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1) Pryce Corp entered into a 3-year lease contract with Pagcor for the use of a ballroom in Pryce's hotel for casino operations. However, casino operations were suspended several times due to public demonstrations, forcing Pagcor to stop operations before the end of the lease term. Pryce is now seeking payment of the remaining rent and damages.
2) The court held that Pagcor must pay the remaining rent and damages according to the penal clause in the contract, unless the penalty is found to be iniquitous or unconscionable. In this case, Pagcor's breach was due to events outside its control, and it suffered significant losses, so the penalty should be reduced
1) Pryce Corp entered into a 3-year lease contract with Pagcor for the use of a ballroom in Pryce's hotel for casino operations. However, casino operations were suspended several times due to public demonstrations, forcing Pagcor to stop operations before the end of the lease term. Pryce is now seeking payment of the remaining rent and damages.
2) The court held that Pagcor must pay the remaining rent and damages according to the penal clause in the contract, unless the penalty is found to be iniquitous or unconscionable. In this case, Pagcor's breach was due to events outside its control, and it suffered significant losses, so the penalty should be reduced
1) Pryce Corp entered into a 3-year lease contract with Pagcor for the use of a ballroom in Pryce's hotel for casino operations. However, casino operations were suspended several times due to public demonstrations, forcing Pagcor to stop operations before the end of the lease term. Pryce is now seeking payment of the remaining rent and damages.
2) The court held that Pagcor must pay the remaining rent and damages according to the penal clause in the contract, unless the penalty is found to be iniquitous or unconscionable. In this case, Pagcor's breach was due to events outside its control, and it suffered significant losses, so the penalty should be reduced
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 andpenalties. 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
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