Short answer. Generally no. Article 1227 of the Civil Code prohibits a creditor from demanding both full performance and the penalty simultaneously, unless that right has been clearly granted in the contract. In most contracts, the creditor must choose one or the other — not both at once.
What the law says
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 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.
Civil Code, Article 1227 — No Escape by Paying the Penalty. Read the full provision →
The default rule: performance or penalty, not both
Article 1227 establishes the default structure of penalty clauses in Philippine contracts: a creditor who insists on performance of the obligation cannot simultaneously demand the penalty. The two remedies are ordinarily alternatives. The rationale is that penalty clauses are meant to substitute for damages in case of non-performance — they are not an extra premium stacked on top of the actual obligation being fulfilled. Allowing both would give the creditor a windfall: they would receive what was promised plus a financial bonus for the breach.
When both can be demanded: the contract must clearly say so
The exception in Article 1227 is narrow: the creditor may demand both performance and the penalty only if the contract clearly grants that right. Vague or implied language is not enough. If the contract says something like "without prejudice to the penalty" or "in addition to performing the obligation, the debtor shall pay the penalty," that explicit language would support a dual demand. Absent such clear grant, a court will hold the creditor to one remedy or the other. If you drafted a contract and want both, the clause must state it plainly.
The debtor's side of the same rule
Article 1227 cuts both ways. The first sentence addresses the debtor: a debtor cannot simply pay the penalty and walk away from the underlying obligation, unless the contract expressly reserves that right for the debtor. So neither party can unilaterally use the penalty clause to escape the deal on terms the contract did not provide. The penalty clause is a tool for compensating breach, not a buy-out option — unless the contract says otherwise for either party.
The exception: when performance becomes impossible
Article 1227 includes one more scenario worth noting: if the creditor has already chosen to demand performance — not the penalty — but then performance becomes impossible through no fault of the creditor, the creditor may switch to enforcing the penalty. This prevents a debtor from inducing impossibility after the creditor has already elected performance, leaving the creditor with no remedy. It is a specific protection against that kind of manipulation. The key requirement is that the impossibility must not be caused by the creditor's own actions.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Heirs of Manuel Uy Ek Liong vs. Mauricia Meer Castillo, Heirs of Buenaflor C. Umali, represented by Nancy Umali, et al, G.R. No. 176425, June 5, 2013 — read the decision on LawPhil →