8 Different kinds of Obligations

PART 4 (Article 1207-1230)

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A. Identify whether the following period is suspensive or resolutory period.

1. ___________________K will sell H raincoats at P100 a piece when the next typhoon hits the Philippines

2. ___________________ M agreed to lease his condominium unit to N for one year. M can immediately
demand the unit upon perfection of the contract.

3. ___________________ Lina will sell his house to Danny when the volcano which is near the house of
Danny irrupts.

4. ___________________ Don will sell his car to Donya when a new car which Don bought arrives.

5. ___________________ Maya agreed to lease her commercial property to Tony for 5 years.

B. Answers the Following.

1. Two instances when the courts can fix the period?

a.

b.

2. Six instances when the debtor loses her right to make use of the period.

a.

b.

c.

d.

e.

f.

3. Three rules on the loss of all the objects and some obligations.

a.

b.

c.
4. Two kinds of periods

a.

b.

5. In case there is a fault on the part of the creditor,and the debtor still wants to maintain the contract,
what are the two alternative option of the debtor other than rescission?

a.

b.

SECTION 4.
Joint and Solidary Obligations
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestation. There is a solidary
liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. (1137a)

Art. 1208. If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be presumed to
be divided into as many shares as there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules of Court governing the multiplicity
of suits. (1138a)

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all the debtors. If
one of the latter should be insolvent, the others shall not be liable for his share. (1139)

The provisions on joint and solidary obligations only apply when there is multiplicity of
parties; I,e., where there are two or more debtors, or two or more creditors, or both. The relationship
of the debtors or creditors, as the case may be, may either be joint or solidary.

Assuming that there are 2 debtors, D1 and D2, who owe the sum of P1,000.00 to C1, the
following questions becomes relevant:

a. How much can C1 collect from D1 and how much from D2?

b. Can C1 collect the entire amount from either D1 of D2? If she does,what relationship results
between D1 and D2?

c. Can either D1 or D2 refuse to make payment of the entire amount to C1 upon the latter’s
demand when the obligation is due?

d. If there is a co-creditor, C2, how much is entitled to collect and from whom can she collect?

Answers to these questions would depend on whether or not D1 and D2 are jointly or solidarily
bound, and whether C1 and C2 are jointly or solidarily bound.

Joint obligations

Joint obligations, according to art. 1208, are those where the payment and fulfillment of the
obligation is done proportionately, in case the joint parties are debtors. On the other hand, if the joint
parties are the creditors, then the right to demand from the debtor/s proportionately distributed
among the creditors. The proportionate shares in the debt of the debtors, or in the credit of the
creditors, are determined by contract or agreement. If no agreement had been made then the debtors
are presumed as equally obligated, and the creditors equally entitled under the obligation. If the
nature of the debt or of the credit is not indicated, the presumption is that the debt or credit is joint. “
It is necessarily follows that a joint creditor cannot act in representation of the others, Neither can a
joint debtor be compelled to answer for the liability of the others

Joint divisible obligations

If the obligation can be performed partially, like payment of money, the obligation is a joint
divisible obligation.

Illustrations :

a. D1 and D2 borrowed P1,000,000 from C1, which they used for business. The debt is
presumed joint because it is not stated how the debtors are bound vis-a-vis the creditor.
Therefore , on due date, D1 and D2 are obliged to pay P500,000 each to C1. If D1 is insolvent,
C1 cannot compel D2 to pay for the share of D1.

b. D1 borrowed P1,000,000 from C1 and C2 . This is also presumed to be joint credit based on
the reasoning above. On due date, C1 can only collect from D1 the amount of P500,000, C1’s
share in the credit.

c. D1 and D2 borrowed P1,000,000 from C1 and C2, and which money was used for D1 and
D2’s business. This obligation is presumed joint-both credit and debt. On the due date, D1and
D2 are obliged to pay P500,000 each. Moreover, D1 is only obliged to pay P250,000 to C1, and
the same amount to C2. On the other hand, C2 can only collect his share of P500,000 in the total
credit from D1 and D2.

Further, C1 cannot collect his entire share of P500,000 from D1 alone and leave it to C2 to
collect his share of P500,000 from D2, because what if D2 is unable to pay C2? This will mean
that one creditor, C1, gets his share, while C2, another creditor, does not get paid.

Joint indivisible obligations

In case the object involved is an indivisible object, such as car, or if the obligation should be
done as one; I.e., cannot be performed partially? A creditor must make a demand on all debtors, who
are jointly bound to deliver an indivisible object. If one of the debtors should be insolvent, the others
will not be liable for his share . The creditor must, therefore, wait until the insolvent debtor can pay.

Illustration

D1, D2 and D3 are obliged to deliver a car to C1, and D3 refuses to agree to the delivery
of the car. Since the car cannot be delivered partially, the remedy available to C1 is to seek
indemnification from all of the joint debtors. The obligation to give a car becomes a monetary
liability, and debtors D1,D2 and D3, will proportionately liable to C1 for their respective shares
in the car’s value.

In addition, D3 can be held liable for damages due to non compliance by the debtors
with their obligation to deliver a car.
Nature of solidary obligation

Solidary obligation, allows the creditor, who is solidarily bound with other creditors, to collect
the entire debt from a debtor. Thereafter, the solidary creditor who collects shall have the obligation
to remit or give the respective shares of the other solidary creditor/s. Solidary debtors on the other
hand, are obliged , upon proper demand when the obligation is due and demandable, to pay or fulfill
the whole obligation has a right to seek reimbursement from the other solidarily bound debtors their
respective shares in the debt.

How to determine whether the obligation is solidary

The law provides that the existence of a solidary relationship can never assumed, and solidarity exists
only if:

a. the obligation expressly so states (conventional solidarity)

b. The law requires solidarity (legal solidarity)

c. The nature of the obligation requires solidarity (real solidarity)

The idea of solidarity can be expressed in many different ways. The following words or phrases
are shown to result in a solidary relationship.

a. jointly and/or severally

b. solidaria

c. in solidum

d. together and /or separately

e. individually and/or collectively

f. juntos o separadamente

g. mancomum o insolidum

h. jointly and severally guaranteed

i. individually and jointly

The same concept of solidarity can be expressed by a promissory note signed by a multiplicity of
parties, and the pronoun used is singular as when D1, D2 and D3 sign a promissory note, and say: “I
promise to pay. . .

There are different types of solidary relationships.

 a. Passive solidarity - where there is solidarity on the part of the debtors, and each debtor can
be made liable for the fulfillment of the entire obligation.

b. Active solidarity - where solidarity is on the part of the creditors and any one of the creditors
can demand the fulfillment of the entire obligation.

c. Mixed solidarity - where the debtors and creditors are solidarily bound, and each debtor is
liable to fulfill the entire obligation, and each creditors has a right to demand entire compliance
with the obligations.

Illustrations

a. D1 and D2 borrowed jointly and/or severally from C1 the amount of P1,000,000. On

due date, C1 can collect the entire amount from either D1 or D2. After D1 pays, the
obligation is extinguished, and D1 has the right to demand reimbursement from D2 her
share in the debt.

b. D1 borrowed the amount of P1,000,000 from C1 and C2, who are solidary creditors.
On due due date, C1 can collect the entire amount form D1. After C1 collects , she has the
obligation to give the C2’s share in the credit.

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility. (n)

Solidarity does not mean indivisibility since solidarity refers to the nature of the obligation,
while indivisibility refers to the nature of the object of the prestation. And as previously discussed,
there are specific rules that govern joint obligations involving indivisible objects. In sum, there are
joint indivisible and joint divisible obligations, and there are solidary indivisible and solidary divisible
obligations.

Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions. (1140)

Solidarity among creditors and debtors may exist even if they are bound by different terms and
conditions. Thus, any or all of the solidary debtors, can be compelled to fulfill the obligation and
conversely, any or all of the solidary creditors can demand fulfillment of the obligation despite said
varying terms and conditions.

Illustration

On 31, December, D1, D2 and D3 solidarily borrowed P15,000 from C1. The loan
contract also provides the following additional details:
 D1’s share in the debt is P5,000. and is payable on July 31; D2 is obliged for P5,000. and
is payable at P1,000 per month from January to May; and D3 is obliged to pay C1 P5,000. if C1
finishes studying her French classes. Starting January. D2’s obligation to pay P1,000 arises. In
this case C1 can collect from D1, D2, of D3 P1,000 per month, If D1 or D3 pays, she will have the
right to seek reimbursement from D2 of D2’s share. On July 31, D1’s obligation arises. In case
C1 can collect from D1, D2 and D3 P5,000., and if D2 or D3 pays, she can seek reimbursement
from D1. If C1 successfully completes her French classes, then D3’s obligation arises and this
can be collected from D1, D2 and D3. If D1 or D2 pays,she can demand reimbursement from D3.

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but
not anything which may be prejudicial to the latter. (1141a)

Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

In understanding the relationship of solidary creditors among themselves, it must be realized

that solidary creditors mutually represent each other. Thus , solidary creditors may do whatever is
useful to the others, but not anything which may be prejudicial to the latter.

On the other hand, if a solidary creditor performs a prejudicial act, such as condoning, or
unilaterally extinguishing, the entire, the entire debt, then said creditor would be liable to the other
creditors for their respective shares under Article 1215 and 1219

An off-shoot of the mutual representation among solidary creditors, which implies a

relationship of trust, is the rule that solidary creditors cannot assign their rights without the consent
of the others.

Illustration

D1 and D2 borrowed the amount of P1,000,000 from C1 and C2 with both sides being
bound jointly and/or severally. Before the due date, C1 condones the entire debt, thus
extinguishing the debt of D1 and D2 C1’s act prejudices the right of C2 to recover from D1 and/
or D2 and is contrary to Art. 1212. Therefore,C1 will be liable to give P500,000 to C2

If prior to the due date, C1 decides to assign his rights to X, C1 must first got the consent
of C2 before C1 can transfer his rights.

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him. (1142a)

If a solidary creditor demands that payment of the debt be made to her, the debtor is required
to make payment to said creditor. It must be pointed out though that if the debtor makes payment to
any other solidary creditor receives payment, this should result in the cancellation of the obligation
because of the mutual agency among solidary creditors. However , Tolentino opines that if the debtor
does not pay the solidary creditor who makes a demand, and instead gives payment to another
solidary creditor, who in turn does not give the share of the others, the debtor could be made to pay
again the full amount less the share of the creditor who received payment. The remedy of the debtor is
to recover the excess amount from the creditor who did not give the share of others on the ground
that no one should be unjustly enriched at the expense of another.

Illustration

D1 and D2 borrowed P1,000,000 from C1 and C2 with both sides being bound solidarily.
On the due date, C1 collects from D1. However instead of paying C1, D1 gives payment to C2. If
C2 gives the share of C1, the obligation is extinguished. However if C2 does not give the share
of C1, then C1 can demand payment of his share from D1.

In case, the solidary creditors make simultaneous demand, the debtor can chooses to
whom payment will be given.

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the
solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without
prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation corresponding to
them. (1143)

The first paragraph of the provision refers to ways of extinguishing the obligation aside from
payment:I.e., novation compensation, confusion, and remission or condonation. These are discussed
under the pertinent topic on extinguishing obligations.

It also provides for the liability of a solidary creditor who either a) extinguishes the debt on
his/her own. Or b) collects the entire debt. In either case, the solidary creditor concerned is obliged to
give the share of the other creditor.

Condonation/remission before payment

Under art. 1219 , the remission made by the creditor of the share pertaining to one of the
solidary debtors does not release said debtor from his responsibility towards the co-debtors if the
debt had been totally paid by any of the co debtors before the remission was affected. Conversely, if
the remission is done before payment, then the debtor whose share is remitted, has the right to refuse
demand for reimbursement by the debtor who pays the entire debt.

Illustration

D1, D2 and D3 borrowed the amount of P1,500,000 from C1 and C2 with both sides
being bound jointly and/or severally. Before the due date, C1 condones the share of D1 in the
debt, without informing D2, D3, and C2. Subsequently, C2 demands payment from D2, who
 pays the entire debt. In this case, D2 cannot demand reimbursement from D1 since D2 should
have paid only P1,0000,000. D2 can therefore recover P500,000 from C2 and C2 can recover
P250,000. from C1. P250,000 is half of D1’s debt that was condoned by C1.

Condonation at the request of one debtor

Art. 1220, on the other hand, provides that if the remission of the entire obligation is obtained by
one of the solidary debtors, said condition does not entitle her to reimbursement from his co-debtors.

Illustration

D1, D2 and D3 borrowed the amount of P1,500,000 from C1 and C2, with both sides being
bound jointly and/or severally. Before due date. D1 requests C2 to condone the entire debt. C2
agrees, thus extinguishing the debt of D1, D2 and D3. Despite the fact that it was through D1’s
effort that the obligation was extinguished. D1 cannot demand for reimbursement from D2 and
D3 . And C2 will be liable to shoulder C1’s share in the credit.

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected. (1144a)

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his co-debtors,
in proportion to the debt of each. (1145a)

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-
debtors if such payment is made after the obligation has been prescribed or become illegal. (n)

If the debtors are solidarily bound, and payment is made by one of them the following rules apply:

a. Payment by any of the debtors extinguishes the obligation. If two or more solidary debtors offer
to pay then the creditor may choose from among them.

b. The debtors who make payment may claim reimbursement plus interest from the other
debtors. The interest rate, unless otherwise agreed upon, shall be the legal rate. If payment is
made before the due date then interest cannot be collected.
 c. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the
debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the
debt of each. The debtor paying the debt should not be prejudiced by the insolvency of one of
them. Once the insolvent debtor becomes solvent then she is obligated to reimburse the others for
his share plus interest.

d. The creditor can continue to make demand for payment on any of the debtors so long as the
obligation remains unfulfilled.

e. If a creditor demands payment, a solidary debtor is not prevented from raising appropriate
defenses available to herself such as those mentioned in Art. 1222.

Illustration

D1, D2 and D3 borrowed solidarily P 1,5000,000 from C1 and C2 before the due date, D1
offered to pay the entire obligation, which was accepted by C1. On the due date, D1 can ask for
reimbursement from D2 and D3, but without interest on the payment made.

However, if D1 paid on due date, D1 can demand for reimbursement from D2 and D3
their respective shares, with interest to be computed starting on the date of payment.

If D2 is unable to reimburse D1 his share, then D2’s share will be proportionately borne
by D1 and D3. D3 will have to pay P750,000; I.e., P500,000.00 (D3’s share) and P250,000. (D3’s
proportionate sale in D2’s debt). The other half of D2’s share-P250,000 will be shouldered by
D1. This is without prejudice to the right of D1 and D3 to demand payment from D2.

When paying debtor cannot demand reimbursement

If payment is made for an obligation that has become illegal or prescribed, the debtor, who
voluntarily and with knowledge of the situation, makes payment does not have the right to ask for
reimbursement from the other debtors. This is because the creditor/s would have already lost the
right to demand or enforce payment.

The failure of the creditor to demand performance of the obligation “ for an unreasonable
length of time renders the contract ineffective.More specifically, a right of action based on written
contract and law prescribes in 10 years that based on oral contract and quasi contract, 6 years, and if
based on quasi-delict, 4 years.

Illustrations

a. On 1 January, 2010, D1, D2 and D3 borrowed P1,5000,000 from C1 and C2, and the loan is
evidenced by a promissory note. C1 and C2 do not make demand on the due date. Fifteen (15)
years after the due date, D1 goes to the house of C1 to pay the debt, despite the fact that the
obligation has been prescribed, and neither C1 nor C2 can legally demand payment. In this
case, D1 cannot demand reimbursement from D2 and D3, Neither can D1 recover payment
from C1 because D1 has opted to voluntarily fulfill a natural obligation-the debt owed.
 b. On 1 January 2010, D1, D2 and D3 borrowed P1,500,000. from C1 and C2, and the loan is
evidenced by a promissory note. C1 and C3 do not make a demand on the due date. Fifteen (15)
years after the due date, C1 goes to the house of D1 to demand payment despite the fact that
the obligation has been prescribed. Because of the demand, D1 pays C1. In this case, D1 cannot
demand for reimbursement from D2 and D3. But D1 can recover what was paid from the
creditor who made the demand.

Art. 1219. The remission made by the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility towards the co-debtors, in case the
debt had been totally paid by any one of them before the remission was effected. (1146a)

* The comments in Art. 1215 explained condonation/remission before payment

Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does
not entitle him to reimbursement from his co-debtors. (n)

*The comments under Art 1215 specifically topic of “condonation at the request of one debtor”

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault
of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding
paragraph shall apply. (1147a)

In the event of the loss of the prestation in a solidary obligation is due to a fortuitous event,
then the obligation shall be extinguished. If the prestation is lost due to a fortuitous event, after a
solidary debtor has incurred delay. All the debtors shall be be liable for the payment of the price of the
item lost plus damages, interest and penalties, without prejudice to the right of the debtors to recover
from the debtor who is guilty of legal delay.

If the loss is due to the fault or negligence of any of the solidary debtors, all shall be liable to the
creditor for the price of the item lost, including the payment of damages and penalties/interest. The
innocent debtors though may collect the damages they paid from the guilty or negligent debtor.
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally belong to the others, he may
avail himself thereof only as regards that part of the debt for which the latter are responsible.
(1148a)

A debtor on whom demand is made need not immediately fulfill the obligation as there are
possible reasons or defenses on why said debtor should not make payment. Said defense could either
be..

a. Derived from the nature of the obligation, or

b. Of those which are personal to her, or

c. Pertain to her own share

d. The defenses of the other debtors.

In connection with the last one, the debtor can only invoke that part of the debt for which the
other debtors are liable.

Illustrations

On 1 January, 2010, D1, D2 and D3 borrowed solidarily P1,500,000 from C1 and C2 and
the loan is evidenced by a promissory note. On due date, C1 makes a demand on D2 to pay. D2’s
defenses may vary depending on the circumstances as the following scenarios show:

a. D2 can refuse payment of the entire obligation, using as a defense those which are
derived from the nature of the obligation; e,g., the obligation has been prescribed. In this
case, D2 will not have to pay anything.

b. D2 can refuse payment using as defense those which are personal to her; e.g., D2 was
minor when the contract was entered into. In this case D2 will not be liable for any
amount; but the other debtors are. The other debtors will be liable for the entire
amount less the share of D2.

c. D2 can raise as defense that which pertains to his share. If D2’s share was previously
remitted or condoned by C2, D2 will have to pay the entire obligation minus his share;
I.e., (P1,500,000. less P500,000) with a right to ask for reimbursement from D1 and D3
their respective shares of P500,000 each.

d. D2 can raise the defense of the other debtors which are personal to them. If D1 was
insane at the time the contract was entered into. D2 can invoke said insanity, and D2
will have to pay the obligation minus D1’s share; I.e., P1,500,000 less P500,000. D2 then
has the right to ask for reimbursement from D3 only.

e. D2 can raise the defense of the other debtors which pertain to the latter. If D1’s share
has been previously condoned, D2 can invoke said condonation, and D2 will have to pay
 the obligation minus D1’s condoned share; I.e., (P1,500,00 less P500,00.). D2 then has
the right to ask for reimbursement from D3 only.

SECTION 5
Divisible and Indivisible Obligations

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in
which there is only one debtor and only one creditor does not alter or modify the provisions of
Chapter 2 of this Title. (1149)

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may have been
ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding
portion of the price of the thing or of the value of the service in which the obligation consists.
(1150)

Art. 1225. For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by their
nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case. (1151a)

Essentially, an indivisible obligation cannot be performed partially. This notwithstanding, even

if the prestation is divisible in nature; ie., can be performed in parts like payment of sums of money
which can be given in tranches, such obligation may become indivisible if so provided by law or
intended by the parties. Thus, in this situation, the whole some should be paid when due. Another
example is the case involving Precinct Count Optical Scan (PCOS)) machine, wherein the court said
that while hardware and software are separable in nature, however, by virtue of contractual
stipulation, the two are treated as inseparable. Thus, COMELEC is obliged to purchase the hardware
and the proprietary software and firmware from Smartmatic-TIM.

If the obligation is joint and involves an indivisible object, such as a car, then all the joint
debtors must perform the obligation together. If any one of the joint debtors refuses to do his/her
part, then the obligation will be reduced to a monetary liability. Thus, the debtors shall pay their
proportionate share in the debt, with the guilty debtor being additionally liable for damages.

SECTION 6
Obligations with a Penal Clause

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. (1152a)

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. (1153a)

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

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. (1154a)

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.
(1155)

Obligations with penal clauses actually involve two obligations, I.e., the principal obligation and
an accessory obligation (the penalty clause), which becomes enforceable if the debtor fails or refuses
to perform the principal obligation. The penalty clause would include the terms for indemnity in case
of breach of the principal obligation. The purpose of a penal clauses are:
 a. to ensure the performance of the principal obligation

b. To substitute for damages.

In payment of liquidated damages,as this penalty is known, the creditor need not prove the
amount of damages she suffered. Moreover in case of non-performance the debtor is presumed to be
at fault unless she can prove that what caused non-fulfillment is a fortuitous event, or the creditor
herself.

Illustration

A, a software company, enters into a confidentiality agreement with it employees,

whereby the latter agree not to reveal the products and processes of the company to any party,
otherwise the employee can be held liable for damages amounting to P1,000,000. In this case, if
the employee leaks relevant information on the corporation to third parties, the company can
hold the employee liable for damages amounting to P1,000,000. The company need not prove
the amount of actual damages is suffered before it can collect the P1,000,000 penalty.

Penalty does not take the place of the principal obligation

A debtor cannot just exempt herself from fulfillment of the obligation by paying penalty.
Neither can the creditor ask for the fulfillment of the obligation and the penalty at the same time
unless this right is granted to her. In this connection, a bank that imposes a penalty for late payment of
amortizations may collect both the principal debt and the penalty provided that such right has been
spelled out in the loan agreement.

Other rules

The penalty though cannot be iniquitous or unconscionable. The law provides that a penalty may
be reduced by the courts:

a. If the principal obligation has been partly or irregularly performed.

b. If the penalty is iniquitous or unconscionable although there is no performance.

Some factors to be considered by the court in determining whether the penalty is iniquitous or
unconscionable are: “the type, extent and purpose of the penalty; the nature of the obligation; the
mode of the breach and its consequences; the supervening realities; the standing and relationship of
the parties; and the like.

Being merely an accessory obligation, the voiding of the penal clause will not effect the principal
obligation. If the principal is void though, the penal clause is necessarily extinguished.

Illustrations
 a. A agreed to deliver 10,000 sacks of alum powder to B for P100,000. If a fails to deliver, she
will have to give 100 sachets of cocaine. In this case the principal obligation is valid; but not the
penal clause.

b. A agreed to deliver 100 sachets of cocaine to B for P10,000. If A fails to deliver, she will have
to give 10,000 sacks of alum powder. In this case the principal obligation is void. Thus the
penal clause is also void.

Guided Practice

Is the solidary or joint obligation of the debtor or creditors has an absolute rule?
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Note: The evaluation / assessment will be posted / published in the Google Classroom.

Thank you!

References :
Spouses Villamor vs. Court of Appeals, et.al. G.R. No.97332, October 10,1991
Justo P. Torres, Obligation and Contract, 2003,p90.
Barbasa vs. Tuquero, et.al. G.R. No. 163898, December 23,2008.
Pryce Corporation vs. Philippine Amusement and Gaming Corporation, supra.