Obligations with

a Penal Clause
Different Kinds of Obligations

1. Pure and Conditional Obligations

2. Obligations with a Period
3. Alternative and Facultative Obligations
4. Joint and Solidary Obligations
5. Divisible and Indivisible Obligations
6. Obligations with a Penal Clause
 Obligations with a Penal
Clause
It is an obligation which provides for a greater
liability on the part of the debtor in case of non-
compliance. The accessory undertaking on the part
of the debtor is called the penal clause.

EXAMPLE: D is obliged to construct a commercial

building for C within a period of three months. The
parties agreed that should D fail to finish the
construction of the building within the said period,
D shall pay C P1,000 for every day of delay as
penalty.
 Penal Clause
It is an accessory undertaking to assume
greater liability in case of breach. It is
attached to obligation in order to insure
their performance. It is a coercive means to
obtain from the debtor compliance of his
obligation.
 Kinds of Penal Clause
As to its origin:
1. Legal penal clause - one that is imposed
by law
2. Conventional penal clause - that which
has been agreed upon by the parties
 Kinds of Penal Clause
As to its purpose:
1. Compensatory penal clause - when the
penalty takes the place of damages
2. Punitive penal clause - when the penalty
is imposed merely as punishment for
breach.
 Kinds of Penal Clause
As to its demandability or effect:
1. Subsidiary or alternative penal clause -
when only the penalty may be asked
2. Joint or cumulative penal clause - when
both the principal contract and the
penal clause can be enforced.
 Penal Clause Distinguished
from Condition
1. Penal clause constitutes an obligation
although accessory, while a condition
does not.
2. Penal clause may become demandable
in default of the unperformed obligation
and sometimes jointly with it, while a
condition is never demandable.
Proof not required for actual
damages suffered if there is a
penalty
Proof of actual damages suffered by the
creditor is not necessary in order that the
penalty may be demanded.
 Rule in case obligation has a
penal clause
General rule: The penalty takes the place of the
damages and interest in case of non-compliance.

Exceptions, i.e., aside from the penalty, damages

and interest may also be demanded:
1. When there is stipulation to that affect
2. When the debtor refuses to pay the penalty
3. When the debtor is guilty of fraud in the
performance of the obligation. This is so
because there is no waiver of an action for
future fraud.
 Problem
D is obliged to deliver 10 sacks of rice to C
on May 10. The parties agreed that if D fails
to deliver on due date, he will pay a penalty
of P500.
a. Supposing that D failed to deliver on
due date, may he just pay the penalty of
P500?
b. May C demand the delivery of 10 sacks
of rice and the payment of the penalty
at the same time upon default of D?
 When the court may reduce
the penalty
1. When the obligation has been partly
complied with by the debtor
2. When the obligation has been
irregularly complied with by the debtor.
3. When the penalty is iniquitous or
unconscionable even if there has been
no performance.
 Effect of nullity of principal
obligation, penal clause
1. The nullity of the principal obligation
carries with it the nullity of the penal
clause. This is so because the penal
clause, being just an accessory
undertaking, cannot stand by itself.
2. The nullity if the penal clause does not
carry with it that of the principal
obligation. This is so because the
principal obligation can stand by itself.