- Statute
- Civil Code
- Article
- Art. 1226
- Topic
- Different Kinds of Obligations
- Status
- In force
- Book
- BOOK IV Obligations and Contracts
- Title
- TITLE I Obligations
- Chapter
- CHAPTER 3 Different Kinds of Obligations
- Formerly
- Art. 1152a of the old Civil Code
- Year
- 1949
- Cited by
- Multiple Supreme Court decisions
The provision
In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests 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 fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a)
Intellegal Wiki · In plain terms
When a contract has a penalty clause, that penalty takes the place of damages and interest if the obligation is not performed, unless the parties agreed otherwise. The creditor can still claim damages on top if the debtor refuses to pay the penalty or acted with fraud, and the penalty can be collected only once it is actually due under the contract.
An editorially maintained plain-language explanation of this provision — not legal advice.
Intellegal Wiki · How the courts apply it
In Merrie Anne Tan v. First Malayan Leasing, the Supreme Court held: A creditor may release one solidary surety and still hold the others fully liable where it expressly reserves its rights (Article 1216); but imposing both a penalty charge and liquidated damages for the same breach is an unconscionable redundancy (Article 1226).
One leading Supreme Court case applying this provision.
Cases applying this article
- Merrie Anne Tan v. First Malayan Leasing G.R. No. 254510
- Edmerito Ang Gobonseng v. Unibancard Corporation G.R. No. 160026