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NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF
ACCOUNTANTS

OBLIGATIONS WITH
A PENAL CLAUSE
OBLIGATIONS AND CONTRACTS
PREPARED BY: Razon, Mariz Andrea S.

DISCLAIMER: This paper is prepared by bonafide NUJPIANS for A.Y. 2022-2023.

The National University Junior Philippine Institute of Accountants together with the BS Accountancy
students at National University made every effort to ensure and help every student during this time of
the pandemic. Acknowledgment for the owner/s of the copyrighted material used in preparing these
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including whether such use is of a commercial nature or is for non-profit educational purposes.”
Hence, no part of this handout may be subsequently distributed, uploaded, published, displayed,
reproduced, modified, and sold for profit in any form without permission from the preparers.

Furthermore, the violation of these acts is punishable by law. In no event will the National University
Junior Philippine Institute of Accountants together with the preparers and faculty members be liable
to any violation committed by the users of these handouts.
EXCLUSIVE FOR ACCOUNTANCY STUDENTS OF NATIONAL UNIVERSITY ONLY

PRINCIPAL OBLIGATION VS. ACCESSORY OBLIGATION

❖ PRINCIPAL OBLIGATION: can stand by itself and its validity & existence does not depend
on another obligation.

❖ ACCESSORY OBLIGATION: attached to the principal obligation and cannot stand alone

❖ OBLIGATION WITH A PENAL CLAUSE

❖ Type of obligation that contains an accessory (which is the penal clause) undertaking to pay a
previously stipulated indemnity in case of breach of the principal prestation.
❖ It is imposed with penal clause to primarily induce the fulfillment of the principal obligation.

❖ PENAL CLAUSE
❖ DEFINITION: An accessory undertaking to assure greater liability in case of breach.
❖ PURPOSE: To ensure performance of an obligation and to substitute for damages and the
payment of interest in case of non - compliance.

❖ AS COMPARED TO A CONDITION:
o Penal clause is an obligation although accessory, while condition is not.
o Penal clause may become demandable in case of non – performance, while condition
is never demandable.

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 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF
ACCOUNTANTS

❖ KINDS OF PENAL CLAUSE:

1) As to its origin:
a) Legal penal clause. — when it is provided for by law; and
b) Conventional penal clause. — when it is provided for by stipulation of the
parties.
2) As to its purpose:
a) Compensatory penal clause. — when the penalty takes the place of damages;
and
b) Punitive penal clause. — when the penalty is imposed merely as punishment
for breach.
3) As to its dependability or effect:
a) Subsidiary or alternative penal clause. — when only the penalty can be
enforced; and
b) Joint or cumulative penal clause. — when both the principal obligation and the
penal clause can be enforced.
❖ RELATED ARTICLES AND PROVISIONS:
ART. 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 provisions
of this Code.

❖ GENERAL RULE:
o The penalty shall substitute the indemnity for damages and payment of interest in case
of non-compliance.
o Hence, the payment of penalty also constitutes a payment of both the damages and
interest.
❖ EXCEPTION:
a) If there is a stipulation by the parties
b) If the debtor or obligor refuses to pay the penalty
c) If the debtor is guilty of fraud in the fulfillment of the obligation
• In such cases mentioned above, separate payment of penalty, damages and
interestwould be necessitated.
❖
❖ WHEN IS THE PENALTY DEMANDABLE:
o Only if there is a breach of the obligation and it is not contrary to law, morals, good
customs, public order, or public policy.
o Thus, if there is performance or fulfillment of the obligation, there is no need to demand
for the penalty

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.

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 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF
ACCOUNTANTS

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.

❖ GENERAL RULE:
o The debtor cannot just pay the penalty instead of performing the principal obligation.
o Similarly, the creditor cannot demand the simultaneous fulfillment of the obligation
and the payment of penalty.
❖ EXEMPTION:
o The debtor can exempt himself from the non-fulfillment of the obligation only when
"this right has been expressly reserved for him”; meaning, only if he has been expressly
granted the right to do so by the creditor.

ART. 1228. Proof of actual damages suffered by the creditor is not necessary in order that
the penalty may be demanded.

❖ GENERAL RULE:
o To enforce the penalty, only the violation of the obligation by the debtor would be
needed.
o It is not necessary that evidence that the creditor suffered from the non – fulfillment is
presented. Therefore, the creditor may enforce the penalty whether he suffered damages
or not.

❖ EXCEPTION:
o When damages are recovered in addition to the penalty (see exceptions in art. 1226),
the obligee must prove the amount of damages he actually suffered.

ART. 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.

❖ THE COURTS MAY REDUCE THE PENALTY WHEN:

a) There is partial or irregular performance of the obligation.
b) When the penalty is iniquitous or unconscionable.

ART. 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

❖ GENERAL RULE:
o Accessory follows the principal, and not vice versa.
o Hence, if the penal clause is void → the principal obligation remains valid.
▪ The penal clause is merely disregarded in such case.

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 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF
ACCOUNTANTS

▪ The injured party may recover for damages in case of non – performance; as if
there was no penalty stipulated.
o Similarly, if the principal obligation is void → the penal clause is likewise void.
▪ Since the penal clause is an accessory obligation, it cannot stand alone in the
absence of the principal obligation
SOURCES:

De Leon, Hector M. (2021). The Law on Obligation and Contracts

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