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law and obligation :))

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Andie Mendie

on 13 March 2015

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Transcript of law and obligation :))

Kinds of Penal Clause In obligations with a PENAL CLAUSE, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, 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. Article 1226 one which can stand by itself and does not depend for its validity and existence upon another obligation. Principal Obligation What is a Penal Clause? It is an accessory obligation attached to the principal obligation to assure greater responsibility in case of breach. Purpose of Penal Clause (1) General Purpose: To insure their performance by creating an effective deterrent against breach, making the consequences of such breach as onerous as it may be possible. (reparation)

(2) To substitute a penalty for the indemnity for damages and the payment of interests in case of non-compliance; or to punish the debtor for the non fulfillment or violation of his obligation. (punishment) Section 6.
Obligations with a Penal Clause GROUP 6 Andrea Mendoza
Tasha De Jesus
Hayoung Kim
Ana Bermejo
Angeline Silabay
Iris Fajura
Ronie Miranda Accessory Obligation one which is attached to a principal obligation and, therefore,
cannot stand alone. Note: Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (Art. 1228, NCC) As to Origin: (a) Legal Penal Clause. - when it is provided by law;

(b) Conventional Penal Clause. - when it is provided for by stipulation of the parties. As to its Purpose: (a) Compensatory Penal Clause. - when the penalty takes the place of damages;
(b) Punitive Penal Clause. - when the penalty is imposed merely as punishment for breach. As to Effect: (a) Subsidiary Penal Clause. - when only the penalty can be enforced;
(b) Joint Penal Clause. - when both the principal obligation and penal clause can be enforced. When can a creditor may recover damages? (1) When so stipulated by the parties;
(2) When the obligor refuses to pay the penalty, in which case the creditor may recover legal interest thereon;or
(3) When the obligor is guilty of fraud in the fulfillment of the obligation, in which case the creditor may recover damages caused by such fraud. The creditor, in addition to the penalty, may recover damages and interests: Principal Obligation: Accessory Obligation: X promised to construct a house for Y. The contract carried a penalty that in case of breach, X would have to pay a penalty of P100,000. Example: X promised to construct a house for Y. The contract carried a penalty that in case of breach, X would have to pay a penalty of P100,000. The penalty substitutes the indemnity for the damages unless there is a stipulation to the contrary, in which case Y may also recover the damages proved by him.

And if X refuses to pay the penalty, Y may recover legal interest thereon, the interest representing new damages brought about by the non-payment of the penalty.

If X is guilty of fraud in the fulfillment of his obligation, he is also liable for the damages caused thereby in conformity with Article 1171. But no proof of fraud is necessary to recover penalty. Answer : What will happen if X did not construct the house and, as a consequence, Y suffered damages in the amount of P40,000 only? a. X will pay P40,000.
b. X will pay P100,000 penalty. Penalty of P100,000 shall be paid. But Y cannot recover more than the penalty stipulated, even if the damages suffered by Y is only P40,000. A. Article 1227 Article 1227 Penalty DO NOT Substitute for Performance 2 4 5 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 to 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. Generally, debtor cannot just pay the penalty instead of performing the obligation. The purpose of the penalty is to SECURE COMPLIANCE with the obligation. If the debtor is allowed to pay the penalty, this would in effect make the obligation alternative one. (Art. 1199)

The debtor can exempt himself from the non-fulfillment of the obligation only when "this right has been expressly reserved to him." Example: S is required to deliver to B certain products; otherwise, he shall pay a penalty in the amount of P10,000.

Under Article 1227, S cannot just pay the penalty as a substitute for noncompliance of the principal obligation except when he is expressly given the right by B to do so. Penal Clause Presumed Subsidiary As a general rule: "the creditor cannot demand the fulfillment of the obligation and the satisfaction of the penalty at the same time."

The primary purpose of the penalty is to urge the debtor to the PERFORMANCE of the main obligation. PERFORMANCE PERFORMANCE (1) Where there is performance. (2) Where there is no performance. Once the obligation is fulfilled, this purpose is attained and, therefore, there is no need for demanding the penalty. The exception arises when "this right has been has been cleared granted" by the creditor. Under Article 1227, the general rule is that a penal clause is subsidiary is subsidiary and not joint. In case of noncompliance, the creditor may ask for the penalty or require specific performance. The remedies are alternative and not cumulative nor successive, subject to the exception that the penalty may be enforced if after the creditor has decided to require fulfillment, the same should become impossible without his fault. If there was fraud on the part of the debtor, the creditor may recover the penalty as well as damages for non-fulfillment. (2) If S did not comply with his obligation, B can choose between requiring fulfillment of the principal obligation or satisfaction of the penalty. Examples: (1) In the preceding example, if S delivered the products after he has incurred in delay and B accepted the delivery, the penalty CANNOT also be demanded by B unless such right is clearly given to him in the contract in which case the penal clause is joint. If the non-fulfillment of the obligaliton: If B chosen and received the penalty: If B has selected fulfillment: He may not subsequently demand the payment of the penalty unless fulfillment should become impossible without his fault. He may not subsequently require the fulfillment of the obligation which is deemed repudiated by both of them.

However, he may still demand fulfillment should S not pay the penalty. Which is attributable to the fraud committed by S, both the stipulated penalty and damages suffered by B may be recovered by him. Article 1228 Damages recoverable in addition to penalty must be proved. Penalty demandable without proof of actual damages. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. In an obligation with a penal clause all that the creditor has to prove, to enforce the penalty, is the VIOLATION of the obligation by the debtor.
The creditor may enforce the penalty whether he suffered damages or not. But he cannot recover more than the stipulated penalty even if he proves that the amount of his damages exceeds the penalty. Article 1228 applies only where the penalty is fixed by the parties to substitute the indemnity for damages. In any of the three exceptions when damages plus penalty may be recovered (Article 1227), the creditor must proved the amount of such damages which he actually suffered resulting from the breach of the principal obligation. Article 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. Iniquitous - meaning unfair behaviour; immoral.
Unconscionable - meaning unreasonably excessive; not right. When penalty may be reduced by the courts. (1) When there is partial or irregular performance. As a general rule, an obligation is not deemed performed unless the thing or service in which it consists has been COMPLETELY delivered or rendered. Example: X agreed to construct the house of Y within 4 months for P1,000,000 according to certain specifications. The contract stipulates that in case of noncompliance with the obligation, X will pay a penalty of P100,000. Except for some finishing touches, X practically completed the construction of the house. (2) When the penalty agreed upon is uniquitous or uncomscionable. Here, the penalty may be reduced even if there is NO PERFORMANCE AT ALL. Example: Suppose in the previous example, the value of the house is only P100,000. It is stipulated that for every day of delay, X must pay a penalty of P5,000.

The court, in the exercise of its sound dicretion, may reduce the penalty where, as in this case, it is clearly excessive and unconscionable. Article 1230 Effects of nullity of the penal clause. Effect of nullity of the principal obligation. 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. The general principle that the accessory follows the principal and not vice versa.
If only the penal clause is void, the principal obligation remains valid and demandable. The penal clause is just disregarded. Example: S agreed to sell merchandise to B. It is provided in their agreement that in case of default, S will deliver a prohibited drug as penalty. If the principal obligation is void, the penal clause is likewise void. The reason is that the clause cannot stand alone.
But if the nullity of the principal obligation is due to the fault of the debtor, who acted in bad faith, by reason of which the creditor suffered damages, on equitable grounds, the penalty may be enforced. Example: S agreed to deliver to B two grams of prohibited drugs. The contract carries a penal clause to the efect that in case of noncompliance with the obligation, S would pay a penalty of P10,000. THE END :D
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