
thereof remaining unpaid after the due date indicated on the monthly Statement of Accounts shall bear
interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month.
Is the penalty reasonable or iniquitous?

A. The stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interest, is
indeed iniquitous and unconscionable.

B. The stipulated penalty charge of 3% per month or 36% per annum is not iniquitous and
unconscionable as the parties freely stipulated on such agreement.

C. The stipulated penalty charge of 3% per month or 36% per annum is iniquitous and unconscionable
hence it should be reduced to the legal interest of 2.5% per month.

D. The stipulated penalty charge of 3% per month or 36% per annum is not iniquitous and
unconscionable; thus, the court need not reduce it.

245. P acquired two parcels of land in an auction sale from the Land Bank of the Philippines. NOG, an
agriculture cooperative, was the occupant of the disputed parcels of land under a subsisting contract of
lease with Land Bank. The monthly rent is P30,000.
Upon the expiration of the lease contract, P demanded that NOG vacate the leased premises and
surrender its possession to P. NOG refused on the ground that it was, at the time, contesting P’s
acquisition of the parcels of land in question.

Subsequently, P files an action for ejectment. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to him.

A. The penalty is reasonable because the parties agreed on it hence, it is presumed that they can afford
such penalty.

B. NOG was an agricultural cooperative, ordering it to pay a penalty of P5,000 per day on top of the
monthly rent of P30,000 would seriously deplete its income and drive it to bankruptcy. Hence, the
penalty should be reduced.

C. The penalty is not reasonable because it is P150,000 per month (P5,000 x 30).

D. The penalty is not reasonable because P5,000 per day is burdensome.

246. X, Inc., awarded to Y Corp. the development of its residential subdivisions consisting of 2 parcels of
land. Liquidated damages were fixed by the parties to serve as penalty in case Y Corp. fails to fulfill its
obligation on time.

Notwithstanding three extensions granted by X Corp. to Y Corp., the latter failed to finish the contracted
works. It is 94.53% complete. X Corp. wrote Y Corp. advising the latter of its intention to hold Y Corp.
liable for liquidated damages (penalty) which it had incurred. Y Corp. claims that its failure to finish the
contracted work was due to inclement weather.

A. The liquidated damages agreed upon by the parties should not be reduced because the penalty is
not iniquitous.

B. As it is settled that the project was already 94.53% complete and that X Corp. did agree to extend the
period for completion of the project, which extensions X Corp. included in computing the amount of
the penalty, the reduction thereof is clearly warranted.
C. The liquidated damages should not be reduced at it is clear manifestation of the parties’ meeting of
the minds.

D. The liquidated damages should be reduced because there is no substantial difference between a
penalty and liquidated damages.

247. Are contracts, whereby the parties undertake reciprocal obligations to resolve their differences
thus avoiding litigation, or put an end to one already commenced?

A. Mutual desistance

B. Compromise agreement

C. Waiver

D. Memorandum of Agreement

B. Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to
resolve their differences thus avoiding litigation, or put an end to one already commenced.

Reciprocal concessions are the very heart and life of every compromise agreement. By the nature of a
compromise agreement, it brings the parties to agree to something which neither of them may actually
want, but for the peace it will bring them without a protracted litigation. Essentially, the parties to it
have to bend a little or else break in the process. In Raneses v. Teves, it was stated “it is the trial court’s
duty to examine and study the compromise agreement should be eschewed.” A watchful fidelity to this
doctrinal yardstick has always been enjoined to arrive at a peaceful settlement of a mired justiciable
issue.

Once approved judicially, the Compromise Agreement cannot and must not be disturbed except for
vices of consent or forgery.

In Abinujar v. Court of Appeals, the Supreme Court even went further and declared that the
nonfulfillment of the terms and conditions of a Compromise Agreement approved by the court justifies
execution thereof and the issuance of the writ for the said purpose is the court’s ministerial duty
enforceable by Mandamus (Aurelio P. Alonzo and Teresita A. Sison vs. Jaime and Perlita San Juan, G.R.
No. 137549, February 11, 2005).

248. It means not only the delivery of money but also the performance, in any other manner, of an
obligation.

A. Payment

B. Condonation

C. Merger of rights

D. Compensation

A. In Jimenez v. NLRC, the Supreme Court held that were one, sued for a debt, admits that the debt was
originally owed, and pleads payment in whole or in part, it is incumbent upon him to prove such
payment. Indeed, though the plaintiff may admit that some payments have been made, this admission
does not change the burden of proof. The defendant still has the burden of establishing payment
beyond those admitted by the plaintiff.

249. I. The general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove nonpayment.

II. The rule so well-settled is that a receipt of payment is the evidence of the fact of payment.

A. Only I is true

B. Only II is true

C. Both are true

D. Both are false

C. Apropos is the rule so well-settled that a receipt of payment is the best evidence of the fact of
payment. In Monfort v. Aguinaldo, the Supreme Court held that the receipts of payment, although not
exclusive, were deemed to be the best evidence.
250. I. The law provides that the delivery of mercantile documents including checks “ shall produce the
effect of payment only when they have been deposited .”

II. A debt shall not be understood to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be.

A. Only I is true

B. Only II is true

C. Both are true

D. Both are false

B. A receipt is a written and signed acknowledgment that money has or goods have been delivered,
while a voucher is a documentary record of a business transaction. The references to alleged check
payments in the vouchers presented do not vest them with the character of receipts.

It should be noted that a voucher is not necessarily evidence of payment. It is merely a way or method
of recording or keeping track of payments made. It must be supported by an actual payment of cash
duly receipted for as is customary among businessmen or the issuance of a check subsequently
encashed. The law provides that the delivery of mercantile documents including checks “shall produce
the effect of payment only when they have been cashed (Aurelio P. Alonzo and Teresita A. Sison vs.
Jaime and Perlita San Juan, G.R. No. 137549, February 11, 2005).”