Obligations and Contracts Reviewer
Examples: Obligations arising from criminal offences and torts.
Section 4. Joint 4. Joint and Solidary Obligation Obligation Concept Joint Obligation (obligación mancomunada) An obligation where there is a concurrence of several • creditors, or of several debtors, or several creditors and debtors, by virtue of which each creditors has a right to demand, and each of the debtors is bound to render compliance with his proportionate part of the prestation Each Creditor has a right to demand the payment of only • a proportionate part of the credit Each of debtors is liable for the payment of only a • proportionate part of the debt Solidary Obligation (obligación solidaria) Each of creditors is entitled to demand the payment of the entire credit, while each of the debtors is liable for the payment of the entire debt.
Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. Joint Divisible Obligations •
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Comparative Comparative Jurisprudence
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Case in Point: Point : Jaucian vs Querol •
Art 1207. 1207. Concurrence of two or more more creditors or of two or more imply that each one of debtors in one and the same obligation does not imply that the creditors has a right to demand and each one of the debtors is bound to render, entire compliance with the prestation.
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There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
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Nature of Collective Obligation in General General Rule: If the obligation is silent presumption is the obligation is joint and not solidary Notes:
Case: A,B and C had executed a promissory note binding themselves to pay to X,Y and Z to pay Php9,000.00. It is presumed that the obligation is joint obligation since the obligation is silent. If X proceeds to collect against A, X can only collect 1,000.00 from A.
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Exceptions Three cases where collective obligations are solidary and not joint 1.
When When the oblig obligati ation on expres expressly sly state state that that there there is is solidar solidarity ity Words to express or that indicates “Solidary Obligation” 1. 2. 3.
Ag gr gregate Va Val ue ue Join Jointl tly y and and Seve Severa rall lly y Indiv Individu iduall ally y and and colle collecti ctive vely ly
Note: Solidary Obligation- the choice is left to the solidary creditor to determine against whom he will enforce collection Case in Point: Inciong Jr. v C.A 2.
The most fundamental Effect of Joint Divisible Obligations o CREDITOR: creditor can only demand for the payment of his proportionate share of the credit o DEBTOR: debtor can be held liable only for the payment of his proportionate share of the debt The credit or debt in the absence of any law or stipulation to the contrary, shall be presumed to be divided into as many shares as there are creditors and debtors The credits or debts considered distinct from one another Subject to the Rules of Court General Rule: Rule: joint creditor cannot act in representation of the others; neither can a joint debtor be compelled to answer for the liability of others. In Case of Breach: Fault of one debtor: damages due to its breach must o be borne by him alone In case of Defense: debtor Defense: debtor alone can avail himself of such defense debtors will Payment or acknowledgement by one of the joint the joint debtors will not stop the running of the period of prescription as to others “the interruption of prescription by the claim of a creditor addressed to a single debtor or debtor or by an acknowledgement made by one of the debtors in favor of one or more of the creditors is not to be understood as prejudicial to or in favor of the other debtors or creditors. creditors.
When When the law law req requir uires es soli solidar darity ity Examples: those provided for in Art 927, 1824, 1911, 1915, 2146, 2157 and 2194 of the CCP
If there is a joint divisible obligation and one of the debtors becomes insolvent, the other debtors cannot be held liable to shoulder the debt of the insolvent debtor, since the obligation of each is considered distinct from each other If one of the creditor demand from o ne of the debtor from an obligation about to prescribe, only that debtor who receives the demand will be affected by stopping the prescriptive period, but for other debtors, the prescriptive period continues to run.
Art 1209. If the division is impossible, the right of creditors may be prejudiced only by their collective acts, and only proceeding against all the debtors can enforce the debt. If one of the debtors should be insolvent, the others shall bot be held liable for his share. Joint Indivisible Obligations Obligations •
Midway between joint and solidary obligation
Fundamental Characteristics 1. 2.
No cred creditor itor can act in repr represe esenta ntation tion of other otherss No debtor debtor can can be comp compell elled ed to answe answerr for the the liabili liability ty of the the others Other Characteristics 1. If there there are are 2 or more more debtors, debtors, the the fulfill fulfillmen mentt or complia compliance nce requires concurrence of all the debtors a. Example Example:: 3 debt debtors ors are are oblig obligate ated d to deli deliver ver a horse horse
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If there are 2 or more creditor, the concurrence or collective act of all the creditors
damages because of breach, indivisibility of the obligation is terminated
breach, the solidarity among debtors remains
Effect of Breach in Joint Indivisible •
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Joint Indivisible obligation can only be enforced by proceeding against all of the debtors If one of the debtors failed to comply, the obligation can no longer be fulfilled or performed o Remedy: obligation is converted into one of indemnity for damages o Note: the debtors who are ready to fulfill shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists.
Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same period and conditions. Kinds of Solidarity 1.
Effect of Insolvency of a Debtor 2. If one of the joint debtors should be insolvent, the others shall not be liable for his share. Illustration: A, B and C obligated themselves jointly to deliver a horse to X. If A becomes insolvent, obligation of A will be converted to indemnity, liable for the amount of his share to the obligation plus damages, B and C will only be liable for the amount of their share to the obligation.
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Effect of Active Solidarity in general
Interruption of Period of Prescription 2 THEORIES ON HOW TO LOOK THE EFFECT OF INTERRUPTION OF PERIOD OF PRESCRIPTION
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ART 1209 merely provides that the right of the creditors may be prejudiced only by their collective acts The act of a joint creditor beneficial to others as for instance the interruption of the period of prescription, the act of one would be sufficient
The act of joint creditor which would ordinarily interrupt the period of prescription would not be valid The indivisible character of the obligation requires collective action of the creditors to be effective
Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. Indivisibility and Solidarity •
Indivisibility and Solidarity are not identical
Differences
As to Nature
As to requisites As to effect of breach
Indivisibility Refers to the prestation which constitutes the object of the obligation Plurality is not required When the obligation of converted into one of indemnity for
Active (among creditors) a. Definition: a tie existing among several creditors of one and the same obligation by virtue of which each of them, possesses the character of creditor only with respect to his share in the obligation, but in relation to the common debtor or debtors, represents all of the other creditors Passive (among debtors) a. Definition: a tie existing among several debtors of one and the same obligation, in relation to his codebtors, possesses the character of debtor only with respect to his share to the obligation, but in relation to the common creditor or creditors, represents all of the other debtors. Mixed (among creditors and debtors)
Solidarity Refers to the legal tie or vinculum, and consequently, to the subjects or parties of the obligation Plurality is indispensable When there is liability on the part of the debtors because of
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Creation of a relationship of mutual agency among solidary creditors Creditor is empowered to exercise against the debtor or debtors not only for his rights but also the rights which correspond to other creditors Consequence: Obligation of the one creditor to render an accounting of his acts to such creditors
Effect of Passive Solidary in general •
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Liability of debtor for the payment of the entire obligation, with consequent right to demand reimbursement from the others for their corresponding shares once payment has been made. Reason: Debtor in respect to the creditor is the debtor of the entire amount of obligation, but in respect to co-debtors, the debtor is only liable to his share in the obligation
Distinguished from suretyship Solidary Guarantor (fiador in solidum): is a person who binds himself solidarily with the principal debtor Solidary Debtor Liable not only for the payment of the debt of another, but also for the payment of a debt which is properly his own If solidary debtor pays the entire amount of obligation, he has the right to reimburse the amount which corresponds to the share of his co-debtors
Solidary Guaranty
If a surety pays the entire amount of obligation he has a right to demand reimbursement from the principal debtor of the entire amount that he has paid
Rights are more limited (extension of time granted to one of the debtors without the consent of the others would not effect of releasing the other debtors from their obligation) Has no other rights than those bestowed upon him in Sec 4 Chapter 3 of this code.
More Rights (an extension granted to the principal debtor would release the surety from the obligation)
Outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all rights, actions and benefits which pertains to him by reason of the fiansa
What is the effect of the extension of time for payment granted by the creditor to the three of the debtors?
Answer: Gregorio cannot allege as a defense to the action that it is premature. When they have defaulted in their very first installment, the whole obligation have already been matured. Art. 1212. Each on of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. Effect of Beneficial and Prejudicial Act •
Effect of varied conditions or periods •
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The vinculum or bond in solidary obligations may be either uniform or varied The relationship of solidarity is not destroyed by the fact that the obligation of one debtor is conditional, the obligation of another is with a term or period, and the obligation of a third is pure The character of solidary is not destroyed if the debtors are bound by different conditions or by different periods.
Illustration: A, B and C borrowed 60,000 from X binding themselves jointly and severally, and stipulated that in case A shall be demandable on June 15, 1972, in case of B June 15, 1974 and in case of C June 15 1976. X proceeds against A despite repeated demands.
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Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. Effect of Assignment of Rights •
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X can collect 20,000 from A his share from the obligation, and then wait until the period is reach.
As consequence of mutual agency, each one of the creditors may do whatever may be useful or beneficial to the others but not anything which may be prejudicial to the latter As far as debtor or debtors are concerned, a prejudicial act performed by a solidary creditor shall be valid and binding because of the principle mutual representation As far as the creditors are concerned, the creditor who performed the act shall incur the obligation of indemnifying the others damages
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A solidary creditor cannot assign his rights without the consent of the others. o Reason: If the assignment is made to anyone of the other solidary creditors, there is no violation of the precept in Art. 1213 If the assignment is made to a third person there is a clear violation
Case in Point: Inchausti & Co. vs Yulo Quick Facts: •
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Defendants 6 brothers and sisters executed an instrument admitting their solidary indebtedness to the plaintiff for 253,446.42 at 10% interest per annum payable in 5 annual installments the first payable on June 13, 1910 The Defendants defaulted> plaintiff brought an action against Gregorio Yulo for the entire indebtedness plus interest in accordance in the acceleration clause 3 debtors (Francisco, Manuel, Carmen) entered into agreement reducing the obligation to 225,000 at 6% int per annum payable in 8 yrs first installment on Jun 30 1912
Can the plaintiff sue Gregorio Yulo alone considering that there are other debtors?
Answer: the debtors, having obliged themselves in solidum, the creditor can bring its action in toto against any one of them. The new agreement with the 3 other debtors do not change the nature of the obligation, as well settled, “solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions.” What is the effect of the partial remission of the debt made by the creditor in favor if the 3 debtors?
Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. Effect of Demand by a Creditor •
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Art 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Art 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. Effect of Novation •
Answer: the effect of the partial remission made by the creditor in favor of one or more of the solidary debtors necessarily benefit the others, therefore the defendant has the right to enjoy the benefits of the partial remission of the debt granted by the creditor.
Any solidary creditor may demand the payment or performance of the obligation from one, some or all of the debtors Demand may be judicial or extra-judicial Payment shall only be made to the creditor who made the demand In the absence of demand (judicial or extra judicial) payment may be made by the debtor to anyone of the solidary creditors
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Definition: is the change or substitution of an obligation by another, resulting in its extinguishment or modification, Methods: Either by changing its object or principal condition, o Or by substituting another in place of the debtor,
Or by subrogating a third person in the rights of the creditor. • It may extinguish the obligation, but it creates a new one in lieu of the old obligation. Ways of Novation: 1. If Novation is effected by changing its object or principal condition a. The new obligation may be prejudicial or beneficial to the other solidary creditors i. Prejudicial: the solidary creditor who affected the novation shall reimburse the others for damages incurred by them ii. Beneficial and creditor who affected novation able to perform: such creditor shall be liable to the others for the share which corresponds to them 2. If Novation is effected by Substituting another person in place of the debtor a. The solidary creditor who affected the novation is liable for the acts of the new debtor in case there is deficiency in performance. 3. If the novation is effected by subrogating a third person in the rights of the solidary creditor a. The obligation of the debtor or creditors is not in reality extinguished b. The relationship of the other creditors and the debtor or debtors is maintained c. Note: If the novation is effected by subrogating a third person in the rights of all solidary creditors, the creditor responsible for such novation is liable to the other creditors for the share which corresponds to them in the obligation. • General Rule: extension of time for the payment of the obligation is given by the creditor to a solidary debtor does not constitute a novation Reason: in order that an obligation may be o extinguished by another, which substitutes it, it is necessary that it should be so expressly declared or that the old and new obligation are incompatible with each other on every point. • In Suretyship: an extension of time granted to the principal debtor by the creditor without the consent of the surety extinguishes the latter’s liability o Exception: when a surety is liable for different payments, an extension of time as to one or more will not affect the liability of the surety for the others. Effect of Compensation and Confusion
As to the Creditor: the creditor causing the confusion or compensation is obliged to reimburse to other creditors As to Debtor: the debtors benefited by the extinguishment of the obligation being obliged to reimburse the debtor who made the confusion or compensation possible
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Effect of Remission Definition: is an act of pure liberality, the creditor without receiving any compensation or equivalent, renounces his right to enforce the obligation, thereby extinguishing the obligation either in its entirety or in the part or aspect thereof. 2 Kinds of Remission or Condonation 1. 2.
Total Partial
Effect as to Creditor: gives rise to a liability on the part of the creditor or creditors responsible for the remission to reimburse the other for the share in the obligation corresponding them.
Effect as to the Debtor: 1. If remission covers entire Obli: obligation is totally extinguished and entire juridical relation among debtors is also terminated. No reimbursement. If the whole obligation is condoned through the efforts of a solidary debtor or for his benefit, he is not entitled to any reimbursement from his codebtor. 2. If the remission is for the benefit of one of the debtors and it covers his entire share in the obligation, he is completely released from the creditor or creditors, but he is still bound to his co-debtors. IF ONE OF THE DEBTOR IS INSOLVENT: the debtor whose obli is condoned is bound for the share of the debtor who is insolvent 3. If the remission is for the benefit of one of the debtors and it covers only a part of his share: the character of the debtor is not affected. IF CREDITOR PROCEED TO ANY ONE OF THE DEBTOR FOR THE PAYMENT OF WHOLE OBLIGATION: such debtor can avail a defense of partial remission. EXCEPTIONS: is case the debt had already been totally paid by anyone of the solidary debtors before the remission was affected, ABOVE RULES IS NOT APPLICABLE Effect of Payment to a Creditor
DEFINITION
IF PARTIAL
IF TOTAL
COMPENSATION CONFUSION Is a figurative Refers to the merger operation of weighing of the qualities of two obligations creditor and debtor in simultaneously in one and the same order to extinguish person with respect to them to the extent that one and the same the amount of one is obligation. covered by the amount of the other There may be some doubt as to the part of the obligation to which the confusion or compensation shall be applied. Remedy: apply the rules regarding the payment of this code The obligation is extinguished altogether and what is left is the ensuing of liability for reimbursement within each group.
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if one of creditor is able to collect the entire obligation from some of all of the debtors, the obligation is totally extinguished. Gives rise to an obligation of the creditor to render an account to his co-creditors.
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Effect of Demand upon a Debtor Anyone of the debtor can be held liable for the payment of the entire obligation, the creditor may proceed against any one or some or all of the debtor simultaneously.
The demand against one of them shall not be an obstacle to those which may subsequently be directed against the others so long as the debt has not been fully collected The debtor cannot and should not complain that the creditor should thereafter proceed against him to collect his credit. The fact that an action has been brought or that payment has been enforced against them not being a bar thereto so ling as there remains a balance to collect. The failure or creditor to include the solidary guarantor or surety as a defendant in the first suit does not implies a waiver of right of action against such surety A creditor’s right to proceed against the surety exists o independently of his right to proceed against the principal The obligation of the surety is the same as the principal: as soon as the principal is in default so as the surety Art 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor my choose which offer to accept. He who made the payment may claim from hi co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each Art 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.
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McCoy entered into a compromise with Bank and paid 12,000 before the hearing
Issue: WON McCoy be substituted as Plaintiff to compel other debtors to reimburse to her their proportionate share Held: McCoy necessarily acquired the right to prosecute the action for contribution against her co-defendants. It was a proper case of substitution of parties resulting from the subrogation of one of the defendants to the right of the plaintiff. Wilson vs. Berkenkotter Quick Facts: Berkenkotter, Wilson and Gulick executed promissory note • solidarily to pay their indebtedness of 90,000 to the Chratered Bank of India, Australia and China with interest. Berkenkotter paid on Nov 1944 • Berkenkotter demanded reimbursement • • Wilson tendered 625.51 in accordance with the Ballantyne Schedule, Berkenkotter refuse to accept • Wilson deposited the amount to CFI of Manila Issue: WON Ballantyne Schedule is applicable Held: Ballantyne Schedule is applicable to obligations contracted during the Japanese occupation. If the obligation is created during the Japanese occupation then its applicable, but if it was created before the war, then its not applicable. When appellant paid the entire loan plus interest the whole obligation was extinguished, the debtors were no longer liable with the bank instead a new obligation was created in favor of the appellant Art 1219. The remission made by the creditor of the share, which affects one of the solidary debtors, does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was affected.
Effect of Payment by a Debtor •
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The effect is either the total or partial extinguishment of the obligation When one of the solidary debtors paid the whole or entire obligation immediately gives rise to a right to claim from his co-debtors the share which corresponds to them NOT APPLICABLE: when the debtor makes the o payment after the obligation has prescribed or has become illegal General Rule on Computation of Interest: shall be computed from the time payment was made. Exception: if the payment was made before the debt became due, no interest may be demanded
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The right of solidary debtor who made the payment to demand reimbursement from his co-debtor is merely contingent and conditional Once payment is made, obligation from creditor is extinguished, gives rise to a new obligation by the co-debtor in favor of the debtor who made the payment There is no real case of subrogation
Art 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from hi codebtors. Art 1221. If the thing has been lost or if the prestation has become imposible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extra-judicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. Effect of the Loss or Impossibility of Performance 1. 2.
Case in Point: Bank of the P.I vs. McCoy 52 Phil 831 Quick Facts: Bank instituted an action against McCoy and 6 other solidary • debtors of the payment of indebtedness of P16,000.
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If the loss or impossibility of the thing is not due to the fault of the solidary debtors, the obligation is extinguished. If the loss or impissbility is due to the fault of one solidary debtor, the obligation is converted to a indemnity, but the solidarity character of obligation remains. a. Remedy: the creditor can still proceed against one, or some or all of the debtors with damages, and the debtor who paid shall have the right to reimburse against the guilty or negligent debtor. If the loss or impossibility is due to a fortuitous event after one of the debtors had already incurred delay, the obligation is converted into indemnity. (SAME RULE)
Art 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses, which are derived from the nature of the
obligation and of those, which are personal to him, or pertain to his own share. With respect to those, which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.
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When the different prestations constituting the objects of the obligation are subject to different terms and conditions When the obligation is in part liquidated and in part unliquidated
Defenses Available to a Solidary Debtor •
A solidary debtor may interpose against the claim of the creditor or creditors any of the following defenses: 1. Defenses derived from the very nature of the obligation a. Example: re judicata, prescription, those which will invalidate the contract 2. Defenses personal to him or pertaining to his own share a. Example: minority, insanity and other defenses purely personal to the debtor 3. Defenses personal to others, but only as regards that part of the debt for which the latter are responsible a. Merely a partial defense
Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those, which are not susceptible of partial performance, shall be deemed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case.
Section 5- Divisible and Indivisible Obligations Determination of Divisibility or Indivisibility Concept •
Divisible Obligations: those, which have as their object a prestation, which is susceptible of partial performance without changing the essence of the obligation. If separated into parts, its essence is not changed or its value is not decreased disproportionately because each of the parts into which it is divided are homogenous and analogous to each other.
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In obligations to give •
3 Kinds of Division 1. Quantitative- when the thing can be materially divided into parts and such parts are homogenous to each other 2. Qualitative- can be materially divided, but the parts are bit exactly homogenous, such in the partition of an inheritance 1. Ideal or Intellectual- the thing can only be separated into ideal or undivided parts, not material parts, as in the case of co-ownership
If the object is susceptible of partial performance, the obligation is divisible If the object is not, the obligation is indivisible The purpose of the obligation is the controlling circumstance
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If the obligation is to give which is definite or by its very nature is indivisible, and is not susceptible of partial compliance it shall be deemed to be indivisible If the obligation to give something which by its nature is divisible, and susceptible for partial performance, it shall be deemed as divisible.
In Obligations to do Indivisible Obligations: are those, which have as their object a prestation which is not susceptible of partial performance, otherwise, the essence of the obligation will be changed. If separated into parts, its essence is changed or its val ue is decreased disproportionately
Art. 1223. The divisibility or indivisibility of the things that are the object of the obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. Art 1224. A Joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. Effect of Divisible or Indivisible Obligations •
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When there is only one creditor and one debtor the divisibility or indivisibility is of little significance General Rule: The creditor cannot be compelled partially to receive the prestation neither the debtor be required to make partial payments. Exceptions 1. When the obligatio sly stipulates the
If the obligation is to perform some prestation or service which by its very nature is not susceptible of partial performance, it shall be deemed as indivisible (absolute rule) If the obligation to perform some prestation or service which • by its very nature is susceptible of partial performance, general rule is it is divisible. Test of Divisibility •
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Purpose a. b. c.
The execution of a certain number of days or work Accomplishment of work by metrical units Accomplishment of analogous things which by their very nature are susceptible of partial performance Is it expressly stipulated otherwise
Obligations not to do •
Determination shall depend upon the discretion of the court
Section 6- Obligations with a Penal Clause Concept Definition: one to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is
bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach
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 fulfillment of the obligation.
It is an accessory obligation attached to principal obligation. Purpose of Penalty 1. 2.
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Función coercitiva o de garantia- to insure the performance of the obligation Función liquidatoria- to liquidate the amount of damages to be awarded to the injured party in case of breach of the principal obligation Función estrictamente penal- in certain exceptional cases, to punish the obligor in case of breach of the principal obligation
The penalty may be enforced only when it is demandable in accordance with the provisions of this code. Effect of Penalty, General Rule •
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Kinds of Penalty 1.
As to origin a. Legal- when it is constituted by law b. Conventional- when it is constituted by agreement of the parties 2. As to purpose a. Compensatory- when it is established for the purpose of indemnifying the damages suffered by the oblige or creditor in case of breach b. Punitive- established for the purpose of punishing the obligor in case of breach 3. As to effect a. Solidary b. Joint Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in case of
Penalty may be considered as reparation or substitute for damages If the injured party desires to recover the damages actually suffered by him in addition to the penalty, he must prove such damages The penalty is fixed by the contracting parties as a compensation or substitute for damages
Exceptions 3 Exceptions to the rule that the penalty shall substitute the indemnity for damages and the payment of interest in case of noncompliance 1. 2. 3.
When there is a stipulation to the contrary When the obligor is sued for refusal to pay the agreed penalty When the obligor is guilty of fraud
Enforceability of Penalty •
May be enforced only when it is demandable o
Demandable: upon breach or nonfulfillment of the principal obligation by the obligor or debtor
