1207 JOINT/SOLIDARY OBLIGATION

PERENA VS ZARATE

FACTS:

In June 1996, Nicolas and Teresita Zarate contracted Teodoro and Nanette Perea to transport their (Zarates) son, Aaron Zarate, to and from school. The Pereas were owners of a van being used for private school transport.

At about 6:45am of August 22, 1996, the driver of the said private van, Clemente Alfaro, while the children were on board including Aaron, decided to take a short cut in order to avoid traffic. The usual short cut was a railroad crossing of the Philippine National Railway (PNR).

Alfaro saw that the barandilla (the pole used to block vehicles crossing the railway) was up which means it was okay to cross. He then tried to overtake a bus. However, there was in fact an oncoming train but Alfaro no longer saw the train as his view was already blocked by the bus he was trying to overtake. The bus was able to cross unscathed but the vans rear end was hit. During the collision, Aaron, was thrown off the van. His body hit the railroad tracks and his head was severed. He was only 15 years old.

It turns out that Alfaro was not able to hear the train honking from 50 meters away before the collision because the vans stereo was playing loudly.

The Zarates sued PNR and the Pereas (Alfaro became at-large). Their cause of action against PNR was based on quasi-delict. Their cause of action against the Pereas was based on breach of contract of common carriage.

In their defense, the Pereas invoked that as private carriers they were not negligent in selecting Alfaro as their driver as they made sure that he had a drivers license and that he was not involved in any accident prior to his being hired. In short, they observed the diligence of a good father in selecting their employee.

PNR also disclaimed liability as they insist that the railroad crossing they placed there was not meant for railroad crossing.

The RTC ruled in favor of the Zarates. The Court of Appeals affirmed the RTC. In the decision of the RTC and the CA, they awarded damages in favor of the Zarates for the loss of earning capacity of their dead son.

The Pereas appealed. They argued that the award was improper as Aaron was merely a high school student, hence, the award of such damages was merely speculative. They cited the case of People vs Teehankee where the Supreme Court did not award damages for the loss of earning capacity despite the fact that the victim there was enrolled in a pilot school.

ISSUE:

WON the Pereas and PNR jointlyand severally liable for damages

RULING:

YES.

At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and severally" liable for damages arising from the death of Aaron. They had been impleaded in the same complaint as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the alternative, in respect to or arising out of the accident, and questions of fact and of law were common as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of contract of carriage) against the Pereas was distinct from the basis of the Zarates right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held jointly and severally liable by virtue of their respective negligence combining to cause the death of Aaron.

As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school van of the Pereas traversing the railroad tracks at a point not dedicated by the PNR as a railroad crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent vehicles or pedestrians from crossing there.

The RTC observed that the fact that a crossing guard had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily, the Pereas and the PNR were joint tortfeasors.

1226 OBLIGATIONS WITH PENAL CLAUSE

LIGUTAN VS CA

FACTS:

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company.

Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default.

In addition, petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981

Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

RTC ruling: 1. sum of 114k with interest of 15%, 2% sservice charge, 5% penalty charge,commencing on may 20 1982 until fully paid 2. pay further sum of 10% attorneys fees.

CA RULING : Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice.

ISSUE: WON CA erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and unconscionable

RULING: NO

A penalty clause, expressly recognized by law,[10] is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation[11] and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.[12] Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with

Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive.

The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded.[18] What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence

PRYCE CORPORATION VS PAGCOR

FACTS:

Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity) made representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City.

On November 11, 1992, the parties executed a Contract of Lease x x x involving the ballroom of the Hotel for a period of three (3) years starting December 1, 1992 and until November 30, 1995. On November 13, 1992, they executed an addendum to the contract x x x which included a lease of an additional 1000 square meters of the hotel grounds as living quarters and playground of the casino personnel. PAGCOR advertised the start of their casino operations on December 18, 1992.

In 1990, the Sangguniang Panlungsod of Cagayan de Oro City passed Resolution No. 2295 x x x dated November 19, 1990 declaring as a matter of policy to prohibit and/or not to allow the establishment of a gambling casino in Cagayan de Oro City. Resolution No. 2673 x x x dated October 19, 1992 (or a month before the contract of lease was executed) was subsequently passed reiterating with vigor and vehemence the policy of the City under Resolution No. 2295, series of 1990, banning casinos in Cagayan de Oro City.

On December 7, 1992, the Sangguniang Panlungsod of Cagayan de Oro City enacted Ordinance No. 3353 x x x prohibiting the issuance of business permits and canceling existing business permits to any establishment for using, or allowing to be used, its premises or any portion thereof for the operation of a casino.

Per verbal advice x x x from the Office of the President of the Philippines, PAGCOR decided to stop its casino operations in Cagayan de Oro City.

PAGCOR stopped its casino operations in the hotel prior to September, 1993. In two Statements of Account dated September 1, 1993 x x x, PPC apprised PAGCOR of its outstanding account for the quarter September 1 to November 30, 1993. PPC sent PAGCOR another Letter dated September 3, 1993 x x x as a follow-up to the parties earlier conference. PPC sent PAGCOR another Letter dated September 15, 1993 x x x stating its Board of Directors decision to collect the full rentals in case of pre-termination of the lease.

PAGCOR sent PPC a letter dated September 20, 1993 x x x [stating] that it was not amenable to the payment of the full rentals citing as reasons unforeseen legal and other circumstances which prevented it from complying with its obligations. PAGCOR further stated that it had no other alternative but to pre-terminate the lease agreement due to the relentless and vehement opposition to their casino operations. In a letter dated October 12, 1993 x x x, PAGCOR asked PPC to refund the total of P1,437,582.25 representing the reimbursable rental deposits and expenses for the permanent improvement of the Hotels parking lot. In a letter dated November 5, 1993 x x x, PAGCOR formally demanded from PPC the payment of its claim for reimbursement.

In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease due to PAGCORs continuing breach of the contract and further stated that it was exercising its rights under the contract of lease pursuant to Article 20 (a) and (c) thereof.

ISSUE: WON CA erred in holding that Pryce was not entitled to future rentals or lease payments for the unexpired period of the Contract of Lease between Pryce and PAGCOR

RULING:

it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from a reading of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the Contract. A penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary,[29] in which case proof of actual damages is not necessary for the penalty to be demanded.[30] There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the principal obligation.

In the present case, the first exception applies because Article XX (c) provides that, aside from the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable for any and all damages, actual or consequential, resulting from such default and termination of this contract. Having entered into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its obligations. It cannot evade further liability for liquidated damages.

FLORENTINO VS SUPERVALUE

FACTS:

Florentino is a lessee of Supervalue which is a set of stores operating in the country. Florentino is the owner of Empanada royale a foodcart business entered into a contract of lease with Supervalue.

The contract was good for 4 months and after the end of the contract both the lessee and the lessor have the option to either renew or terminate the contract. Florentino and Supervalue was able to renew the contract several times that it even lasted for a year.

However, Supervalue terminated the contract with Florentino for the following violations: failure to open on two separate occassions; closing earlier time;introducing a new variety of empanada without the approval of Supervalue. The store management then ordered the foreclosure of the space and along with it were the personal belongings of the petitioner.

Florentino demanded for the return of her personal belongings and of the security bond that she have given Supervalue.

the RTC rendered a Judgment22 in favor of the petitioner.

the Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the improvements introduced in the leased premises and to pay for attorneys fees.

ISSUE: whether or not florentino can claim for reimbursement on the improvements that she have made? whether or not Florentino is entitled to claim for the security bond that she have posted?

RULING:

Florentino is no longer entitled for reimbursment on the improvements that she have done on her stall: Article 1678: If the lessee makes in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased,the lessor upon the termination of the lease shall pay the lessee one-half of the of the improvements at that time.

Should the lessor refused to reimburse said amount the lessee may remove the improvements, even though the principal thing may suffer damages thereby. He shall not, however, cause any more impairment upon the property leased than is necessary."

As stated in Geminiano vs CA: "Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith"

On the second issue raised in this case: Florentino is entitled to half of the security deposits made with Supervalue because it would unconscionable for Florentino to be imposed such penalty.

Obligations with Penal clause: Article 1226: In obligations with 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. Neveretheless, 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 enfroced only when it is demandable in accordance with the provisions of this CODE. As a rule the courts are not in the liberty to ignore the freedoms of the parties to agree on such terms and conditions.The courts may equitably reduce a stipulated penalty in the contracts in two instances: 1. if the principal obligation has been partly or irregularly complied with; 2. If there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229: Article 1229: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In the instant case, the forfeiture of the entire amount of the security deposits in the sum of P192,000.00 was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits.