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In obligations with a
penal clause, the penalty shall No Need To Prove Damages
substitute the indemnity for damages -penalty stipulated is the means of
and the payment of interests in case repairing the losses and damages
of noncompliance, if there is no sustained by the injured party, and it is
stipulation to the contrary. sufficient for the latter to prove that there
Nevertheless, damages shall be paid was a breach of contract to entitle him to
if the obligor refuses to pay the the said penalty
penalty or is guilty of fraud in the
fulfillment of the obligation. When Additional Damages May Be
Recovered Aside From The Stipulated
The penalty may be enforced only Penalty
when it is demandable in accordance GR: penalty takes the place of indemnity
with the provisions of this Code. for damages and for payment of interests
(1152a) XPN:
1. Obligor refuses to pay penalty
Penalty Clause 2. Obligor is guilty of fraud in the
-an accessory obligation or undertaking fulfillment of obligation; difference
attached to a principal obligation, which between the proven damages and
imposes an additional liability in case of the stipulated damages may be
breach of the principal obligation recovered
-in effect, it is a moral coercion for the 3. If there is an express stipulation
debtor to perform his obligation faithfully that other damages or interests are
and promptly within the period agreed demandable in addition to the
upon; otherwise, he suffers a fixed civil penalty in the penal clause
penalty without need of proving the
damages of the other party Penalty Clause Compared With Liquidated
-attached to secure performance of Damages
obligation; if such stipulation is found -penalty clause is strictly penal in nature
contrary to law for being usurious, it can or cumulative in character and does not
be nullified by the courts without affecting partake the nature of liquidated damages;
the principal obligation legal results- no difference
Are Alll Penalties Inserted In Contracts Article 1228. Proof of actual damages
Demandable Or Recoverable? suffered by the creditor is not
-penalty may be enforced only when it is necessary in order that the penalty
demandable in accordance with the may be demanded. (n)
provisions of this Code
-penalty imposed is unlawful, immoral or Proof Of Actual Damages Not Necessary
against public order it should not be -contracting parties had fixed the penalty
enforced for the purpose of compensating or
substituting the indemnity for damages as
well as the payment of interests, proof of
Article 1227. The debtor cannot actual damages suffered by the creditor is
exempt himself from the performance not necessary to enforce the penalty
of the obligation by paying the whether or not damages had been
penalty, save in the case where this suffered as long as the agreement or
right has been expressly reserved for contract had been breached; penalty and
him. Neither can the creditor demand unliquidated damages are the same
the fulfillment of the obligation and -when the debtor refuses to pay the
the satisfaction of the penalty at the agreed penalty despite demands and the
same time, unless this right has been creditor was compelled to litigate to
clearly granted him. However, if after collect the penalty, additional damages
the creditor has decided to require may be claimed by the creditor; latter
the fulfillment of the obligation, the damages must be proved with sufficient
performance thereof should become evidence to justify their grant by the court
impossible without his fault, the -effect that there is no difference between
penalty may be enforced. (1153a) penalty clause and liquidated damages
applies only in cases where there is no 1. Principal obligation has become
partial or irregular performance by the impossible of performance due to
debtor FE
2. Debtor is prevented by the creditor
to fulfill the obligation
Article 1229. The judge shall 3. Penalty agreed upon is contrary to
equitably reduce the penalty when morals or good customs
the principal obligation has been 4. Both parties are guilty of breach of
partly or irregularly complied with by contract
the debtor. Even if there has been no 5. None of the contracting parties
performance, the penalty may also be committed any willful or culpable
reduced by the courts if it is violation of the agreement, no one
iniquitous or unconscionable. (1154a) can invoke the penalty against the
other
Judicial Reduction Of Penalty, When Proper 6. Breach of contract is committed by
Court can order the reduction of penalty the creditor
agreed upon by the contracting parties
under the following circumstances:
1. when the principal obligation had Article 1230. The nullity of the penal
been partly complied with by the clause does not carry with it that of
debtor the principal obligation.
2. when the principal obligation had The nullity of the principal obligation
been complied with but not in carries with it that of the penal
accordance with the tenor of the clause. (1155)
agreement thus rendering the
compliance irregular Effect Of Nullity Of Principal Obligation
3. when, although there is no -nullity of the principal obligation carries
performance, the penalty is with it the nullity of the penal clause;
iniquitous or unconscionable latter is just an accessory
4. 3% penalty is patently iniquitous
and unconscionable as to warrant Effect Of Nullity Of The Penal Clause Upon
the exercise by the SC of its judicial The Principal Obligation
discretion -penal clause is void, the principal
obligation will remain subsisting; the
Limitation Of The Judge’s Power To Reduce nullity of the penal clause does not carry
Penalties with it the nullity of the principal
-power of the judge to reduce penalties obligation
applies only to penalties agreed upon in
private contracts