Civil Law and Land Titles and Deeds › Obligations and Contracts › Obligations › Civil Obligations
g. Obligations with a Penal Clause
When principal obligation is void
The nullity of the principal obligation carries with it that of the penal clause. (NCC, Art. 1230)
Penal cause vs. Condition
Penal clause vs. Condition
PENAL CLAUSE
CONDITION
Serves as accessory obligation
NOT a separate obligation; part of principal
Demandable in default
Never demandable until the condition happens
Obligation exists
Obligation exists, but the acquisition of rights or its demandability depends on the fulfillment of the suspensive condition (Civil Code, Art. 1181)
Depends on the nonperformance of the principal obligation
Principal itself is dependent on an uncertain event
Obligation with a penal clause vs. Alternative obligation
PENAL CLAUSE
ALTERNATIVE OBLIGATION
Only 1 prestation
Several prestations
Impossibility of principal does not invariably extinguish penalty; if performance becomes impossible without the creditor’s fault after the creditor has decided to require fulfillment, the penalty may be enforced (Civil Code, Art. 1227)
Impossibility of 1 prestation does NOT extinguish the obligation
Debtor may not choose between principal and penalty
The debtor generally chooses among the prestations, unless the right of choice has been expressly granted to the creditor or a third person (Civil Code, Art. 1200)
Obligation with a penal clause vs. Facultative obligation
PENAL CLAUSE
FACULTATIVE OBLIGATION
Penalty of payment in lieu of the principal must be expressly granted
Power to choose prestation is absolute
Creditor may demand both if expressly granted
Creditor may not demand both principal and substitute
Purposes of penalty:
to insure the performance of the obligation
to liquidate the amount of damages to be awarded to the injured party in case of breach of the principal obligation (compensatory); and
in certain exceptional cases, to punish the obligor in case of breach of the principal obligation (punitive).
Characteristics
Subsidiary – As a general rule, the creditor may demand fulfillment of the obligation or satisfaction of the penalty, but may not demand both at the same time unless that right has been clearly granted (Art. 1227), and in monetary obligations where both principal and interest as a form of penalty may be collected.
Exclusive – generally takes place of all damages and interests.
Kinds of penalties:
Legal – constituted by law
Conventional – constituted by agreement of the parties
Compensatory – established for the purpose of indemnifying the damages suffered by the obligee or creditor in case of breach of the obligation
Punitive – established for the purpose of punishing the obligor or debtor in case of breach of the obligation
Subsidiary or alternative - the creditor may demand fulfillment or the penalty, but not both unless the right to both has been clearly granted (Civil Code, Art. 1227)
Joint or cumulative – both the principal undertaking and the penalty may be demanded