Article 1226
ELI5— what this means for you
A penal clause sets a predetermined penalty in the contract for a breach. The penalty substitutes for actual damages — the creditor cannot claim both the penalty AND additional damages unless the law allows it.
Official text — RA 386
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)
Source: lawphil.net (RA 386 as amended)
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