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FACTS:Pryce executed a contract of lease with Pagcorcasino operation

involving the ballroom of the hotel fora period of 3yrs starting Dec. 1992
until Nov. 30, 1995.On Dec. 18, 1992, just hours before the actualopening of
Casino operation public rally was staged byPagcor was constrained to
suspend casino operations.On July 15, 1993 Pagcor resumed casino
operationbut were later on indenitely suspended due to thedemonstrations.
And as per verbal advice from theOce of the President, Pagcor decided
to stop itsoperation prior to Sept. 1993.Now, Pryce was asking for the
payment of the fullrentals of the remaining term plus damages
ISSUES:1)WON the penal clause attached in the obligationsubstituted the
indemnity for damages and thepayment of interest? NO2)WON can the
courts reduce the penal clause? YES
HELD:1)In obligations with penal clause, the general rule isthat the penalty
serves as a substitute for theindemnity for damages and the payment of
interest incase of non-compliance; that is, if there is no stipulation to
the contrary, in which case proof of actualdamages is not necessary for
the penalty to bedemanded. There are exceptions to the rule,
asenumerated in par. 1 of Art 1226:a.when there is stipulation to the
contrary;b.when the obligor issued for refusal to pay the agreed
penalty;c.when the obligor is guilty of fraud.-In the present case, the
1stexception applies bec.The stipulation provided that aside from the
paymentof the rentals, the lessee shall also be liable for any andall damages,
actual or consequential, resulting fromsuch default and termination of the
contract.Pagcormust be held bound to its obligation the liability for thefuture
rentals plus damages due to stipulation of parties in the penal clause.Penal clause is an accessory obligation which theparties attach to a
principal obligation for the purposeof insuring the performance thereof by
imposing on the debtor a special prestation in case the obligation is
notfulFlled or is irregularly or inadequately fulFlled.2)The courts can reduce
the penalty if such penaltyis iniquitous or unconscionable to the sound
discretionof the courts. To be considered in Fxing the amount ofpenalty are
factors such as but not limited to:a.b.Nature of obligationc.Mode of breach &
its consequencesd.The supervening realitiese.In this case, Pagcors breach
was occasioned by eventspressing. Because of the interruptions and
stoppages,Pagcor suered tremendous loss of expected revenues,not to

mention the fact that it had fully operated underthe contract only for a
limited time

Lasam vs. Smith, Nature of responsibility; definitionFACTS

Frank Smith was engaged in the business of carrying passengers for hire from the one
point to another in the Province of La Union and the surrounding provinces. Smith
undertook to convey Honorio Lasamand Joaquina Sanchez in a Ford automobile.

On leaving, the automobile was operated by a licensed chauffeur, but the chauffeur
allowed hisassistant, Remigio Bueno, to drive the car.

Bueno held no drivers license, but had some experience in drivin

g, and with the exception of someslight engine trouble.

The defects developed in the steering gear so as to make accurate steering impossible,
and after zigzagging for a distance of about half a kilometer, the car left the road and
went down a steepembankment.

The automobile was overturned and the plaintiffs pinned down under it. Mr. Lasam
escaped with a few
contusions and a dislocated rib but his wife received serious injuries, among which
was a compound
fracture of one of the bones in her left wrist.

Plaintiff Lasam brought the action to recover damages against Smith for the physical
injuries sustainedin an automobile accident.

The Trial court ruled in favor of the plaintiff.

Both the plaintiffs and the defendant appeal, Lasam maintained that the damages
awarded areinsufficient while the Smith denies all liability for any damages whatever.
W/N Smith is liable to the injuries caused by the accident


Yes. Smiths liability is contractual. The source of the its liability is the contract of
carriage; that by
entering into that contract he bound himself to carry the plaintiffs safely and securely to
their destination; and that having failed to do so he is liable in damages unless he
shows that the failure tofulfill his obligation was due to causes mentioned in article 1105
of the Civil Code.

Some extraordinary circumstance independent of the will of the obligor of his employees
is an essentialelement of a caso fortuito. This element is lacking. It is not suggested that
the accident was due to anact of God or to adverse road conditions which could not have been
foreseen. The accident wascaused either by defects in the automobile or else through the
negligence of its driver.

Neither under the American nor Spanish law is a carrier of passengers an absolute
insurer against therisks of travel from which the passenger may protect himself
by exercising ordinary care and diligence.Here, the passengers had no means
of avoiding the danger or escaping the injury.

In determining the extent of the liability for losses or damages resulting from negligence
in the
fulfillment of a contractual obligation, the courts have a discretionary power to
moderate the liabilit

according to the circumstances