Article 1226

In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest 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 fulfilment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

Sa obligasyon na may penal clasue, ang parusa ay papalit sa pagbayad ng danyos at sa interes kung hindi man ito magagawa, kung walang stipulasyon na iba. Datapwa’t, ang danyos ay babayaran kung ang pinag-utangan ay tatanggi na magbayad ng parusa o kung siya ay nagkasala ng pandaraya sa paggawa ng obligasyon.

Ang parusa ay maaring maipatupad lamang kung ito ay naipapatupad ayon sa probisyon ng Coda na ito.

Discussion:

Penalty clause is an accessory obligation or undertaking attached to a principal obligation, which imposes an additional liability in case of breach of the principal obligation, in order to secure the performance of the principal obligation.

The penalty imposable is a substitute for the indemnity for damages and payment of interest in case of breach of the obligation, unless there is contrary stipulation, in which case, the additional damages may further be recovered.

 

Case Illustration:

Ibarra vs Aveyro and Emiliano Pre 37 Phil 274 (1917)

Ponente: J. Torres

Facts:

On April 10, 1915, counsel for Alejandro Ibarra filed a complaint with the Court of First Instance of Tarlac against Leopoldo Aveyro and Emiliano Pre, for the purpose of recovering from them jointly and severally the sum of P465 as principal, besides such additional sum as might be found owing in accordance with the penal clause of the contract, at the rate of P5 a day from the date of the maturity of the obligation.

The defendants denied the allegation. Aveyro purported that he sold a land to Ibarra in the amount of P450 with the right to repurchase and that Ibarra borrowed the land title and deed for the purpose of reselling it on a higher price, and upon failing, returned the same. Ibarra again borrowed the title and deed and in addition executed a promissory note in favor of Ibarra, with the security of a solvent surety, for the amount of P450, and with a penal clause, to be effective in case of delinquency in the payment, and that if the sale should not be made, the borrowed deed should be returned. the sale did not push through, and when Ibarra tried to return the deed, Averyo refused.

Trial ensued and the court decided in favor of Averyo and Pre. However, the penal clause was held to be null and void for being immoral, pursuant to Article 1255 of the Civil Code

 

 

 

Article 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)

Ang nangutang ay hindi mapapalaya ang kanyang sarili sa tungkulin nya sa kanyang obligasyon sa pamamagitan ng pagbabayad ng multa, na kung saan ang karapatan na ito ay malinaw na nakasaad para sa kanya. Kahit ang nagpautang ang nag demand ng pagpuno sa obligasyon at ang satisfaction para sa multa sa parehong panahon, maliban na lang kung ang karapatan na ito ay malinaw na pinagkakaloob sa kanya. Ngunit kung pagkatapos ng obligasyon, ang pagganap dito ay maging imposible na hindi nagmula sa kanyang kapabayaan, ang multa ay maaring maipatupad.

Discussion:

Exception to the Rule

1. When the creditor was clearly given the right to enforce both the principal obligation and the penalty.

1. When the creditor has demanded fulfillment of the obligation, but the same could no longer be fulfilled due to the debtor’s fault, he may demand the penalty agreed upon.

*If fault due to the creditors act – he cannot claim the penalty.

*If impossibility of fulfillment is due to fortuitous events – both principal obligation and the   penalty shall be extinguished.

 Case Illustration: Santiago Navarro, Et. Al., vs. Felix Mallari, Et. Al.

Article 1228

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

 

Ang patunay ng tunay na mga damyos na sinapit ng maypautang ay hindi kailangan upang ang tubo ay singilin.

If the contracting parties had fixed the penalty for the purpose of compensating or substituting the indemnity for damages as well as the payment of interests, proof of actual damages suffered by the creditor is not necessary to enforce the penalty whether or not damages had been suffered as long as the agreement or contract had been breached. Thusly, in this sense, penalty and liquidated damages are the same.

 

Case

 

Lambert Vs. Fox

 

FACTS:

• Early in 1911: John R. Edgar & Co., engaged in the retail book and stationery business was taken over by its creditors including Lambert and Fox
• Lambert and Fox became the 2 largest stockholders in the new corporation called John R. Edgar & Co., Incorporated
• Lambert and Fox entered into an agreement wherein they mutually and reciprocally agree not to sell, transfer, or otherwise dispose of an part of the stock until after 1 year from the agreement date unless consented in writing
  • violation: P1,000 pesos as liquidated damages
• October 19, 1911:  Fox sold his stock E. C. McCullough & Co. of Manila, a strong competitor
  • sale was made by the defendant against the protest
  • Foz offered to sell his shares of stock to the Lambert for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract
• Trial Court: dismissed

 

ISSUE: W/N Fox should be penalized

 

HELD: YES.  The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.

• parties expressly stipulated that the contract should last one year regardless of the objective it should be applied
  • parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms

The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension.